Indonesia-EU Relations: EU's Conservative and Cautious Approach

The Chairman of the EU Delegation for Relations with the countries of Southeast Asia and the ASEAN, Dr. Werner Langen, together with nine other members of the European Parliament, were visiting Indonesia from February 21-25, 2011.  A separate meeting on regional integration was also held recently by the EU ambassador to Indonesia and Brunei Darussalam, Julian Wilson, on March 2.  Visits by individual EU Member States' officials since the start of 2011 - including the Swedish Minister of Trade, Ewa Björling, the French Minister of Economic Affairs, Finance, and Industry, Christine Lagarde, and the Spanish State Secretary of Foreign Trade, Alfredo Bonet - also mark the tight relation between RI and the EU.  Yet, this bilateral relation seems be on the "conservative" and "cautious" side that demand shifts of focus and more of regular open public discussion forums between not only EU delegations  and RI officials, but also EU delegations and RI stakeholders.

The visit by the EU delegation put an emphasis on a few areas of bilateral cooperation: education (with a focus on primary basic education), governance, health, transfers of (green) technology for SMEs (including the Clean Batik Initiatives), reconstruction of disaster-stricken areas (including the Java Reconstruction Fund), and trade-related technical assistance.  The EU's focus on development is a manifestation of the EU ambitious support of the Millennium Development Goal to devote 0.7% of its Gross National Income to Official Development Assistance by 2015 and the Partnership and Cooperation Agreement signed in 2009 by EU officials and Indonesian Minister of Foreign Affairs Marty Natalegawa.  The financial scale of the project amounts to €95.22 mil. for the Java Reconstruction Fund, €1.8 mil. for the Clean Batik Initiative, and €144 mil. for the education system. 

Indonesia also expects new investment from France up to US$10 billion in mostly high technology, including nickel manufacturing industry in Halmahera, airplanes to Lion Air, and electric train project in Bandung.  Meanwhile, the Swedish Minister of Trade visit along with entrepreneurs from engineering, telecommunication, and energy sectors focused on pro-environment investment in green technology, green infrastructure, green urban living and green energy.  Heavily-forested Sweden (about 78% of the land is forest and woodland) can be a model for Indonesian forestry.  Sweden was the first country where forest conservation laws were adopted in 1886.  Sustainable forestry management that ensures not only reliable timber yield and multiple use of forests, but also preservation of biological diversity, is stipulated in the Swedish Forestry Law of 1994.  The Spaniards were also attracted to invest in Indonesia's energy, electricity, transportation, telecommunication, infrastructure, and manufacturing sectors, although a revision on investment agreement to improve strategic partnership was urged.

Later this year, Indonesia will sign the Voluntary Partnership Agreement (VPA) with the EU. VPA operates under the umbrella of the EU Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan that responds to the problems of illegal logging and the trade associated with timber products.  This means that the only timber and timber products from Indonesia that can enter the EU countries are those that are licensed by the Timber Legal Verification Assurance (or Sertifikat Verifikasi Legalitas Kayu).  The EU is drafting Illegal Timber Regulation to take effect in March 2013.  By this Regulation, FLEGT licensed timber from VPA countries will automatically get a "green light" entering the EU market.  Just like the Norwegian-RI REDD+ deal, despite its potential benefit to improve forest governance, it may also face local resistances, especially by timber companies, with respect to additional costs of requiring certificates.  Since the trade in timber products from non-VPA partner countries (currently only Cameroon, Central African Republic, Ghana, and Republic of the Congo are VPA partner countries) will be unaffected, it might mean a loss to the exporting VPA countries if EU consumers will prefer cheaper non-FLEGT licensed timber, or it might mean a gain to them if EU consumers will prefer more expensive environmentally friendly FLEGT licensed timbers or if EU purchasers will increasingly adopt policies favoring procurement of FLEGT licensed timber.  Another problem is on the supply side.  Firms in exporting VPA countries who are exporting to EU before the VPA takes effect might re-route their timber exports to non-EU countries to avoid having to be verified for legality.  In some ways, the effects of this regulation on trade can be similar to the effect of the U.S. Lacey Act in 2007.   

While both RI-EU and RI-EU Member States cooperation are potentially mutually beneficial, there are some important elements that are worth some considerations.  First, the EU's development plan on education seems to be on the conservative side.  Indonesia is well on track to reach the universal primary basic education: "The net enrollment rate for primary education has almost reached 100 percent and the literacy rate of the population reached 99.47 percent in 2009" (Report on the Achievement of the Millennium Development Goals Indonesia 2010).  Educational reform should shift its focus on tertiary education.   None of Indonesian universities ranks highly in neither in Asia as a whole, nor in South East Asia.  At this stage of development, we need to encourage the creations of working professionals, in which China and India are having the comparative advantages.  Professionals are also needed to operate the investment in heavy technologies.

Second, the EU approach to cooperation has been cautious.   It is somewhat evident from the reluctance of EU to have an ASEAN-EU free trade agreement.   Some speculated that human rights issues in Myanmar might hamstrung the idea. Bilateral FTAs between EU and only some ASEAN countries might give a severe disadvantage to those ASEAN countries without the FTAs.  If non-economic reasons were the issues behind this, the EU needs to openly discuss them.   EU has also been cautious with respect to environmental issues, including the environmentally cautious demand-driven regulations and directives.   More open public discussions between EU and RI stakeholders are encouraged to avoid misunderstanding and a lack of information on the following issues: (1) Indonesian palm oil market that has been facing a lot of pressures concerning environment from the Amsterdam-based Greenpeace, (2) EU directives that under its current term will make Indonesian palm oil not environmentally qualified to be converted into biofuel in Europe, (3) the Norway-RI REDD+ deal that has been facing a lot of local resistances (even though Norway is not an EU member), (4) RI-EU FLEGT VPA that will be signed later this year that has a potential to increase costs of acquiring certificates.  The Indonesian people will eventually question how these EU regulations and directives as well as partnership will benefit not only the EU but also Indonesia, either directly or indirectly.   

Maria Monica Wihardja is a researcher at the Centre for Strategic and International Studies and a lecturer at the Department of Economics, University of Indonesia.