Indonesia-Japan Free Trade Deal Takes Effect

9 July 2008

A free trade agreement between Indonesia and Japan took effect on 1 July. The deal slashes tariffs on most goods traded between the two nations and allows Indonesian nurses to work full-time in Asia's largest economy.

The trade deal, for which negotiations began in July 2005 and concluded in August last year, eliminates tariffs on approximately 92 percent of trade between the two nations. In the first phase of the agreement, Tokyo will remove 80 percent of its tariffs, while Jakarta will remove 58 percent. Over the next 10 years the two countries will make further reductions of 10 percent and 35 percent, respectively.

Abolishing tariffs is expected to boost Japanese exports of steel, cars, automotive components and electronic goods to Indonesia. Meanwhile, Tokyo is reducing tariffs on many Indonesian agricultural products and removing all duties on most clothing, footwear and timber products.

Moreover, the deal marks the first time that Tokyo has allowed foreign nurses and health care specialists to work in Japan on a full-time basis. Under the terms of the accord, Jakarta will provide workers over the next two years to help ease a staff shortage in Japan.

Perhaps the most prominent feature of the economic accord is a provision that ensures the stable supply of energy - crude oil and natural gas - from Indonesia to Japan. Indonesia is the chief supplier of natural gas to Japan, accounting for about one-third of its natural gas supply, and its sixth-largest exporter of crude oil. Altogether, natural gas, crude oil and coal account for about half of Japanese imports from Indonesia.

Thus, the trade pact will build on an already substantial economic relationship between the countries. Japan comprised 22 percent of Indonesia's export revenue in 2006 and is the Southeast Asian nation's largest trading partner. However, the effect of the trade deal may be diluted by the exclusion of certain items, particularly rice, and Indonesia's uncertain business environment, which may deter Japanese investors.

To date Japan has negotiated free trade deals with Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand as well as the Association of Southeast Asian Nations.

ICTSD reporting; "Japan and Indonesia trade deal takes effect," ANTARA NEWS, 7 July, 2008; "Japan-Indonesia FTA takes effect," KYODO, 2 July, 2008; "Indonesia and Japan sign a comprehensive free-trade pact," THE ECONOMIST, 23 August, 2007; "Japan, Indonesia wrap up free trade negotiations," THE ASSOCIATED PRESS, 13 October, 2006.

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