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Chile-Indonesia Joint Study Group on the Feasibility of a Free Trade Agreement: Final Report

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Chile-Indonesia Joint Study Group on the Feasibility of a Free Trade Agreement: Final Report CHILE-INDONESIA JOINT STUDY GROUP ON THE FEASIBILITY OF A FREE TRADE AGREEMENT: FINAL REPORT This study was prepared by the General Directorate of International Economic Affairs, Ministry of Foreign Affairs, Republic of Chile and Ministry of Trade, Republic of Indonesia Bali, Indonesia, November 11-12, 2009 Chile-Indonesia Joint Study Group on the Feasibility of a Free Trade Agreement (FTA) Chile-Indonesia Joint Study Group on the Feasibility of a Free Trade Agreement CHILE-INDONESIA JOINT STUDY GROUP ON THE FEASIBILITY OF A FREE TRADE AGREEMENT: FINAL REPORT Bali, Indonesia, November 11-12, 2009 2 Chile-Indonesia Joint Study Group on the Feasibility of a Free Trade Agreement (FTA) Executive Summary Indonesia and Chile had agreed in November 2008 to conduct a joint study group on the merits of a bilateral free trade agreement. Both countries agreed that the study would be completed by early 2010, with recommendations for their political authorities. The bilateral relationship has developed considerably in recent years, such as the establishment of a Joint Commission reflecting the shared commitment of the two countries to advance cooperation on a wide range of bilateral and regional interests. Indonesia and Chile have worked closely and they are willing to expand further its relationship given the importance of the two nations in the Southeast Asia and Latin America region. Indonesia the largest economy in ASEAN and the world’s fourth most populous nation, and Chile one of the most developed economies in the Latin America region. Despite of trade potentials, trading relationship between two countries is still very limited. Indonesia and Chile trade mostly in non oil and gas commodities and two-way bilateral trade amounted to some US $ 400 million in 2008. Chile currently ranks 51st in Indonesia’s export destinations and Indonesia ranks 35 th in Chile’s export destinations. There are significant trade complementarities between the two countries. Chile supplies agricultural, resource-based products, manufactured goods and services, whereas on the other hand, Indonesia supplies a variety of processed food products and other labor-intensive goods and other manufactures. There is substantial scope and opportunities to strengthen the trade and investment relationship, including by addressing barriers to trade and investment in both economies. In recent years, there have not been investments between the two countries; With the Joint Study Group (JSG) it was possible to explore the potential of trade in goods and services, investment and cooperation. In preparing the study both Governments accorded priority to consultations with key stakeholders, including different levels of government, business and other interested groups. In addition, both sides undertook economic modelling to investigate the economic impact of a bilateral FTA. These consultations in combination with the economic modelling have established the basis for the results obtained in this study. The study aims to shed light on the main impacts that a liberalization of trade and investment based on a WTO-consistent Free Trade Agreement (FTA) would have on both economies, and which aspects might be included in an FTA between both countries. The feasibility study finds that a bilateral FTA between Indonesia and Chile would provide valuable benefits for both countries. More broadly, however, the feasibility study confirms that while a range of obstacles to bilateral trade could be eliminated by each country as part of the Indonesia and Chile FTA. The study shows that gains would be achieved under an FTA as results of a reduction of tariffs and non-tariff barriers to trade between the two countries A bilateral FTA would be expected to cover a services sector of importance to each country. The main sectors for foreign investment in Chile are mining, electricity gas and water supply;; services, transport and communications and financial sector. Indonesia would 3 Chile-Indonesia Joint Study Group on the Feasibility of a Free Trade Agreement (FTA) be better placed to attract Chilean investment especially in communication, mining, and financial sector.. A bilateral FTA would be expected to intensify and strengthen cooperation between Indonesia and Chile, including areas such as custom procedures, standards, technical barriers to trade, sanitary and phytosanitary, government procurement, competition policy and intellectual property rights. The Joint Study’s main conclusions indicate that an FTA between Chile and Indonesia would have a positive impact on the economic relationship of the two countries: • An FTA between Chile and Indonesia would, as a result of the tariff elimination, increase bilateral trade for both countries. Even more, the trade facilitation associated to the FTA could make possible to trade goods that at present are “non traded goods” in bilateral terms. • An FTA, with disciplines that provide legal certainty would improve the investment environment and would have a positive impact in the export of services including those associated to the increase of trade in goods. • An FTA between Chile and Indonesia would induce a reduction in the transaction costs of trade between the two countries, due to the inclusion of trade facilitation measures. • Both Indonesia and Chile have solid networks of economic relations in their respective regions. Indonesia has agreements with ASEAN, Japan, China, Korea, India, Australia and New Zealand economies and is currently commencing negotiation with major trading partner, bilaterally and regionally. On the other hand, Chile has commercial and economic agreements with all Latin American countries and with the USA and Canada. Indonesia could be a gateway for Chile to the South East and East Asia as Chile could be the gateway for Indonesia to Latin America. The conclusions and recommendations of this study advise to the Indonesian and Chilean Governments on the positive results obtained by the “Chile-Indonesia Joint Study Group on the Feasibility of a Free Trade Agreement”, so that appropriate decisions concerning future negotiations between Chile and Indonesia should be considered. 4 Chile-Indonesia Joint Study Group on the Feasibility of a Free Trade Agreement (FTA) Chile-Indonesia Joint Study Group on the Feasibility of a Free Trade Agreement I. INTRODUCTION.................................................................................................10 I.1 Background of the Study ....................................................................................10 I.2 Objectives of the Study .......................................................................................10 I.3 The Environment for a Bilateral Free Trade Agreement ...............................11 I.4 Political and Strategic Implications of FTA ....................................................12 II. OVERVIEW OF CHILE/INDONESIA TRADE AND INVESTMENT ..............14 II.1 Main Characteristics ...........................................................................................14 II.1.A Macroeconomic Features..................................................................... 14 II.1.A.1 Chile.............................................................................................14 II.1.A.2 Indonesia......................................................................................20 II.1.B Trade Policy Regime: Formulation and Implementation .................... 23 II.1.B.1 Chile.............................................................................................23 II.1.B.2 Indonesia......................................................................................26 II.1.C Structure and Features of the Market .................................................. 28 II.1.C.1 Chile.............................................................................................28 II.1.C.2 Indonesia......................................................................................29 II.1.D Banking System and Credit Policies ................................................... 30 II.1.D.1 Chile.............................................................................................30 II.1.D.2 Indonesia......................................................................................34 II.1.E Employment Policies, Laws and Salaries............................................ 37 II.1.E.1 Chile.............................................................................................37 II.1.E.2 Indonesia......................................................................................41 II.1.F Environment Policies and Laws .......................................................... 43 II.1.F.1 Chile.............................................................................................43 II.1.F.2 Indonesia......................................................................................48 II.2 Trade in Goods .....................................................................................................51 II.2.A Composition of Trade in Goods .......................................................... 51 II.2.A.1 Chile.............................................................................................51 II.2.A.2 Indonesia......................................................................................58 II.2.B Origin and Destination of Trade in Goods .......................................... 66 II.2.B.1 Chile.............................................................................................66
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