Indonesia – EAEU Relations: Closer Economic Cooperation
Writer: Hendra Manurung is currently a doctoral candidate in international relations, Padjadjaran University
Economic diplomacy relates to the use of a state’s economic tools to safeguard its national interests and pursue its national goals, which encompass economic activities of its international relations, including strategies designed to secure trades, generate investments, lend aid, and negotiate free trade agreements or comprehensive economic partnership agreement. Henceforth, in the international system, economic diplomacy pertains to the full spectrum of diplomacy relating to economic activities in the pursuit of a country’s policy objectives in general and economic goals in particular. The economic diplomacy follows a policy direction laid down by President Joko Widodo, whereby 70-80 percent of all resources should be dedicated to more effective and efficient efforts on economic diplomacy, amid a world full of uncertainty and the upsurge of protectionisms posing challenges to many countries.
Moreover, Indonesia’s economic diplomacy should turn the aforementioned challenges into opportunities. In retrospect, for example in 2008 and 2009, the fact that the financial crisis threatened to pose a downward spiral of the global trade and economic growth, had played a vital role in forming collectively international economic responses. In the midst of global pandemic and world economic growth slowdown, it represents how relevant and important international cooperation is to overcome global problems. Taking lessons learned from such experiences, in the face of current global and regional challenges, taking into account the potential fragility of the international economic system, it is important for Indonesia’s economic diplomacy to underscore the need for strong frameworks for multilateral norms setting through, among others, enhancing international economic partnerships.
Henceforward, Indonesia economic diplomacy needs to gauge the current globalization and shifting power balances between the West and China with Russia in a holistic manner, as these developments have created new conditions for governments in all parts of the world to adopt more active economic diplomacy. Also, there has been a paradigm shift from traditional practices of state-to-state economic diplomacy to a more comprehensive approach of multi-dimensional economic diplomacy. Not only does it encompass commercial diplomacy through trade and investment promotion, it also encompasses the expansion of national trading and investment purview, the recalibration of global strategies, including the interlinked mutual reinforcement between economic interests and such underlying factors as geo-politics, development cooperation, and propensity towards the global economy. Jakarta’s efforts to boost foreign trade and attract more FDI will, and must always, be directly interlinked to the grand design of Indonesia’s foreign policy and diplomacy. The interconnection between international trade and diplomacy is absolutely vital, for a stronger economic diplomacy is not simply commercial diplomacy that can be merely accomplished through promotion.
Indonesia’s diplomacy is actually expanding prospective with the aforementioned interlinkage. Indonesia’s diplomacy has been seen as previously focused more on regional and global political issues, whereby Indonesia as a middle-income country has been continuously playing significant roles and showing its strong leadership at regional and international stages. It also necessitates the recalibration of strategies to pervade the need for a specific grand strategy for a more concerted economic diplomacy. Hence, a stronger economic diplomacy must go hand in hand sustainably with the national related-stakeholders strategic vision of regional and global geo-politics and gravitational trends of the global economy. Furthermore, in this regards, economic diplomacy is inseparable from global politics. In the meantime, as Indonesia foreign policy and diplomacy economy sustainable should be collaborative synergy and must not be away from the people, strategies in economic diplomacy must also correlate with the basic needs and interests of the nations.
Indonesia and the EAEU countries show a strong commitment to preparing for a stronger long-term partnership, especially in overcoming the challenges of the global economy and the decline in economic growth after the COVID-19 epidemic. In 2020, Indonesia has strengthened economic cooperation with countries in the Eastern European Region and Central Asia that are members of the Eurasian Economic Union (EAEU), through the process of forming Indonesia and EAEU FTA. Indonesia together with the EAEU countries formed a Joint Feasibility Group in the framework of the formation of Indonesia-EAEU FTA which was approved by the EAEU Trade Ministers on 18 May 2020.
This is the formalization of the establishment of the FTA Indonesia and the EAEU has been initiated in 2017. The formation of the Indonesia-EAEU FTA will certainly be able to encourage the expansion of Indonesia’s export market and increase Indonesia’s trade cooperation with EAEU. EAEU consists of Russia, Kazakhstan, Belarus, Kyrgyzstan and Armenia, which are rich in natural resources, agricultural products, and have technological advantages with large market potential, namely a population of more than 180 million, and GDP according to PPP of US $ 4.4 trillion or GDP per-capita US$ 24,800. In October 2019, Indonesian government and the Eurasian Economic Commission signed Memorandum of Cooperation. Furthermore, for Indonesia, increasingly intensive relations with the EAEU are part of a national trade policy strategy to target non-traditional markets. EAEU is in the 24th place for export destinations from Indonesia and 21st for imports from Indonesia. Indonesia’s main exports to the EAEU are palm oil, panel boards, copra, cocoa butter and margarine.. Meanwhile, Indonesia’s main imports from the EAEU are fertilizer, coal and wheat. In 2019, Indonesia’s total trade with the EAEU reached US$ 2.6 billion, with export and import values of US$ 1.0 billion and US$ 1.5 billion, respectively.
Trade in the January-July 2020 period has decreased by 22.16 percent compared to the same period in 2019. Indonesia and EAEU countries free trade are expected to boost the rate of trade and investment between the two.
The aim of this cooperation is to promote comprehensive cooperation between Indonesia and the member countries of the Eurasian Economic Union towards a higher volume of trade and joint investment, the elimination of trade barriers and closer collaboration in areas of mutual interest. The areas for both sides cooperation, as follows: regional economy integration, trade policy, economic and macroeconomic growth in the member countries of the Eurasian Economic Union and Indonesia, customs regulations and trade facilitation measures, technical regulations and standardization, sanitary and phytosanitary implementation measures, financial markets, transportation, energy, agriculture, regulations on business competition and anti-monopoly policies, industries, intellectual properties, information technology and the digital economy, trade in services and investment, protection of consumer rights, entrepreneurship development including MSMEs, other fields of mutual interest.
Moreover, the Renminbi currency also has been deliberately allowed to weaken by the Chinese governments’ since August 2019, in which, Beijing’s decision was made as a strategic retaliatory response to restore its trade advantages and negate the effects of the next round of import tariffs. This Chinese policy responds to US President Donald Trump’s decision regarding the dynamics of US bilateral trade relations with China, particularly in the imposition of an additional 10% on Chinese goods worth US$ 300 billion or €269 billion, effective in September 2019. If this US policy implemented, then almost all US imports from China will be subject to high tariffs. Currently, the US imposes a 25% tariff on US$ 250 billion worth of Chinese exporting products.
Indonesia strengthens economic cooperation with countries in Eastern Europe and Central Asia which are members of the Eurasian Economic Union (EAEU), through the process of establishing a Free Trade Agreement (FTA) between Indonesia and EAEU. In addition, the trade sector for the national leading export commodity of palm oil must also take advantage of various trade and investment economic cooperation to build momentum for economic revival and boost Indonesia’s competitiveness during and after the global pandemic, especially with countries that are members of the Eurasia Economic Commission. EAEU is a single market with five members, namely Armenia, Belarus, Kazakhstan, Kyrgyzstan, and the Russian Federation. In 2019, the EAEU group of countries has a population of approximately 183 million and per capita gross domestic product of US$ 27 thousand.
In 2018, Indonesia and the EAEU trade volume reached US$ 2.85 billion, with Indonesian exports to the EAEU amounting to US$ 1.04 billion and imports amounting to US$ 1.81 billion. In general, the trade trend from 2014-2018 increased by 3.37 percent. Indonesia’s main exports to EAEU countries in 2018 were palm oil and its derivatives, US$ 403.19 million; copra coconut, palm kernel or liquefied oil, US$ 69.32 million; margarine, US$ 49.62 million; amino oxygen, US$ 42.71 million; and natural rubber, US$ 34.85 million. Meanwhile, Indonesia’s main imports from EAEU countries are semi-finished iron/steel products, US$ 513.09 million; mineral or chemical potassium fertilizers, US$ 421.63 million; wheat and muesli, US$ 291.65 million; coal and other materials and other solid fuels, US$ 130.24 million; and non-mineral or chemical nitrogen fertilizers is US$ 75.02 million.
Indonesian government committed seeks to make foreign investors comfortable by minimizing various trade and investment barriers. Indonesia is continuously to strive to improve relations trade with the EU by minimizing various trade barriers and investment with partner-countries in the EU. By minimizing barriers, the ease of access to the Indonesian market with its superior export commodities will boost global markets significantly. Indonesia and the EU have a common interest in working together and enhance further cooperation to overcome global challenges on issues such as climate change, poverty, regional conflicts, reducing social exclusion and safeguarding multilateral institutions, including the UN reform.
