Dynamics of Relations between the European Union and Indonesia/ASEAN

The economic relations between the European Union and Indonesia/ASEAN have experienced ups and downs. The relationship between the two parties has the potential to be improved. The challenge is different perspectives on economic issues.

The following article was translated using both Microsoft Azure Open AI and Google Translation AI. The original article can be found in Dinamika Hubungan Uni Eropa dan Indonesia/ASEAN

The dynamics of relations between the European Union and Indonesia/ASEAN are moving fast. The attention of both parties increased in line with various important issues, such as the issue of palm oil trade, trade disputes regarding nickel and steel, and Myanmar crisis. What are the various challenges of the current EU-Indonesia/ASEAN relationship?

First, the economic relationship between the European Union and Indonesia/ASEAN has experienced ups and downs. The relationship between the two parties has the potential to be improved and become closer in the future. However, their perspectives on current economic issues differ.

Based on 2019 data, ASEAN is the third largest trading partner of the European Union outside the European continent. The European Union is ASEAN's third largest trading partner. The European Union is the fourth largest investor in ASEAN (EU-ASEAN Strategic Partnership, 2022).

Also read: Indonesia, ASEAN and World Dynamics

However, the European Union and Indonesia and several ASEAN member countries have different perspectives on palm oil products. On the one hand, Indonesia and Malaysia view that the EU discriminates and makes it difficult for their palm products to enter the European Union market. On the other hand, the European Union is of the view that Indonesia and Malaysia have not been optimal in carrying out environmental protection and the application of workers' human rights in their palm oil industry.

Most recently, the European Union implemented the EU Deforestation Regulation (EUDR) Act which took effect on 17 May 2023. The EUDR requires exporters to submit due diligence and verification that their products are not from areas resulting from deforestation from 1 January 2021 and beyond.

The law has an impact on products from Indonesia and Malaysia such as palm oil and its derivatives, coffee, cocoa, rubber, leather and their derivative products. Indonesia and Malaysia expressed objections to the EU Deforestation Law because it discriminates against their export products to enter the EU single market (Kompas, 2023). This complex situation is a challenge for the economic relations of the European Union and Indonesia and other ASEAN countries.

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Indonesia and Malaysia reject the discriminatory, unfair, and double standard European Union policy regarding palm oil. The Colombian Ambassador to Belgium and Head of Mission of Colombia to the EU, Felipe Garcia Echeverri; the Indonesian Ambassador to Belgium, Luxembourg, and the EU, Yuri Oktavian Thamrin; the Coordinating Minister for Economic Affairs, Darmin Nasution; and the Secretary-General of the Malaysian Ministry of Primary Industries, Tan Yew Chong (left to right) held a press conference in Brussels, Belgium on Monday (8/4/2019).

In addition, the economic relations between the European Union and Indonesia are going through a steep road. On 22 November 2019, the European Union began consultations with Indonesia regarding restrictions on the export of raw materials from Indonesia for the production of stainless steel in Europe.

On January 14, 2021, the European Union proposed the creation of a panel at the Dispute Settlement Bodies of the World Trade Organization (DSB WTO) and subsequently the European Union filed a lawsuit against the policy of banning nickel exports from Indonesia at the agency. the WTO. The European Union has proposed attention to Indonesia, namely (1) a ban on the export of nickel ore by Indonesia; (2) processing and processing of nickel, chromium, coal, and iron ore; 3) there is an obligation to supply nickel and coal products for the domestic market; (4) export licenses for nickel and coal; and (5) prohibited subsidy schemes (WTO, 2022).

Next, the European Union has filed a lawsuit against Indonesia's policy of banning nickel exports at the WTO.

On October 17, 2022, the decision from the DSB WTO regarding the European Union's lawsuit for the case banning Indonesian nickel exports with number DS 592 was: Indonesia's policy on export restrictions, processing requirements and domestic nickel refining violates WTO regulations Article XI 1 and Article XI 2 GATT 1994 (quantitative restrictions) and XX (d) GATT 1994 (general exceptions-necessary to secure compliance with laws and regulations).

On 8 December 2022, Indonesia notified the WTO DSB decision and submitted an appeal against the decision (WTO and CNN Indonesia, 2022). On July 7, 2023, the European Union responded to Indonesia's steps above by conducting consultations with various interested parties in the European Union for the use ofthe enforcement regulation on matters of nickel export restrictions with Indonesia.

In brief, the European Union can enforce regulations and international obligations towards its external partners in the WTO when the trade dispute resolution process is hindered due to the malfunctioning of the WTO Dispute Settlement Body. Nevertheless, the European Union still follows the dispute settlement procedures with good intentions (European Commission, 2023).

In addition, Indonesia objected to the imposition of non-refundable import duties and anti-dumping duties from the European Union on steel products from Indonesia. On 30 May 2023, the WTO DSB officially formed a trade dispute panel between the European Union and Indonesia regarding this matter. Consultations between Indonesia and the European Union on Indonesian steel products on March 13, 2023 did not produce a solution. Finally, Indonesia requested the formation of a dispute panel at the WTO DSB against the EU policy on April 18, 2023.

Read also: Indonesia, Myanmar, and ASEAN

Indonesia objects to the imposition of import duties and anti-dumping duties by the European Union on steel products from Indonesia.

The European Union has explained that its policies regarding customs duties and anti-dumping are in line with WTO agreements and responds to disappointment over the formation of the panel. Nevertheless, the European Union respects Indonesia's decision. Furthermore, the European Union continues to communicate with Indonesia regarding temporary reciprocal arrangements in accordance with Article 25 of the DSU while the WTO Dispute Settlement Body is not functioning (Ministry of Foreign Affairs, 2023).

All of the aforementioned issues loom over the ongoing negotiations of the Indonesia-European Union Comprehensive Economic Partnership Agreement (I-EU CEPA), with no clear indication as to when it will conclude. Moving forward, these differing perspectives must be resolved promptly by the European Union, Indonesia, and other ASEAN countries in order to enhance and strengthen their economic relations.

Second, the European Union and ASEAN have different views on the Myanmar crisis. On the one hand, the European Union condemned the military coup against the civilian government in Myanmar on 1 February 2021 and imposed sanctions on Myanmar military leaders and Myanmar companies (Kompas.com, 2021).

Also read: European and Southeast Asian Relations

On the other hand, ASEAN invites all parties involved in the Myanmar crisis to exercise restraint and reduce tensions in Myanmar. ASEAN engages constructively with Myanmar by encouraging the implementation of the five-point ASEAN consensus regarding Myanmar which was agreed upon by ASEAN leaders at the ASEAN meeting in 2021 (ASEAN Secretariat, 2021).

At the 40th and 41st ASEAN Summit in Cambodia in 2022, ASEAN leaders assessed that the implementation of the five-point ASEAN consensus related to Myanmar has not been optimal after being agreed upon for a year. During the 42nd ASEAN Summit in Indonesia on May 10-11, 2023, ASEAN leaders reaffirmed that the five-point ASEAN consensus related to Myanmar is the main reference for peaceful resolution in Myanmar, and urged the ASEAN Chair to seek a peaceful solution to the Myanmar crisis through inclusive national dialogue that is agreed upon and in line with the expectations of various parties in Myanmar (ASEAN Secretariat, 2022 and 2023).

Beginda Pakpahan, Global Economic and Political Analyst with PhD from University of Edinburgh, UK

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Beginda Pakpahan