How will Indonesia benefit from IA-CEPA?

The long overdue IA-CEPA trade agreement will finally be signed by the end of the year, according to Australian PM Scott Morrison during his visit to Indonesia earlier this month. While details of the agreements have not been fully disclosed, it has been reported that the Australian education and agricultural sectors will greatly benefit. But what’s in it for Indonesia?

Human resources development

Indonesians will have access to in-country Australian universities, among other new opportunities. According to the IA-CEPA Fact Sheet from the Ministry of Trade, the agreement will benefit capacity building of Indonesian human resources through:

1. A quota increase for work holiday visas (sub class 462) to Australia of 5 per cent, or up to 5,000 people per year.
2. Employee exchanges between companies for transfer of knowledge.
3. A Mutual Recognition Agreement (MRA) for the Indonesian workforce, starting with engineering professions, to increase the standards and competencies of Indonesian migrant workers to an international level, as well as increasing competitiveness and market access for Indonesian medium- and high-skilled workers.
4. Internship programs for 200 Indonesian citizens in nine sectors, including education, tourism, telecommunications, infrastructure, health, energy, mining, finance and ICT. This will be part of Vocational and Education Training programs under the Ministry of Manpower.

Export increase and tariff exemptions

Recent reports have stated that over 7000 Indonesian products will be exported to Australia without tariffs, including textiles, herbicides and pesticides that were previously charged with a 5 per cent tariff. This will give Indonesia a competitive advantage over other countries such as Malaysia, Thailand and Vietnam that had previously been granted tariff exemptions, particularly for textile products. Other commodities that will benefit from the agreement include wooden materials, coffee, chocolate, paper and machinery. Deputy Chief of KADIN (the Indonesian Chamber of Commerce an Industry) Shinta Widjaja Kamdani stated that businesses in these sectors can expect a 20-per-cent increase in exports to Australia.

According to Indonesia’s Director General of International Trade Negotiations, Mr Imam Pambagyo, some of Indonesia’s flagship products with the potential to do very well in the Australian market are automotive commodities, particularly electric and hybrid cars.  He said, “If our products can enter Australia, then they can enter Commonwealth countries. Our long-term target is to enter the global market.”

Ni Made Ayu Marthini of the Ministry of Trade supported this statement, saying that through IA-CEPA, Australia has agreed to allow imports of electric and hybrid cars with a qualifying value content (QVC) of 35 per cent, a lower percentage compared to other countries. However, a QVC of 40 per cent will remain for exports of conventional cars. Made explained that this is because the global automotive market trend is moving away from fossil fuel-powered cars to environmentally friendly fuel.

In addition, the agreement is expected to encourage the development and growth of Indonesia’s micro, small and medium enterprises. Deputy of the Indonesian Employers Association (Apindo) Shinta Kamdani stated, “This is not just about big businesses. We want to involve SMEs as well.” According to Shinta, Indonesia has many products that could be exported to Australia, from handicrafts and processed foods to fashion and pharmaceutical products. However, while she sees great potential, one of the challenges smaller businesses face, particularly those from rural areas, is that their promotions and packaging are less attractive, and they should therefore be provided assistance to improve in this area. She also stated that the free trade agreement between Australia and Indonesia has not been socialised enough and that awareness among small business owners needs to be increased.’

Ella Nugraha