Overview

With a population of almost 278 million, Indonesia’s relevance as a European partner is hard to overlook. It is also south-east Asia’s largest economy, accounting for around one-third of the combined GDP of members of the Association of Southeast Asian Nations (ASEAN). Despite this, it is only the European Union’s fifth largest trade and investment partner among the ten ASEAN countries. While negotiations for an economic partnership are ongoing, disputes over deforestation and nickel exports recently led a senior Indonesian official to accuse the EU of “regulatory imperialism”. Our interlocutors lamented the poor state of EU-Indonesian relations and did not expect their country’s general election this year to alter things. To work on overcoming this, the European Union should pursue pragmatic cooperation in areas with strong potential, namely climate and security.

It would be foolhardy of Europeans to approach their relationship to Indonesia with the goal of drawing the country into any kind of Western club – Indonesia is unlikely to divert from its traditional policy of non-alignment. But Indonesia’s strategic location, connecting the Indian and Pacific oceans, and its leadership in south-east Asian integration and south-south cooperation make it an important regional and global player, as evidenced by its effective steering of the G20 during the first year of Russia’s invasion of Ukraine. With this in mind, selective engagement can advance both European and Indonesian interests and, by also working with Malaysia and the Philippines (the region’s other “untapped” partners), strengthen EU-ASEAN relations.

The EU and Indonesia already work together, but the relationship largely revolves around trade, overlooking climate and security as areas for partnership. Indeed, positive experiences in these areas may make up for the outsized effect that the trade deadlock – resulting from unresolved disputes over palm oil, deforestation, and the export ban on nickel – has on relations. And to resolve such disputes, the EU should invest in keeping not only the extraction, but also the processing and refinement of other minerals, cement, and steel in Indonesia so its economy can benefit. Europeans could also do so with an eye towards decarbonising these industries. Such an investment would set Europe apart from China, which dominates in nickel ore extraction and refinement in the country. Along with the EU-Indonesian-Malaysian task force on deforestation, this could also help to overcome reservations that exist among the Indonesian public, according to our interlocutors. It would provide reassurance that the export of raw materials to Europe can also boost Indonesia’s economy.

There is significant room for greater climate cooperation between the EU and Indonesia. As ASEAN works to move from a free-trade area to a single market, the EU should align its vision with the group on how to reconcile global trade with climate action. This could build significant momentum for worldwide reform. But with coal mining accounting for 3-4 per cent of Indonesia’s GDP, the green transition lacks economic appeal for many Indonesians. International financial support for existing green projects, including the Just Energy Transition Partnership, which has European participation, pales in comparison to the economic weight of the fossil-fuel sector. EU-Indonesian climate cooperation – possibly in concert with Japan and the United States, which also partner with Indonesia on this front – would thus need to develop a compelling narrative, mechanisms, and funding streams to build public support.

Through ASEAN, Indonesia cooperates with partners to combat Islamic extremist movements operating in the region as well as illicit maritime activities, such as illegal fishing and piracy. While Indonesia welcomes European support for these efforts and the occasional presence of various European navies in the region, the government in Jakarta views Australia, Japan, and the US as being more present and consequently more important to its security interests. For Europe, however, Indonesia could be an important partner in security forums and institutions – the country’s proactive, non-aligned diplomacy gives it a seat at many tables. In addition, the EU’s and Indonesia’s shared frustration that US-Chinese competition is obstructing security governance could open more doors for cooperation. For example, the EU has already backed Indonesia’s efforts to accelerate ASEAN-Chinese negotiations to develop a South China Sea Code of Conduct. Indonesia’s politics of non-alignment and disputes over trade rules and EU regulations have limited the potential for improving relations, and there is no easy way to resolve this. But for its population size, economic weight, strategic location, and political gravitas, Indonesia should be a priority target for European diplomats’ daily grind.