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n July 18, EU trade commissioner Cecilia Malmström and Indonesian Trade Minister Thomas Lembong launched negotiations for a comprehensive economic partnership agreement (CEPA) between the EU and Indonesia. Why has this step been taken and why is it so important for both sides?

First let’s take a look at ourselves. The EU is the largest economy in the world with a gross domestic product (GDP) per head of €25,000 (US$27,640) for its 500 million consumers. It is also the world’s largest trading block (accounting for 15 percent of global trade in goods and 23 percent of global trade in services in 2015) and ranks first in both inbound and outbound international investments. Indonesia has the fourth largest population in the world and is by far the largest economy in ASEAN.

It is therefore no surprise that Indonesia-EU trade has been thriving over the last few years in this combined market of over 750 million people. Trade between the two economies reached €25.4 billion in 2015. Not only is the EU one of Indonesia’s largest export markets, with a value of more than €15.3 billion in 2015, but Indonesian exports to the EU increased by 6.2 percent from 2014. Furthermore the EU is Indonesia’s largest trading partner with which it enjoys a large trade surplus (€5.4 billion in 2015).

Impressive stuff. But we should also recognise that Indonesia is only the EU’s 30th largest trading partner, and the EU does more trade with Singapore, Thailand, Malaysia or Vietnam. In addition, while the EU is one of the largest providers of foreign direct investment into Indonesia, it should be investing more considering Indonesia’s economic importance in ASEAN. European investors are hesitating. We need to change that. There is clearly huge potential for growth.

The key of course to a successful bilateral trade and investment agreement is a “win-win” outcome. Since Indonesia and the EU are very much “complementary” economies (i.e. producing different products), they are not competing with each other but can together hugely benefit from deeper commercial relations.

Accordingly, during the official visit by President Joko “Jokowi” Widodo to the EU institutions in April, taking into account the huge potential for growth in bilateral trade and increased investment, the decision was made to deepen our commercial relations by concluding preliminary talks on the Comprehensive Economic Partnership Agreement (CEPA). This was concluded yesterday and first round of negotiations will start shortly.

So what are the gains from a CEPA? Trade and investment policy is a powerful engine of growth and can be used to promote economic reform, which becomes more important amid the current global economic slowdown. Studies have shown compelling arguments that the CEPA would have positive impacts on both the Indonesian and European economies.

Indeed a recent study by Indonesia’s Centre for Strategic and International Studies (CSIS) showed that a successful deep CEPA would lead to an increase of Indonesia’s exports to the EU by around $1.1 billion, a continued trade surplus and more incoming investment from the EU.

On the other side, without a comprehensive CEPA, Indonesia could see its exports to the EU drop by 20 percent or $4 billion, due to less preferential access into the EU market and as a result of erosion of the country’s competitive standings from EU’s agreements with other ASEAN countries.

Deepening trade relations generates prosperity, stability, jobs and long-term development.

It should be underlined that the EU is very active in the ASEAN region. Indonesia is the sixth ASEAN country to start CEPA negotiations with the EU. Bilateral FTA negotiations were launched with Singapore and Malaysia in 2010, Vietnam in 2012, Thailand in 2013 and the Philippines in 2015.

To date, the EU has completed bilateral agreements with Singapore (2014) and Vietnam (2015). I applaud the Jokowi government for its vision and resolve to also deepen its trade relations with the EU.

Indeed, in order to take account of the new economic realities in the globalised world, it is essential
that Indonesia and the EU plug together into regional and global supply chains.

The CEPA would assist Indonesia in attracting investors/manufacturing industries that are looking to set up a production bases that plug into Global Value Chains and boosts the exchange of ideas, skills and innovation across borders.

The EU can also play an instrumental role in the development plans of Indonesia, bringing in funding for large projects, technology, know-how and skills.

The CEPA would mean a significant progress toward this end, as it will ease trade flows and increase inward investment.

 EU business provides and sustains already over a million high-quality jobs for Indonesian workers. They transfer skills and technology to this country and EU companies embody a special social model and approach towards their most important asset, namely their employees.

The CEPA will provide further opportunities for increased EU investment in Indonesia and the creation of many more high quality jobs.

In short Europe needs Indonesia. A strong Indonesian economy can be with other ASEAN economies a driver of world growth. At the same time, Indonesia needs Europe, its technological innovation and know-how, the biggest and richest market in the world, the largest investor in the world and in Asia.

Our economies are as interdependent as ever. We are determined to work hard together to ensure that a comprehensive CEPA supports on-going reforms in Indonesia and delivers on our ultimate ambition of ensuring that trade is an effective tool to benefit our people.
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The writer is the EU ambassador to Indonesia.