Overview
On November 15, Canada and Indonesia announced the completion of negotiations for the Canada-Indonesia Comprehensive Economic Partnership Agreement (CEPA) during the Asia-Pacific Economic Cooperation (APEC) leaders’ summit in Peru.
The agreement, which follows three years of negotiations, is intended to enhance economic cooperation by reducing trade barriers, expanding market access, and promoting mutual growth. CEPA aligns with Canada’s 2022 Indo-Pacific Strategy, reflecting its commitment to strengthening ties with Southeast Asia.
Key Developments
During the APEC summit, Canadian Prime Minister Justin Trudeau and Indonesian President Prabowo Subianto confirmed that negotiations had reached a substantive conclusion. The agreement is expected to take effect by mid-2025, pending ratification by both countries. Once implemented, CEPA aims to facilitate bilateral trade by lowering tariffs, improving supply chain access, and increasing transparency in investment. Key sectors expected to benefit include agriculture, energy, manufacturing, technology, and digital trade.
Indonesia, the largest economy in Southeast Asia, has a population of approximately 280 million, with two-thirds of its citizens of working age. The World Bank projects a 5.1 percent economic growth rate for Indonesia in 2025, while President Prabowo has set a higher target of eight percent, with a focus on foreign investment and broader market access. His administration has also emphasized trade diversification to reduce dependence on any single economic partner.
In 2023, Indonesia was Canada’s largest export market in Southeast Asia, with two-way merchandise trade reaching C$5.1 billion. A 2020 economic assessment of CEPA suggested that Canadian exports—such as food products, electronics, chemicals, machinery, and metals—stand to benefit from tariff reductions. The agreement is projected to increase Canadian exports to Indonesia by C$446.5 million and imports from Indonesia by C$1.1 billion by 2040. Canadian direct investment in Indonesia stood at C$6.7 billion in 2023, making it one of the top regional destinations for Canadian capital.
CEPA also includes provisions for collaboration on climate change policies, emissions reduction in mining and refining, and the promotion of sustainable trade practices. These commitments align with Indonesia’s Just Energy Transition Partnership, an initiative that Canada supports, aimed at helping Indonesia achieve net-zero emissions by 2050.
Potential Implications
The agreement has been met with a positive response from Canadian businesses, particularly in the agri-food sector. Canada is Indonesia’s eighth-largest supplier of agri-food and seafood, and Indonesia imported C$37.9 billion worth of these products globally in 2023. The Canadian Agri-Food Trade Alliance has welcomed CEPA, citing its potential to expand Canadian exports and increase access to Indonesia’s growing market.
However, environmental groups have raised concerns regarding CEPA’s potential impact. Although the agreement includes climate change cooperation measures, it also reduces tariffs on Canadian fertilizer exports, a key input for Indonesia’s rubber and palm oil industries. These sectors are linked to deforestation and biodiversity loss, prompting some organizations, including Greenpeace, to call for stronger environmental safeguards and increased transparency in trade negotiations.
Regional Context
Southeast Asian nations are actively working to lower trade barriers amid anticipated global trade shifts. The incoming U.S. administration has proposed significant tariff increases, including a general 10 to 20 percent tariff on imports from select countries and steeper tariffs on goods from China. If implemented, these policies could affect regional economies with strong trade ties to China. In 2023, Indonesia’s trade with China reached C$177.4 billion, underscoring the potential economic impact of such measures.
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