Japan and Indonesia signed a free-trade agreement on Monday that Tokyo hopes will help it secure vital energy supplies from the Southeast Asian nation. The pact, which is due to take effect early next year, will also eventually get rid of 92 percent of import taxes on bilateral trade. Japan is Indonesia's largest trading partner.
JAKARTA -- Japan and Indonesia signed a free-trade agreement on Monday that Tokyo hopes will help it secure vital energy supplies from the Southeast Asian nation.
The pact, which is due to take effect early next year, will also eventually get rid of 92 percent of import taxes on bilateral trade. Japan is Indonesia's largest trading partner.
Resource-poor Japan is the world's largest importer of liquefied natural gas (LNG) and Indonesia is its number one supplier, as well as the second-biggest provider of coal to Tokyo and sixth for crude oil.
But Japan faces growing competition for supplies of LNG -- natural gas cooled to liquid form for transport -- from fast-growing markets such as China and India.
The trade deal signed on Monday requires Jakarta provide LNG to Japan even when events such as new regulations force it to cut exports. In return, the pact provides a framework to encourage Japanese investment in energy development projects in Indonesia.
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"As for LNG, while efforting to meet domestic needs, we will strengthen our relations with Japan," Indonesian President Susilo Bambang Yudhoyono told a news conference after signing the agreement with visiting Japanese Prime Minister Shinzo Abe.
The two leaders also committed in a joint statement to take part in a new framework to rein in growth of greenhouse gases after the current Kyoto Protocol climate change pact runs out at the end of 2012. Indonesia hosts a new round of U.N. climate change talks in Bali in December.
On bird flu, Abe also said Japan would provide 1.7 billion yen ($14.8 million) in grants to help Indonesia, which has recorded the most human fatalities from the disease in the world.
Yudhoyono also said he had offered Japan to jointly develop a bird flu vaccine.
Japan relies on the Middle East for most of its oil imports and this pact with Indonesia -- the second to include a provision on energy supplies after a deal with Brunei sealed in June -- is part of its strategy to bolster energy security.
Indonesia is the Asia Pacific's only OPEC member.
Doubts remain over Indonesia's energy pledges given that it has failed to meet its long-term LNG contractual commitments for a number of years due to depletion of its gas fields and higher local demand.
Energy minister Purnomo Yusgiantoro said on the sidelines that Indonesia would negotiate with Japan to extend contracts expiring in 2010 and 2011 at three million tonnes per year, sharply lower than the 12 million tonnes currently.
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The deal removes taxes on Indonesian exports like shrimp as well as tariff quotas on bananas and pineapples. The agreement does not cover rice, a politically sensitive issue for Japan.
Indonesian nurses and care givers will also be allowed to work in Japan, although numbers still have not been agreed.
Indonesia, which is Japan's 11th largest trading partner, will remove import taxes on auto parts and electronic equipment from Japan. Indonesia is a production base for Japanese automotive firms such as Daihatsu, Toyota and Nissan.
An Indonesian official said last month that Jakarta hoped to boost its non-oil and gas exports to Japan to $20 billion in 2010, up from $11 billion in 2006.
Indonesia imported about $8.65 billion of goods from Japan in 2005, Japanese government data showed.
Abe is travelling with a delegation of about 250 Japanese business executives. He goes to India next before winding up an Asian tour in Malaysia. (Additional reporting by Muklis Ali)
Source: Reuters
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