Leslie Massey
Australia and Indonesia have been working towards a free trade agreement since bilateral trade negotiations began in November 2010. The Indonesia–Australia Comprehensive Economic Partnership Agreement (IA-CEPA) is a bilateral agreement signed between the two countries in March 2019, which came into force in July 2020. The agreement contains a free trade agreement removing tariffs from nearly all products traded between both countries, in addition to loosening investment regulations in Indonesia for Australian firms and increasing the quota for Indonesians seeking vocational training in Australia.
| Characteristics | Values |
|---|---|
| Name of the agreement | Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) |
| Date of coming into force | 5 July 2020 |
| Purpose | To create a framework for a new era of closer economic engagement between Australia and Indonesia and open new markets and opportunities for businesses, primary producers, service providers and investors |
| Key sectors | Agriculture, education, tourism, energy and mining services |
| Trade benefits | 99% of Australian goods will enter Indonesia duty-free or under significantly improved preferential arrangements |
| Trade benefits | Indonesia will guarantee automatic issue of import permits for key products including live cattle, frozen beef, sheep meat, feed grains, rolled steel coil, citrus products, carrots and potatoes |
| Trade benefits | Australia will immediately eliminate remaining tariffs on Indonesian imports |
| Skills Exchange | Professionals from both countries can gain 6 months of experience in the other's market |
| Skills Development Exchange Pilot | Businesses from Australia and Indonesia can send employees to undertake workplace placements for up to twelve months in the other country |
| Investor-state dispute settlement clauses | Allows foreign corporations to bypass local courts and sue governments for millions of dollars in extra-national tribunals if they believe a change in law or policy will harm their investment |
| Labour rights and environmental standards | No chapters committing both governments to implement basic labour rights and environmental standards |
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What You'll Learn
The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA)
Under the IA-CEPA, Australia and Indonesia have agreed to eliminate tariffs and improve market access for each other's goods. Over 99% of Australian goods exports by value to Indonesia will enter duty-free or under preferential arrangements, and Indonesia will guarantee the automatic issue of import permits for key products, including live cattle, frozen beef, sheep meat, feed grains, and citrus products.
The agreement also includes provisions for a reciprocal Skills Exchange program, allowing professionals from both countries to gain experience in each other's markets and strengthening cooperation and understanding. Additionally, IA-CEPA will support stronger value chains between Australian and Indonesian businesses and enhance technical cooperation in specific sectors.
The IA-CEPA builds on existing multilateral and regional agreements, including the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA). However, the AANZFTA arrangements remain unchanged, and businesses can continue to use it alongside the IA-CEPA. The IA-CEPA is subject to periodic review to take into account developments in both countries and the broader bilateral partnership.
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The ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA)
The AANZFTA Upgrade, signed in 2023, maintains Australia's competitive edge in Southeast Asia and is ground-breaking for Australian exporters looking to diversify. The upgrade establishes new regional rules of origin that make it easier and less costly for businesses to access AANZFTA's benefits. New accumulation rules give traders more flexibility in sourcing and shipping inputs, promoting greater integration into regional and global supply chains. The upgraded AANZFTA also includes a standalone consignment provision that provides for transhipment and offers a clearer and broader scope for goods to retain their originating status when transiting through countries outside of AANZFTA.
AANZFTA Product Specific Rules (PSR) are rules that specify that the materials used to produce the goods have undergone a change in tariff classification, a specific manufacturing or processing operation, or satisfy a regional value content criterion. Traders and exporters can enjoy preferential tariff treatment under the AANZFTA, but goods must comply with the AANZFTA Rules of Origin. A Certificate of Origin can be obtained in accordance with the Operational Certification Procedures, which ascertain that the goods being exported to another AANZFTA Party are eligible for preferential treatment.
The AANZFTA also includes new rules on Telecommunication Services, committing Parties to safeguard telecommunications service providers' right to resale and supporting new entrants in the market. The upgrade supports clear domestic regulation to help keep markets competitive and transparency of telecommunications disputes resolution processes.
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Reciprocal skills exchange
The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) is a free trade agreement that entered into force on 5 July 2020. It builds on the existing ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) and provides a framework for increased economic cooperation between the two countries.
As part of this agreement, Australia and Indonesia have agreed to a reciprocal Skills Exchange. This allows professionals from both countries to undertake workplace placements for up to six months in the other country. The Skills Development Exchange Pilot aims to strengthen cooperation and understanding between Australia and Indonesia while providing participants with the opportunity to develop their workplace skills.
The reciprocal Skills Exchange is a significant component of the IA-CEPA, fostering greater collaboration and mutual understanding between the two countries. By allowing professionals to gain experience in each other's markets, the Skills Exchange facilitates the transfer of knowledge, expertise, and cultural insights. This, in turn, can lead to enhanced productivity, innovation, and competitiveness in both countries.
The Skills Exchange covers a wide range of sectors, including agriculture, education, tourism, financial services, mining, and energy. These sectors have been identified as key areas for economic cooperation and present significant opportunities for growth and development. By facilitating the exchange of skills and knowledge in these sectors, the program promotes the sharing of best practices, technological advancements, and innovative solutions.
Furthermore, the reciprocal nature of the Skills Exchange ensures a balanced and mutually beneficial arrangement. It recognises the value of the expertise and talent present in both countries and encourages a two-way flow of knowledge and experience. This approach not only strengthens the economic partnership but also contributes to building a robust foundation for long-term collaboration and cooperation across various sectors.
Overall, the reciprocal Skills Exchange under the IA-CEPA is a testament to the commitment of Australia and Indonesia to foster economic cooperation, enhance mutual understanding, and create sustainable growth opportunities for their respective businesses, communities, and individuals.
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Elimination of tariffs on Indonesian imports into Australia
The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) entered into force on 5 July 2020. It is a comprehensive agreement that builds on existing multilateral and regional agreements, including the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA). Under the IA-CEPA, Australia agreed to the immediate elimination of all remaining tariffs on Indonesian imports. This means that over 99% of Australian goods exports by value to Indonesia will enter duty-free or under significantly improved preferential arrangements.
The Australian government has highlighted the benefits of this agreement for Australian exporters, particularly farmers and businesses. For instance, the agreement guarantees the automatic issue of import permits for key products, including live cattle, frozen beef, sheep meat, feed grains, rolled steel coil, citrus products, carrots, and potatoes. This provides a competitive edge for Australian exporters in Indonesia, which is one of the world's fastest-growing economies with a population of over 260 million and a growing middle class.
The IA-CEPA also includes a framework for trade and investment-related cooperation through a jointly funded work program. This joint work program aims to strengthen commercial links and stimulate two-way investment. It will support technical assistance and capacity-building activities across various trade-related areas. Additionally, the agreement provides new mechanisms to address non-tariff barriers and boost several service sectors, including education, tourism, financial services, mining, and energy.
However, it is important to note that the IA-CEPA has faced some criticism. There are concerns about the absence of commitments to implement basic labour rights and environmental standards as defined in United Nations agreements. The agreement also includes investor-state dispute settlement clauses, which give foreign corporations the right to bypass local courts and sue governments in extra-national tribunals if they believe their investments are harmed by changes in laws or policies.
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Investor-state dispute settlement clauses
The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) is a free trade agreement between Australia and Indonesia that entered into force on 5 July 2020. It builds on the existing ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA).
IA-CEPA includes investor-state dispute settlement clauses, which are a mechanism in a free trade agreement (FTA) or investment treaty that provides foreign investors with the right to access an international tribunal to resolve investment disputes. ISDS allows foreign investors in Australia or Australian investors overseas to seek compensation for certain breaches of a country's investment obligations. For example, this could include breaches of obligations on the expropriation of a foreign investor's property, non-discrimination and minimum standards of treatment, or a commitment to ensure foreign investors can freely move capital relating to their investments.
ISDS is controversial, as it gives foreign corporations the right to bypass local courts and sue governments for millions of dollars in extra-national tribunals if they believe a change in law or policy will harm their investments. For instance, in 2011, Philip Morris Asia challenged Australia's tobacco plain packaging legislation through an ISDS tribunal, although the tribunal ruled that it had no jurisdiction to hear the claim.
Indonesia has stated that it plans to let treaties with ISDS clauses lapse when they need renewal. In 2014, Australia also announced that it would discontinue the practice of seeking inclusion of ISDS provisions in trade agreements with developing countries, as it does not support provisions that would confer greater legal rights on foreign businesses than those available to domestic businesses. Australia's IPPA with Indonesia, which included ISDS, was terminated on 6 August 2020.
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Frequently asked questions
The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) is a free trade agreement between Australia and Indonesia that entered into force on 5 July 2020. It provides a framework for both countries to strengthen their economic, trade, and investment relationships.
The IA-CEPA provides new export opportunities for Australian farmers, businesses, and investors. It also improves access to the Indonesian market, with over 99% of Australian goods entering Indonesia duty-free or under preferential arrangements.
The IA-CEPA provides Indonesian businesses, primary producers, service providers, and investors with improved access to the Australian market. Indonesia will also benefit from economic cooperation and knowledge sharing with Australia, one of the strongest-performing economies in the world.
The IA-CEPA covers a range of sectors, including agriculture, education, tourism, energy, and mining services. It also includes provisions for addressing non-tariff barriers and improving digital trade.
The IA-CEPA was signed by Australia's Trade Minister Simon Birmingham and his Indonesian counterpart Enggartiasto Lukita. However, for it to come into force, the implementing legislation must be passed by both the Australian and Indonesian parliaments.
