Japan and Indonesia Commit to Trade Barrier Removal in Updated Agreement

Japan and Indonesia have agreed to lift trade barriers and deepen collaboration in various fields, according to a statement from Indonesia’s Foreign Minister Retno Marsudi.

The statement follows a bilateral meeting between Japanese Prime Minister Fumio Kishida and Indonesian President Joko Widodo in Tokyo on December 16, 2023. The latter visited Japan to attend a summit commemorating the 50th anniversary of ASEAN-Japan relations.

The new agreement comes under the framework of an amendment to the Indonesia-Japan Economic Partnership Agreement (IJEPA), a bilateral investment and trade treaty signed in 2007. The amendment to the agreements seeks to achieve “a mutually beneficial economic partnership between Japan and Indonesia, by further facilitating the expansion of existing trade and economic cooperation”, according to a joint ministerial statement.

The amended IJEPA is expected to be finalized and signed in the first quarter of 2024. Under the amendment, Japan will lift tariffs on processed Indonesian fishery goods, while both countries will expand access to the respective banking sectors.

According to a factsheet from Japan’s Ministry of Foreign Affairs (MOFA), there are currently almost 2,000 Japanese companies with about 7.2 million Indonesian employees operating in Indonesia. These companies together contribute around 8.5 percent to Indonesia’s GDP and nearly 25 percent to its exports.

Japan is also Indonesia’s largest aid donor and one of the largest recipients of Japanese Official Development Assistance (ODA), per the MOFA. In addition to the breakthroughs made in the lifting of trade barriers, the bilateral meetings also saw Japan make further commitments to various infrastructures in Indonesia funded through ODA.

Tariff reductions and trade cooperation

The amended IJEPA will see reductions and eliminations of tariffs on various goods traded between the two countries.

According to the Japan External Trade Organization (JETRO), Japan will reduce tariffs on 114 new items and expand the tariff allocation quota for bananas and lightweight pineapples. Additionally, new items such as yellowfin tuna, canned bonito, canned tuna, bonito flakes, bonito and tuna processed products, and juices from fruits such as grapefruit, and mayonnaise will be added to the list of items subject to tariff elimination. Indonesia had previously urged Japan to remove tariffs on food products, especially canned tuna.

Meanwhile, Indonesia will eliminate or reduce tariffs on 19 Japanese goods, including automobiles, steel, steel products, and rice flour, according to JETRO. The country will also improve market access for Japanese short-grain rice, including establishing a low-tariff import quota with an allocated quantity of 8,500 tons and an in-quota tax rate of 450 rupiah per kilogram (approximately 4.1 yen or US$0.03).

The amended IJEPA will also include a new chapter dedicated to e. The chapter is expected to promote digital trade between the two countries, including provisions that prohibit restrictions on cross-border transfers of information, prohibiting requirements for the installation of computer-related equipment, and prohibiting requests for disclosure of source code, per JETRO.

Further commitments to bilateral cooperation

In addition to the tariff adjustments in the IJEPA amendment, Indonesia and Japan have agreed to several other areas of cooperation during the bilateral meeting between President Widodo and Prime Minister Kishida. These include commitments from Japan to continue investing in key infrastructure in Indonesia, including transport infrastructure and energy and environmental projects.

Japan also reportedly pledged to accelerate the construction of the East-West Mass Rapid Transit (MRT) line in Jakarta, with groundbreaking targeted for August 2024. Widodo also encouraged the construction of the North-South Phase 2A and 2B routes. The Jakarta MRT projects are being funded in part by a loan from the Japan International Cooperation Agency (JICA), a Japanese government aid agency.

Another major infrastructure project discussed during the meeting was the development of the Patimban Deep Sea Port in West Java. According to MOFA, Japan will promote the port’s expansion, the construction of access toll roads, and technical cooperation in areas such as operation and maintenance support. Joint port operations by Japanese and Indonesian companies will also be promoted.

The two leaders also discussed the topic of energy transition as co-initiators of the Asia Zero Emission Community (AZEC). Widodo emphasized the importance of implementing various priority renewable and environmental projects, including the construction of the Muara Laboh geothermal power plant in West Sumatra and the Legok Nangka waste-to-energy project in West Java, both supported by the JICA, as well as peatland management in Central Kalimantan. 

Under a Memorandum of Understanding signed between Japan and Indonesia at the AZEC Ministerial Meeting in March 2023, Japan agreed to steadily implement 12 projects related to renewable energy and the environment, according to the MOFA.

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