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APINDO | The Indonesia-EU Comprehensive Economic Partnership Agreement
(CEPA)

Negotiations will soon commence for a Comprehensive Economic Partnership Agreement between the European Union and Indonesia. Based on the recommendations of The Vision Group which was set up after the initial agreement to begin talks on the CEPA in 2009, the agreement could potentially eliminate 95% of current import tariffs as part of an effort to boost international trade between the parties. This partnership is all the more important given the current volatility in global financial climate. APINDO has undertaken the important task of gathering input from Indonesia’s private sector for the preparatory stages of the negotiations. At meetings held in Surabaya in May 2012 and in Pontianak in July 2012, the issue of how to make the CEPA effective through socialisation was raised as well as recognition of the key role that Indonesian businesses need to play ensuring that the agreement safeguards the country’s interests in the face of increased competition.

In a speech at the event, APINDO Chairman Sofjan Wanandi highlighted that while many opportunities exist between Indonesia ant the EU, they have not been exploited to their full potential. "In the field of investment, for example, EU investment in Malaysia has been far higher than in Indonesia but our potential is greater." Mr Wanandi also urged both parties’ business leaders to provide their input on both the opportunities and the challenges they perceived in the implementation of CEPA in accordance with the specific conditions of their respective regions. This is a crucial step in formulating the agreement as having learnt the lessons from the ASEAN-China Free Trade Agreement; the government is keen to get input from the private sector before the start of negotiations and the subsequent signing of the agreement.

At the meeting in Pontianak, EU Ambassador to Indonesia, Julian Wilson, pointed out that the European Union is Indonesia’s third largest trading partner. Although the European Union is facing an economic crisis, exports and imports between Indonesia and the European Union have still been growing and have reached a value of USD 30 billion. Indonesia also had a surplus of USD 8 billion with the EU in 2011. However, the trade value is still smaller than Singapore (USD 65 billion), Malaysia (USD 45 billion) or even Thailand (USD 40 billion).

Regarding trade, the CEPA would involve a gradual tariff reduction over the course of a nine year period covering 95% of the current duties in place with the scope for the remaining 5% as well. However, the partnership is focused not only on trade barriers but also on capacity building and investment which differentiates it from a Free Trade Agreement. In terms of trade, capacity building will focus on assisting Indonesian businesses to meet the strict quality and safety standards demanded by the EU in order to increase their exports to the region.

In the field of investment, the EU is the second largest source of foreign direct investment for Indonesia. The EU's overall investment in Indonesia increased from EUR 800 million in 2006 to around EUR 2.8 billion in 2012. More than 1,000 EU companies are set up in Indonesia and employ more than 1 million people in the country. However, Indonesia only received 1.6% of the total amount of EU investment in Asia with Malaysia receiving twice as much and Singapore receiving five times the amount that Indonesia does. The ambassador noted that CEPA has the potential to dramatically improve the value of EU investments in Indonesia. He went on to state that “this agreement will create additional exports to the value of USD 9 billion, primarily for light industrial and transportation equipment. The CEPA will also help in driving Indonesia’s economy by creating additional GDP of USD 6.3 billion.”

Ambassador Wilson was also optimistic that the CEPA would be beneficial to both Indonesia and the EU as the creation of the agreement will also be coupled with capacity building for Indonesia to prepare the country’s entrepreneurs for the agreement. Active dialogue between the government and businesses will continue to make sure that their opinions are taken into account when discussing the opportunities and constraints of the CEPA. Technical cooperation and financial cooperation will also be offered in order to implement technical solutions that may be required to facilitate strengthened trade and investment relations. Such capacity building is vital to prepare Indonesia for further competition in the domestic market so that businesses can take full advantage of the new market access both parties will have.

APINDO is continuing to gather together input from its members from all over the country prior to the start of formal negotiations in November 2012. This is part of the collaboration between APINDO and the European Union under the program "Advancing Civil Society in Indonesia's Trade and Investment" (ACTIVE). The ACTIVE program supports capacity building of civil society organizations in the areas of policy advocacy, research and dissemination of information. The program also aims to strengthen the role of civil society organizations in improving the readiness of Indonesia in the CEPA negotiations and to increase the understanding of the business community in Indonesia on the CEPA strategy of global integration.

APINDO - 2012

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Indonesia Snapshot

Capital: Jakarta
Population: 247 million (estimated, 2012)
Currency: Indonesian Rupiah
Nominal GDP: $878 billion (2012)
GDP per capita: $5,000 at PPP (2012)
GDP Growth: 6.2% (2012)
External Debt: 28% of GDP (CIA, 2012)
Ease of Doing Business: 128/183 (WB, 2012)
Corruption Index: 118/176 (TI, 2012)