Canada’s Strategic Move in Trade Diversification
Canada has taken a significant step in its trade diversification strategy by signing a free trade agreement with Indonesia, marking the first such pact with an Association of Southeast Asian Nations (ASEAN) member country.
Recent Trade Developments
This agreement comes shortly after Indonesia and the European Union (EU) signed another trade pact in Bali following a decade of negotiations, which gained momentum due to the increased tariffs imposed by the United States.
Expert Insights on Canada-Indonesia Trade Pact
According to experts interviewed by AFP, the Canada-Indonesia trade agreement represents a “strategic” move amidst global economic turbulence, exacerbated by protectionist policies from the United States. This comes as the US and Mexico share the T-MEC trade agreement.
“The signing of trade agreements with the EU and Canada within days indicates a strategy to diversify partners and minimize risks from volatile global tariffs, but it doesn’t imply Indonesia abandoning the US market,” said Syafruddin Karimi, an economist at Indonesia’s Andalas University.
Canada Strengthens Indo-Pacific Presence
The agreement allows Canada to bolster its presence in the Indo-Pacific region, aligning with the strategy presented in 2022 under Prime Minister Justin Trudeau’s government.
Historical Significance of the Agreement
Described as “historic” by Indonesian President Prabowo Subianto during his official visit to Ottawa, the Comprehensive Economic Partnership Agreement (CEPA) aims to eliminate or reduce tariffs on over 95% of Canadian exports.
- Key Export Sectors: Wheat, lumber, and soybeans
- Indonesia’s Strategic Importance: As the most populous nation in the region, Indonesia is ASEAN’s largest trading partner and hosts the organization.
CEPA also foresees eliminating over 90% of tariffs on Indonesian imports, particularly benefiting clothing and leather product exports.
Current Trade Relations
Currently, bilateral trade between Canada and Indonesia is modest, totaling CAD 5.5 billion in 2024, trailing Vietnam and Thailand.
Key Questions and Answers
- What is the significance of this agreement for Canada? This free trade agreement with Indonesia supports Canada’s strategy to diversify its trading partners and mitigate risks associated with volatile global tariffs, especially in light of the US’s protectionist policies.
- Why is Indonesia a strategic partner for Canada? Indonesia is the most populous nation in the ASEAN region, ASEAN’s largest trading partner, and hosts the organization. This partnership strengthens Canada’s presence in the Indo-Pacific region.
- What sectors will benefit from this agreement? Key Canadian export sectors like wheat, lumber, and soybeans will see tariff reductions. Meanwhile, Indonesia’s imports, especially clothing and leather products, will also see significant tariff cuts.
- How does this agreement compare to others recently signed by Indonesia? Indonesia has been actively pursuing trade agreements, having recently signed one with the EU. The Canada agreement demonstrates Indonesia’s strategy to diversify trade partners and minimize risks from volatile global tariffs.
