Unboxing IA-CEPA: How Will It Affect Indonesia on Trade and Beyond?

After a long wait, Indonesian parliament finally ratified Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA). In 10th of February 2020, Indonesian President, Joko “Jokowi” Widodo, went to Australia to share the good news himself with his Australian counterparts.

IA-CEPA itself is very ambitious. Most of Indonesia’s current Free Trade Agreements (FTAs), with the exception of AFTA (ASEAN FTA), covers mainly just tariff liberalization. IA-CEPA covers not just tariffs, but also Non-Tariff Measures (NTMs), trade in services, investment, and future economic cooperation. To supervise the agreement, it will require the establishment of a Joint Committee with several other committee and sub-committee for the required chapters.

Some benefit of the agreement is already covered by the news. Some include a significant tariff cuts, opportunities for Indonesian textiles and machinery industries, and Fast-Moving Consumer Goods (FMCGs), mostly about trade in goods. It is quite well known that IA-CEPA will speed up the progression of tariff reduction between the two countries. From Indonesia’s side, I think this isn’t hard to do, only require a change in Ministry of Finance’s regulation.

While we import only a handful of goods from Australia, they are our important source of grains and beef. Indonesia protect these goods not only by introducing tariff, but also other measures such as quota restrictions and standard requirement such as the Standar Nasional Indonesia (SNI). A change in these so called Non-Tariff Measures (NTMs) may be much more important than tariff, since our tariff is already quite low. Furthermore, it would require revision of more than just one ministry’s regulation, which can be tricky.

IA-CEPA indeed has a chapter on NTM, Sanitary and Phytosanitary (SPS), and Technical Barrier to Trade (TBT), but the content seems too general to know whether the quota restriction, for example, would be abolished straight away. These chapters are mainly covering a way to make a dispute out of NTMs and encouraging standard harmonization, but not much else.

Trade in services is also included in the agreement, something that Indonesia has never done before. We don’t get to trade a lot of services with the Downunder, but Indonesia is one of Australia’s main destination for tourism, and Australia is quite well-known to be Indonesian’s main destination to pursue an academic degree.

In fact, Education is perhaps the most famous service sector that we hear from IA-CEPA. It is said that IA-CEPA will allow Australian University to be established in Indonesia. In fact, Monash University has announced it will be the first Australian education institution to earn a permit to be operated in Indonesia, serving master and PhD programmes.

Interestingly, education sector’s liberalization is already mentioned in the article 90 of Undang-Undang (UU) Nomor 12 Tahun 2012 Tentang Pendidikan Tinggi. The permit that Monash Uni is talking about is perhaps due to the implementation of the Peraturan Menteri Nomor 53 Tahun 2018, a follow up regulation from UU 12/2012. Indeed, what IA-CEPA would allow is for Monash to be established in Indonesia without having to have a local partner. It will be 100% Monash.

Chapter 9 covers Trade in Services in general, not just in education services. This chapter would allow both countries to deliver service to their part without having to have a local presence. It seems like a very liberal approach. However, Chapter 9 (and also chapter 14 about investment) brings with it a list of exceptions in its annex. The exception is quite extensive, it basically changes nothing. Australia is already a quite liberal country, and Indonesia seems to be reluctant to opening-up.

With that being said, IA-CEPA does have lex specialis chapters for trade in services. They are telecommunications, financial services, and E-Commerce. The three have their own chapters with many specialized paragraphs. For instance, in the telecommunication chapter, there are measures to encourage interconnection among service providers, access to facilities owned by major suppliers, and measures to prevent bundling and anti-competitive behavior by major suppliers, something that is not exist in other chapters. It seems that the writer of the telecommunication chapter understands clearly about Indonesia’s market structure in telecommunication service.

The tone of financial services and e-commerce chapters are a bit different. These two chapters cares more on ensuring consumer protection, that all firms would play by the same rules. Things like privacy protection, online consumer protection, ensuring consent while trading, and legalizing electronic documents would benefit Indonesia greatly, I believe. Other thing to note is both countries’ firms will be allowed to deliver their services without having to have a local presence, such as a representative office or a server. There are more to celebrate from the IA-CEPA. Many on its chapters require the two governments to be transparent. All government regulations and procedure to acquire license and what-nots must be published in the internet. The Joint Committee would ensure both parties get the help that they need to reach the transparency. This is a welcoming change, given the user experience of Indonesia National Single Window (INSW) is nowhere near its counterpart.

Harmonization of standard would allow us to pursue the frontier economy. This is not only in terms of goods (SPS and TBT), but also measures such as promoting fairness, data protection and privacy. Professional qualification harmonization is also embedded in the Chapter 9. Professionals from the two countries such as doctors, accountants, engineers and others, are encouraged to collaborate in a working group to pursue a harmonization of qualification.

IA-CEPA is an ambitious agreement filled with caveats. It is not perfect, but it is a good starting point to redefine the relationship of both countries. It will test how Indonesia manage an active economic partnership agreement that covers beyond tariff. But perhaps, in the world filled with the world barring each other from free trade, IA-CEPA is a very welcoming sight.

Written on February 19, 2020