Indonesia-UAE pact: How will it translate into economic success for the halal industry?
The Indonesia-UAE comprehensive economic partnership agreement (CEPA) came into effect beginning of this month.
The economic pact, which was signed in July last year, was designed to increase annual bilateral trade to $10 billion within five years by shelving trade barriers for a range of goods and services.
However, the CEPA pact between the two Organisation of Islamic Cooperation (OIC) countries, is billed as the first to include a special chapter on the Islamic economy. As is planned, it should exert a strong impact on the future development of the halal industry and bilateral trade.
A joint committee consisting of key Indonesian entities, including the country’s ministry of foreign affairs, ministry of trade, ministry of industry, finance ministry, its financial service authority, Indonesian Bourse Authority and the Halal Product Assurance Organizing Body (BPJPH), will be formed this month, explains Putu Rahwidhiyasa, director of Sharia business and entrepreneurship at National Sharia Economy and Finance Committee (KNEKS).
This committee will prioritise Islamic economy sectors boosted within the partnership.
“Once the committee is formed, we will immediately meet UAE representatives to discuss their priorities and ours. To be implemented smoothly, it is necessary to agree on what will be collaborated upon. In the agreement that took place in July 2022, there is a clause that states that both parties must agree to discuss Islamic economy partnership in more detail and [on a] technical level,” Rahwidhiyasa said.
However, no quantitative target for the Islamic economy space within the broader agreement has been established yet. “The quantitative target has not been calculated yet - only qualitative ones that we intend to discuss, in addition to acceptable terms, etc. The most important thing I would say is related to the mutual recognition of the halal system, eliminating the need for halal certification in the future,” he added.
Focus areas
The Islamic economy segment within the CEPA agreement covers eight focus areas.
For starters, it focuses on the development of Sharia economics related to investment, financing, and trade. Indonesia has the potential to invite more investment and financing from the UAE, especially across halal industry segments such food and beverage, medicines and cosmetics, fashion, tourism, media and recreation and Islamic finance.
Secondly, mutual recognition of halal certification has been highlighted since both countries harbour the potential to influence the global halal system. Furthermore, it can shore up exports of Indonesian halal products, especially to OIC countries.
Third priority is the cooperation in halal goods and services, covering cross-border investment, effective and integrated value chains in halal goods and services, international halal centres to expand Sharia economic cooperation within OIC members and to assist existing and future halal industrial estates.
Fourth area of focus covers Sharia finance and social finance, its development and integration, integration of Islamic finance with sustainable finance and investment between the two countries.
The Indonesian government stood as the largest sukuk issuer on Nasdaq Dubai in May 2019.
Fifth priority is pertinent to micro, small and medium enterprises (MSMEs), focusing on their development in the halal industry and integration into the global value chain.
The digital Sharia economy has also been positioned as an area of concern, encapsulating digitalization as well as expansion of key economic aspects such as data centres for the Sharia economy, systems or digitization of value chains for halal traceability, incubation facilities, and Sharia-compliant venture capital.
Seventh priority is collaboration on research, innovation and human resources, which highlights the need to prioritise workforce capabilities and collaboration related to R&D and develop halal incubation centres to empower micro and small businesses.
Cooperation on international forums regarding issues of mutual interest to jointly promote Sharia economics, was also listed as a focus area.
“The implementation of the above agreement will be facilitated by the joint committee so that it can synergize well with stakeholders. The implementation should be accompanied by the right strategies and tactics to get optimal benefit,” Rahwidhiyasa added.
Initial success
Indonesia dispatched its first export under the CEPA pact on September 8. The consignment consists of gold jewellery products worth $6.98 million sold by PT Untung Bersama Sejahtera to three buyers in Dubai - Bafleh Jewellery, Thangam Jewel and Zumuruda Jewellers, Indonesia’s ambassador to the UAE, Husin Bagis tells Salaam Gateway.
“Indonesia succeeded in conducting its first export of gold jewellery to the UAE under the agreement. This is a good sign and I hope there will be more Indonesian products, especially those exempted from import tariff, to be exported. I believe that the increasing number of exports from Indonesia to UAE could attract more investment to Indonesia in the future," adds Bagis.
Following the CEPA agreement, Dubai Customs issued Customs Announcement No. (2023/8) to outline the measures for its implementation. This development marks the beginning of a new chapter in the volume and value of trade between these two nations, he says.
Key benefits
The economic pact has accorded several benefits to Indonesia, with the elimination of tariffs. The UAE has either pared or shelved 94% of import tariffs, equalling 7,124 out of 7,581 tariff categories.
A total of 5,523 tariff categories, totalling 72.9% of the total, have been eliminated since the economic pact has come into effect. Indonesian products eliminated from the import tariff include jewellery, paper products, palm oil, soap, motor vehicles, butter, iron and steel products, electrical equipment and electronics, wood pulp, vehicle tires, footwear, battery, fabric products, coal and clove.
Furthermore, a total of 1,474 tariff categories will be eliminated gradually within five years of the implementation.
“The CEPA pact is the first bilateral economic agreement between Indonesia and a Gulf Cooperation Council (GCC) member, with a fast negotiation period of around nine months. The CEPA pact is expected to boost the total trade value of both countries exceeding $10 billion within three years,” says Bagis.
