Tokyo and Jakarta announced Tuesday they have agreed on an overall framework for liberalizing bilateral trade, including Japanese autos and Indonesian natural gas and human resources.
The tentative free-trade agreement was reached during a meeting between Prime Minister Shinzo Abe and Indonesian President Susilo Bambang Yudhoyono, in Tokyo since Sunday on a four-day visit.
The move for an FTA came as Japan tries to secure a stable supply of natural gas, including liquefied natural gas, and Indonesia hopes to increase the competitiveness of its products in Japan. Indonesia also needs to attract foreign investors.
The government has been pursuing FTAs in Southeast Asia. The accord with Indonesia will be Japan’s seventh, after overall pacts reached with Singapore, Mexico, the Philippines, Malaysia, Thailand and Chile.
Japan is aiming for the pact to take effect next year, a government official said, noting it took between six to 12 months to conclude FTAs with the six other partners after the overall framework was agreed upon.
Abe said during a joint news conference with Yudhoyono that Japan and Indonesia will cooperate in implementing the U.N. Security Council’s resolution to sanction North Korea for conducting a nuclear test, and that they both urge all nations to follow the resolution.
“We share grave concerns over North Korea’s missile firing and the declared nuclear test,” Abe said.
“North Korean issues are major matter of concerns for us, too,” Yudhoyono said as Abe stood alongside him.
Japan asked Indonesia to help out in resolving the issue of North Korea’s kidnapping of Japanese, Abe said.
Unlike Japan, Indonesia has diplomatic ties with Pyongyang.
Yudhoyono also expressed his support for Japan’s bid to become a permanent member of the U.N. Security Council, according to Abe.
Under the two countries’ FTA framework, which the two leaders signed in the evening, Indonesia will cut tariffs on about 90 percent of Japanese imports from the current level of roughly 30 percent, while Japan will lift tariffs on about 93 percent of Indonesian import levies, which are set at around 70 percent at present.
Indonesia currently imposes tariffs of between 5 percent and 60 percent on automobiles coming from Japan. Tariffs on autos with engine displacements higher than 3 liters will be lifted by 2012, while those under this size will be reduced to 5 percent or less by 2016.
Tariffs on Japanese steel to be used for automobiles and auto parts, electronics and construction machinery will be cut. Import tariffs on some electronic goods will also be eliminated.
Japan for its part will scrap some 90 percent of the import tariffs on Indonesian industrial product imports and lift the tariffs on shrimp, tropical fruit, including bananas and pineapples, and forestry and marine products.
The levies on rice and plywood will be retained.
Under the FTA, which Japan is formally calling an economic partnership agreement, Indonesia will have to swiftly notify Japan of any energy export curbs in the event of rising domestic demand.
Under this scenario, Indonesia would hold talks and cooperate on ways for Japan to secure long-term energy contracts before negotiating with other countries.
The Indonesia FTA will mark the first time Japan has reached an accord with another country that includes a clause to ensure stable energy supplies.
In response to Japan’s labor shortage, Tokyo agreed to accept nurses and care-workers from Indonesia. Japan may also accept hotel staff.
Once the accord is finalized, Indonesia will become the second nation to dispatch workers under a trade pact, after the Philippines.
Japan has traditionally maintained tight controls on foreign workers.
There have been six rounds of FTA talks with Indonesia since July 2005.
Japan-Indonesia trade amounted to $24.96 billion in 2005. Indonesia’s exports to Japan totaled $18.05 billion and imports from Japan stood at $6.91 billion.