Indonesia

Comprehensive Economic Partnership Agreement (CEPA) between the EFTA States and Indonesia, entry into force: 01.11.2021

The EFTA States (Switzerland, Iceland, Liechtenstein and Norway) and Indonesia signed a Comprehensive Economic Partnership Agreement, CEPA in Jakarta on 16 December 2018.

The agreement will increase legal certainty, improve the predictability of the bilateral economic relations and promote cooperation between the authorities. Parliament adopted the CEPA in the 2019 winter session. The referendum having been requested against the agreement, the CEPA was approved in a popular vote on 7 March 2021. The CEPA entered into force on 1 November 2021.

Tariff concessions are designed in such a way that all major Swiss export sectors can benefit from the agreement, including both industry and producers of agricultural products. In return, Switzerland will grant Indonesia duty-free access for industrial products. The tariff concessions granted in the agricultural sector are essentially the same as those in other free trade agreements.

However, the concessions regarding palm oil are a first for Switzerland. Provision is therefore made for accompanying measures providing clear requirements for sustainable palm oil trade (see below: Concessions regarding palm oil and Sustainability requirements for palm oil). Switzerland thus contributes towards international efforts to improve sustainability standards in this area.

Concessions made by Indonesia

· 98% of Switzerland’s current exports to Indonesia will enter duty-free after the deadline for dismantling tariffs.[1]

· After the deadline for dismantling tariffs, Swiss companies will be able to save CHF 25 million a year based on current trade.

· The removal of tariffs is expected to lead to new trade which is currently discouraged owing to the high tariffs imposed by Indonesia on industrial goods (8% on average) (accordung to the WTO).

Deadline for dismantling tariffs/category	Percentage of current exports to Indonesia[2]	Cumulative
Tariff-free	77.49%	77.49%
Gradual dismantling over 5 years	13.50%	90.99%
Gradual dismantling over 9 years	5.41%	96.39%
Gradual dismantling over 12 years	1.86%	98.26%
Tariff reduction (gradually over max. 12-14 years, 25–50% tariff reduction)	0.04%	-
No concessions	1.70%	-

Switzerland will receive considerable concessions for its agricultural export interests:

Indonesia will dismantle tariffs on cheese and dairy products when the agreement comes into effect, or over five years. For yoghurt the period for dismantling tariffs is nine years.

Tariffs on coffee, chocolate and biscuits will be dismantled over a period of twelve years.

Tariffs on baby food will be removed as soon as the agreement comes into effect.

Tariffs on energy drinks will be dismantled over a period of nine years.

These are the main concessions for industrial goods:

Tariffs will be removed on almost all chemical and pharmaceutical products as soon as the agreement comes into effect or over transition periods of up to nine years.

No agreement could be reached on dismantling tariffs for all textile goods, a particularly sensitive sector for Indonesia. However, it was agreed that tariffs will be dismantled on Switzerland’s main exports in this area over a period of five to twelve years.

Tariffs on machines will be dismantled almost entirely, either when the agreement comes into effect or after periods of five to twelve years.

All tariffs on watches will be removed when the agreement comes into effect or after periods of five to nine years.

[1] Assuming that all exports take place under the FTA.

[2] Based on Indonesian import statistics, 2012–15.

Concessions made by Switzerland

General

· Switzerland grants Indonesia tariff-free market access for industrial products as soon as the agreement comes into effect.

· The concessions made by Switzerland in agriculture are similar to those granted in other FTAs. The concessions are compatible with Switzerland’s agricultural policy and do not pose a risk to any sensitive sectors.

Concessions regarding palm oil

The Federal Council assumes that total Swiss import of palm oil will not increase as a result of the CEPA. Swiss palm oil imports from Indonesia are currently very low. In the years 2016-2018 they amounted to an average of 584 tonnes per year, or around 2% of total imports of 30,400 tonnes. It is possible that Indonesia will gain market share in the long term thanks to the agreement. However, this will only be the case if Indonesian palm oil producers are able to meet the conditions of the Swiss market. An essential prerequisite for this is compliance with the sustainability requirements for palm oil on the local market, which are high by international standards. Almost all palm oil intended for the Swiss food industry is already certified according to sustainability standards. To ensure that the sustainability requirements are met, the palm oil imported preferentially from Indonesia must have been produced sustainably. The details are regulated in the federal ordinance on the importation of sustainably produced palm oil from Indonesia at preferential rates of 18 August 2021 which entered into force at the same time as the CEPA.

In the negotiations, Switzerland granted the following concessions regarding palm oil from Indonesia:

Bilateral quotas

· Five quotas with a total volume of 10,000 tonnes, rising to 12,500 tonnes over five years:

o Quota A: 1,000 tonnes for raw palm oil, 30% tariff reduction, annual growth of 50 t over five years to 1,250 tonnes.

o Quota B1: 5,000 tonnes for palm stearin, 40% tariff reduction, annual growth of 250 t over five years to 6,250 tonnes.

o Quota B2: 1,000 tonnes for palm stearin, 20% tariff reduction annual growth of 50 t over five years to 1,250 tonnes.

o Quota C1: 2,000 tonnes for palm nut oil, 40% tariff reduction, annual growth of 100 t over five years to 2,500 tonnes.

o Quota C2: 1,000 tonnes for palm nut oil, 20% tariff reduction, annual growth of 50 t over five years to 1,250 tonnes.

· Preferential imports which form part of these quotas must respect the provisions of the article in the FTA on the sustainable management of the vegetable oils sector.

· Furthermore, preferential imports which form part of these quotas must be delivered in 22-tonne tanks to ensure the traceability of the palm oil.

Further concessions

· Tariff-free quotas of 100 tonnes for Red Virgin palm oil in bottles of maximum two litres for direct consumption.

· Existing practices with Indonesia are now contractually formalised:

· Tariff-free market access for palm oil which is to be processed and re-exported (existing procedure in temporary importation for inward processing, which will continue).

· Tariff-free market access for palm oil intended for technical purposes or to produce soups and sauces.

· If Switzerland grants better market access concessions to other major palm oil producers (in particular Malaysia) at a later date, it must extend these concessions to Indonesia at the country’s request.

Safeguard mechanism

· The agreement contains a safeguard mechanism which allows Switzerland to take appropriate action regarding imports of Indonesian palm oil should these imports put pressure on the Swiss oil seed market.

Sustainability requirements for palm oil

· The concern with respect to palm oil production conditions is addressed in Article 8.10 of the CEPA on sustainable management of the vegetable oil sector.

· In order to ensure environmentally, economically and socially sustainable production of vegetable oil, Indonesia is committed to effectively implement laws to protect primary forests, peatlands and related ecosystems; to stop deforestation, peat drainage and slash-and-burn practices; and to respect the rights of indigenous communities and workers.

· Furthermore, Indonesia and the EFTA States support the establishment of sustainability standards in the vegetable oil sector and cooperate to raise existing standards. They also undertake to ensure the transparency of the rules applicable to the vegetable oil sector.

· Indonesia and the EFTA States commit themselves to ensuring that vegetable oils traded under the CEPA are produced under these framework conditions.

· If Swiss importers are to benefit from the partial tariff reductions for palm oil, they must ensure that the imported oil complies with the agreed sustainability principles.

· The details are regulated in the federal ordinance on the importation of sustainably produced palm oil from Indonesia at preferential rates of 18 August 2021 which entered into force at the same time as the CEPA.

General provisions on trade and sustainable development

· The chapter on trade and sustainable development covers the environmental and labour aspects of trade and is in line with the commitments of the EFTA States and Indonesia under the United Nations Sustainable Development Goals (SDGs).

· The EFTA States and Indonesia reaffirm, inter alia, their commitment to respect and effectively implement the multilateral environmental agreements and ILO conventions ratified by them.

· In addition, the contracting parties undertake to ensure that the principles set out in national legislation should not be weakened in terms of environmental protection and labour standards to attract investment or gain a trade advantage.

· They also reaffirm the commitments they have made under international human rights instruments.

In addition, the chapter includes provisions on the sustainable management of forest resources and fisheries, and the promotion of sustainability certification systems

TBT and SPS measures

· The clauses on technical barriers to trade (TBT) and sanitary and phytosanitary measures (SPS) each include the provisions from the relevant WTO agreements. There is a review clause for these two areas, under which, if the EU and Indonesia subsequently conclude an agreement, Switzerland will obtain from Indonesia conditions equivalent to those obtained by the EU.

· For SPS measures, the parties will apply a system of checks to assess entities which export food products. In addition, the number of SPS certificates will be limited and based on international standards. Import controls are based on risk assessment and the principle of non-discrimination. When no risk is perceived, products will not be held at the border pending results.

Services

· The agreement contains provisions that go beyond the General Agreement on Trade in Services (GATS) with regard to financial services, telecommunication services, tourist services, recognition of qualifications, movement of natural persons and the recognition of skills and certificates of competency and training of maritime crew members. The financial services provisions are particularly ambitious and are in line with Swiss standards.

· With regard to market access (positive list method), Indonesia’s commitments to the EFTA States are slightly higher than its commitments under GATS.

Investment

· Swiss investors can found or acquire a company in the non-services sector under the same conditions as Indonesian investors. This principle of national treatment applies to the founding or acquisition of companies with legal personality and of subsidiaries or representative offices.

· Indonesia has agreed a broad range of commitments. The manufacturing sector, which is particularly important for Switzerland, is now largely open to Swiss investors, although there are minimum capital requirements and in some cases partnership requirements. In general, the revised list of Indonesian obligations reflects national legislation and corresponds in large part to concessions made by Indonesia in other free trade agreements (e.g. with Japan).

Intellectual property

· The CEPA provisions improve legal certainty for the innovative Swiss economy in the Indonesian market. They afford protection on copyright and related protective rights, trademarks, geographical indications, indications of origin, designs, patents, plant varieties, topographies of microprocessors and confidential information.

· The level of protection is based on the WTO’s TRIPS agreement (Agreement on Trade-Related Aspects of Intellectual Property Rights) and exceeds this in some points.

· In an additional agreement (Record of Understanding) forming an integral part of the CEPA, Indonesia recognises that the fact that a product is imported may not in itself constitute grounds for granting a compulsory licence. This ensures that the patent can also be exercised for imported goods.

· However, existing rights under the TRIPS agreement on issuing compulsory licences are explicitly protected.

· The agreement requires the parties to protect test data for plant protection products for a period of ten years, and medicinal product test data for a period to be determined by each party in national law.

· The contracting parties undertake to comply with the substantive provisions of the International Convention for the Protection of New Varieties of Plants. In doing so the Agreement takes into account the special situation of Indonesia by stating that this obligation does not affect the rights of Indonesia to protect its local plant varieties. Indonesia thus has sufficient flexibility to establish or maintain its own systems for the protection of new plant varieties, taking into account the specificities of the local seed system.

Public procurement

· The agreement essentially contains a negotiation clause which guarantees the EFTA States, upon request, the possibility to negotiate access to public procurement markets in the event that Indonesia should conclude an agreement with a third country with commitments in this field.

Economic cooperation

· The EFTA States and Indonesia intend to increase economic cooperation with a view to improving the mutual benefits of this agreement in accordance with national strategies and policy objectives and taking into account the different levels of social and economic development.

· The objectives formulated in the chapter on economic cooperation are set out in greater detail in a separate declaration of intent (Memorandum of Understanding). Possible areas of cooperation include customs and origin issues, technical regulations and conformity assessments, intellectual property, labour issues, tourism and sustainable development of agricultural industries (e.g. palm oil).

· The EFTA States may cooperate individually or via the EFTA Secretariat. Switzerland does not require any additional financial resources for cooperation in the economic field. This is covered by Switzerland’s International Cooperation Strategy 2021–2024.

1 How will the agreement benefit Switzerland?

• The agreement improves legal certainty and planning reliability in economic relations with Indonesia, an emerging economy, and creates new opportunities for Swiss companies.
• In the area of trade in goods, Switzerland will be able to eliminate the current discrimination in favour of countries that already have trade agreements with Indonesia, such as Japan and Australia. Swiss companies will gain a competitive edge on competitors from countries that have not signed a free trade agreement with Indonesia as Indonesia’s tariffs are relatively high.
• The European Union is also currently negotiating an agreement with Indonesia. Swiss exporters would thus risk being discriminated against their main competitors in the EU.
• At the end of the tariff elimination periods, 98 per cent of Switzerland’s current exports to Indonesia will be free of duties. This will allow all Swiss exporters – both industrial companies and agricultural producers – to benefit from the agreement.
• Based on current trade levels, Swiss companies will be able to save some CHF 25 million in tariffs once the tariff elimination periods have come to an end.
• Abolishing tariffs is likely to open up new export opportunities for Switzerland that are currently prevented by Indonesia’s high tariffs on industrial goods (average tariffs of 8 per cent).

2 How will the agreement benefit Indonesia?

• Switzerland will provide Indonesia with duty-free market access for industrial products when the agreement comes into force.
• Switzerland will grant Indonesia concessions on certain agricultural goods of export interest.
• However, there will be no free trade in agricultural products. Switzerland’s tariff concessions are limited and will not represent a threat for the domestic production. The same applies to the concessions for palm oil.
• The additional legal security in trade relations will make Indonesia a more attractive place for Swiss companies to set up subsidiaries.
• Indonesia will be supported in making the best possible use of the opportunities the agreement creates. For Switzerland, this support will mainly be provided as part of the existing economic cooperation between the two countries, which has been led by a representative office in Indonesia for many years.

3 Why has Switzerland agreed to cut tariffs on palm oil?

• Palm oil is one of Indonesia’s most important exports.
• Although only very little palm oil is imported into Switzerland from Indonesia (a mere 34 tonnes in 2019, only 0.1 per cent of total palm oil imports), an agreement has to be balanced and reflect the interests of both sides.
• An agreement with no concessions in the palm oil sector would not have taken Indonesia’s interests into account and would thus have been destined for failure.

4 What concessions have been granted on palm oil?

• Switzerland has agreed to bilateral quotas with reduced tariffs for palm oil. Free trade in palm oil is not foreseen. It would have been incompatible with Switzerland’s negotiating mandate in any case.
• Switzerland has only granted Indonesia limited concessions on palm oil tariffs (reductions of 20–40 per cent). These reductions apply to imports of up to 12,500 tonnes per year.
• Between 2016 and 2019, Switzerland on average imported a total of 28,800 tonnes of palm oil a year, and the amount fell year on year. Some 1.6 per cent of the palm oil imported during this period came from Indonesia; in 2019, the figure was a paltry 0.1% (34 tonnes).
• The tariff concessions were discussed in advance with representatives of the relevant industry to ensure that they would be manageable for Swiss agriculture.
• The outcome of the negotiations also fully complies with the demands set out in Motion 18.3717 (“No concessions on palm oil”) put forward by the Foreign Affairs Commission of the Council of States, both in terms of safeguarding the interests of Swiss agriculture and with regard to issues of sustainable development in Indonesia.
• Accompanying measures are planned that will set out clear criteria for the sustainable trade in palm oil.
• To benefit from the reduced tariffs, palm oil has to be produced sustainably, and the importer will have to provide corresponding proof.

5 What are the sustainability requirements for palm oil?

• The Federal Council has included two criteria in the agreement in order to ensure the sustainability and traceability of imported palm oil:

Preferential imports as part of these quotas have to comply with the provisions of Article 8.10 of the free trade agreement, “Sustainable Management of the Vege-table Oils Sector and Associated Trade”
Preferential imports as part of these quotas also have to be shipped in 22-tonne tanks to ensure that the origin of the palm oil can be traced back along the supply chain.

• If these criteria are not fulfilled, the imported palm oil cannot benefit from the preferential terms under the agreement.

6 How will Switzerland ensure that the sustainability requirements for palm oil are met?

• The Federal Council has regulated the criteria for importing palm oil under the CEPA in an ordinance, which has entered into force at the same time as the agreement itself.
• The ordinance will specify what certification systems provide valid proof of sustainable and traceable palm oil production and what control mechanisms are envisaged.
• Preferential imports as part of these quotas will also have to be shipped in 22-tonne tanks to ensure that the origin of the palm oil can be traced back along the supply chain.

7 Will the agreement lead to more palm oil being imported into Switzerland?

• Switzerland has granted Indonesia only limited tariff reductions which are applicable to sustainably produced palm oil only. The concessions are designed to ensure that palm oil imports into Switzerland are unlikely to increase overall as a result of the CEPA.
• Indonesia may gain market share in the long term thanks to the agreement.
• However, this will only happen insofar as the country’s palm oil producers are able to meet the criteria of the Swiss market. A key requirement of this will be compliance with the sustainability requirements for palm oil on the domestic market, which are stringent compared to other countries.
• Nearly all of the palm oil destined for the Swiss food industry is already certified sustainable, partly due to the voluntary commitment that the importing companies have already taken upon themselves but also because of increasing demand for sustainably produced palm oil.
• The sustainability requirements in the agreement will ensure that this remains the case, thus taking into account consumers’ growing demand for sustainably produced palm oil.

8 How is Switzerland ensuring that trade with Indonesia will not come at the expense of people’s livelihoods and the environment?

• The agreement contains extensive obligations on the compatibility of trade and sustainable development.
• Switzerland and Indonesia are committed to upholding the rights of workers and particularly vulnerable groups and commit to specific environmental obligations.
• Particular emphasis is being placed on sustainable forestry, fishery and palm oil production. The parties to the agreement are also undertaking to effectively implement legislation to protect primeval forests and other ecosystems effectively; halt deforestation, the drainage of peat lands and slash-and-burn agriculture; and respect the rights of indigenous peoples and workers.

9 Does the agreement ban the sale and exchange of protected varieties in the seed in-dustry, and is the practice of seed-saving being restricted for certain crops?

• In the CEPA, the EFTA countries and Indonesia undertake to comply with the material provisions of the International Convention for the Protection of New Varieties of Plants (UPOV 91).
• However, the CEPA acknowledges Indonesia’s unique situation by stating that this obligation does not affect the country’s rights to protect its local plant varieties.
• Indonesia thus has sufficient flexibility to set up or maintain its own systems for protecting new varieties of plants and thus take the unique characteristics of its local seed system into account.