Indonesia Accuses EU of 'regulatory imperialism' with Deforestation Law

BUSINESS AND TRADE - JAKARTA. Indonesia sees the European Union as conducting "regulatory imperialism" with its new deforestation law, but both sides would still engage in talks on a free trade deal, an Indonesian minister said on Thursday.

Southeast Asia's biggest economy will continue negotiations for a comprehensive economic partnership agreement (CEPA) with the bloc, alongside separate consultations to resolve disputes on the EU's deforestation rules, Airlangga Hartarto, Indonesia's chief economic minister told Reuters.

Jakarta wants to close a deal on the FTA soon after seven years of deliberations, Airlangga said, but stressed Indonesia "can wait another seven years" if the EU was unwilling to recognise existing export standards, like those on sustainable palm oil and wood products, under the deforestation rules.

"We're discussing trade facilitation ... But in parallel, they're building walls. This is not fair," said Airlangga, who raised the issue in Brussels last week together with Malaysia's deputy prime minister.

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Airlangga cited ongoing disputes with the EU, including its complaint at the World Trade Organization (WTO) over Indonesia's nickel ore export ban and a separate WTO case that Indonesia filed over the EU's phasing out of palm oil as biofuels' feedstock.

The bloc's carbon tax plans could also hit Indonesian nickel products, Airlangga said, describing EU rules as "regulatory imperialism".

A European Commission spokesperson said the EU was aware of the deforestation law concerns and assured the rules would not be discriminatory or used as disguised trade restrictions.

"The CEPA with Indonesia will include a platform for cooperation on shared challenges such as deforestation," the spokesperson said, adding negotiations were scheduled for next month.

Malaysia has said the dispute over the EU law will have no bearing on its stalled EU FTA negotiations.

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The law, passed by the European parliament in April, bans EU imports of a range of commodities linked to forests destruction. Indonesia has the world's third largest area of rainforest.

It is also the world's biggest palm oil exporter and a major global supplier of coffee, cocoa, rubber and timber products. About 6 billion euro ($6.44 billion) of its annual exports will be affected by the deforestation law, Airlangga said.

Indonesia argues the law will hurt small palm oil farmers, hampering efforts to reach its sustainable development goals, as farmers will struggle to comply with geolocation rules.

It also fears being labelled as a "high risk" country could lead to more costly inspections for its products.

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The government has said the rate of deforestation has declined, but environmentalists say some farmers and companies still clear forests for palm oil cultivation.

Indonesia is also among the world's top 10 biggest carbon emitters, largely due to forest and peatland clearance.

Separately, Airlangga said Indonesia has also proposed for the U.S.-led Indo-Pacific Economic Framework to include a trade agreement on critical minerals, so companies operating in Indonesia can benefit from U.S. tax credits.

That proposal, which he said had been endorsed by other Southeast Asian countries and Australia, came after Indonesia said it would propose a limited FTA with the U.S. covering battery materials.