IA-CEPA Increases Indonesian GDP by 0.23%
Written by Maizer   
Thursday, 09 July 2020

The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), which took effect on July 5, could increase the country's Gross Domestic Product (GDP) by 0.23 percent or add US $ 1.65 billion (Rp16.5 trillion) per year, said Foreign Minister Retno Marsudi.


"Under the IA-CEPA agreement, the two countries will enjoy certain preferential market access. We expect an increase in exports of some Indonesian products to Australia, such as textiles, automotive products, electronics, fish products, and communication equipment, "Retno said.


Retno explained that the IA-CEPA not only includes trade and investment agreements but also vocational education, higher education, and the health sector. Indonesia's advantage in the framework of the agreement is the imposition of a 0 percent tax on Australian imports.


Because global trade was disrupted by the COVID-19 pandemic, Indonesia's exports fell 28.95 percent year-on-year (YoY) to US $ 10.53 billion in May. However, the country's exports to Australia still rose 15.69% year on year to $ 920 million in the January-May period, when exports to major trading partners largely fell.


The Indonesian Textile Association (API) expects the IA-CEPA to increase the value of Indonesia's annual textile exports to Australia by 2 to 7 percent from the level before the trade agreement, according to Rizal Tanzil Rakhman, API secretary general on Wednesday. The value of Indonesian textile exports to Australia fell slightly by 1 percent to $ 250.9 million in 2019 from the previous year, according to association data.


The trade agreement is also expected to help the post-pandemic economic recovery of the two countries, especially in terms of trade and investment, according to Retno. Bilateral trade between the two countries is valued at $ 7.8 billion in 2019.


The government also issued three new regulations this year to support the implementation of the agreement, including the Minister of Finance Regulation regarding import duty. Trade agreements are also expected to reduce the entry cost of many goods in Indonesia that buy finished or semi-finished goods from Australia, such as the food and beverage industry.


Australia imported $ 2.11 billion worth of Indonesian products, 1.36 percent of the last total non-oil and gas exports, throughout 2019. On the other hand, Australia sent $ 4.67 billion of commodities to Indonesia, resulting in a $ 2.56 billion trade deficit on the Indonesian side.


Unlike the textile industry, the automotive industry may not directly benefit from a trade agreement because it prioritizes the trade in electric vehicles, which have not yet been produced by Indonesia. Joko Widodo's administration has set a target to start producing electric vehicles in 2021 or 2022.


Australian farmers, among others, also benefit from a trade agreement, which guarantees an export quota of live bulls from Australia to Indonesia with 575,000 in the first year of implementation. The quota will increase by 4 percent every year.


Therefore, trade agreements resolve the uncertainty faced by Australian farmers in planning for production because they need two to three years to raise cattle until they are ready to be slaughtered. Australia is the biggest source of beef imports in Indonesia. The value of Indonesian beef imports from the country grew 12.5 percent in 2019 to $ 362.2 million compared to the previous year.


US $ 1 = Rp 10,000

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