Free Trade Agreement – Free Trade Agreement (FTA): Definition, Benefits, and Implementation , Free trade is currently growing rapidly in various parts of the world. This is certainly utilised by various countries in increasing foreign exchange, creating jobs, increasing export activities, and increasing the number of investors. Free trade is the process of international import-export trade that can move with fewer barriers such as tariffs or excessive regulations without neglecting all control and taxation aspects.

However, free trade must have an agreement between the two countries that is used for mutual interests while determining the rights and obligations of free trade in their territory. Regarding this matter, the Indonesian government has anticipated free trade through several agreements with countries in the world. In this article, Pajakku will explain further about the Free Trade Agreement (FTA).

Definition of Free Trade Agreement (FTA)
Through the official website of the Ministry of Trade of the Republic of Indonesia, a free trade agreement (FTA) is an agreement between two or more countries in forming a free trade area. A free trade area is a certain area or region in economic cooperation between countries. Free trade areas are also a form of economic cooperation in developing various sectors of life including the trade sector.

Free Trade Agreement (FTA) can facilitate trade in goods or services between countries that cross the borders of other countries without barriers, especially tariffs. Tariff barriers are closely related to levies on goods and/or services when they are sent to other countries such as Taxes in the Framework of Import (PDRI) or import duties.

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Benefits of Free Trade Agreement (FTA)

Free Trade Agreement is a free trade of goods and/or services between countries that can cross the borders of other countries without any barriers to tariffs on import duties or taxes in the context of imports or without non-tariffs such as restrictions or prohibitions to make it more difficult for imported goods to be accepted into the country. The existence of FTAs also creates trade creation, which is the creation of trade transactions between FTA members that have never happened before due to the incentives of FTA formation. In addition, trade diversion is also created, which can shift imports from one country to another. Trade diversion generally occurs because it is more efficient and profitable from an economic point of view.

For example, the reduction of tax rates in China due to the free trade agreement made Indonesia, which previously always imported sugar from Malaysia, switch to importing sugar from China because the cost of importing sugar from China was considered more efficient and profitable, making Indonesia stop importing sugar from Malaysia. FTAs allow exporters in a country to obtain preferential tariffs or so-called special tariffs by charging lower tax rates so as to reduce production costs which can certainly increase the competitiveness of the industry in the world.

FTAs can be utilised for preferential and non-preferential purposes. FTAs as preferential interests are used to obtain facilities in the form of preferential tariffs, while non-preferential interests can be used as commercial policy instruments, such as for the purposes of anti-dumping and countervailing duties, safeguard measures, tariff quotas, government procurement, discriminatory quantitative restrictions, and trade statistics.

Preference tariffs are different from Most Favoured Nation (MFN) tariffs. In Indonesia, the applicable preferential tariffs are stipulated in the Minister of Finance Regulation (PMK) in the form of import duty rates determined based on international agreements or treaties. For countries to be able to utilise preferential tariffs, the imported/exported goods must meet the Rules of Origin between countries.

Implementation of Free Trade Agreement (FTA) in Indonesia
FTAs in Indonesia have been implemented with various countries, namely 18 FTAs, both in regional, bilateral, and multilateral schemes. The following FTAs are still valid in Indonesia until now:

ASEAN Trade in Goods Agreement (ATIGA)
ASEAN-China Free Trade Agreement (ACFTA)
ASEAN-Korea Free Trade Agreement (AKFTA)
ASEAN-India Free Trade Agreement (AIFTA)
ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA)
ASEAN-Japan Comprehensive Economic Partnership (AJCEP)
ASEAN-Hongkong Free Trade Agreement (AHKFTA)
Indonesia-Japan Economic Partnership Agreement (IJEPA)
Indonesia-Pakistan Preferential Trade Agreement (IPPTA)
Indonesia-Palestine MoU
Indonesia-Chile Comprehensive Economic Partnership Agreement (ICCEPA)
Indonesia-Australia Comprehensive Economic Partnership Agreement (IACEPA)
Indonesia-EFTA Comprehensive Economic Partnership Agreement (IECEPA)
Preferential Trade Agreement Among D-8 Member States (D-8 PTA)
Indonesia – Mozambique Preferential Trade Agreement (IMPTA)
Regional Comprehensive Economic Partnership (RCEP)
Indonesia-Korea Comprehensive Economic Partnership (IKCEPA)
Indonesia-UAE Comprehensive Economic Partnership (IUAE-CEPA)

Free trade refers to agreements that can allow imports and exports at low cost, without tariffs or other trade barriers. In a free trade agreement, a group of countries agree to lower tariffs or other barriers so as to facilitate more exchanges with their trading partners. This allows countries to benefit more from lower prices and easy access to each other’s resources.

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