Maximising the potential of the Canada–Indonesia Comprehensive Economic Partnership Agreement

In Brief

The Canada-Indonesia Comprehensive Economic Partnership Agreement concluded negotiations in November 2024. The agreement, due to come into force in 2025, has great potential to economically benefit both nations, particularly Indonesia. But there are many challenges that, unless proactively addressed, will prevent Indonesia from taking full advantage of the deal.

Originally published for the East Asia Forum (EAF). Link to original article: https://doi.org/10.59425/eabc.1741903200

The Canada–Indonesia Comprehensive Economic Partnership Agreement (CEPA) concluded negotiations in November 2024, with Indonesia’s President Prabowo Subianto and Canada’s Prime Minister Justin Trudeau committing to signing the agreement in 2025. While the CEPA has great potential to boost Indonesia’s economy, there are still many challenges that could hinder Indonesia from maximising the benefits of this agreement.

Indonesia and Canada begun negotiating the CEPA in 2021, and after 10 rounds of negotiations, the two countries finally reached a deal. This is Indonesia’s first official economic partnership with a North American country, marking a new chapter of bilateral relations.

Through this agreement, Canada aims to tap into Indonesia’s large consumer market and strengthen its engagement in Southeast Asia, while Indonesia seeks to gain access to North American markets and investments. The agreement will eliminate over 90.5 per cent of import tariffs on Indonesian goods, increase investment and promote greater economic collaboration between the two countries.

The CEPA could help Indonesia realise its aspiration to become a high-income country by 2045. The Canadian government’s economic impact assessment projected that the agreement could increase Indonesia’s GDP by US$1.1 billion and its export to Canada by US$877 million, mainly through increased Indonesian export of clothing and leather products.

While the economic outlook is hopeful, there are still many challenges facing Indonesia. Indonesian exports may struggle in the Canadian market due to limited public awareness of Indonesia and its products. Many Canadians know little of Indonesia and are more familiar with its smaller neighbours, such as Vietnam, Thailand and Singapore. According to a 2024 poll by the Asia Pacific Foundation of Canada, only 11 per cent of Canadians consider themselves to be ‘knowledgeable’ about Indonesia. Similarly, most Indonesians are only vaguely aware of Canada.

It is not surprising that bilateral trade has been lacklustre, totalling only US$3.78 billion in 2023. Meanwhile, Vietnam and Thailand respectively exported US$9.85 billion and US$3.63 billion worth of goods to Canada in 2023.

Structural issues, including regulatory complexity, poor infrastructure and a low-skilled workforce, discourage Canadian companies from doing business in Indonesia. According to the World Bank’s 2019 Ease of Doing Business index, Indonesia is ranked 73 out of 190 countries, indicating that Indonesia has a particularly challenging business environment, which is a deterrent for foreign firms.

The CEPA does not automatically overcome all the barriers to successful economic cooperation between Indonesia and Canada. The implementation of this agreement requires Canada and Indonesia to proactively work together to strengthen economic ties. Canada has already begun working to support the CEPA.

In 2023, Canada set up an Export Development Canada representation office in Jakarta to assist Canadian companies that want to do business in Indonesia. In December 2024, the Team Canada Trade Mission, led by Minister of Export Promotion, International Trade and Economic Development Mary Ng, sent representatives from over 190 Canadian firms and organisations to Indonesia to deepen partnerships between Canadian and Indonesian businesses. The visit also produced several memorandums of understanding between Canadian and Indonesian firms. Further, Canada’s Minister of International Development Ahmed Hussen visited Jakarta in February 2025 to meet with Indonesia’s Minister of Environment and Minister for National Development Planning to explore opportunities for further enhancing the economic cooperation between the two countries.

Jakarta must take advantage of the CEPA by delivering reforms that will entice Canadian firms to do business in Indonesia. Though many of Indonesia’s structural issues will take years to resolve, there are practical measures that the Indonesian government should take to help both Canadian and Indonesian firms maximise the benefits of the CEPA.

Just as Canada sent its trade mission to Indonesia in December 2024, Jakarta should send Indonesian firms to Canada, especially firms in key sectors identified in the CEPA, such as agriculture, energy, manufacturing and technology.

Jakarta should also give preferential treatment to Canadian firms who wish to obtain Indonesian business licenses, which currently involves a lengthy and laborious process. This will alleviate the financial burden and uncertainty faced by Canadian firms in Indonesia. The government should also allocate more resources to the Indonesia Trade Promotion Center and Indonesia Trade Attache in Canada to facilitate more commerce activities between Canada and Indonesia.

The government of Indonesia needs to take a proactive role to address existing challenges. The CEPA has great potential to help Indonesia achieve its economic aspirations, but without active participation from Jakarta, the CEPA’s potential will go to waste. Now the CEPA negotiators have returned home, the hard work of building economic ties must begin.

Luthfi Dhofier is the President of the Canadian International Council Vancouver and serves on the board of the Canada Indonesia Chamber of Commerce.

https://doi.org/10.59425/eabc.1741903200

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