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Australia-Indonesia trade agreement, follow-up

Australia-Indonesia trade agreement, follow-up

The Indonesia legislature has ratified the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), and representatives of the governments of Indonesia and Australia have engaged in discussions concerning a 100-day implementation plan to finalise the agreement’s entry into force.

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The IA-CEPA broadly seeks to enhance economic cooperation and grow bilateral trade and investment between Australia and Indonesia. The IA-CEPA improves upon the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) to further liberalise trade in goods and provides increased certainty for services, opportunities for investment, a reciprocal skill exchange and includes modern rules for electronic commerce.


Trade in goods

More than one-third of Australia’s exports to Indonesia are agricultural goods. Under the IA-CEPA, most goods—including 99% of agricultural exports—will be entitled to duty-free access or significant preferential treatment. When tariffs remain on agricultural goods, Indonesia will phase-in increases in tariff rate quotas and reductions in out-of-quota tariff rates.

Resources and energy products also constitute around one-third of Australian exports to Indonesia. Tariffs, already substantially reduced through AANZFTA, are now virtually eliminated on these products. Additionally, 99.8% of Australian manufactured goods will enjoy duty-free access by 2025 (up from 92% coverage under AANZFTA).

Non-tariff measures, such as import licences and permit requirements, prove challenging for Australian exporters globally. The IA-CEPA is Australia’s first trade agreement to include rules and review mechanisms on non-tariff measures. These mechanisms aim to facilitate trade through a system of review and specialist subcommittees in an effort to allow benefits to be passed through to both Indonesian and Australian exporters. Under the IA-CEPA, Indonesia will also guarantee the automatic issuance of import permits for key Australian agricultural and steel products.

Both Australian and Indonesian exporters will be able to produce “declarations of origin” under the IA-CEPA. Under AANZFTA, a “certificate of origin” is required to claim preferential treatment of originating goods. Therefore, exporters currently certifying originating goods in accordance with the AANZFTA need to consider the use of a declaration of origin under the IA-CEPA which could reduce costs and ease the administrative burden of obtaining certificates of origin.

Australia will eliminate all duty on Indonesian goods, in line with Australia’s existing AANZFTA Schedule of Tariff Commitments for 2020.


Services and investment

The investment chapter in the IA-CEPA sets new minimum standards of protection for Australian investors and their investments in Indonesia. An investor-state dispute settlement mechanism will allow resolution of investor issues through an independent arbitral tribunal.

  • Australian businesses and service suppliers have gained guaranteed levels of Australian ownership for their Indonesian operations of up to 67% in a range of services including health, vocational training, mining, communication, transport and energy, and 100% in three- to five-star hotels and resorts. Indonesia has ambitious energy and infrastructure plans and is seeking greater foreign investment in these areas.
  • As part of the broader cooperation between the two countries aimed at building skills and capacity, the IA-CEPA includes a reciprocal skills exchange for tertiary-educated workers to gain six-months experience in the other country.
  • Electronic commerce provisions are to guarantee the free flow of data for businesses, protect consumers and data privacy, and encourage the sharing of policies to stimulate small and medium-sized e-commerce enterprise.
  • The IA-CEPA not only aims to boost trade and investment to significantly higher levels but also provides the framework for the development of much deeper economic cooperation between Australia and Indonesia in the years to come.

 

For more information contact a KPMG professional in Australia:

Leonie Ferretter | +61 2 9455 9330 | lferretter@kpmg.com.au

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