For businesses in Indonesia that wish to start exporting products overseas, the potential can be immense. Opening up to wider markets and customer bases can help any company achieve increased growth, greater market penetration and higher profits beyond their domestic income. That said, it is essential to understand the local customs regulations of any potential target markets before beginning the process.
Some countries may have export-friendly policies in place, which make it easier for foreign businesses to successfully export their products. On the other hand, there are countries that impose certain tariffs and trade barriers in order to keep their markets locally oriented.
What are tariffs and trade barriers?
Tariffs are taxes placed on imported goods by a country, which are ultimately paid for by domestic consumers. In the context of international trade, tariffs act as a barrier alongside other trade restrictions such as quotas, licenses, fair trade laws, local content requirements, exchange controls, and standardisation. These taxes are often implemented by countries looking to protect domestic employment and consumers, provide better opportunities for growth to new industries, and as a way to penalise countries that violate trade rules.
Unfortunately, this may result in increased costs for businesses importing and exporting from abroad. These costs may be passed on to consumers in the form of higher prices, making foreign products less competitive to local markets. That being said, many countries have established Free Trade Agreements (FTAs) that lower or even eliminate tariffs and duties imposed on imported and exported goods.
In fact, as part of the Association of Southeast Asian Nations (ASEAN), Indonesia is party to several FTAs that provide benefits such as the removal or reduction of tariffs on goods and services traded between the participating countries. If you're aiming to expand your business on a global scale, there are several markets worth considering to give you an advantage.
Top 7 countries for Indonesian businesses to export to:
Here are the top seven countries to export products to:
1. China
For starters, Indonesia is a party to the ASEAN-People’s Republic of China FTA, which was signed in November 2002. This agreement has resulted in 90% of tariffs on imported goods from China being reduced or eliminated, opening up the Chinese market to Indonesian exports.
2. Japan
Signed in April 2008, the ASEAN-Japan Comprehensive Economic Partnership (AJCEP) provides Indonesian businesses with ample opportunities for growth and global expansion. It includes three major provisions: the elimination of tariff rates, rules of origin that permits regional cumulation of inputs, and a dispute settlement mechanism.
Trade relations are further improved with the Indonesia-Japan Economic Partnership Agreement (IJEPA) that came into effect in July 2008. It has enabled each country to eliminate up to 93% of its tariffs on goods from the other respectively. In overall terms, this means a much wider range of goods may flow freely and more cheaply between these two nations.
As of 2021, Indonesia exports to Japan amount to US$17.86 billion, based on data from the United Nations COMTRADE database on international trade.
3. New Zealand and Australia
Indonesia's membership in ASEAN has also enabled the country to establish a free trade agreement with Australia and New Zealand. The agreement, which took effect in January 2010, focuses on reducing import tariffs to zero within specified periods, facilitating trade in services and simplifying customs procedures. In fact, according to the United Nations COMTRADE database on international trade, total imports from Indonesia to New Zealand in 2021 was US$1.02 billion.
4. India
Another country with the lowest trade barriers is India, with the implementation of the ASEAN-India Comprehensive Economic Partnership. This agreement was signed and became active from January 2010 onwards. As of 2021, Indonesia exports to India were recorded at US$13.29 billion. Indonesia's main exported products to India comprise of coal, palm oil, iron alloys, industrial monocarboxylic fatty acids and copper ore.
Additionally, India and Indonesia are continuously striving to build a stronger economic partnership, reflected in their target of increasing bilateral trade to US$50 billion over the next six years. This goal strengthens trade ties between the two nations while creating new opportunities to build regional prosperity.
5. South Korea
The creation of a free trade zone between ASEAN member states and South Korea became effective in 2007. The ASEAN-Korea Comprehensive Economic Cooperation Agreement seeks to boost trade by removing both tariff and non-tariff barriers. In 2021, the trade standing between Indonesia and South Korea saw a significant increase of 39%, bumping total trade up to US$19.28 billion. Raw materials like coal, copper, rubber, plywood, and tin made up the bulk of commodities being sent from Indonesia to South Korea.
6. Pakistan
Once the Pakistan-Indonesia Preferential Trade Agreement came into effect in 2013, both Indonesia and Pakistan have provided preferential tariff rates for over 200 products under the agreement. In 2021, Indonesia exports to Pakistan were valued at US$3.81 billion.
7. Malaysia
The Preferential Tariff Arrangement - Group of Eight Developing Countries was established in 2011, and involves members of the D-8 Organisation for Economic Cooperation: Indonesia, Malaysia, Bangladesh, Pakistan, Iran, Egypt, Turkey and Nigeria. This arrangement works by allowing preferential tariffs with reduced duties to be applied for certain eligible products that fall under specified criteria. This makes it easier for businesses in Indonesia to offer competitively priced exports to Malaysia and other participating countries.
