Indonesia Comprehensive Economic Partnership Agreement

Introduction

The United Arab Emirates (UAE) and the Republic of Indonesia, (Indonesia) Comprehensive Economic Partnership Agreement (CEPA) was signed on 1 July 2022 and officially entered into force on 1 September 2023. To enforce CEPA in UAE, the UAE Federal Decree No. 178 of 2022 and a notice from Federal Authority for Identity, Citizenship, Customs and Port Security were issued. 

CEPA aims to strengthen economic relationships and increase bilateral trade between the UAE and Indonesia by establishing a free trade area, eliminating, or reducing tariffs, removing trade barriers, and providing a favorable climate for trade. 

As an all-inclusive agreement, CEPA addresses trade in goods, trade in services, protection of intellectual property rights, government procurement, digital trade, investment facilitation, and Islamic economy with the aim of promoting trade and investment.

Trade in goods

The agreement is composed of 18 chapters with several clarifying annexes attached, covering various aspects of trade and investment between the two countries. Chapters 2, 3, 4, 5, 6, and 7 address trade in goods and are, accordingly, the most relevant from customs and global trade perspective.

It has covered more than 90% of tariff lines and 94% value of trade providing better market access for UAE products to Indonesian market.

CEPA specifies three categories of Preferential Tariff Rates, which vary depending on the type of goods. These categories include:

• Immediate tariff elimination - Majority of tariff lines will be subject to 0% customs duty rate
• Phased tariff elimination - Other tariff lines will be benefited from gradual elimination of customs duties over a period of 5 years whereas for Indonesia schedule, the gradual tariff elimination of some products shall be over a period of 7 to 10 years 
• Tariff reductions - Custom duties will be reduced in comparison with those existing.

To avail the above preferential treatment, it is imperative to adhere to the Rules of Origin stipulated in Chapter 3 of the CEPA.

According to such provisions, a product must fulfill one of the following origin criteria to be eligible for the benefits:

• The product must be wholly obtained or produced in the territory of the contracting party 
• If not wholly obtained, then, such materials must have undergone sufficient working or production in the territory of the contracting party
• The product satisfies all other applicable requirements of Chapter 3 of the agreement.

Compliance with the Rules of origin must be substantiated by a proof of origin (i.e., certificate of origin, whether in paper or electronic format or an origin declaration made by an approved exporter). If non-compliance with the Rules of Origin is established, preferential treatment will be denied, and duties will be imposed. 

Trade in services

In order to liberalize trade in services, CEPA dedicates Chapter 8 and its annexes to trade in services, ensuring enhanced market access for service providers in both countries. The agreement covers broad range of service sectors, setting out the schedules of specific commitments of Indonesia and the UAE respectively with respect to each sector and the subsectors arising therefrom.The covered sectors are as follows:

• Business services (including professional services such as legal, and architectural services)
• Communication services (including courier and telecommunication services)
• Construction and related engineering services
• Distribution services (including direct selling and wholesale trade services of food and beverages)
• Educational services
• Environmental services
• Financial services (covering non-banking financial services as well as the banking subsectors)
• Health related and social services
• Tourism and travel related services
• Transportation services
• Other services not included elsewhere.

Moreover, to further liberalize trade in services, UAE and Indonesia mutually agree to jointly review their schedules of specific commitments no later than five (5) years after the entry into force of CEPA.

Other provisions

CEPA emphasizes on reducing and simplifying customs procedures and adopting international best practices for customs management such as (Illustrative):

• Encourage the digital trade by way of electronic submission and processing of documentation
• Eliminate technical barriers to trade (TBT), enhance transparency, and promote cooperation and good regulatory practice 
• Commitments on working towards implementation of Authorized Economic Operators (AEO) mutual recognition agreement
• Agreement on cooperation towards government procurement and negotiation to add a new chapter in this respect after two years from the entry into force of CEPA 
• CEPA as well incorporates the regulation of competition, dispute settlement, the protection of intellectual property rights, etc.
• A joint committee is established to assess, revise, and suggest amendments.

Conclusion

To conclude, UAE businesses can, as illustrated above, enjoy many benefits under CEPA, including:

• UAE products to Indonesia will have better market access, as CEPA covers more than 90% of tariff lines, and more than 94% of value of trade
• UAE products will not be subject to Indonesia’s anti-dumping investigations as such products are merely transshipped
• UAE service providers will have better market access
• UAE companies will be granted support in the form of 10% price preference in government procurement tenders of Indonesia.

For more information regarding CEPA, please refer to the following website.

How can Deloitte help?

Our team of professionals undertake an impact assessment for your business to ascertain extent of imports and exports made between Indonesia and the UAE, and how the CEPA impacts these trades.

This will cover: 

• Evaluation of price impact of CEPA on your business’ revenue in the short and medium term
• How to comply with CEPA requirements to ensure CEPA benefits can be accrued
• Review trade contracts in place to assess if terms should be amended to address risks and opportunities brought in by CEPA.

As such, it is imperative to agree on a detailed action plan and next steps for CEPA impact assessment. Fully acknowledging the actions may be different for goods and services.