September 24, 2023



Indonesia Shows Why the EU Needs More Focus on G20

4 min read

The G20, on the face of it, is a slightly odd institution. Founded recently – in 1999 – in response to the then-emerging markets debt crisis, its goal was to usher developing democracies such as Indonesia, Brazil and South Africa into a global leadership role. Ironically, since that time most of the economic crises the world has faced have started in the rich world of G7 nations – the 2008 financial crash; the US-China trade war; the COVID pandemic. There was a concern that the G20 could fade into irrelevance.

This year’s Presidency under Indonesia has shown why the institution still matters – and should give a wake-up call to EU leaders. We must move away from our G8-centric worldview, where all foreign and trade relations are seen through the prism of America, Russia and China. The G20’s emerging powers – especially Indonesia, India and Brazil – will be major economic players and Brussels needs to prepare for this new reality.

Under President Joko Widodo, Indonesia has supercharged its economy. While the Eurozone over the past decade has average around 1.5% GDP growth, Indonesia’s growth rate is three times that. The country now has the world’s fourth-largest population and a top-20 economy. Latest projections show that Jakarta’s growth rate will exceed 5% every year until 2027 at least. Prudent economic management and record exports of almost $28bn in the past 12 months, mean that inflation remains one of the lowest in the world at only 4.7%. The stock market is booming as a result, as Indonesian nickel, palm oil and electronics remain in high demand in Europe and around the world.

The good news is that the European Commission has recognised the opportunity. Executive Vice-President Valdis Dombrovskis has a stated aim for an EU-Indonesia trade deal to be completed by 2024. The bad news is that the Commission – and indeed the Parliament – are probably going to wreck the trade deal before it is signed, through over-regulation and Green protectionism. If they do so, it will mean lost opportunities for EU exporters, higher prices for EU consumers, and continued red-tape for EU businesses. Meanwhile, other countries such as the U.S. and U.K. will rush ahead, exploiting the economic benefits of trade with Indonesia’s massive and growing population. Are we really going to make such an obvious strategic mistake?

The warning signs are there already.  In September, fourteen developing countries – led by G20 members Brazil and Indonesia – signed a complaint to the Commission about discrimination in the Deforestation Regulation. The regulation is classic Green protectionism: it erects bureaucratic trade barriers that will undermine the economic development of our trading partners, in order to coddle some rent-seeking European industries. It is madness, and no surprise that so many nations complained so loudly.

Only a matter of days later, MEPs then voted to exclude Indonesian palm oil from the Sustainable Aviation Fuels Regulation. Not content with this, a proposed ban on the same commodity from Indonesia, as well as soy from Brazil, was pushed through in the Parliament’s plenary vote on the revised Renewable Energy Directive (RED III). A WTO case is already pending against the EU, and retaliation against European exports cannot be ruled out.

This has to stop. European leaders showcasing their virtue-signalling via tweets or speeches is one thing, but to do so in actual legislation is irresponsible in the extreme. We are mortgaging our children’s futures by starting trade conflicts that will lock out Europeans from the markets of the future. The Commission’s trade deal with Indonesia looks dead in the water already, if those palm oil trade barriers are not scaled back in the trilogue negotiations.

This all shows why the G20 really matters – not as a talking shop or a series of summits. But because it is a look into the future where the global centers of population, economic growth and dynamism will shift east and south. The U.S. has recognised this, and is taking responsible action to enhance its economic partnerships: the American-led ‘Indo-Pacific Economic Framework’ (IPEF) deal includes India, Indonesia, Vietnam and 11 others with the goal of accelerating economic cooperation. The EU is left watching from afar. Probably it’s good time for the enlargement of G-20: access of countries like for example Poland-the representative of Central-Eastern Europe should dynamize the European part of G-20.

The Commission needs to get serious, or as Europeans, we will all get left behind. The Green virtue-signaling on palm oil, rubber, or soy needs to end. Instead, let’s commit to open markets and free trade. The G20 and the world will be better off with a European Union committed to global partnership instead of local protectionism.

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