Trade
Time to strengthen the UK–Indonesia economic relationship
Author: Nopriyanto Hady Suhanda, Ministry of Finance, Indonesia
Now that the United Kingdom has left the European Union, there is a chance for Indonesia to build on the UK–Indonesia bilateral economic partnership. Brexit is pushing the United Kingdom to form trade partnerships the world over and discussions are now taking place with Indonesia as part of a Joint Trade Review (JTR). This is an opportunity for Indonesia to explore the significant potential of increasing trade with the United Kingdom.
Indonesia and the European Union are also in the middle of negotiating the Indonesia–EU Comprehensive Economic Partnership Agreement (IEU-CEPA). The two economies began talks in 2016 and the tenth round of negotiations was scheduled for March 2020 before being postponed due to the COVID-19 pandemic. This agreement is expected to erase many existing trade barriers but unfortunately will no longer apply to trade with the United Kingdom.
The United Kingdom’s detachment from the European Union gives it the freedom to negotiate its own trade deals. According to UK International Trade Secretary Liz Truss, in under two years the United Kingdom has formed agreements with 62 countries, indicating its flexibility and independence in concluding trade deals much faster than the European Union.
The United Kingdom is not among Indonesia’s top 10 major trading partners. In 2018 it was Indonesia’s 17th-largest trading partner. While Indonesian exports to the United Kingdom have decreased over the past five years, Indonesia’s imports from the United Kingdom show an upward trend, despite a slight drop in 2019. In that year, the United Kingdom’s import and export volumes to Indonesia were US$1.4 billion and US$1.0 billion, respectively — a drop in the water compared to the United Kingdom’s overall total import and export volume of US$695.8 billion and US$469.7 billion, of which about 20 per cent was with Asia.
Indonesia’s main exports to the United Kingdom are in nickel and footwear. Indonesia is the second biggest nickel exporter to the United Kingdom, after the United States. But Indonesia is still far from being the United Kingdom’s main supplier and lags behind European exporters for footwear products.
There is a significant opportunity for Indonesia to increase its exports across a range of goods where it wields a stronger advantage. The greatest potential is in palm oils and natural rubbers. Palm oil has the largest absolute difference between potential and actual exports in value terms and an agreement could present an opportunity to ramp up additional exports. The biggest current palm oil exporters to the United Kingdom are other European countries, trading under no tariffs, while Indonesia faces a tariff rate of 9.3 per cent. Data processing machines, broken rice and papayas are also ripe for export diversification. Data processing machines have a particularly high demand potential in the United Kingdom.
A constant-market-share analysis between Indonesian and UK trade data also shows greater potential for expanding trade in tissues, footwear, wooden construction material, cocoa butter, and cooking fats and oils. This is based on the bilateral pattern of trade over the last five years and takes into account competitiveness, ability to adapt to the domestic market and local demand.
Indonesia will face tough competition trying to break into the UK market. Turkey and Italy currently compete for the UK market for tissues. Belgium and the Netherlands control a significant proportion of the UK footwear market. And Poland and China lead in exports of wooden construction material.
In the effort to secure Indonesia’s position, the Indonesia Eximbank could serve as a focal point matching Indonesian companies with UK markets, fulfilling its mandate to enable and bolster Indonesian companies exporting commodities.
Indonesia has initiated discussions with the United Kingdom on the JTR with the aim of establishing a strong bilateral trade agreement. In the most recent discussions, the two countries agreed on ten potential focus sectors: education, agriculture, food and beverages, health and pharmaceuticals, technology, infrastructure and transportation, wooden products, renewable energy, white-collar services, and the creative economy. Both parties agreed to finalise and sign the JTR report in January 2021 and to identify next steps once the JTR is signed.
Indonesia needs to ensure that the country’s eminent commodities are included in the agreement under principles of mutualism to the benefit of both parties….
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
Trade
WTO ministerial trading in low expectations and high stakes
The WTO’s 13th Ministerial Conference is set to focus on e-commerce transparency, investment facilitation, and admitting new members. However, progress may be hindered by disputes, especially regarding fisheries subsidies.
The World Trade Organisation’s 13th Ministerial Conference
The World Trade Organisation’s (WTO) 13th Ministerial Conference is set to take place in Abu Dhabi on 26–29 February, with expectations of deals on electronic commerce transparency, investment facilitation for development, and the admission of Timor Leste and the Comoros as WTO members. Despite these positive developments, the expectations are relatively modest compared to promises made at the 12th Ministerial Conference, which included addressing fisheries subsidies and restoring a fully functioning dispute settlement mechanism by 2024.
Challenges in Dispute Settlement and Agricultural Trade Reform
However, challenges remain, especially in the deadlock of dispute settlement since December 2019 due to a US veto on the appointment of Appellate Body judges. Progress in restoring the dispute settlement mechanism has stalled, and discord continues regarding India’s grain stockholding policy as a potential illegal subsidy. Restoring a fully functioning dispute settlement mechanism hinges on addressing US concerns about perceived bias against trade remedies in relation to China’s state subsidies.
Geopolitical Tensions and the Future of Trade Relations
The likelihood of reaching agreements amid geopolitical tensions between Western democracies and China appears slim, with issues surrounding subsidies and global supply chains causing rifts in trade relations. As nations focus on self-reliance within the global value chain, opportunities for trading face obstacles. Advocacy for open markets and addressing protectionist sentiments remains crucial for fostering resilience to external shocks and promoting economic growth.
Source : WTO ministerial trading in low expectations and high stakes
Trade
Getting Vietnam’s economic growth back on track
Vietnam’s economy grew 8% in 2022 but slowed in 2023 due to falling exports and delays in public investments. The economy’s future depends on structural reforms and reducing dependency on foreign investment.
Vietnam’s Economic Roller Coaster
After emerging from COVID-19 with an 8 per cent annual growth rate, Vietnam’s economy took a downturn in the first half of 2023. The drop was attributed to falling exports due to monetary tightening in developed countries and a slow post-pandemic recovery in China.
Trade Performance and Monetary Policy
Exports were down 12 per cent on-year, with the industrial production index showing negative growth early in 2023 but ended with an increase of approximately 1 per cent for the year. Monetary policy was loosened throughout the year, with bank credit growing by 13.5 per cent overall and 1.7 per cent in the last 20 days of 2023.
Challenges and Prospects
Vietnam’s economy suffered from delayed public investments, electricity shortages, and a declining domestic private sector in the last two years. Looking ahead to 2024, economic growth is expected to be in the range of 5.5–6 per cent, but the country faces uncertainties due to geopolitical tensions and global economic conditions.
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