Last week, Indonesia ratified the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA). The bilateral trade pact is the latest victory in Australia’s efforts to reduce its heavy dependence on trade with China.
Endorsed by Australian officials in November 2019, the long-awaited Free Trade Agreement (FTA) is expected to enter into force in May 2020. This follows a 100-day implementation plan.
At a joint sitting, both Prime Minister Scott Morrison and Indonesian President Joko Widodo underscored the importance of this mutually beneficial partnership. Widodo averred that “In the midst of the enormous challenges, Indonesia and Australia must focus on strengthening the partnership.”
Indonesian Trade Opportunities
Economics anticipate Indonesia to be the world’s 5th largest economy by 2030. Despite this, the country is only Australia’s 13th largest trade partner, with $7.823b of goods exported to Indonesia and $4.996b imported from Indonesia.
Additionally, Indonesia is Australia’s closest neighbour beside Papua New Guinea. As a result, both countries regularly cooperate at multiple forums such as the East Asia Summit, ASEAN Regional Forum, and G20.
This exponential growth and shared geographic interest motivated the Australian Government’s decision to negotiate IA-CEPA. The FTA acknowledges both countries interdependence on one another to foster prosperity in Southeast Asia.
Australian Trade Minister, Simon Birmingham, contended: “With Indonesia being one the fastest growing economies in the world, this deal will provide a major boost for Australian farmers… and many other products all set to benefit from lower tariffs and improved access.”
Key IA-CEPA Outcomes
The IA-CEPA aims to improve goods access, enhance supply chains, and strengthen geographical ties.
Exporters will benefit from no duty or significantly improved preferential arrangements for over 99% of Australian goods. This includes preferential treatment for 99% of Australian agricultural exports and the elimination of 99.8% of duties on manufactured goods by 2025.
In return, the IA-CEPA removes all remaining tariffs on Indonesian imports. Subsequently, Australian businesses will gain improved access to Indonesia’s products without duty drawbacks.
Unprecedentedly, the FTA has dedicated an entire chapter to non-tariff measures. The chapter aims to fast track trade processes and reduce trade complexity. It includes the automatic issue of import permits by Indonesia for key goods. It also enables regular discussions of non-tariff measures through a bilateral cooperative mechanism.