Indonesia may see robust growth in exports to India following the conclusion of negotiations on a free trade agreement between India and members of ASEAN.
The new pact, scheduled for signing in December, should benefit Indonesia as India has promised to cut its import duties on palm oil, said Gusmardi Bustami, the Trade Ministry's director general for International Trade Cooperation.
Indonesia is the world's largest crude palm oil (CPO) producer.
Gusmardi said India would gradually reduce its import duties on CPO from 80 to 37.5 percent and on refined palm oil (RPO) from 80 to 45 percent by 2018.
"This is good news for us because CPO accounts for most of our exports to India," he said last week in an interview.
Indonesia-India trade was valued at US$6.55 billion in 2007, 36 percent higher than the $4.8 billion booked the year before.
Besides CPO and RPO, India has committed to lowering import duties on coffee, black tea and pepper to 45 percent, 45 percent and 50 percent, respectively, from current import duties of more than 100 percent, by 2018, Gusmardi said.
"India will also eliminate its import duties on crude petroleum which will benefit Brunei (Darussalam)."
In return however, Gusmardi, could not provide details on which sectors Indonesia would be opening up for India in return, but said India could benefit from the Indonesian automotive and textile markets.
The pact, which reduces or eliminates 489 existing tariff lines between various ASEAN countries and India, is scheduled to take effect on July 1, 2009.
The tariff lines are categorized under four lists: normal, sensitive, special products and highly sensitive.
Data on which commodities are included in which categories are unavailable.
All the countries bound in the pact -- except Cambodia, Myanmar, Laos and Vietnam (CMLV) -- agree to eliminate 80 percent of their tariff lines in their normal lists by 2012. "CMLV are given five years longer for full implementation," he said.
India and the other ASEAN members also agreed to reduce, in their sensitive lists, 10 percent of tariff lines by 5 percent and eliminate altogether 4 percent of tariff lines by 4 percent by 2018, he said.
"For the CMLV sensitive lists, they are required to reduce 10 percent of tariff lines to five percent by 2020 and eliminate 4 percent of their lines by 2023," said Gusmardi.
On the highly sensitive lists, India and ASEAN members excluding CMLV also agreed to reduce their tariff lines by up to 50 percentage points by 2018.
Commenting on the pact, economist Chatib Basri of the University of Indonesia's Institute for Economic and Social Research said Indonesia has a good change of faring well in India's markets.
"A country with a relatively liberal economic system like Indonesia will benefit more in a bilateral free trade deal with a country like India which is protecting its markets," Chatib said in an interview.
He pointed to the fact that Indonesia imposes import duties of 6 percent on average as compared to India's average of 100 percent.
However, he warned discordant regulations could cause Indonesia to bungle the huge, projected sales to India.
"Our CPO exports to India will not increase if the government cannot overcome supply constraints, if export duties remain high, if warehouses are lacking and if transportation costs are high."
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