In November 2023, negotiations between the EU and Australia for a Free Trade Agreement (FTA) collapsed. This was primarily due to stringent demands from the EU on protected geographical indicators – the ability to market wines and other products as being from a particular region – as well as an inflexible approach to market access for agricultural exports.
A few weeks later, it became apparent that the ongoing impasse in the EU-Mercosur negotiations – largely due to environmental and deforestation demands from Brussels – had not been resolved, with Brazilian President Lula saying that the EU “lacks flexibility”.
At the same time, EU negotiators completed another round of negotiations with Indonesia linked to the proposed FTA: virtually no progress has been made for almost six months, and this latest meeting was no different.
The picture is clear:
trade facilitation and opening up markets has stalled. This is a particular problem because Indonesia is one of the world’s largest and fastest-growing consumer markets. With our exports to China and Russia falling (for obvious and understandable reasons), opening up huge new markets should be a priority. It doesn’t look that way.
The evidence shows this is not a problem with our negotiating partner. In the past 12 months, Indonesia has completed an agreement with the United Arab Emirates (in less than a year). It recently upgraded its existing agreement with Japan, and is negotiating with Canada and the Eurasian Economic Union, among others. It is only in negotiations with the EU that Indonesia has found the progress to be slow and difficult.
It’s not only the FTA negotiations: a World Trade Organization (WTO) case against the EU, filed by Indonesia is expected to rule soon. This case, in addition to existing disputes over the Renewable Energy Directive and nickel exports, means Indonesia sees our policies as protectionist and anti-trade. Presidential elections are scheduled for February: the frontrunner Prabowo has said quite clearly that Indonesia “does not need the EU,” highlighting “double standards” in EU trade policy.
So, what is the path forward for the relationship?
The EU elections, and appointment of a new Commission, need to herald a change of approach. Promoting EU exports, and expanding market access to future giants like Indonesia and India, needs to be a priority. The technocratic obstructionism needs to be replaced with strong political leadership and commitment to new trading partners.
Engaging these partner countries on areas of EU policy that affect them – such as the Green Deal – is also essential. The Commission seems to have misjudged how big a reaction the EU Deforestation Regulation would trigger: 14 developing nations, including Indonesia, signed an open letter denouncing it, and WTO challenges are surely imminent. Proper consultation and diplomatic outreach could have prevented this from becoming a problem. That consultation needs to reach beyond Embassies: Indonesia has millions of smallholder farmers who produce palm oil, rubber, coffee, and will be badly affected by the EU regulation. A lack of outreach means that those voices are now outright hostile to the EU.
Indonesia overall is not antagonistic. It continues to pursue negotiations with the Commission, and some Member States – notably Germany and the Netherlands – are having positive bilateral discussions. But the direction of travel is a concern: we cannot afford another 5 years of stasis in the trade discussions, while political tensions rise around EU trade barriers (most of which have not even kicked in yet).
The elections could, and should, provide a fresh start for both sides. The same is true for India (elections in April-May), and maybe even the United States (November). The key point linking all of these is that they only work if the new Commission is serious about promoting EU export opportunities – and reducing trade barriers rather than erecting more of them.
