Indonesia–Canada CEPA: What It Means for Investors

Indonesia and Canada signed their Comprehensive Economic Partnership Agreement in September 2025 after concluding negotiations in December 2024. The agreement will take effect once ratified, which both governments expect in 2026. It marks Indonesia’s first trade pact with a North American country and provides a structured framework for trade in goods, services, and investment.

The CEPA is intended to bring greater transparency to cross-border business by reducing tariffs, improving market access, and strengthening investment protection.

 

Core provisions and legal basis

When implemented, Canada will remove tariffs on more than 95 percent of its current exports to Indonesia, while Indonesia will liberalize a substantial share of its imports from Canada. Customs administration will shift to electronic documentation and risk-based inspection, creating faster clearance and greater certainty for exporters and importers.

The investment chapter guarantees standard protections for foreign investors and ensures fair treatment under Indonesian regulations. Foreign ownership remains restricted in certain sectors, and licensing continues under the Online Single Submission system known as OSS-RBA, which must apply equal treatment to Canadian investors.

The CEPA also introduces modern rules of origin that allow accumulation within ASEAN supply chains. Thresholds and methods will differ by product, and detailed guidance will follow during implementation. The services chapter covers professional, financial, logistics, and digital activities and includes commitments to facilitate data transfer and professional mobility. Both governments have embedded sustainability and SME provisions consistent with Canada’s inclusive trade framework.

Market potential and commercial rationale

Two-way trade between Indonesia and Canada reached approximately CAD 5.6 billion (US$4.1 billion) in 2024, with Canadian exports valued at CAD 2.3 billion (US$1.7 billion) and imports from Indonesia around CAD 3.2 billion (US$2.4 billion). Trade is led by machinery, agriculture, energy, and manufactured goods. The CEPA is expected to expand these flows by lowering barriers and increasing investor confidence.

For Canadian investors, Indonesia offers a growing consumer base, competitive labor costs, and access to critical minerals that support North America’s energy-transition supply chain.

For Indonesian businesses, the CEPA provides entry into a G7 economy with strong demand for processed goods and advanced technologies. Both sides expect that bilateral trade and investment will double within five years of the agreement’s entry into force.

Sectors with early advantage

Early opportunities will emerge in critical mineral processing, renewable energy, agribusiness, manufacturing, and digital services. The CEPA supports Indonesia’s downstream industrialization by encouraging technology and capital transfers from Canadian partners. Projects in nickel and cobalt refining, battery materials, and renewable-energy generation will benefit from stable investment protection and predictable tax treatment.

Indonesian exporters of palm derivatives, seafood, and processed foods will improve price competitiveness in Canada as tariffs are reduced. Canadian manufacturers of machinery and automotive components can establish operations in Indonesia to meet origin criteria and re-export to Canada duty-free. The agreement’s digital and financial services provisions allow both countries to collaborate more effectively in fintech and data-driven solutions by clarifying regulatory expectations and professional accreditation.

Implementation and risk considerations

The CEPA will be phased in between 2026 and 2028. Investors should expect a transition period while customs, certification, and licensing agencies adapt to new requirements. Some industries will remain subject to ownership and local-content rules under Indonesia’s Positive Investment List.

Currency fluctuations between the Canadian dollar and the Indonesian rupiah, typically in the range of four to five percent annually, can affect operating margins and should be managed through appropriate hedging. Both governments plan to release implementing regulations on certification, customs valuation, and digital-trade procedures within eighteen months of ratification.

Sector priorities and entry strategies under the CEPA

The CEPA opens new commercial opportunities across multiple industries, but realizing its full value depends on precise timing, sector focus, and alignment with policy incentives. Investors who combine data-driven analysis with early positioning will capture the strongest advantages during the 2026–2028 implementation phase.

Critical minerals and renewable energy

Indonesia remains the world’s largest nickel producer, exporting US$33.9 billion worth of nickel-based products in 2024 under its downstream industrialization policy. The government aims to produce 1.2 million electric motorcycles and 250,000 electric cars by 2030, which anchors new demand for processed nickel, cobalt, and battery materials. CEPA provides a transparent investment framework for joint ventures that pair Canadian clean-technology capital and know-how with Indonesia’s mineral resources.

Canada’s green-energy investment funds, which collectively manage over US$15 billion in Asia-focused assets, stand to benefit from the agreement’s investment protection and fair-treatment provisions. Renewable-energy projects in solar, hydro, and biomass will also gain from CEPA’s streamlined approval procedures and equal treatment for Canadian investors.

Agribusiness and food processing

Bilateral agricultural trade between Indonesia and Canada expanded by 9 percent in 2024, reflecting growing demand for food, feed, and agri-machinery. Indonesia exported palm derivatives, seafood, and processed foods worth more than US$600 million, while Canada exported agricultural machinery and cereals worth over US$200 million to the region.

CEPA eliminates tariffs previously reaching 10 percent on palm derivatives and 7 percent on seafood, improving price competitiveness for Indonesian exporters. Companies that upgrade packaging, labeling, and certification before 2026 will gain faster clearance and early customs priority once new systems launch.

Canadian agri-machinery suppliers can also localize assembly or distribution in Indonesia to capture CEPA’s origin-based tariff exemptions.

Manufacturing and supply chain integration

Indonesia’s manufacturing sector contributed 19.5 percent of GDP in 2024 and accounted for the largest industrial output in ASEAN. Total manufacturing exports reached US$181 billion, supported by stable energy and labor costs averaging US$280 per month. Canada’s machinery exports to Indonesia rose 13 percent in 2024, underscoring the potential for deeper production integration. CEPA enables Canadian producers of automotive components, electronics, and industrial machinery to establish Indonesian facilities eligible for tariff-free re-exports. Early entrants can finalize supply contracts and compliance systems before CEPA’s origin-verification rules are enforced. For Indonesian manufacturers, long-term purchase agreements with Canadian partners will help secure demand stability as tariffs are phased out.

Digital and financial services

Indonesia’s digital economy grew to US$82 billion in 2023 and is expected to exceed US$110 billion by 2025, supported by more than 80 percent digital payment adoption and fintech lending that surpassed US$10 billion in 2024. CEPA’s digital-trade chapter creates a consistent regulatory framework for cross-border digital services, though investors must still manage the duality between Indonesia’s domestic data-storage rules and Canada’s open data-transfer policies. Canadian fintech and SaaS firms can meet both requirements by maintaining local data storage in Indonesia while operating analytics platforms in Canada.

This hybrid model ensures compliance and strengthens client confidence. Indonesian digital firms can use CEPA’s service provisions to expand into the Canadian market with simpler licensing and recognition of professional qualifications.

While Canada-Indonesia trade has grown in recent years, it remains somewhat modest relative to its potential. This CEPA should help to accelerate growth in bilateral trade between the countries, and provide trade diversification options given the current global economic uncertainties — Kyle Freeman, Partner at Dezan Shira & Associates

Pharmaceuticals, consumer goods, and regulated sectors

Indonesia’s pharmaceutical industry was valued at US$12 billion in 2024 and is growing 10 percent annually, driven by rising middle-class demand. Regulatory approval for imported drugs currently takes 6–9 months, but CEPA’s mutual-recognition and testing reforms could reduce this to 3–4 months once implemented. Household consumption accounts for 54 percent of Indonesia’s GDP, making the market attractive for certified consumer products and medical goods. Companies that complete dual certification in both jurisdictions ahead of 2026 will gain faster entry and lower compliance costs under CEPA’s new customs framework.

Cross-agreement positioning and capital sequencing

Canada already trades US$4.8 billion annually with CPTPP members in ASEAN, yet Indonesia’s domestic market is 1.5 times larger than Vietnam’s and expanding faster. CEPA therefore creates a complementary corridor rather than a redundant one. Investors should analyze tariff schedules and origin criteria under both frameworks to determine optimal production locations. The CEPA rollout will remove tariffs on 40 percent of product lines in 2026, 35 percent in 2027, and the remainder by 2028. Capital deployment that aligns with these phases will capture each tariff reduction as it materializes, ensuring financial efficiency rather than premature investment exposure.

Positioning for long-term advantage

The Indonesia–Canada CEPA creates a durable platform for trade and investment between two complementary economies. It strengthens Indonesia’s manufacturing and resource base while expanding Canada’s reach into ASEAN’s largest market. Investors who anticipate tariff changes, align operations with local regulations, and structure partnerships early in the rollout will secure a lasting competitive edge under the new framework.

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