1. External Trade Walter van Hattum (Walter.van-hattum@ec.europa.eu) Discussion with ISAFIS students Jakarta, 30 April EU-Indonesia Economic relations: Opportunities and challenges

2. External Trade What is the EU? EU Trade Policy And what is happening in Europe? Why are Indonesia and ASEAN important for EU? And why is the EU important to Indonesia? How can we further strengthen our economic relations? EU – INDONESIA RELATIONS

3. External Trade What do you know about the EU?

4. External Trade THE EUROPEAN UNION

5. External Trade Soft Power Market of 500 million World’s biggest trader EU provides nearly ½ the world’s aid Bilateral programme. (Indonesia: 2007-13 650 million dollars. Education support. Environment. Export promotion. Good governance). Euro (€) is the 2nd currency in international financial markets Hard Power Political and military weight – when they decide to cooperate, EU has one voice, advocacy power of 27 governments working in tandem and some of the most advanced government apparatus’ in the world. EU– force for peace & prosperity?

6. External Trade And what is our trade policy?

7. External Trade ‘Trade is more than just the contents of shipping containers. It creates the conditions by which investment, skills, experience and opportunity can spread around the world, into places where they are often needed most. The goal of trade policy is a more prosperous, stable and equitable world’

8. External Trade 27 Member States: 1 market, 1 external border and 1 trade policy In function of jobs, investment opportunities and growth for EU companies An “exclusive competence” of EU: Commission negotiates, guided by the Council. (Lisbon: EP more involved…) WTO leadership: Respect for transparent and fair rules... EU shall “contribute to progressive abolition of restrictions and on foreign direct investment, and the lowering of customs and other barriers” BUT action also to be guided by general principles of the EU and other commitments e.g. consumer and environmental protection EU TRADE POLICY

9. External Trade What is happening in Europe now?

10. External Trade The Euro in crisis?

11. External Trade The Euro in crisis?

12. External Trade And what about Greece? Budgetary discipline S&P Rating to BB+ Bond rates over 14%: no access to capital EU response: EUR 30 B + EUR 15 B (+10) IMF ‘Softer’ conditions than market rate (5%)

13. External Trade EU Stands for Solidarity

14. External Trade Global Financial Crisis EUR 400 B (3.3% of GDP) for stimulation actions in response of crisis Targeting towards green technologies, reducing CO2 To avoid protectionism EUR 1.8 B Social Fund supporting workers Ambitious employment targets Europe 2020 Financial reform, increased regulation and capital rules, transparency Strong role in G20 where this is followed

15. External Trade Why is Indonesia important to us?

16. External Trade Strategically located, moderate (and largest) Muslim country with strong track record on counter-terrorism makes Indonesia a key geopolitical ally for EU MS. Commercially attractive. Indonesia is the largest market in ASEAN and profitable for EU companies. Shared environmental challenges. Large polluter but increasingly open to cooperate. Shared political principles. Agent for ASEAN change on human rights and democracy. Strong historical ties with EU member states. EU interests in Indonesia

17. External Trade Economic growth (7.7% in 2014 target) generating major consumer income Richer than any other ASEAN country - circa 45 million with $5-8,000 High end as well as mass market Immunity to crisis was impressive Trade growth strong - exports exceeded US$ 100 billion since 2007. Successfully diversified from oil and gas Not dependent anymore on a few large markets Why Indonesia important?

18. External Trade Recent survey with EU Member States advantages of Indonesia for investors: –Stable political situation –Largest economy in a dynamic ASEAN and Asian region –Consumer market growing strongly (especially middle income market segments) –Infrastructure opportunities –ASEAN potential – internal market production networks and FTAs. –Availability of natural resources –Large labour force, especially young people EU investors continued interest

19. External Trade Why is EU important to Indonesia?

20. External Trade EU important to Indonesia? Economic agenda has driven the political integration (euro, common market, etc.)  EU can be an example As a trading partner, EU has much to offer as a continuously growing export market But, more importantly, as an investor EU can be a source for technology and knowledge to develop industries in ASEAN 4.3 billion dollars of Indonesian exports go to EU (out of 20 billion total) because they are subsidised under GSP. -750 companies whose investments are employing over 1.5 million Indonesians -25 billion dollars in trade every year – nearly 10 billion in surplus to Indonesia’s favour

21. External Trade TRADE GROWING & STRONG

22. External Trade EU – A KEY PARTNER FOR INDONESIA The Major Imports PartnersThe Major Export Partners Rk PartnersMio euro%RkPartnersMio euro% World85,935.5100.0% World91,015.5100.0% 1 Singapore14,815.117.2%1Japan18,863.120.7% 2 China10,368.012.1%2EU2710,526.511.6% 3 Japan10,286.412.0%3United States8,893.19.8% 4 EU277,183.08.4%4Singapore8,744.99.6% 5 Malaysia6,066.97.1%5China7,911.78.7%

23. External Trade AGRICULTURE & MACHINERY

24. External Trade BKPM figures: Indonesia bucks trend ASEAN works EU and Japan is largest investors outside of ASEAN Domestic investment growing fast but still FDI more important by about 7 billion per year (need both to meet BKPM target of IDR 10,000 trillion by 2014) -> Indonesia to reach investment grade in the next year! Investments resilient 200720082009 Asia5.943.876.01 of which ASEAN4.031.854.53 Europe1.951.092.11 Australia0.190.040.08 America0.330.17

25. External Trade FDI into ASEAN (US$ billion) Source: ASEAN EU 2007: ~ US$18 bn

26. External Trade

27. ASEAN ATTRACTIVENSS: GDP +> 5% AND TRADE +12.5% / year BUT: EU EXPORTS TO ASEAN DROPPED FROM 15% to 10% of total ASEAN imports! ASEAN – a growth market

28. External Trade Creating new export opportunities in a protected market Level playing field with competitors who have FTAs EU provides key alternatives to for instance bigger regional powers Need to open up for investments and further cooperation So why not relax?

29. External Trade So what is our strategy?

30. External Trade SO WHAT DO WE DO? Three-fold strategy 1.Level playing field with competitors who have FTAs: pursue FTAs with ASEAN countries 2.Strengthen dialogue with government and private sector 3.Prioritise market access actions where results can be achieved, while concentrating more on the growth opportunities and …  Link with technical assistance