Something big and benign happened last month, and I bet you missed it. Indonesia formally applied to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). It deposited its official letter of application just as Britain was completing its own accession process. The way is now clear to a much closer commercial relationship between the two G20 nations.
Indonesia has been an under-reported regional success story, both in terms of the bedding down of democratic norms and in terms of its impressive and sustained economic growth. Its accession to the CPTPP is, on its own, a happy and important development in a world where protectionism has been on the rise since 2012.
Airlangga Hartarto, then the Coordinating Minister for Economic Affairs, explained that the membership bid was ‘aimed at driving structural reform in the country and opening markets for Indonesia’s economy’. Given that Indonesia is the fourth most populous state in the world, home to 275 million souls, domestic deregulation will have an effect far beyond the borders of that lush and exquisite archipelago.
The question is how much Britain stands to benefit from Indonesia’s continuing growth. And the answer depends on the extent to which we seize the opportunities now opening up there.
Both countries have recently elected new leaders: Keir Starmer here and Prabowo Subianto there. In both countries, the transfer of power was peaceful and democratic. And, in both countries, the new governments have decided not to revise the successful trade policies that have already been set in motion. The UK Labour Party have celebrated the CPTPP accession negotiated by their predecessors, and President Subianto has declared that the application launched by his predecessors will be kept on track.
All of this is encouraging. Free trade may currently be unfashionable in Washington and Brussels, but it remains the surest way to raise living standards that anyone has yet come up with. Starting from a low baseline, the UK and Indonesia have huge opportunities for mutual investment and freer commerce, increasing choice, lowering prices and generally making everyone better off – especially people on lower incomes.
Britain is a world leader in areas like clean energy, education, financial services and digital technologies. Indonesia is buying what Britain is selling, having embarked on an ambitious and so far successful programme of human development.
Now for the real opportunity. Because the EU has royally messed up its relations with Jakarta, Britain stands to become the chief regional partner to that teeming nation – not just as a fellow CPTPP member, but through closer bilateral links.
Brussels has imposed tariffs and trade barriers on Indonesia’s largest exports, including cocoa, coffee, palm oil, steel and timber. The EU’s ‘deforestation regulation’ (EUDR) has hit Indonesia’s largest farm export – palm oil – and its protectionist tariffs on other palm exports have been found to breach WTO rules.
It cannot be stressed too strongly that these measures, like almost all tariffs and trade barriers, are essentially protectionist in nature. Who pushed for them? Who lobbied gourmandising Eurocrats in the finest restaurants in Brussels? In no small measure, the producers of European rapeseed oil, who – understandably from their point of view, I suppose – don’t like foreign competition.
Because it doesn’t quite do to put the argument in such blatantly self-serving terms, they don’t. Or, at least, their lobbyists don’t. Instead, they pretend that their real concern is ecological, and hope that our critical faculties will freeze up if they show us enough pictures of baby orangutans. Be under no illusion. The all-encompassing nature of these tariffs exposes their economic, not ecological, intent.
EU protectionism has created an understandable backlash in Jakarta. The Indonesia-EU FTA, under negotiation for almost a decade, has effectively been paused ever since the EU’s deforestation rules were adopted.
You might be tempted to dismiss Indonesia’s stance as based on sheer national selfishness. But you’d be wrong. The Indonesian position is backed, not just by its neighbours in Southeast Asia, but by most of the world’s large economies, including the US, Canada, India and even Brazil, under Leftie pin-up Lula. It is Europe that is the outlier here.
Indeed, even in Europe the restrictions are controversial. The regulatory mess created by the EUDR, and its potential to disrupt Europe’s supply chains, prompted Chancellor Olaf Scholz to label it a ‘bureaucratic monster’ and call for it to be put on hold.
So far, I’m glad to say, Britain has stood aside from imposing protectionist measures under the guise of greenery. Our Forest Risk Commodities (FRC) legislation sticks narrowly to the scientific and ecological evidence. Labour would be wise to carry on with this approach: an expansion of FRC – for example, greater restrictions on palm oil products – would wreck any hope of a closer economic relationship.
Starmer has quite enough on his plate, what with the US’s Inflation Reduction Act, the EU’s equivalents, the threat of Trump tariffs and a decline in exports to China. This is not a good time to pick a needless fight with a country that is trying to be friendly.
A pragmatic approach is needed. The new Prabowo administration presents a unique opportunity for a fresh start. Expanding trade should be a priority – but we should also seek greater cooperation on defence, intelligence-sharing and supply-chain resilience. Indonesia has one of the world’s largest supply of critical minerals. Some 37% of the world’s nickel (used in the production of batteries, turbines, engines, and coating for mobile phones) comes from Indonesia, along with significant proportions of its bauxite, gold, copper and tin. Gaining access to such strategic supplies is crucial for advanced economies. Not least because the primary alternative source for these minerals is China.
Which leads me to a final observation. Britain’s post-EU interest in Southeast Asia, expressed through AUKUS as well as the CPTPP, represents a welcome return to our global vocation, and is important in providing an alternative to Chinese hegemony in the region. Indonesia has its anti-Western elements, as many nations have (including in the West). A solid partnership, based on the mutual advantages that come from trade, will fortify the liberal, democratic and pro-Western tendencies in Indonesia.
Here, in short, are two new governments which, while they may be some distance from one another on domestic policy, have everything to gain from, if not a full-blown Free Trade Agreement, at least a formalised improvement in our terms of trade negotiated in parallel with Indonesia’s CPTPP accession. The EU has soured its relations with Jakarta. By avoiding that mistake, Britain would be doing the West as a whole, rather than just itself, a favour.
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