“Our region, the Indo-Pacific, is now the fulcrum of the global economy” – Scott Morrison

On 4th March 2019, a landmark trade agreement was signed between Australia and Indonesia. Worth approximately USD$11.4 billion in trade value, the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) will open doors on preferential free-flow of trade, capital and ideas that would drive significant economic benefits for the two giant economies in the region. The IA-CEPA, which seeks to facilitate open markets and economic integration between Indonesia and Australia, has been under negotiation since 2010. After nearly ten years, negotiations on the IA-CEPA finally concluded in August last year and the Agreement was signed by the two nations this month. When fully-ratified into force, the IA-CEPA will liberalise trade and open market access between Australia and Indonesia, strengthening economic ties and cooperation. The IA-CEPA is expected to unlock greater trade potentials for the two economies and enhance strategic cooperation in trade, investment, maritime connectivity, as well as boosting many sectors (including e-commerce).

Key Facts on Indonesia:

  • The world’s third largest democracy and fourth most populous country
  • A fast-growing economy, being the third fastest economy in the G20
  • The world’s fastest growing consumer market, with GDP reaching USD$1 trillion in 2017 and is steadily growing at a rate of 5% per annum
  • Expected to be the world’s fourth largest economy by 2030, with GDP predicted to rise to $10.1 trillion (three times of Australia’s)

What IA-CEPA means for Australian and Indonesian businesses:

“A new era of closer economic engagement between our countries”

  • Reduction of trade barriers through preferential or duty-free terms for 99% of Australian goods entering Indonesia, as well as exemption of tariffs for Indonesian exports into Australia
  • Boost Australian agribusiness exports into Indonesia through lower tariffs and improved access to Indonesian markets
  • Expansion of Australian service industries (education, tourism, telecommunications and health) into Indonesia’s growing economy
  • Promote collaboration between industry networks and grow trade opportunities for Australian and Indonesian businesses
  • Increase in bilateral foreign direct investments

Is Your Business Ready to go Regional?

Given Australia and Indonesia’s proximity and economic sizes, mutually open markets facilitated by the IA-CEPA will strategically direct growths for both Australian and Indonesian businesses. Further, given Indonesia’s fast economic development and Australia’s move towards a more service-oriented economy; both countries are uniquely positioned to support one another’s economic progress. IA-CEPA is likely to boost the manufacturing, export, education and agribusiness industries for Australia and Indonesia.

Australia currently has free trade agreements in force with nine other countries, four of which are regional. In 2016, ASEAN’s total GDP was USD$2.5 trillion, with Indonesia accounting for 36.6% of the total. Altogether, Australia’s bilateral investment and trade with ASEAN is worth $224.4 billion and $93 billion respectively, surpassing its trade and investments with the United States, China, Germany and Japan. By 2030, Australia is expected to have FTAs with Asia’s five largest economies (China, India, Indonesia, Japan and South Korea).

More than ever, companies need to be ready to orient their businesses towards regional and international relevance and leverage economic integration opportunities provided by FTAs. IA-CEPA offers a significant gateway for Australian and Indonesian businesses to have a ready advantage within ASEAN market shares.

We will continue to provide more industry updates relating to the IA-CEPA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.