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Indonesia Encouraged to Form Free Trade Agreement With European Union

Jakarta Globe, Indonesia

Indonesia Encouraged to Form Free Trade Agreement With European Union

By Yohannie Linggasari & Yosie Sesbania Gewap

3 April 2013

In order for Indonesia to boost its international trade and economic growth, it needs a free trade agreement with the European Union and to later work toward a similar agreement among members of the Association of Southeast Asian Nations, a seminar has heard.

In a discussion on the role of Indonesia, Asean and the EU in global trade, Donna Gultom, deputy director of Asean cooperation at the Indonesian Trade Ministry, said that if Indonesia did not follow its regional counterparts in joining trade agreements, it would lose competitiveness when trying to export its goods to EU countries.

“If we don’t join FTAs, our competitiveness will decrease,” she said.

Donna gave the example of Malaysia’s FTA with India, saying that while Indonesia’s production is bigger than Malaysia, it loses a competitive edge with the neighboring country due to Malaysia’s bilateral trade agreement with India. Through the FTA, Malaysia, for instance, benefits from lower tariffs on its goods.

Raffaele Quarto, head of trade section of the EU delegation to Singapore, said the EU was Asean’s third largest trade partner after China and Japan, and was Asean’s second largest export market, after China and ahead of the United States.

“The EU is the largest investor in Asean with 192 billion euros [$246.3 billion],” he said.

During his trip last month to Berlin, President Susilo Bambang Yudhoyono and German Chancellor Angela Merkel agreed that the EU and Indonesia should quickly commence FTA negotiations.

Merkel said she would push for an FTA with Indonesia as an essential move before the EU could move toward its aim of signing a regional trade treaty with Asean.

The EU agreed in 2007 to start negotiation on FTAs with Asean. But the agreement was frozen in 2009 when the EU decided to pursue free trade negotiations directly with individual Asean members instead.

It concluded an FTA with Singapore in March 2010, and has been in discussions with Malaysia, Vietnam and Thailand for the same agreement.

Djisman Simanjuntak, a senior economist with the Center for Strategic and International Studies, said Indonesia and Asean should serve as catalysts for trade expansion, not only regionally but also globally.

Both Donna and Djisman, however, agreed that heading into the 2014 elections, Indonesia would be occupied by political issues, making a focus on trade and economic development difficult.