German Chancellor Olaf Scholz mentioned yesterday that he’ll press for a commerce settlement between the European Union and Indonesia, as a part of his nation’s objective of lessening its financial reliance on China, notably for essential uncooked supplies.
Speaking on the opening of the annual Hannover commerce truthful, of which Indonesia is that this 12 months’s companion, Scholz instructed visiting Indonesian President Joko “Jokowi” Widodo that he was “working to finally get this agreement across the finish line,” according to The Associated Press.
The EU and Indonesia formally launched negotiations for a free commerce settlement (FTA) in July 2016, however these have stumbled over disagreements about Jakarta’s protectionism and the European bloc’s insurance policies towards palm oil, a key Indonesian export. The eleventh and most up-to-date spherical of negotiations concluded in November 2021.
Still, the EU’s want for an Indonesian FTA is turning into extra ardent amid Brussels’ current dedication to spice up its “strategic engagement” with the Indo-Pacific area, in response to the rising strategic stress each in Europe and Asia. In Southeast Asia, the EU has already concluded free commerce pacts with Singapore and Vietnam, which entered into power in November 2019 and August 2020, respectively. The bloc can also be in stagnant negotiations with Thailand, Malaysia, and the Philippines. As the European bloc has put it, “The ultimate objective is for bilateral trade agreements with individual ASEAN countries to serve as building blocks towards a future region-to-region agreement between the EU and ASEAN.”
This dovetails with the strategic objectives of various particular person EU member states, whose robust financial hyperlinks with China have lately change into the topic of rising scrutiny, notably because the Russian invasion of Ukraine in February 2022. none extra so than Germany. As Scholz mentioned yesterday, his nation is worried about turning into too reliant on China, together with for essential minerals and compounds wanted for digital expertise and renewable vitality era.
“At the moment we import many of them from China. And that’s despite the fact that rare earth, copper or nickel are often not extracted there but in countries such as Indonesia, Chile, or Namibia,” Scholz mentioned. “We want to change that.”
Interestingly, Scholz added that any new commerce deal ought to prioritize the development of processing services for such uncooked supplies within the international locations the place they’re discovered, which he mentioned would profit the native economic system. This final reference hinted at one of many key factors of stress within the relationship between Indonesia and the EU – and one of many primary points holding up the progress on an FTA.
Over the previous few years, Jokowi has launched various measures to make sure that his nation derives the utmost profit from its wealthy concentrations of necessary minerals. At the beginning of 2020, his administration banned the export of unprocessed nickel – Indonesia is a significant supply of the essential mineral – and launched home processing necessities which have required companies to course of or purify the uncooked supplies in Indonesia earlier than export. Late final 12 months, he introduced that the nation will equally ban exports of bauxite beginning this June, and has additionally flagged possible future bans on the export of unprocessed tin and copper.
As James Guild wrote in these pages late final 12 months, these strikes have mirrored Indonesia’s tendency to resort to financial nationalism when it’s considered as being within the nationwide curiosity. The nickel ban specifically was “an attempt to force more investment in higher value-added downstream activities like smelting, and eventually battery and EV manufacturing.”
As talked about, these insurance policies have courted tensions with the EU. In late 2019, Brussels challenged the nickel export ban coverage on the World Trade Organization, which final 12 months ruled in its favor, arguing that the coverage was opposite to world commerce guidelines. Indonesia rapidly introduced that it might attraction the ruling, with Jokowi channeling his inner Sukarno in protection of his coverage: “If we are scared of being sued, and we step back,” he mentioned, “we will not be a developed country.”
The undeniable fact that Scholz so explicitly cited home mineral processing as an necessary a part of any future EU-Indonesia FTA suggests certainly one of two issues: both that Brussels is prepared to return to phrases with Jakarta on this problem, or that Berlin is prepared to place strain on the EU to this finish.
Certainly, the EU does appear to face various trade-offs in its want for “strategic engagement” with the Indo-Pacific basically and Southeast Asia specifically. For occasion, the FTA with Vietnam has concerned a de facto dilution of Brussels’ values-based international coverage. Meanwhile, the EU’s insurance policies geared toward preventing deforestation have courted friction with Indonesia and Malaysia, the world’s two largest producers of palm oil.
Given the extent to which rival powers (i.e. China) have engaged Southeast Asia nations economically, with few compunctions about these nations’ “internal affairs,” means that the EU’s rising engagement with the area would require various compromises. Exactly the place and the way the EU chooses to compromise bears shut watching.