Ministry of Trade Relies on Special Mechanism to Address CBAM

The Ministry of Trade (“Kemendag”) stated that Indonesia and the European Union have a special mechanism under the Indonesia-European Union Comprehensive Economic Partnership Agreement (“IEU-CEPA”) to discuss policies that may potentially hinder trade flows, including the possible implementation of the Carbon Border Adjustment Mechanism (“CBAM”).

Director General of International Trade Negotiations at the Kemendag Johni Marta explained that the mechanism allows both parties to discuss policies considered likely to disrupt the smooth flow of trade, whether such policies are already in effect or are yet to be implemented. Accordingly, the mechanism provides an opportunity for Indonesia and the European Union to discuss the impacts of CBAM implementation, including adjustments to carbon standards in bilateral trade. 

“A CBAM agreement could be possible. It should be remembered that this is a bilateral arrangement, so we have a mechanism to discuss any policy that is considered likely to disrupt the smooth flow of goods between the two parties,” Johni told Hukumonline.

Johni acknowledged that the IEU-CEPA does not yet contain any specific agreement regarding the European Union's implementation of CBAM. According to him, this is because the European Union had not finalized its plans to implement the mechanism when the negotiations were taking place. “There is no specific agreement yet. At the time of our negotiations, there were no indications that CBAM would be implemented,” he added.