External Trade

Walter van Hattum (Walter.van-hattum@ec.europa.eu)

Discussion with ISAFIS studentsJakarta, 30 April

EU-Indonesia Economic relations:

Opportunities and challenges

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

External TradeWhat do you know about the EU?

External Trade

THE EUROPEAN UNION

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?

External TradeAnd what is our trade policy?

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’

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

External TradeWhat is happening in Europe now?

External TradeThe Euro in crisis?

External TradeThe Euro in crisis?

External TradeAnd 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%)

External TradeEU Stands for Solidarity

Austria AAA Belgium AA+ Cyprus A+ Finland AAA France AAA Germany AAA Italy A+ Ireland AA Luxembourg AAA Malta A Netherlands AAA Slovak Republic A+ Slovenia AA

External TradeGlobal 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

External TradeWhy is Indonesia important to us?

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

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?

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

External TradeWhy is EU important to Indonesia?

External TradeEU 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

External TradeTRADE GROWING & STRONG

EU Indonesia Trade

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2004 2005 2006 2007 2008 2009

M E

UR

Imports

Exports

External TradeEU – A KEY PARTNER FOR INDONESIA

The Major Imports Partners The Major Export Partners

Rk PartnersMio euro % Rk Partners Mio euro %

  World85,935.

5100.0

%  World 91,015.5 100.0%

1Singapore

14,815.1 17.2% 1 Japan 18,863.1 20.7%

2 China 10,368.0 12.1% 2 EU27 10,526.5 11.6%

3 Japan 10,286.4 12.0% 3 United States 8,893.1 9.8%

4 EU27 7,183.0 8.4% 4 Singapore 8,744.9 9.6%

5 Malaysia 6,066.9 7.1% 5 China 7,911.7 8.7%

External TradeAGRICULTURE & MACHINERY

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

 2007 2008 2009

Asia 5.94 3.87 6.01

of which ASEAN 4.03 1.85 4.53

Europe 1.95 1.09 2.11

Australia 0.19 0.04 0.08

America 0.33 0.17 0.17

External Trade

0

2

4

6

8

10

12

14

2004 2005 2006

ASEAN

USA

Japan

EU

FDI into ASEAN (US$ billion)

Source: ASEAN

EU 2007:

~ US$18 bn

External Trade

EU exports of three major categories into ASEAN, 2001=100

0

100

200

300

400

500

600

2001 2002 2003 2004 2005 2006 2007 2008

Machinery and electrical products, average grow th 9.2%

Transportation, average grow th 17.3%*

Pharmaceuticals, average grow th 21.7%

External Trade

Share of ASEAN Intra and Extra Trade

1995

Intra ASEAN20%

China2%

EU-2515%

J apan20%

South Korea3%

USA16%

Rest of the World24%

Share of ASEAN Intra and Extra Trade

2008

Intra ASEAN27%

China11%

EU-2512%

J apan12%

South Korea4%

USA11%

Rest of the World23%

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

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?

The Growth of EU Export in Pharmaceuticals (HS 3000)2003 = 100

0

50

100

150

200

2003 2004 2005 2006 2007 2008

EU-Indonesia EU-the World

External TradeSo what is our strategy?

External TradeSO WHAT DO WE DO?

Three-fold strategy1. 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