A proposed Free Trade Agreement (FTA) between the European Union (EU) and Indonesia could generate notable structural shifts in Indonesia’s textile (fabric and yarn) sector, expanding the workforce by up to 2.5% for skilled and unskilled workers, expert analysis suggests.
Indeed, a new European Commission’s Sustainability Impact Assessment (see http://trade.ec.europa.eu/doclib/docs/2018/october/tradoc_157431.pdf) has calculated that employment rates for the whole textile, clothing and footwear industry in Indonesia will be boosted even more, with employment numbers likely growing by more than 10%. By contrast, the statistics show that the sector’s workforce in the EU could drop by 2% as a result of the deal, the analysis warns. Textile manufacturing, including technical and industrial textile segments, in the EU could fall 0.3% -- down €530m, as a result of increased FTA-inspired imports from Indonesia, predicts the report.
“The FTA will still generate positive gains for both the EU and Indonesia across all indicators,” emphasised a European Commission spokesperson.
It has now been more than two years since the negotiations of the agreement were launched back in July 2016, with the goal of forging an FTA similar to the one between the EU, Singapore and Vietnam. During the sixth round of discussions in mid-October this year, “the negotiators made good progress across the board, particularly on the chapters on customs and trade facilitation,” said the EU official, who added that the debate has advanced on one of the key topics in the agreement process; how to ensure significant sustainable development is generated by trade expansion following the implementation of a deal.
A key concern, according to the Commission analysis, is that the expected economic boost would also see an increase in CO2 emissions for both sides and more specifically for Indonesia where the level could go up 0.25%, the impact assessment states. As a result, recent talks have successfully focused on mitigation, such as a proposed installation of filters that reduce CO2 emissions across the industry. Another concern has been liquid pollution – a key issue for the textile industry, especially in finishing. With new factories opening along Indonesian rivers resulting in the release of toxic waste into the environment has decreased the quality of drinking water and water for farming, says the Commission analysis. Tests by environmental group Greenpeace on samples of the Citarum River have also indicated the presence of detergents used during the manufacturing of textiles and other chemicals. The study further warns that “in the absence of mitigation measures, an increase in industrial output would result in an increase of waste generation in Indonesia” and proposes that the only way to escape from this scenario would be to put into place policies that could minimise the negative effects.
Anticipated post-FTA higher productivity also poses other risks. With continued poor working conditions, low salaries and wide gaps in pay between Indonesian men and women, the FTA may include terms to ensure that increased manufacturing production in Indonesia will not increase the exploitation of labour, with both sides agreeing such clauses are needed: “A commitment to the ILO (International Labour Organisation) conventions has been seen as a way forward,” said the Commission spokesperson.
While the gains for Indonesia seem to be more pronounced, the EU would most probably benefit from stronger protection of intellectual property rights which have been outlined under the agreement and which would likely “increase potential beneficial impacts on investments”, the EU report highlights.
The next round of negotiations has been scheduled for mid-March in Brussels, Belgium.
