Indonesia offers sugar, spice and much more
 
Jul 02, 2020
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FTA between Hong Kong and ASEAN’s largest member takes effect.

Indonesia – a massive archipelago linking the Pacific Ocean and Indian Ocean – has long been known as the source of a wide range of spices and original home of at least three global food products – cane sugar, bananas and domestic chickens.

The country’s size – 1.81 million square kilometres across 17,000 islands with 273 million people accounting for a fast-growing economy which generated GDP worth US$1.1 trillion in 2019 – makes it the largest member of the 10-member Association of Southeast Asian Nations. It is the world’s fourth-most populous country, after Mainland China, India and the United States.

Lucrative market

For Hong Kong businesses, Indonesia has become a lucrative market and an attractive destination for manufacturing relocation. Indonesia’s economy has a developing-market profile with agriculture accounting for 12.8% of its economy, industry 39.7% and services 43.4%.

Hong Kong and this regional giant have signed a Free Trade Agreement (FTA) which comes into effect on Saturday 4 July. The FTA brings Indonesia into line with fellow ASEAN members Laos, Myanmar, Singapore, Thailand, Vietnam, Malaysia and the Philippines. The Investment Agreement (IA) between Hong Kong and Indonesia comes into effect on the same day. Indonesia’s accession to the ASEAN-Hong Kong FTA brings the number of members within the deal to eight – with just Brunei and Cambodia yet to join.

Indonesia is also set to become part of one of the largest Asian/southern hemisphere FTAs – the Regional Comprehensive Economic Partnership (RCEP). Negotiations are under way among 10 Southeast Asian nations and six of their large trading partners: Mainland China, Japan, South Korea, India, Australia and New Zealand. Once RCEP is finalised, which will probably take place before the end of 2020, the 16 countries will form a major trading bloc that represents about one-third of the world’s gross domestic product.

The Hong Kong Special Administrative Region’s Trade and Industry Department reported that the city’s trade with Indonesia was worth HK$40.11 billion in 2019, with imports accounting for HK$17.61 billion, domestic exports HK$625 million and re-exports HK$21.88 billion. Hong Kong’s trade with ASEAN as a whole was worth HK$1.02 trillion, accounting for 12% of worldwide trade.

Under the FTA, Indonesia has agreed to eliminate customs duties on about 75% of its tariff lines within 10 years and reduce customs duties on a further 10% within 14 years.

ASEAN member states’ tariff reduction commitments cover several lines of goods including jewellery, articles of apparel and clothing accessories, watches and clocks, and toys.

Hong Kong has committed to granting tariff-free access to all products originating from ASEAN member states when the FTA takes effect.