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fter almost eight years since the first round the negotiations started in January 2011, the Indonesia-EFTA Comprehensive Economic Partnership Agreement (CEPA) concluded in November 2018 and was signed in Jakarta on Dec. 16.

The European Free Trade Association (EFTA) comprises Switzerland, Norway, Liechtenstein and Iceland. All four member states participate in the European Single Market and are also part of the Schengen Area. However, EFTA countries are not members of the European Union Customs Union.

The Indonesia-EFTA CEPA covers trade in goods and services, investment, government procurement, rules of origin and trade facilitation, the TBT and SPS, trade remedies, intellectual property rights (IPR), trade and Sustainable Development Goals, cooperation and capacity building, competition and legal matters.

The main challenges in the negotiations were issues like palm oil and movement of natural persons for Indonesia, fisheries market access for Norway and IPR for Switzerland, which were all eventually resolved in a win-win solution for all countries, which agreed to provide preferential treatment on these issues.

The EFTA engagement holds three significant advantages for Indonesia.

First, in market access, Indonesia has preferential tariff rates that are lower than the most favored nation (MFN) rates for more than 99 percent of all EFTA imports from Indonesia: 7,042 Swiss tariff lines (81.74 percent of all Swiss tariff lines), or equal to 99.65 percent of the value of all Swiss imports from Indonesia; 6,333 Norwegian tariff lines (90.97 percent of all tariff lines), or 99.75 percent of Norwegian imports from Indonesia; and 8,100 Icelandic tariff lines (94.28 percent of all tariff lines), or 99.94 percent of all Icelandic imports from Indonesia.

EFTA’s main export destination and country of origin is Europe. In 2017, total trade between Indonesia and EFTA was US$2.4 billion. EFTA was Indonesia’s 23rd export destination and 25th country of origin that year. EFTA’s exports to Indonesia are mainly pharmaceuticals, mineral fuels, machinery, organic chemicals and watches. Indonesia’s exports to EFTA are machinery, pharmaceuticals, automotive parts, electrical machinery and organic chemicals.

The main Indonesian export products that will enjoy preferential tariffs are palm oil, fishery products, gold, footwear, coffee, toys, textiles and apparel, furniture, electrical machinery, machinery, bicycles and tires.

Second are young professionals. In parallel as a part of the CEPA, Indonesia and Switzerland agreed reciprocally on the Young Professionals Agreement, which facilitates the mobility of young people aged between 18 and 30 inclusive. Indonesia and Switzerland have agreed to provide access to 100 young professional every year.

Third is investment. EFTA was the world’s third largest source of foreign direct investment (FDI) in 2017. Its investments ranged from finance to telecommunications, pharmaceuticals, oil and mining, geothermals, manufacturing, fisheries, maritime and logistics. The expansion of FDI from EFTA is expected to not only create employment, but also transfer technological skills and know-how.

EFTA was established on May 3, 1960. Although it is not a customs union and its member states have a full right to enter into third-country bilateral trade arrangements, it does have a
coordinated trade policy. To date, EFTA has 29 FTAs with its main trading partners and is currently engaged in 5 ongoing trade negotiations.

Indonesia, meanwhile, is a member of the ASEAN Free Trade Area (AFTA), which was established on Jan. 28, 1992. ASEAN is not a customs union either. To date, Indonesia has 10 FTAs: the AFTA, the ASEAN-China FTA, ASEAN-India FTA, ASEAN-Korea FTA, ASEAN-Japan CEPA, ASEAN-Australia-New Zealand FTA, Indonesia-Japan EPA, Indonesia-Pakistan PTA, Indonesia-Chile CEPA and the ASEAN-Hong Kong FTA. Indonesia has also recently concluded the Indonesia-Australia CEPA, Indonesia-EFTA and the Indonesia-Mozambique FTA.

Indonesia also has several engagements, like with 15 East Asian countries in the RCEP, and a number of bilateral agreements with Iran, Palestine, Kenya, Morocco and Tunisia. Indonesia is now also considering engagements with Peru, South Korea,and Russia (with the possibility of extending to Eurasia).

Indonesia is a highly strategic trade and investment hub for EFTA to access Southeast Asian markets. For Indonesia, EFTA is a milestone to reach the European market. All big moves start with a small one. Indonesia and EFTA have just taken a very good first step.
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