New Indonesian Free Trade deal up and running

10 July 2020

This article was first published in July 2020 by The Daily Cargo News.

The Indonesia–Australia Comprehensive Economic Partnership Agreement is a positive development for the global free trade agenda writes Customs and Trade Partner, Andrew Hudson.

One of the major tasks for governments worldwide is to adopt measures that may assist business recover and thrive as they plan to move out of COVID–19 restrictions. As much as national governments have committed to keeping borders open, they must ensure commitments are met and that new initiatives are adopted to support further enhancements to the trade environment.

Moving trade beyond COVID–19

In Australia, the recent focus has been on the COVID–19 restrictions and the interruptions to the normal trade patterns including the loss in export markets, the reduction in available imports and the creation of programs to assist exporters and importers. This has included the establishment and expansion of the International Freight Assistance Mechanism, the increase in funding to the Export Market Development Grant program, the introduction of the COVID–19 Export Capital Facility and the interim removal of customs duties on certain personal protective equipment and other medical items used in the treatment of COVID-19. However, these measures are only likely to be temporary and a fundamental issue will be to maintain these existing opportunities and also provide new opportunities.

Indonesian Free Trade Deal

Given the prevailing gloomy trade environment, there was some celebration when our trade minister and assistant trade minister issued a media release1 on 7 May confirming the Indonesia–Australia Closer Economic Partnership Agreement (IA-CEPA) would come into effect on 5 July 2020, meaning it has just come into effect at the time you are likely to be reading this commentary. The IA-CEPA is not our first trade deal with Indonesia as both countries were also parties to the ASEAN–Australia–New Zealand Free Trade Agreement (AANZFTA) which came into effect for Australia in January 2010. Further, both countries are parties to the Regional Comprehensive Economic Partnership Agreement (RCEP) scheduled for signing in November 2020, which will take effect sometime in 2021.

Choice between AANZFTA and IA-CEPA

However, even with those two multilateral agreements, the conclusion and start of the bilateral IA-CEPA brings the direct trading relationship into more direct focus. This focus is even more compelling given that IA-CEPA is the most comprehensive bilateral Free Trade Agreement (FTAs) completed by Indonesia when Indonesia represents significant new market opportunities. By way of aside, it should be noted the start of the IA-CEPA does not mean all trade with Indonesia must be conducted according to the IA-CEPA. Keeping with other practices, when there is more than one FTA in place between countries, parties can choose between which of those FTAs they can use (although they cannot use a combination of FTAs). Accordingly, those already using AANZFTA do not need to change practices to the IA-CEPA unless they believe IA-CEPA presents better opportunities. However, there may be parties who believe the IA-CEPA presents new or better opportunities. Similarly, there are also parties who believe the RCEP provides better opportunities across the entire region.

Process to adopt the IA-CEPA

While Indonesia and Australia agreed on the terms of the IA-CEPA some time ago and it was signed in March 2019, the necessary steps to secure ratification have taken time. In Australia’s context, this included a review by the Joint Standing Committee on Treaties, which recommended the implementation of the IA-CEPA, followed by the passage of enabling legislation in December 2019. The Indonesian ratification process has taken longer but with that process having been completed the counties have exchanged diplomatic notes confirming domestic ratification enabling commencement on 5 July 2020.

Moving into implementation

While securing agreement on an FTA is important, the real value of an FTA is through its use and delivery of the commercial and policy benefits it has secured. Success is measured by the use
of the FTA by exporters and importers. Accordingly, from a practical perspective, the next important stage of the process will be the preparation of the customs, trade and transport industry in both Australia and Indonesia including exporters, importers and their service providers such as licensed customs brokers and freight forwarders as well as providers of air and sea cargo.

The Department of Foreign Affairs and Trade (DFAT) website includes valuable information on the text of the IA-CEPA and both that website and the relevant Austrade website will provide details on the commercial opportunities and benefits arising to both countries.

Beyond the information on the DFAT and Austrade websites, there will be real and immediate interest on the detailed information regarding Rules of Origin, Certificates of Origin, other documents evidencing origin, permitted movement of goods and border clearance procedures to secure the preferential benefits of IA-CEPA. That information is found in the IA-CEPA itself and guides and other documentation to be issued by DFAT and the Australian Border Force (AFB).

The process has now commenced in earnest and some of us already have been working on the proposed form of the COO to be used in an FTA Rule of Origin Working Group with DFAT. As I write, we are looking forward to receipt of further drafts of the guides from DFAT and the ABF so we can work to finalise them with government and otherwise educate industry and their customers on the use of the agreement.

In accordance with previous practices, the ABF will issue a Customs Notice and Practice Statement on use of the IA-CEPA as well as a revised version of the “Working Tariff” incorporating the terms of the preferential tariffs. These all need to be read in conjunction with the ROO details of what constitute “Australian Originating Goods” and “Indonesian Originating Goods” for the purposes of the IA-CEPA in the Customs Act (1901) which derive from the equivalent terms in the IA-CEPA.

In addition to the materials being issued by DFAT, Austrade and the ABF, the private sector in Australia is also contributing to the education of those seeking to use the IA-CEPA. I have already delivered Continued Professional Development (CPD) sessions for the Customs Brokers and Forwarders Council of Australia on the general terms of the IA-CEPA with a further. No doubt those providing services to industry such as software to enable reporting of the movement of goods through the ABF systems will be developing new versions to that software to incorporate the terms of the IA-CEPA.

Not only does the start of the IA-CEPA augur well for trade in the region, but it also gives cause for optimism on the broader regional trade agenda. That can follow both through the commencement of the RCEP and the steps being taken by Indonesia to consider acceding to the Comprehensive and Progressive Trans-Pacific Partnership (or TPP 11). On its own, the IA-CEPA is a significant achievement but its implementation in such difficult times has a broader significance, representing “signs of life” that the regional and global trade agenda will continue.

Preliminary Details of the IA-CEPA

As with most FTAs, much is in the detail of those agreements and the way in which they are implemented. The DFAT website2 on the IA–CEPA includes some general commentary, as follows:

  • IA-CEPA creates a framework for Australia and Indonesia to unlock the vast potential of the bilateral economic partnership, fostering economic co-operation between businesses, communities and individuals.
  • Indonesia is a growing market for Australian goods and service exporters. In 2018-19, total two-way trade in goods and services with Indonesia was worth $17.8bn, making Indonesia our 13th largest trading partner. IA-CEPA will provide Australian and Indonesian businesses an opportunity to expand and diversify this economic partnership.
  • As one of the fastest-growing economies in the Indo-Pacific, Indonesia presents a significant opportunity for Australian businesses. By some estimates, Indonesia will be the world’s fifth-largest economy by 2030, and IA-CEPA ensures Australia is well-placed to deepen economic co-operation and share in Indonesia’s growth.
  • As strategic partners and the two largest economies in south-east Asia, the agreement also complements and supports our shared interest in fostering a secure and prosperous region.

The trade ministers on 7 May 2020 also included the following general comments1:

“The economic stresses being caused by COVID-19 in both Australia and Indonesia make this agreement even more important, as it will provide an opportunity to better stimulate growth and investment across both nations during the recovery phase.

“With a population of over 260m and one of the fastest-growing economies in the world, Indonesia presents significant trade and investment opportunities for Australian farmers and businesses.

“For example, under the deal, producers of grains, live cattle and meat, dairy and horticulture, and many other products will benefit from lower tariffs and improved access to Indonesian markets.”

Rigby Cooke’s Customs and Trade team are well placed to assist you with any questions you may have on the IA-CEPA and how it may affect your business.

1. “Free trade deal with Indonesia set to kick-off on 5 July”.
2. Indonesia-Australia Comprehensive Economic Partnership Agreement.

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