Update on the FTA negotiations between EU and Indonesia - Focus on Services and Investment

The 11th negotiation round on an EU-Indonesia Free Trade Agreement (FTA) took place in November 2021 in a virtual format, after some delays due to the pandemic. Negotiations for the FTA were launched in 2016, and seek to enhance trade and investment relations. Currently, the Comprehensive Partnership and Cooperation Agreement, which entered into force in 2014, governs the overall relations between the EU and Indonesia.

Objective

The aim of the FTA negotiations is to eliminate or reduce tariff and non-tariff barriers to trade in goods and services and thereby facilitate trade flows, expand foreign direct investment and level the playing field between private businesses and state-owned enterprises. Market entry liberalization for services is an important but also difficult negotiation point. While in the recent negotiation round no major advancements could be made on key outstanding issues that require political decisions, most groups could make progress at technical level and prepare the ground for further discussions, according to the report issued by the European Commission.

Progress

The first offers on services and investment were made during the 6th round of negotiations in October 2018. The negotiation group now discussed in more depth the texts on delivery, telecommunications, financial and international maritime transport services, as well as on mutual recognition arrangements and general provisions of the text. The group, however, did not appear to address in detail core points such as market access, for which further discussions will be required. Several sectors, such as e.g. retail business, are still restricted for European direct investment in Indonesia, even under the new Omnibus legislation which aims at liberalizing the investment framework.

Already three years ago, the EU side reiterated the need to eliminate foreign equity caps and broaden the scope of commitments amid current non-tariff barriers which include, inter alia, investment barriers, barriers to access to public procurement, competition policy (including subsidies), special conditions or privileges granted to state-owned enterprises and restrictions on e-commerce. As such, the FTA discussion includes issues such as establishment, foreign ownership, public procurement and investor protection. According to the report, both sides deepened discussions on investment liberalization, addressing in particular provisions on Scope, National Treatment and Performance Requirements. However, in the 11th negotiation round, no discussions took place on revised market access offers on investment. Investment protection was also not covered in this round.

We will continue to monitor and report on the further progress.