Since 2016, the EU-Indonesia Free Trade Agreement (EIB FTA) negotiations have been held in 16 rounds. Each round has followed the usual rituals, with both sides offering support for diplomatic rhetoric and setting ambitious new goals as they hope talks with Indonesia will be largely concluded. it will finally happen this year.
But since this goal is unlikely to be achieved, both sides must consider the importance of continuing negotiations, given the current slow progress and unresolved contentious issues. All options for an outcome should be considered, including isolating controversial issues in the "joint agenda", which is a provision that identifies certain issues to be reviewed or renegotiated after the FTA enters into force.
After the 16th and final round of talks last month, the EU said that despite some progress, the sides were no closer to reaching definitive conclusions on the most crucial issues. Regarding the exchange of goods, the parties are still preparing revised proposals for market entry. Export duties, import permit procedures and acceptance of remanufactured products "without reduction of positions" were discussed. The progress of the rules of origin has been limited to "closing some articles".
In the case of services, there has been limited progress in finalizing mutual recognition guidelines, developing updates to revised proposals, and increasing flexibility to increase initial proposals submitted by both sides at the start of negotiations. In terms of investment, unresolved issues in the field of liberalization and defense were discussed, including the preparation for the presentation of revised proposals. The European Union has said that negotiations to settle investment disputes based on the form of the mechanism are "incomplete".
Regarding public procurement, the first proposals were discussed, revealing the "big differences" between the two sides, in terms of scope and ambition. Discussions on the text of this chapter of the Free Trade Agreement have involved several provisions that have yet to be agreed, including non-discrimination in goods and services and the establishment of a dispute settlement system.
The European Union has seen progress in the areas of public enterprises, subsidies, trade and sustainable development and sustainable food systems. However, it seems that more in-depth work is needed to conclude negotiations in these areas. Eight of the 16 chapters proposed in the FTA have been completed so far, including customs and trade facilitation chapters, sanitary and phytosanitary measures, economic cooperation and capacity building and conflict resolution.
Aside from the aforementioned issues, prospects for a free trade agreement this year are complicated by Indonesia's general election next month and European Union parliamentary elections in June. If negotiations continue, priority should be given to efforts to reach compromise on the points of resistance and ambition of both sides.
For example, the EU may have to lower its expectations about public procurement and market access for state-owned enterprises. Conversely, Indonesia should not seek to use FTA negotiations to obtain EU recognition of the sustainable palm oil standard. The issue is expected to be handled through a joint task force recently created by both sides to implement European Union regulations on deforestation. This would be at odds with the EU's position regarding the WTO's ban on nickel ore exports with Indonesia.
There is no way out of the way. Disputed issues with no clear prospect of reconciliation can be identified as FTA agenda items, identifying issues to be reviewed after the agreement enters into force.
Participation agendas are common in trade agreements, as well as in the World Trade Organization. For example, some agreements agreed upon during the 1994 Uruguay Multilateral Trade Agreement negotiations set future dates for review or ongoing negotiations in specific sectors or subject areas, such as sanitary and phytosanitary measures, technical barriers to trade, dispute settlement and public procurement. . others.
The Joint Agenda sees the FTA as a dynamic and living document that needs to be reviewed regularly to maximize its benefits and remain commercially relevant.
Within ASEAN, Indonesia has a long history of promoting a joint agenda, evident in the ASEAN-Australia-New Zealand Free Trade Agreement, among others. This agreement includes a joint agenda of current activities and implementation priorities for a period following its entry into force. In general, the European Union wants to create free trade agreements on a larger scale and with the greatest commitment from both sides. However, there is a sort of investment program included in the EU-Canada Free Trade Agreement (Annex 8D), which is an agreement to review the relationship between intellectual property rights and investment controls within three years of entry into force. or at the request of one of the parties.
Whether it is on the national agenda or not, it makes sense to temporarily suspend negotiations unless there is a compelling possibility to end the FTA negotiations. Parties should consider forgoing the potential benefits of a free trade agreement that would create an opportunity cost of persistently defending contentious points. Postponing negotiations is a justifiable concession if one or both parties agree to reimbursement of costs. Otherwise, a desperate struggle to conclude negotiations, when neither side is willing to compromise on the issues, is a waste of time and resources.
For example, if Indonesia can wait "another seven years" for the EU to recognize current export rules for palm oil and sustainable wood products, it will be able to pay the opportunity costs of better access to EU markets for many other products. Suppose the EU insists on the maximum level of participation in public procurement. In this case, accept the cost of losing the opportunity to promote investment in Indonesia through the FTA.
The European Union has suspended negotiations on free trade agreements with India (2007-2013), Malaysia (2010-2012) and Australia (2018-2023). In 2022, the EU resumed talks with India, but "only if real market access is possible, without which the agreement will break". This portends a similar fate for the upcoming free trade agreement with Indonesia.
