JAKARTA, 21 August 2007 — Indonesia and Japan inked a wide-ranging free trade pact yesterday during a visit by Japanese Prime Minister Shinzo Abe, as the two nations also committed to work jointly on energy and climate change issues.
Abe and Indonesian President Susilo Bambang Yudhoyono signed the trade deal, which was under negotiation for more than two years, after holding bilateral talks as the Japanese premier began a swing through three Asian nations.
The Indonesia-Japan Economic Partnership Agreement will see reductions to zero for more than 90 percent of Japan’s tariffs on 9,275 items, worth some 99 percent of the value of exports there from Southeast Asia’s largest economy.
The cuts are significant as Japan is Indonesia’s biggest trading partner and one of its biggest investors. Japan has also offered a broad package of technical and other assistance as part of the deal.
Around 80 percent of the Japanese tariffs will be eliminated as soon as the pact is implemented, while the remaining 10 percent are to be reduced to zero within three to 10 years.
Meanwhile around 93 percent of Indonesia’s 11,163 tariffs, or 92 percent of the value of Japanese exports to Indonesia, will be reduced.
Around 58 percent of the tariffs will become zero when the pact comes into force, while the remainder — tariffs already low or on items where there is little trade — will gradually be reduced to zero within three to 10 years.
In a separate statement, the two countries agreed to strengthen cooperation on energy and mineral resource security, a key issue for energy-hungry Japan.
In the statement, Abe underlined that the stable supply of LNG in particular would be the foundation for cooperation.
Indonesia is Japan’s biggest liquefied natural gas (LNG) supplier but it has warned it cannot guarantee a renewal of contracts beyond 2010-2011 due to growing domestic demand.
“They didn’t talk about additional arrangements beyond a certain year but we completely share the same sense of cooperation in this field... for more years to come we will continue in this way,” Mitsuo Sakaba, a Japanese foreign ministry official, told reporters.
Indonesia’s exports to Japan were worth $21.7 billion in 2006, more than half of which was fuels such as LNG and coal. Imports from Japan stood at $5.5 billion over the same period, mostly machinery and manufactured goods.
Both nations also committed to participate in a new framework on climate change to supersede the Kyoto Protocol, saying they want to see global emissions cut by half from the current level by 2050.
The free trade agreement is Japan’s eighth. Its first with Singapore took effect in late 2002 and it has since agreed to deals with Chile, Malaysia, Mexico, the Philippines and Thailand. Negotiations are ongoing with South Korea and the 10-nation Association of Southeast Asian Nations (ASEAN) as a whole.
Delivering a policy speech on ASEAN separately, Abe said forging the EPA with the regional bloc was “becoming an increasingly realistic goal.” There have been few public signs that the Japanese-ASEAN accord is moving forward.
The visiting prime minister also met yesterday with Vice President Yusuf Kalla and addressed a Japan-Indonesian business forum.
The prime minister, accompanied by his wife Akie Abe, officials and a delegation of around 200 Japanese businesspeople, will lay a wreath at the Hero Cemetery in Jakarta today before heading to India and then Malaysia. Indonesian energy companies Pertamina and Medco Energi Internasional along with Japan’s Mitsubishi Corp are to begin building a liquefied natural gas refinery next year, the companies said yesterday.
Indonesia is energy-hungry Japan’s biggest liquefied natural gas (LNG) supplier. Tokyo has been seeking to secure its supplies from Jakarta, which has warned it cannot guarantee rolling over contracts expiring in 2010-11 due to growing domestic demand.
The Donggi-Senoro refinery on eastern Sulawesi island is expected to cost 2.01 billion dollars and will have capacity to refine two million tons of LNG per year, the energy and mineral resource ministry said in a statement.
The refinery is expected to start commercial operations in 2010 and will use reserves from the Senoro field operated by Medco’s unit, Medco EP, and from other fields in the Matindok block run by Pertamina EP.
LNG from the refinery will be shipped to Mitsubishi Corp in Japan. Mitsubishi holds a 60 percent stake in the project while Medco and Pertamina each have a 20 percent interest. The refinery project was among $4 billion worth of energy projects inaugurated yesterday.