INDONESIA-EFTA CEPA 2021: IMPLEMENTATION IN TRADE & INVESTEMENT

Writer: Hendra Manurung is currently a doctoral candidate in International Relations at Padjadjaran University, Bandung, West Java

Switzerland, Liechtenstein, Norway and Iceland as EFTA countries are ideal partner due to their high purchasing power markets as well as having the value of large foreign investment to most developing countries. It can be used as an entry point for Indonesia’s trade advantages in goods, services and investment in continental Europe, and the potential export destination with products complementary. The IE-CEPA Agreement benefits for Indonesia are enormous due to Indonesia’s market access expansion to EFTA countries and accelerating the competitiveness quality of Indonesian products. The cooperation between the five countries, involving Indonesia, Switzerland, Iceland, Norway, and Liechtenstein will not harm each other. In fact, there are many benefits that can be obtained, particularly with the zero-tariff policy which is applied to almost 99 percent of Indonesian products exports to EFTA countries.

Indonesia is currently offering EFTA countries commitments in 5 (five) potential investment sectors, namely: 1) agriculture, 2) mining, 3) manufacturing, 4) energy, 5) clean water supply. Indonesia and the European Free Trade Association Comprehensive Economic Partnership Agreement, known as IE-CEPA are targeted to be rolled out in semester II-2021. Indonesian Ministry of Trade and the Chamber of Commerce and Industry of Indonesia continue to finalize the implementation of investment and trade in the four countries that are members of the European Free Trade Association or EFTA.

The four countries are Switzerland, Norway, Iceland and Liechtenstein. In the trade sector, Indonesia will get a 0 percent tariff on the elimination of 7,042 tariff posts or 81.74 percent of the total tariff posts from Switzerland and Liechtenstein, 8,100 tariff posts (94.28 percent) from Iceland, and 6,388 tariff posts (99.94 percent ) from Norway. Through the IE-CEPA cooperation forum, it is likely that Indonesia’s industrial and business sectors can generate exports and gain foreign investment from Europe to support the acceleration of national economic growth. Previously, on March 22, 2021, the Indonesian government and the People’s Representative Council of the Republic of Indonesia officially passed the Draft Law on the Comprehensive Economic Partnership Agreement between the Republic of Indonesia and the EFTA States aka the Comprehensive Economic Partnership Agreement between the Republic of Indonesia and EFTA Countries). In the trade sector, Indonesia can take advantage of a 0 percent rate to boost exports of competitive products to the four EFTA countries.

The Swiss government imposes tariffs of 0 percent for a wide range of gold products and jewellery, textiles, footwear, two-wheeled vehicles, and essential oils. While the government of Iceland, has imposed a tariff of 0 percent for the products of Indonesian export commodities, such as coffee products, footwear, fish oil, fish, shrimp, paper, and furniture.

Moreover, in the investment sector, the Indonesian government has offered commitments in 5 (five) potential investment sectors consisting of 182 sub-sectors. The five strategic sectors include agriculture, mining, manufacturing, energy, and the provision of clean water. Until now, Indonesia has ratified IE-CEPA through Law Number 1 of 2021 concerning the Ratification of IE-CEPA. Currently, Indonesia only has to complete 2 (two) derivative regulations, namely a) regulations of the minister of trade and b) regulations of the minister of finance.

Indonesia-European Free Trade Association Comprehensive Economic Partnership Agreement or Indonesia-EFTA CEPA or IE-CEPA is economic cooperation between Indonesia and the EFTA group of countries consisting of Iceland, Liechtenstein, Norway, and Switzerland. Indonesia’s agreement with an EFTA country is Indonesia’s first comprehensive economic agreement with a country in Europe. In addition to increasing exports, investment and market access to the European continent, IE-CEPA is expected to raise the profile and positive campaign for Indonesian palm oil products globally and encourage the acceptance of sustainability standards for Indonesian palm oil (ISPO) by Switzerland.

In the future after the enactment of the National Bill on IE-CEPA, the government will make supporting regulations to implement IE-CEPA in the form of a Minister of Finance Regulation regarding the procedures for imposition and determination of import duty rates, as well as a Regulation of the Minister of Trade regarding the provisions of a certificate of origin. This comprehensive agreement consists of 12 chapters, 17 attachments, and 17 additional documents from the appendix covering issues of trade in goods and services, investment, protection of intellectual property rights, procurement of government goods and services, and cooperation and capacity building. The IE-CEPA Agreement is Indonesia’s first trade agreement with countries on the European continent. In addition, the Government of Indonesia should immediately prepare strategic steps through coordination efforts with relevant ministries and agencies, as well as stakeholders to implement IE-CEPA which is targeted at the beginning of the second quarter of 2021.

Henceforward, with the passage of the draft law into National Law, the Indonesian Parliament has carried out the constitutional mandate because IE-CEPA and the Omnibus Law is expected able to promote economic transformation and improve public welfare, particularly in promoting post-Covid-19 national economic recovery. IE-CEPA is the initiation of negotiations between Indonesia and EFTA countries starting in 2005 through the establishment of a joint feasibility study, which was followed by negotiations since 2011. Negotiations were suspended in 2014 and reactivated in 2016. The IE-CEPA was signed on 16 December 2018 in Indonesia by the Indonesian Minister of Trade and Ministers representing EFTA countries. This agreement also covers issues of trade in goods and services, investment, protection of intellectual property rights, procurement of government goods and services, and cooperation and national capacity building.

In 2018, the IE-CEPA negotiations have been going on intensively for 8 years since 2010, where the longest CEPA negotiations have ever had by Indonesia to date. Indonesian business actors should seriously optimize the CEPA with the EFTA countries that have been struggling for a long time because based on a survey some of the free trade agreements have stalled or are not being properly utilized. The IE-CEPA negotiations lasted for eight years before finally being declared substantively concluded by negotiators at a meeting in Bali on 29 October to 1 November 2018, and declared final by the Ministers on 23 November 2018 in Geneva, Switzerland. Previously, Indonesia had signed a CEPA with Chile in December 2017 in Santiago. In fact, in 2019 most international events also covers dangerous clashes between major powers in the Middle East and in South Asia. Missile strikes, proxy attacks and challenges to freedom of navigation in the Persian Gulf in mid-2019 raised the possibility of Iran going to war with Saudi Arabia and other regional powers, and potentially with the United States. While India and Pakistan as neighbouring countries also disputed over Kashmir and escalated to open conflict. In Asia-Pacific, these two countries are nuclear-armed states. Henceforth, in both cases, the situation eventually calmed, but not as a result of traditional crisis management. Therefore, in 2019 there were no gains and some further setbacks in nuclear arms control. The USA withdrew from the 1987 Treaty on the Elimination of Intermediate-Range and Shorter-Range Missiles (INF Treaty) and Russia formally suspended its obligations under it. Uncertainty continued about whether the Moscow and Washington bilateral 2010 Treaty on Measures for the Further Reduction and Limitation of Strategic Offensive Arms (New START) would be extended beyond its current expiry date of February 2021. Additionally, discussions on denuclearization between the Democratic People’s Republic of Korea (North Korea) and the USA lost traction during 2019 and by the end of the year, the Iran nuclear deal (2015 Joint Comprehensive Plan of Action) was largely non-functional. Amid the threat of sanctions by European countries to Belarus in the midst of 2021, the arrest of Roman Protasevich, one of the Belarussian dissidents who have been a constant thorn in Lukashenko’s side. Protasevich was pulled off the plane, along with several other Belarusian and Russian nationals. Vilnius has become a hub of opposition to Lukashenko’s rule, with Lithuania rejecting Lukashenko’s legitimacy and providing support and protection to exiles. However, sooner or later, it turns Belarus will become Europe’s North Korea issue.

Switzerland has gained the support of the Senate on December 20, 2019, and followed by a public referendum on March 7, 2021, to implement the IE-CEPA. In IE-CEPA negotiations, Switzerland agreed to accept the certification of sustainable palm Indonesia, the Indonesia Sustainable Palm Oil (ISPO). As for Norway and Iceland has completed their ratification on December 13, 2019, and January 29 2020. Liechtenstein is still in the process of ratification.

Indonesia has full confidence through the implementation of the IE-CEPA implementation in the Comprehensive Economic Partnership Agreement. In the future, it will bring Indonesia’s economy to be stronger, more competitive, and attractive to investors from EFTA’s developed countries. The government needs to take strategic policies to face global challenges which are currently full of uncertainty and promote economic recovery after the Covid-19 pandemic. One is through the Agreement’s IE-CEPA.