Enhancing Investment Opportunity in Indonesia through CEPA
INDONESIA – a developing country with so much potential for economic growth in all industries. To uncover and leverage the full potential, Indonesian government are calling out strategic investments from domestic and foreign investors. Such action is strengthened by partnering with various countries, where mutual business interests and prospective cooperation are met.
Indonesia is not a stranger when it comes to partnership with other countries. Indonesia has secured several deals with different countries. At present, Indonesia has pocketed around ten trade and economic agreements, where six of those agreements are sealed through ASEAN. However, most of the agreements are focused on traditional trade, such as tariffs reductions and eliminations.
There are two agreements that wrapped up specific arrangements on investment into a single chapter respectively, which are Indonesia – Japan Economic Partnership Agreement (IJEPA) and ASEAN Comprehensive Investment Agreement (ACIA). IJEPA was signed in 2007 and came into effect in 2008, followed by the signing of ACIA in 2009 and its entry into force in 2012. As IJEPA stated that parties may conduct general review on IJEPA, both Indonesia and Japan is currently reviewing IJEPA and its implementations on certain covered aspects, among others are market access for Indonesia, rules of origin, and movement of natural person.
To provide a better field for investors, Indonesia has been delivering the necessary actions, such as deregulating burdensome regulations, simplifying investment licensing procedures, and promoting transparency. The result of its actions are quite evident: based on the World Bank Ease of Doing Business 2018, the country has jumped 19 ranks (overall) from rank 91 to rank 72. Having said that, there are still lots of homework for Indonesia to tackle. While keep doing the internal work and boosting the improvement process, the Government takes a step forward by putting Indonesia on the front line of many Comprehensive Economic Partnership Agreements (CEPAs) with numerous developed countries.
CEPA is much more than just a traditional free trade agreement (FTA) – CEPA opens up doors for strategic partnership through investment, business collaboration, capacity building and cooperation, and many more. Taking place right now, investment arrangement is negotiated between Indonesia and among others Australia, the European Free Trade Association (EFTA, consists of Switzerland, Iceland, Norway, and Liechtenstein), and the European Union (EU, with its twenty-eight member states).
Many countries all over the world have sealed FTAs with one another – clearly, the benefits of those agreements are quite palpable. For example, Viet Nam has experienced 28% export increase during the first ten months of an FTA with Eurasian Economic Union, not to mention the benefits that are yet to be reaped on technology transfer and localization rate increase from automobile manufacture and assemble joint venture in Viet Nam.
For Indonesia, CEPAs are a huge leap. But then again, there are many reasons and considerations as to why Indonesia should pursue CEPAs. CEPA is a good force for the country’s internal reform. By promoting investment, Indonesia has to complete the homework of making investors comfortable in doing business here, hence it pushes Indonesia to always improve its investment climate. Internal reform on investment would bring positive, domino effects to the country. When it comes to investment from advanced countries, investors would plant their assets, open up new jobs, and subsequently facilitate transfer of technology (goods) and transfer of knowledge (services) directly to the people hired. Standards would be further improved and harmonized, making the goods produced domestically to be competitive in the international market.
CEPAs boost investment in a way that is much broader and deeper, yet simpler than any ordinary foreign direct investment. For a longer-term and fruitful investment, investors are looking for a high-level, cross-sectoral one. To produce a product, investors have to pay attention to every necessary aspect, such as standards, environment, customs, and so on. It is much easier for investors to follow a single agreement (CEPA) rather than several different agreements. CEPA facilitates most procedures for investment, starting from establishing a company, importing materials, manufacturing the goods, marketing as well as exporting the goods, and so on.
What’s more in CEPA, parties set the rules and agree to move forward hand in hand. It is a partnership that aims to succeed together. When one is lacking, the other is there to provide the necessary support through agreed capacity building and cooperation programs. That said, both foreign investors and local companies have to work in partnership to achieve mutual victory in business.
Although CEPA offers worthwhile benefits and Indonesia has worked to ready itself, the country requires certain amount of time for progressive liberalization under CEPA. First thing first, internal work and preparation should be done to ensure that business players, including the small and medium-sized enterprises (SMEs), have the ability and opportunity to succeed in CEPA. In-depth studies on economic and social situation must be carried out, and specific business collaborations must be mapped out and executed well too. Additionally, the Government of Indonesia has the obligation to raise awareness and convey vital information to the Indonesians. Such information should at least enlighten Indonesians on how to benefit from a CEPA, how to start a business collaboration with the trading partners, and how to expand their market access abroad.
It is evident that lowering and eliminating tariffs is not enough to make a country prospers in today’s trade agreement. Although it needs a leap of faith for Indonesia in sealing many CEPAs, the benefits offered on investment is not to be overlooked. With Indonesia’s commitment in boosting its investment field through CEPAs, it is a time for strategic investors to seize this lucrative opportunity in expanding business horizon and to prosper together.
Enhancing Investment Opportunity in Indonesia through CEPA
Published in Investor Daily Indonesia, 20th January 2018
Written by Anindiana Puspitarini & Jessica Callista
Counsel and associate of the Investment, Trade, and Industry Practice Group of Bahar