The Takeaway
On November 15, Canada and Indonesia announced the completion of the negotiations for the Canada-Indonesia Comprehensive Economic Partnership Agreement (CEPA) on the sidelines of the Asia-Pacific Economic Cooperation (APEC) leaders’ summit in Peru.
The culmination of three years of negotiations, the agreement aims to strengthen economic ties by reducing trade barriers, expanding market access, and fostering mutual growth. The CEPA is a notable goal of Canada’s 2022 Indo-Pacific Strategy and underscores Ottawa’s commitment to deepening engagement in Southeast Asia.
In Brief
- On the opening day of the APEC summit, Canadian Prime Minister Justin Trudeau and newly inaugurated Indonesian President Prabowo Subianto announced the substantive conclusion of negotiations on the agreement, which will become effective by mid-2025 following ratification by both countries. Once implemented, the CEPA will help to invigorate bilateral trade by reducing or eliminating tariffs, enhancing supply chain access, and increasing market access and investment transparency. Specifically, it is expected to drive growth in agriculture, energy, manufacturing, technology, and digital trade.
- Indonesia is Southeast Asia’s largest market, with a population of about 280 million, two-thirds of whom are of working age. The World Bank projects that in 2025, Indonesia’s annual rate of economic growth will be 5.1 per cent, although President Prabowo has set an ambitious target of eight per cent, which he hopes to achieve by attracting foreign investment and expanding market access for Indonesian goods. He is also prioritizing trade diversification and reducing the country’s economic reliance on a single partner.
- In 2023, Indonesia was Canada’s largest export market in Southeast Asia, with two-way merchandise trade totalling C$5.1 billion that year. According to a 2020 preliminary economic assessment of CEPA, Canadian products including foods, electronics, chemicals, machinery and equipment, and metals are expected to benefit the most from tariff reductions. The CEPA is projected to significantly boost Canada-Indonesia trade, with Canadian exports to Indonesia expected to increase by an additional C$446.5 million and imports from Indonesia expected to rise by an extra C$1.1 billion by 2040. In 2023 alone, Canadian direct investment in Indonesia reached C$6.7 billion, making it the second-largest regional recipient of Canadian investment.
- The agreement also includes collaboration on supporting climate change policies, reducing emissions in the mining and refining sectors, and promoting sustainable trade and business practices. These commitments align with the aims of Indonesia’s Just Energy Transition Partnership, an initiative of which Canada is a part, to support Indonesia's shift to net-zero emissions by 2050.
Implications
Canadian businesses have largely welcomed the CEPA, but some activists are raising concerns about its potential environmental impact. Canada is Indonesia’s eighth-largest supplier of agri-food and seafood, with Indonesia importing $37.9 billion worth of these products from around the world in 2023. The Canadian Agri-Food Trade Alliance lauded the agreement, anticipating it will diversify Canadian exports and open doors to Indonesia’s burgeoning market.
However, despite the CEPA’s provisions on climate change co-operation, there are concerns about the agreement’s reduced tariffs on Canadian fertilizer exports and the subsequent environmental impact on Indonesia’s ecosystems and local communities. As Indonesia’s leading fertilizer supplier, Canada recorded C$1.04 billion in sales to the country in 2022, with most fertilizers used in Indonesia’s rubber and palm oil plantations. These industries are significant drivers of deforestation, threatening biodiversity and Indigenous livelihoods. Greenpeace, both in Canada and Indonesia, had previously called for greater public oversight in the negotiation process with mechanisms built into the agreement to prioritize climate change and biodiversity initiatives.
Southeast Asian nations are moving to lower trade barriers before ‘Trump 2.0’ tariffs and anticipated trade disruptions. On the campaign trail, U.S. President-elect Donald Trump proposed sweeping tariffs, including a 10 to 20 per cent blanket tariff on imports from specific countries and 60 to 100 per cent tariffs on goods from China. Once Trump takes office in January 2025, these measures could significantly disrupt Southeast Asian economies due to their deep trade ties with China. Bilateral trade between Indonesia and China alone reached C$177.4 billion in 2023.
What's Next
1. Canada’s trade agreements in Southeast Asia
As CEPA implementation proceeds, it could serve as a blueprint for additional trade agreements, not least of all the ongoing negotiations for a Canada-ASEAN free trade agreement. That agreement is scheduled to be finalized in 2025.
2. Upcoming trade mission to Indonesia
Canadian companies hoping to benefit from the CEPA will have a chance to hit the ground running. In December, Canada’s Minister of Export Promotion, International Trade and Economic Development, Mary Ng, will lead a Team Canada Trade Mission to Indonesia, accompanied by more than 300 Canadian business representatives. The mission aims to forge partnerships with Indonesian companies, expand market access, and unlock new business opportunities.
• Edited By: Erin Williams, Senior Program Manager, Vina Nadjibulla, Vice-President Research & Strategy, Ted Fraser, Senior Editor, APF Canada
