IA-CEPA begins a new chapter in Australia's partnership with Indonesia, by Gary Quinlan AO, Ambassador to Indonesia
Australian and Indonesian businesses and consumers will benefit from a diverse range of new trade and investment opportunities when the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) enters into force.
Australia ratified IA-CEPA in December 2019 and the Indonesian parliament passed the IA-CEPA legislation in early February 2020. The agreement will enter into force sixty days after Indonesia notifies Australia that it has completed its remaining domestic treaty making procedures.
Australian and Indonesian businesses and consumers are already benefiting from a close and important trading relationship with Indonesia, partly as a result of the bilateral commitments made by both countries under the ASEAN-Australia-New Zealand Free Trade Area.
In 2018-19, Australia’s total two-way trade in goods with Indonesia was worth $11.7 billion, including exports of Australian agriculture to Indonesia in excess of $2 billion, making Indonesia our 14th largest trading partner in goods. In 2018-19, two-way services trade between the two economies totalled $6.2 billion.
The wide range of new opportunities provided by IA-CEPA will result in a significant boost to Australian businesses seeking to undertake greater trade and investment with Indonesian businesses and consumers.
The benefits IA-CEPA delivers will grow over time as Indonesia continues to be one of the fastest growing economies in the Indo-Pacific, and predicted to be one of the top ten world economies in a decade. For example, IA-CEPA is great news for Australian exporters and Indonesian consumers of beef. After entry into force of the agreement, 575,000 head of Australian live male cattle will be eligible to enter Indonesia duty free. This will grow annually to 700,000 by the sixth year. Female live cattle exported from Australia are also set to receive tariff-free access with no limit on numbers. Indonesian frozen beef and sheep meat tariffs will immediately halve to 2.5 per cent once the agreement enters into force.
Another example of IA-CEPA’s new bilateral trade opportunities will be for Australian exporters and Indonesian consumers of horticultural products. There will be a cut to the existing 25 per cent Indonesian tariff on a number of varieties of potato to 10 per cent from entry into force of the agreement, applying to 10,000 tonnes per year. In the sixth year of the agreement, Indonesia will further reduce this tariff to 5 per cent for 12,500 tonnes per year, with the quota increasing by 2.5 per cent per year.
Other Australian horticultural goods will also benefit from tariff cuts by Indonesia after entry into force of the agreement, including mandarins, pineapples, avocados, strawberries, dragon fruit and bananas, among others. IA-CEPA will also benefit Australian exporters and Indonesian consumers of steel, with over 100 Australian steel products receiving immediate tariff elimination once the agreement enters into force.
Australia’s strong capabilities to supply services, such as education and training, healthcare, mining, engineering and tourism, are widely recognised. IA-CEPA provides more certainty to Australian companies in these sectors to bring their capital, practical knowledge and technical expertise to Indonesia. IA-CEPA guarantees that Australian providers of technical and vocational education and training can provide certain work training services through majority Australian-owned businesses (up to 67per cent) in Indonesia. Under IA-CEPA, Australian providers can offer the full range of Australian Qualifications Framework qualifications and Indonesian Framework qualifications (levels 1 – 5) and non-award courses, with no restrictions on where these are located.
In response to Indonesia’s increased focus on growing its international tourism sector, IA-CEPA guarantees that wholly Australian-owned 3-5 star hotels and resorts can be established anywhere in Indonesia, and Australians can hold a majority stake (up to 67 per cent) in 1-2 star hotels and motels; restaurants, bars and cafes; and tourism consultancy services in Indonesia.
Increased access for cross-border legal and professional services under IA-CEPA will also play an important role in increasing the transfer of technical skills and knowledge between the two countries. Under IA-CEPA, Australia can supply legal, architecture, engineering, and construction services as consultants on a cross-border basis.
In addition to the positive opportunities for future trade and investment, IA-CEPA also contains a unique facility for trade and investment-related economic cooperation. The economic cooperation facility is designed to maximise the benefits of IA-CEPA, supporting pathways to trade and investment to ensure the benefits of IA-CEPA flow as intended by Indonesia and Australia. The facility will operate through a jointly-funded work program, which will support technical assistance and capacity building activities across a range of trade-related areas to strengthen commercial links and help stimulate two-way investment.
Importantly, IA-CEPA also contains a cooperative bilateral mechanism for addressing behind-the-border barriers to trade, to further the Australian Government’s Action Plan to address non-tariff trade barriers.
The specific examples cited above are just a few of the tangible benefits IA-CEPA will deliver to businesses, institutions and individuals in both countries once the agreement enters into force. For more information, you can visit DFAT’s IA-CEPA webpage. Closer to the time of entry into force, this web page will be updated to include more IA-CEPA information, including a guide for businesses seeking to benefit from the tariff reductions under the agreement.
The FTA Portal has been updated to include IA-CEPA information, which will apply once the agreement enters into force. The FTA Portal is an easy-to-use resource for exporters, importers of goods and services providers looking to explore the benefits of Australia's free trade agreements.