What is the IA-CEPA?

Posted on 5 July, 2020
President Joko “Jokowi” Widodo (right) shakes hands with Australian Prime Minister Scott Morrison (left) in Jakarta. (AFP/Sonny Tumbelaka)

Sunday, 5 July 2020, signified an important date in the Australia-Indonesia relationship as it marks the implementation of the Indonesia-Australia Comprehensive Economic Partnership Agreement or IA-CEPA. This agreement comes into force not only after ten years of negotiations but at an interesting time in global history as COVID-19 has not only restricted international travel but the trading of goods and services. But what’s actually in this agreement and why is there so much hype around it?

The IA-CEPA is anticipated to provide Australian and Indonesian businesses with an opportunity to expand and diversify in each other’s markets and strengthen the existing economic partnership. In the 2018-19 financial year trade in goods and services with Indonesia was worth A$17.8 billion for Australia making it Australia’s 13th largest trading partner. For Indonesia, Australia was also ranked its 13th largest trading partner at a total value of US$7.8 billion in the 2019 financial year. The agreement also goes one step further than a usual free trade agreement to be a comprehensive economic partnership agreement. This means that the agreement does not only concern the trading of goods and services such as agricultural products and natural resources but also vocational education and training (VET), tourism, financial services and much more – making this agreement a comprehensive one! While Australia and Indonesia both have existing trade agreements with other countries around the world and regional trade agreements such as the ASEAN-Australia-New Zealand Free Trade Agreement or AANZFTA, which you may be able to tell from the name includes Australia and Indonesia, this comprehensive economic partnership agreement is the first of its kind for both countries signifying a step forward in the bilateral relationship.

Provisions in 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, dairy, carrots and potatoes, sheep meat, frozen beef and live cattle. Facilitating electronic trade both countries will 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 increasing cybersecurity capacities.

Relating to education not only will VET providers be able to own up to 67% of an investment in Indonesia, up from 49% previously, which would greatly benefit institutions who were considering establishing a campus in Indonesia but there will be several areas where skills development will be tackled by Australian and Indonesian VET providers together, including the development of training packages. On top of this, there will be greater collaboration in the health sector as health professionals and standards committees will convene to collaborate on how Indonesian health standards can be made compatible with Australian standards, and to identify how the nurse education system could be improved so that nurses in Indonesia can graduate with internationally recognised certifications. With education often comes people movement and the IA-CEPA also ensures that the Working Holiday visa scheme will increase from 1,000 spots to 4,100 spots this year and 5,000 in six-years.

As trade often comes with investment, there is minimal regulatory change for Indonesian-investment into Australia as Australia’s investment regulations are already very liberal, however, the IA-CEPA also 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, guarantees 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. There are a number of potential investment opportunities following new streams of trade including investment into the research and development of electronic vehicles and the textile industry as taxes relating to these sectors reduce to zero percent thanks to the IA-CEPA.

The new agreement is being very much welcomed by the business community as Australia and Indonesia look towards how they can best stimulate economic recovery especially as unemployment increased to 7.1% in Australia and in Indonesia is predicted to jump up to 9.2% as the COVID-19 pandemic continues. This decline in employment opportunities is hitting young people looking for a career break especially hard, however, it is hoped that there will be some employment opportunities as a result of this agreement. For those involved in the Australia-Indonesia space, your Indonesian and Australian skills will be crucial in ensuring the relationship is maintained not only so that this economic agreement is taken of advantage of to its fullest extent but so that Australians and Indonesians continue to connect, inform and inspire one another.

Read Australia’s Minister for Trade, Tourism and Investment, Senator the Hon Simon Birmingham’s statement about the IA-CEPA here.

Clarice Campbell is AIYA’s National President and is based in Jakarta as the Director of TAFE Victoria, Southeast Asia at the Victorian Government Trade and Investment Office.

Clarice is the AIYA National President. Loves a good nongkrong about all things Indonesia over a kopi pahit or two.