The Jakarta Post, Jakarta | 14 July 2008
Planned bilateral deal to boost Canadian investment in RI
Canada and Indonesia are currently in talks to ink a bilateral agreement that will help protect the investments of Canadian companies in Indonesia, as well as promote Indonesia’s potential to Canadian businesses.
With bilateral trade and investment reaching around US$5 billion last year, the deal is expected to boost the economic ties between the two countries.
Canadian Ambassador John Holmes recently shared his views with The Jakarta Post’s Rendi Akhmad Witular on the challenges of doing business in Indonesia. Following are excerpts from the interview:
Question: What is the current state of economic ties between Indonesia and Canada?
Answer: The economic relation is very strong. If we take combined bilateral trade and investment, it was worth around US$5 billion last year, up by some $200 million from 2006. Two-way trade alone was valued at around $2 billion last year with the balance of trade more or less even, but a slight advantage to Indonesia. The remaining $3 billion was the investment portfolio value of Canadian companies here.
In terms of trade, Canada sells wheat, materials related to the oil and gas sector, equipment, machinery, agrifood, beef and soy. Indonesia sells rubber, wood products and a variety of other things to Canada. So the trade is strong, although both sides recognize we can do a lot more.
On the investment side, a lot of Canadian companies have been operating here, such as Manulife, Sun Life, Bata Shoes and Inco. And there are several new Canadian companies here as well.
The increase in trade was driven by an increase in volume and commodity prices. Wheat prices and food prices have gone up a little bit. But we also increased the volume of wheat export. We were also successful in removing a ban on Canadian beef export, after which we started small-scale import of beef.
The oil and gas sector was also booming. A lot of Canadian businesses supporting oil and gas operate here.
How would you enhance economic relations with Indonesia?
We try to do several things to enhance our trade with Indonesia. One of them is to create a better climate for Canadian investors to come out here. So we have been negotiating since last year with Indonesia on a bilateral foreign investment protection agreement or promotion agreement; we call it FIPA. It’s not so much a legal framework, although that is there. It’s a psychological thing. It helps reassure Canadian businesses that wherever they go, there will be a solid background for protection of their investments abroad.
The progress (of the negotiation) has been good. This month we have a third round of negotiation. Both sides have come out from each of the sessions positively but at the same time being realistic.
Included in the FIPA is a definition of investors, and the sectors that will be covered. For us, sectors related with mining, oil and gas, merchandise, insurance and services will be prioritized. I don’t know what the Indonesian side is saying about the issue.
We also want a dispute settlement mechanism in there. Some way to ensure that after negotiation and mediation you will manage to resolve the dispute. We have some objectives and arbitration in play as well.
How could the deal work if some points contradict with existing laws and regulations?
Well, the basic principal is that foreign firms should not be treated differently. But it is reflected already in the investment law. In terms of dispute settlement that would be an issue if a company is not treated fairly. If it is just a normal thing where Canadian firms have a dispute with the government or firms, that would not be different if it involved an Indonesian company. That is where the treaty will kick in.
If there is a different treatment it will be against the treaty. We should do it through negotiation, not through the court first. It’s a kind of out-of-court settlement.
What about barriers imposed by Canada on Indonesian products? Will those be addressed in the FIPA?
I’m not aware of any recent cases. Resolution should be under the corridor of the World Trade Organization (WTO). Generally we are a free trade country. The tariff in Canada is quite low. The exports from Indonesia are not subject to high tariffs, for example, for raw materials, rubber and food.
Was the FIPA deal initiated in response to the legal battle here which have involved some Canadian firms?
No. It is not in response to a specific thing. We have taken note of the changes that have taken place in Indonesia with the new investment law and even with the so-called negative lists.
The area of potential investment here is pretty good. But we are still monitoring very closely what the parliament may do with the mining bill because that is a big sector for Canada here.
The idea (of the bill), for example, moving from a long-term contract to short-term leases is a concern to Canadian investors. But generally I think the investment climate is very good. We are still finding it a challenge to get Canadian companies to come out to this part of the world. Any little thing that we can do, including through the FIPA, to encourage people to come here, I think is a good idea.
Will there be any new investment from Canada soon?
In the mining sector there are several companies exploring resources in Indonesia. But they haven’t hit it rich yet. They have been here two years now. A lot of mining companies in Canada are interested in entering Indonesia. Some of them have contacted us for advice and to seek further information. In a couple years, there will be several alternative energy companies coming into Indonesia to explore geothermal. They are still seeking local partners.
What are the obstacles to doing business here right now?
A lot of it is a matter of synergy between central and local government. Most of it boils down to governance issues. That is why our projects (of development assistance) mostly focus on the local administration level. Our project in Sulawesi, for example, is trying to build capacity and governance and change attitudes (of the bureaucrats) to focus on client service, as opposed to "don’t bother me" attitudes.
What the Canadian businesses want is no different from the demands of other businesses. They want a clear, level playing field and to know the rules and the costs of doing business. Once they say OK and can manage the risk well, they don’t want the rules to change halfway through. It is a challenge here.
The decentralization policy is not clear as well. We often hear from Canadian companies that it used to be you knew exactly where you had to go to ask and get permission to do something. But now we go to Jakarta but they say you should go to the regents.
However, it is working itself out now. It’s a major transition that Indonesia is undertaking. And I’m optimistic Indonesia will sort this out. The playing circle is murky and needs to be worked on, but despite all that you can get all things done.