On February 10, 2020, Indonesia and Australia ratified the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA).
The framework of the IA-CEPA is based on five principles: enhancing economic and development partnerships, connecting people through social, arts, and cultural collaboration, maritime cooperation, and contributing to the prosperity and stability of the Indo-Pacific region.
Two-way trade between Indonesia and Australia reached US$11 billion in 2018. This is dwarfed by China’s total trade value with both countries (US$27 billion and US$180 billion) in the same year.
The IA-CEPA thus presents untapped opportunities to diversify and deepen the economic partnership, particularly as Indonesia is predicted to be the world’s fifth-largest economy by 2030. Foreign investors should seek the help of registered legal advisors to help them better understand.
Key features of the IA-CEPA
Additionally, Indonesia and Australia have agreed to a skills development package, which includes a skills exchange program and technical assistance to improve the institutional capacity building.
Services and investment
The increased market access for services and investments laid out in the agreement will mean Australian companies can enjoy majority ownership of businesses in specific sectors in Indonesia.
The sectors include:
- Professional services – urban planning, architectural, engineering and surveying;
- Construction services;
- Education – university education, vocational training;
- Energy – geothermal plants, electrical power installation, and construction, power plants (more than 10 MW), oil and gas platform construction;
- Wastewater management;
- Transport – highways, railways, bridges, tunnel concessions;
- Mining services – contract mining, mine site preparation;
- Healthcare – large hospitals, pathology, paramedic and dental specialist services; and
- Tourism – majority ownership of three, four, and five-star hotels, restaurants, cafes and bars, tourism consultancy, tour operators.
Indonesia and Australia will allow people with tertiary level education to gain six months of experience in each other’s markets. This will initially apply to those in the field of finance and insurance, mining, healthcare, infrastructure development, engineering, and information and telecommunications. The aim of this program is to help businesses develop the capabilities of their staff as well as promote cultural awareness.
Australia will also increase the number of work and holiday visas for Indonesians from 1,000 to 4,100 per year. This will eventually reach to 5,000 within six years.
Australian businesses can own a majority share in investments in the vocational education and training sector. The subjects open are:
- Information technology;
- Engineering; and
- Business administration
Agricultural products and livestock
The IA-CEPA will improve market access for goods from both countries by easing technical barriers to trade. Nearly all goods exported to each other’s markets will be duty-free or have reduced tariffs. Further, Indonesia will also automatically issue import permits for products such as:
- Feed grains;
- Citrus fruits;
- Carrots and potatoes;
- Sheep meat;
- Frozen beef; and
- Live cattle – Indonesia is Australia’s largest customer for live cattle, importing 675,000 in 2019.
The IA-CEPA will open doors for Indonesian exports of electric and hybrid cars as they will be subject to very liberal rules of origin requirements.
Protecting investors and investments
The IA-CEPA includes an Investor-State Dispute Settlement (ISDS) chapter, which protects investors by providing access to an independent arbitral tribunal to solve disputes. Other safeguards to protect investors include:
- Protection against discrimination;
- Guarantee investors and their investments will be treated in accordance with international law;
- Fair compensation for businesses that have been expropriated; and
- Assurance that investment-related capital transfers occur freely.
Facilitating electronic trade
Both countries are to assist small and medium-sized enterprises (SMEs) to facilitate trade through the use of e-commerce platforms. The IA-CEPA contains a commitment to protecting personal information during online transactions, developing regulations that foster e-commerce, and developing cybersecurity capacity.
Furthermore, Indonesia and Australia have agreed that businesses will not be required to store data locally – including through cloud computing – within a country. This chapter is advantageous for Australian businesses as Indonesia’s recently introduced law on e-commerce obligates online marketplaces to store their data in Indonesian data centers.