Jakarta. Indonesia’s trade deal with the Mercosur bloc of Argentina, Brazil, Paraguay, and Uruguay is facing a delay, as negotiations will likely start in 2024, only after the group takes care of its long-overdue pact with the European Union (EU).

Indonesia and Mercosur in Dec. 2021 agreed to discuss a comprehensive economic partnership agreement, also known as the IM-CEPA, for greater market access. Almost two years have passed since then, but the first round of negotiations has not even taken place. According to an Indonesian diplomat, Mercosur wishes to conclude its trade pact with the EU first before negotiating an agreement with Jakarta. 

Mercosur and its European counterpart clinched an initial trade deal in 2019 after two decades of negotiations. However, the yet-to-be-ratified Mercosur-EU trade pact hit an environmental snag. The Amazon rainforest deforestation -- which soared under former Brazilian President and far-right leader Jair Bolsonaro’s term -- drew concerns from the EU. Leftist Luiz Inácio Lula da Silva then took over Bolsonaro’s post after winning the 2022 election.

“Indonesia is eager to start the first round of talks as soon as possible, … but Mercosur would like to close their pact with the EU first. … Under Bolsonaro’s presidency, the EU held back on signing the pact with Mercosur … The EU demands greater environmental protection, among others, as part of the deal,” Nidya Kartikasari, a senior official at the Foreign Affairs Ministry, told reporters in Jakarta on Monday.

“So Mercosur asked Indonesia if we could start the [IM-CEPA] negotiations next year. Since Mercosur and the EU want to focus on concluding their trade agreement this year,” Nidya said.

Nidya also told the Jakarta Globe that the internal dynamics within Mercosur were another factor in the stalled trade deal negotiations. Mercosur member Uruguay is seeking membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The CPTPP is a free trade agreement between Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, and Vietnam. This sparked tension within the Mercosur as Uruguay tried to strike the CTPP deal on its own.

“Internal dynamics is a factor. Uruguay wants to join the CPTPP, so Mercosur itself is not yet solid,” Nidya said.

The first round of negotiations would typically discuss all working groups within a trade agreement document. Nidya also could not say how big the tariff reductions that the IM-CEPA would bring as the talks were very much at a nascent stage. Nidya said she hoped the IM-CEPA could slash the high import tariffs that the Latin American countries impose today.

Government data shows Indonesia’s trade with individual Mercosur countries is on the rise. 

The value of Indonesia-Brazil trade hit $5.4 billion in 2022, up from $4.1 billion the previous year. The Southeast Asian country also reported that its trade with Argentina had risen from $2.3 billion in 2021 to $2.7 billion a year later. Trade between Uruguay and Indonesia rose from $55.7 million in 2021 to $81.5 million the following year. Indonesia-Paraguay trade jumped from $55.9 million in 2021 to $78.3 million in 2022.

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