Jakarta. As 2024 comes to a close, Indonesia has made notable strides in its efforts to bolster exports, despite some lingering trade negotiations. The Southeast Asian economic powerhouse has managed to achieve significant progress with key bilateral trade agreements while tackling longstanding barriers.
Easing Trade Barriers with Canada
Indonesia’s trade landscape gained a monumental boost when it signed a substantive conclusion for the Indonesia-Canada Comprehensive Economic Partnership Agreement (CEPA) in December. After three years of negotiations, this deal aims to dismantle substantial trade obstacles between the economies.
This agreement is expected to spur increased investments in critical sectors such as mining, manufacturing, and agriculture. FDI inflows from Canada have already totaled $357.4 million in the first nine months of 2024, supporting over 600 projects.
Indonesia-EU CEPA Postponed Again
In contrast to the progress with Canada, negotiations for a Comprehensive Economic Partnership Agreement with the European Union remain unresolved. These talks, which began in 2016, have faced numerous hurdles, including legal disputes and regulatory issues.
The EU’s ongoing restrictions on palm oil imports from Indonesia due to deforestation concerns have further complicated matters. Despite occasional progress, significant issues such as export and import limitations and investment terms remain unaddressed.
The prolonged negotiation period has had economic impacts, with Indonesian businesses potentially losing around $1.6 billion in exports to Europe without a finalized CEPA.
CPTPP: Following in UK’s Footsteps
Indonesia has expressed interest in joining the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP), aiming to expand its markets to regions like Latin America. In September, Indonesia officially submitted its request for membership.
With the UK recently joining the CPTPP, Jakarta is looking to leverage this momentum. Indonesia’s exports are forecast to increase by 19% upon joining, thanks to the trade bloc’s tariff elimination policies.
The government does not set a strict deadline for CPTPP membership, but Trade Minister Budi Santoso has indicated their ambition to join “as soon as possible.”
More Doors to Non-Traditional Markets
Indonesia continues to explore other trade pathways beyond its traditional partners. One such initiative is the proposed Partnership Trade Agreement (PTA) with Sri Lanka, expected to be finalized by March.
Upgrades to existing trade agreements are also underway. Talks with Chile aim to expand the current Comprehensive Economic Partnership Agreement to include sectors such as the digital economy and critical minerals. This step is crucial given Indonesia’s extensive mineral resources like nickel and bauxite.
ASEAN, China Getting Closer
Regional integration efforts within ASEAN have seen the bloc finalize major trade upgrades with China. The revised agreement will cover new sectors like digital and green economies, offering Indonesian businesses greater access and certainty.
China’s growing trade share within ASEAN highlights the significant economic ties, with Indonesian exports to China reaching nearly $48 billion in 2023.
What to Expect in 2025
2025 promises several key developments. Indonesia is expected to sign trade agreements with Peru and the Eurasian Economic Union. However, the fate of the Indonesia-EU CEPA remains uncertain and presents a significant challenge for ongoing economic diplomacy.
Indonesia must also capitalize on its current trade surplus, which has reached $4.4 billion, by widening the gap between imports and exports. Leveraging existing trade pacts such as the Regional Comprehensive Economic Partnership (RCEP) will be crucial in maintaining this momentum.
The coming year will test Indonesia’s ability to navigate complex trade dynamics and capitalize on emerging opportunities. With strategic decisions and proactive diplomacy, the nation can continue its path of economic growth and integration.
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