Canada–Indonesia Comprehensive Economic Partnership Agreement: Economic Impact Assessment

December 2025

Table of contents

• Summary
• Context
• Overview of Canada-Indonesia economic and trade relations
  • Economy
  • Trade in goods and services
  • Foreign direct investment (FDI) stocks and flows of Canada with Indonesia
• Overview of negotiated outcomes
• Model and data
  • Modelling approach
  • Modelling results
  • Extensive margin analysis
• Conclusion
• Annex 1: Technical backgrounder for the CGE modelling
  • Model design
  • Model data
  • Sector scope

Summary

• Indonesia is among the world’s fastest-growing economies, with strong long-term prospects. Supported by favourable demographics and sound macroeconomic policies, Indonesia is on track to become one of the four largest economies globally in the coming decades.
• Indonesia is ASEAN’s largest economy, accounting for 35% of the region’s GDP. As the region’s leading supplier of energy, minerals, and agricultural products, it plays a pivotal role in shaping resource flows across Southeast Asia. This strong resource base complements Canada’s trade strengths and positions Indonesia as a strategic gateway for Canadian resource companies seeking broader access to ASEAN markets.
• Within ASEAN, Indonesia is Canada’s largest export market for goods, absorbing 24.5% of Canada’s merchandise exports to the region. On the import side, Indonesia is Canada’s fourth-largest supplier in ASEAN, after Vietnam, Thailand and Malaysia. In 2024, bilateral trade in goods and services totaled $6.7 billion, including $3.2 billion in Canadian exports and $3.5 billion in imports.
• Because of its strategic and economic importance, Indonesia is a cornerstone of Canada’s broader Indo-Pacific trade diversification strategy. The conclusion of the Canada-Indonesia Comprehensive Economic Partnership Agreement (CEPA) provides critical opportunities for Canada to access dynamic markets, diversify beyond traditional partners, and strengthen integration into Asian supply chains.
• Once the CEPA is fully implemented, Indonesia will eliminate or reduce duties on 85.9% of its tariff lines, representing 97% of existing trade from Canada and covering all key Canadian export interests. In turn, Canada will eliminate duties on 90.5% of its tariff lines, representing 92% of existing trade from Indonesia.
• The CEPA also addresses non-tariff barriers, including through provisions on sanitary and phytosanitary measures, technical barriers to trade, and good regulatory practices. Importantly, the Agreement includes robust provisions on labour, environment, investment protection, and services liberalization, enhancing predictability and transparency for Canadian businesses.
• As a regional hub for resource flows, Indonesia attracts significant trade and investment activity in resource-related sectors, including from Canadian exporters and investors. While 88% of Canada’s exports, mostly resource-based and agricultural products, already enjoy duty-free access, the CEPA will strengthen certainty and predictability by locking in these existing market access conditions through legally binding commitments. By preventing future tariff increases or abrupt policy reversals in Indonesia, the CEPA provides Canadian exporters with a more stable and predictable business environment—supporting long-term investments, sustained export growth, and deeper supply chain integration in the Indonesian market.
• The CEPA will also deliver important economic benefits to Canada for the remaining 12% of current exports—valued at $361 million—that still face tariffs, though the resulting impact on GDP is expected to be modest. Modelling by the Office of the Chief Economist projects that Canada’s GDP will increase by $226 million once the CEPA is fully implemented, while bilateral trade could expand by $1.5 billion. Canadian exports are expected to rise by $173 million (4.8%), with gains spread across sectors such as electronics, machinery, motor vehicle parts, chemicals, metals, and business services. Imports from Indonesia are projected to grow by $1.3 billion (39%), primarily in apparel and leather products. These imports are expected to exert downward pressure on consumer prices and enhance the variety of products available to Canadian consumers. Given the structure of Canada’s domestic production, significant displacement of domestic industry is not anticipated. Instead, these imports are projected to primarily substitute for imports from other foreign suppliers rather than compete directly with Canadian producers.
• It should be noted that the economic model results do not capture the full extent of benefits associated with the trade deal—most notably, the lock-in effect of securing duty-free access–nor capture future expected benefits resulting from the CEPA’s built-in forward-looking negotiation agenda.
• The analysis also highlights additional sectors and products that could benefit from tariff liberalization beyond the gains captured by economic modelling. By design, the modelling is based on existing trade patterns, and no current model can fully capture gains that go beyond these patterns. For example, Canada currently does not export under 8,461 of Indonesia’s 11,414 tariff lines—representing roughly 74% of all product codes. Among these non-traded lines, the majority are subject to tariffs, nearly half of which are 7.5% or higher. Under the CEPA, duties on the majority of these lines will be reduced or eliminated.
• From a Canadian export perspective, total merchandise exports to ASEAN countries outside Indonesia amounted to $1.9 billion. Of this, $1.0 billion consisted of products Canada does not currently export to Indonesia at all, while the remaining $847.8 million consisted of products exported to Indonesia in limited quantities. These are areas where Canada already has a strong regional presence but faces restricted access to Indonesia due to high tariffs.
• By removing these entry barriers, the CEPA could unlock new market opportunities, expand trade and foster new trading relationships.

Context

The Government of Canada is committed to strengthening trade and investment ties across the Indo-Pacific region, in alignment with its Indo-Pacific Strategy and Trade Diversification Strategy. As a trading nation, Canada also champions a rules-based international trading system and inclusive trade practices that support economic, social, and environmental priorities.

On September 24, 2025, Canada’s Minister of International Trade and Indonesia’s Minister of Trade signed the Canada-Indonesia Comprehensive Economic Partnership Agreement (CEPA) in Ottawa, witnessed by the Prime Minister of Canada and the President of the Republic of Indonesia. This marks a major step forward in deepening Canada’s presence and diversifying trade in the Indo-Pacific region.

While Canada continues to engage with ASEAN on a potential regional free trade agreement, the CEPA with Indonesia represents a targeted and high-impact opportunity to advance Canadian trade and investment priorities in Southeast Asia. Indonesia, with nearly 300 million people, a rapidly growing middle class, and a projected GDP growth rate of 5% annually, is Southeast Asia’s largest economy and a strategic partner for Canada.

To support the Agreement’s implementation, Canada has committed $25 million over five years to an international assistance project that will strengthen Indonesia’s capacity to meet CEPA obligations and promote inclusive growth. This initiative will benefit Canadian businesses by enhancing Indonesia’s ability to implement and comply with commitments undertaken in the CEPA.

The CEPA is part of Canada’s broader Indo-Pacific Strategy and Trade Diversification Strategy and reinforces its commitment to economic growth, trade diversification, and sustainable development. As Indonesia’s economy continues to expand and its global influence grows, the CEPA positions Canada as a competitive and trusted partner in the region.

Overview of Canada-Indonesia economic and trade relations

The following section provides an overview of the economic relationship between Canada and Indonesia and sets the stage for the economic impact assessment of a comprehensive economic partnership agreement (CEPA) between the two countries.

Economy

Canada’s economy remains larger than Indonesia’s in 2024, with a GDP of $3.1 trillion compared to $1.9 trillion. The disparity is even more pronounced on a per-capita basis: Canada’s GDP per capita is $74,400, which is more than ten times Indonesia’s $6,700.

While Indonesia’s economy remains smaller than Canada’s in absolute terms, it is on a faster growth trajectory. Indonesia’s economy has been expanding at a significantly faster pace, growing at an average annual rate of 4.2% from 2015 to 2024, compared to Canada’s average of 1.7% over the same period.

Indonesia’s long-term prospects are very promising. Home to 283 million people in 2024—currently the world’s fourth-most populous country—Indonesia’s population is projected by the UN and World Bank to reach 312 million by 2040.^{Footnote 1} This implies a natural growth rate of 0.6% per year, one of the highest among major economies.

Supported by favourable demographics and sound macroeconomic policies, Indonesia is projected by Oxford Economics to become one of the world’s four largest economies by 2040 in terms of purchasing power parity. Over this period, its GDP is expected to more than double, rising from $1.9 trillion in 2024 to about $3.9 trillion by 2040.^{Footnote 2}

With rising income and middle-class population, by 2040, Indonesia’s total merchandise imports from the world are projected to increase by 70% from the current $301 billion to reach $512 billion, which is larger than the current imports of Australia and New Zealand combined. Over the same period, Indonesia’s merchandise exports are expected to rise from $355 billion today to $617 billion by 2040.^{Footnote 3}

Indonesia is the largest economy in the ASEAN, accounting for 35% of the region’s GDP. It is the region’s largest supplier of energy, minerals, and agricultural products, and plays a pivotal role in shaping ASEAN’s resource flows. Its exports of coal, LNG, palm oil, rubber and nickel are critical not only to ASEAN partners but also to global supply chains. Given its weight in regional supply chains and the scale of its production, many Canadian companies often use Indonesia as a strategic gateway to access the broader ASEAN market.

Looking ahead, Indonesia’s scale, growth trajectory and central role in Southeast Asian supply chains position it as a pivotal partner for deepening Canada’s future engagement with the region.

Trade in goods and services

Indonesia is one of the few Asian economies with which Canada has sustained a balanced trade relationship for much of the past decade. In 2024, bilateral trade in goods and services totalled $6.7 billion, including $3.2 billion in Canadian exports^{Footnote 4}—growing at an annual rate of 5.8%—and $3.5 billion in imports, which advanced at a pace of 8.7% annually. Canada-Indonesia trade is largely driven by goods, which account for over 90% of Canada’s exports to and imports from Indonesia.

Figure 1: Exports and imports of Canada with Indonesia, 2015-2024, $ million

Data: Statistics Canada and Statistics Indonesia.
Source: Office of the Chief Economist, Global Affairs Canada.

Trade in goods

Indonesia stands out as Canada’s largest goods export destination in the ASEAN region and a rapidly rising source of imports. In 2024, Canadian exports to Indonesia reached $2.9 billion—accounting for 24.6% of Canada’s total goods exports to the region—with steady growth averaging 6.0% annually since 2015.

On the import side, Indonesia supplied $3.3 billion in goods to Canada during 2024, ranking as Canada’s fourth largest ASEAN import source after Vietnam, Thailand, and Malaysia. Imports from Indonesia have grown much faster than exports, at an average annual rate of 9.0% over the past decade. Even so, Canada has generally maintained a trade surplus with Indonesia, highlighting the strength and balance of the bilateral relationship.

The majority of Canadian exports to Indonesia are resources- and agriculture-related. Exports of cereals, wood pulp and fertilizers together made up 72.5% of total exports in 2024. Cereals led the way, accounting for 41.8% of exports and totaling $1,215.2 million. Over the past decade, cereal exports have shown a steady upward trajectory, expanding at an average annual rate of 8.0%.

Table 1: Canada’s exports to Indonesia, 2024

In 2024, Canada’s top imports from Indonesia were electrical machinery and equipment, rubber, and apparel, which together accounted for 36.3% of total imports. Electrical machinery and equipment dominated, representing more than 20.5% of imports, or $675.9 million. This category has expanded rapidly over the past decade, growing at an average annual rate of 22.9%, underscoring Canada’s increasing reliance on Indonesia as a source for these products. By contrast, imports of rubber and apparel have grown more steadily—at average annual rates of 4.7% and 6.6%, respectively—reaching $265.2 million and $253.8 million in 2024.

Table 2: Canada’s imports from Indonesia, 2024

Trade in services

Total trade in services between Canada and Indonesia totalled $502.0 million in 2024. During that year, Canada exported services amounting to $293.0 million and imported services worth $209.0 million, resulting in a positive trade balance of $84.0 million.

Figure 2: Canadian exports and imports of services with Indonesia, 2015-2024, $ million

Data: Statistics Canada.
Source: Office of the Chief Economist, Global Affairs Canada.

As shown in Table 3, the travel sector accounts for over half of all services exported to Indonesia, with commercial services making up one third of exports, and transportation and government services representing less than 15%. On the import side, transportation and government services account for the largest share, around two thirds, while travel services make up close to one third of service imports. Canada has generally maintained surpluses in services trade with Indonesia, but it recorded small trade deficits in 2018 and 2019.

Table 3: Canada’s exports and imports of services with Indonesia by category, 2023

Foreign direct investment (FDI) stocks and flows of Canada with Indonesia

Indonesia was Canada’s third largest foreign direct investment (FDI) destination amongst ASEAN countries in 2024, with a total of $5.1 billion in investment over 2024, behind Singapore and Vietnam. Canada’s investment in Indonesia has seen strong growth over the past decade, rising by 56.4% between 2015 to 2024.

While Canada’s investment presence in Indonesia has grown steadily, the pace and scale of Indonesia’s investment in Canada has been notably more pronounced in recent years. As of 2024, Indonesia’s FDI in Canada stood at $5.9 billion. The most substantial increase occurred in 2023, when Indonesian FDI rose by $3.3 billion, marking a 131.5% gain from the previous year and bringing the total to $5.8 billion. This represents an average annual growth rate of 42.8%.

Overview of negotiated outcomes

The CEPA is a comprehensive trade agreement that includes commitments on trade in goods, trade in services, investment, labour, environment, and other areas. The CEPA will enhance commercial opportunities for Canadians on a key market in the Indo-Pacific, while preserving Canada’s right to regulate in the public interest. The outcomes of the CEPA are consistent with the negotiating objectives tabled in the House of Commons on November 24, 2021.

The CEPA improves market access conditions for Canadian exporters through tariff elimination for a majority of goods, prioritizing those of export interest. The Agreement eliminates, reduces, or permanently locks-in tariffs that are currently duty free for Canadian exports, including: agriculture and agri-food products, fish and seafood, wood and wood products, pulp and paper, chemicals and plastic, tires, medical and measuring instruments, industrial machinery, and pharmaceutical products. Once the CEPA is fully implemented, Indonesia will eliminate or reduce duties on 85.9% of its tariff lines, representing 97% of existing trade from Canada and covering all key Canadian export interests. In turn, Canada will eliminate duties on 90.5% of its tariff lines, representing 92% of existing trade from Indonesia. Canada addressed its import sensitivities through long phase-outs or exclusions. The CEPA contains no concessions in supply-managed agricultural sectors. Aligned with Canada’s approach in other FTAs, the CEPA addresses non-tariff barriers and facilitates Canada’s exports through provisions on sanitary and phytosanitary measures, technical barriers to trade, and good regulatory practices that support stable and predictable trade.

The CEPA provides greater predictability and transparency for Canadian service providers and investors across a range of sectors. The CEPA includes comprehensive rules for investment and services, including financial services, to enhance business confidence, including through investor-state dispute settlement and regulatory transparency provisions.

The CEPA includes robust environmental and labour provisions to level the playing field for Canadian businesses. It contains provisions to ensure that the Parties uphold and protect internationally recognized labour rights and environmental standards, to effectively enforce their labour and environmental laws, and to not derogate from those laws in order to encourage trade and investment.

The CEPA seeks to ensure that the benefits of the Agreement are widely shared and it includes provisions on trade and women’s economic empowerment and on small- and medium-sized enterprises. The Agreement ensures that Canada maintains its policy flexibility with respect to fulfilling the rights of Indigenous Peoples. The CEPA also includes economic and technical cooperation provisions that enable Canada and Indonesia to undertake technical assistance and capacity-building activities.

Lastly, the CEPA contains comprehensive provisions that establish the framework by which the Agreement will be interpreted, managed and implemented, as well as exceptions that allow the Parties to retain their ability to protect national security interests and the cultural industries sector. Consistent with Canada’s other trade agreements, the CEPA includes dispute settlement provisions to provide for a fair, transparent, efficient, and effective means of resolving differences relating to the Agreement that may arise between the Parties. Canada has also secured a review provision in the CEPA that commits Indonesia and Canada to review the Agreement in five years to further develop and expand their commitments. An overview of all issue areas is provided below.

Institutional

The institutional chapters contain comprehensive provisions that establish the framework by which the Agreement will be interpreted, managed and implemented. Notably, the Exceptions and General Provisions chapter includes provisions to ensure the Parties retain their ability to protect national security interests and their cultural industries sector. The Agreement establishes a Joint Committee to oversee the implementation and operation of the Agreement with a view to updating and enhancing it to ensure it continues to address trade and investment issues and challenges.

National treatment and market access

The National Treatment and Market Access chapter provides the framework for tariff elimination and reductions of non-tariff barriers. It includes substantive obligations consistent with Canada's existing trade agreements such as provisions disciplining import and export restrictions, improving transparency in import and export licensing, and innovative agricultural products to help facilitate trade and increase transparency, predictability and cooperation. New provisions on import licensing have also been added to the chapter to ensure that import licenses do not undermine market access under the CEPA.

Trade remedies

The Trade Remedies provisions reaffirm WTO rights and obligations in respect of anti-dumping, countervailing and global safeguard measures, and recognize certain best practices such as promoting the goals of transparency and due process in trade remedy proceedings.

Rules of origin, and origin procedures

For rules of origin: The CEPA includes rules of origin that allow for accumulation of materials and a review clause on accumulation of production. It establishes criteria for determining the origin of goods that are clear, as simple as possible, leave little room for administrative discretion, and take into account existing production patterns and regional integration.

For origin procedures: The origin procedures section manages the rules of origin of goods in order to enable the trading community to take advantage of the preferential tariff treatment afforded under the Canada-Indonesia CEPA. The CEPA’s origin procedures contain obligations in areas such as certification of origin, record keeping, origin verifications, advance rulings, penalties and cooperation. The text prescribes the processes necessary for traders to take full advantage of the CEPA, while at the same time providing customs administrations with an efficient and effective method, performed on a risk-managed basis after the good is imported, to ensure that only qualifying goods receive the benefits of the Agreement.

Customs procedures and trade facilitation

With the WTO Agreement on Trade Facilitation as the baseline, the CEPA’s chapter on “Customs Procedures and Trade Facilitation” establishes obligations that modernize, simplify and standardize trade-related customs procedures, while safeguarding and providing certainty around the Parties’ ability to administer or introduce new measures that ensure or enhance trader compliance with their trade-related laws, regulations or procedural requirements. Such measures include those that seek to ensure the safety and security of the Parties and their citizens through the proper declaration of goods and the payment of applicable duties, taxes, fees and charges by traders.

Sanitary and phytosanitary measures

The Sanitary and Phytosanitary Measures (SPS) chapter imposes robust obligations on science and risk analysis, incorporates the substantial obligations of the WTO Agreement on the Application of Sanitary and Phytosanitary Measures, and establishes cooperative mechanisms to resolve trade issues and enhance regulatory cooperation. The entire SPS chapter is subject to CEPA dispute settlement mechanisms. The rights of the Parties to take measures necessary for the protection of human, animal or plant life or health are preserved.

Technical barriers to trade

The Technical Barriers to Trade chapter under the Canada-Indonesia CEPA complements and builds upon the WTO Agreement on Technical Barriers to Trade, specifically for standards, technical regulations, conformity assessment and transparency. The chapter highlights the importance of transparency when standards, technical regulations and conformity assessment procedures are developed. It also ensures that, in line with each country’s laws and regulations, regulations are applied equally to products and goods originating in either country, while protecting each country’s right to regulate in its own best interests.

Good regulatory practices

Good government regulatory practices foster openness, transparency, and evidence-based decision-making. Countries that adhere to good regulatory practices can have confidence in one another's regulatory systems. In turn, this can facilitate trade. The Canada-Indonesia CEPA includes a chapter on good regulatory practices designed to further the goal of working together to ensure transparent and predictable regulatory systems that promotes stronger trade relations and protect citizens. At the same time, the chapter maintains the ability of each partner to adopt and apply its own laws and regulations to regulate economic activity in the public interest.

Investment

The Investment chapter incorporates a comprehensive framework of obligations. It establishes a suite of investment protections, including: non-discrimination at the pre- and post-establishment phases; protections against expropriation without fair compensation; provisions on minimum standards of treatment; and disciplines against performance requirements. The chapter also ensures policy flexibility in critical areas, such as public health, safety, the environment, and the rights of Indigenous Peoples. It also includes modern, transparent, and predictable rules governing investor-state dispute settlement (ISDS). Consistent with Canada’s practice, the ISDS mechanism also applies to investments in services sectors.

Trade in services

The Trade in Services chapter includes substantive obligations consistent with Canada's existing trade agreements. The chapter provides market access, non-discriminatory treatment, transparency, and predictability for both Canadian and Indonesian service suppliers. It also includes annexes on the development and administration of measures as well as on professional services.

Services and investment non-conforming measures

The CEPA includes a negative list of reservations for Non-conforming Measures (NCMs) on services and investment, with a 3-year transition period for Indonesia to allow it to improve transparency. For the first time, existing measures are listed in two separate annexes depending on whether they are subject to the ratchet mechanism. This list of NCMs reflects both Parties’ regimes and provides transparency and predictability. The Parties also committed to a review process set to begin 3 years after the entry into force of the Agreement, through which they will aim to improve current offers.

Financial services

The CEPA includes a comprehensive stand-alone Financial Services chapter. It will ensure a level-playing field between Canada and Indonesia through a framework of general rules tailored to the unique nature of the financial sector. These include core obligations for market access, national treatment and most-favoured nation treatment, as well as modern commitments on regulatory transparency and processing of applications. The chapter also includes a robust prudential exception, ensuring the ability of financial sector regulators to take measures to preserve the integrity, security and stability of the financial system.

Temporary movement of natural persons

The Temporary Movement of Natural Persons chapter expands economic opportunities for Canadians and Indonesians through a combination of facilitative measures and transparency commitments aimed at easing cross-border movement for a range of business persons, as well as for their spouses. These provisions align with Canada’s established approach across its free-trade agreements, facilitating short-term access for business purposes while clearly distinguishing these pathways from permanent employment, residency and citizenship. This approach preserves Canada’s flexibility to implement measures that protect health, safety and national security, supported by eligibility criteria that uphold the integrity of the domestic labour market. Together, these commitments create a balanced, reciprocal framework for labour mobility, fostering economic collaboration and mutual benefit between Canada and Indonesia.

Telecommunications

The Telecommunications chapter includes commitments that will provide enhanced regulatory certainty for telecommunications service suppliers when operating or investing. The chapter contains obligations regarding the access to and use of telecommunications services, and it ensures that service suppliers will be treated in a fair and objective manner when providing telecommunications services on Canadian and Indonesian telecommunications markets.

Electronic commerce

The Electronic Commerce chapter supports digital trade by including commitments relating to cross-border data flows, data localization, source code disclosure, open government data, and personal data protection. Overall, the chapter aims to improve regulatory certainty for businesses and consumers seeking to engage in the digital economy in both markets, as well as those specifically looking to engage in cross-border digital trade between Canada and Indonesia.

Intellectual property

The Intellectual Property chapter contains commitments that increase the predictability and transparency of the intellectual property system. The chapter details cooperation and consultations commitments that will allow the Parties to work together towards achieving modern intellectual property standards in the region.

Government procurement

The Government Procurement chapter includes procedural rules related to transparency, cooperation and ensuring integrity in procurement practices. It also recognizes the use of environmental and socio-economic considerations in procurement processes and encourages the participation of Canadian and Indonesian small and medium-sized enterprises (SMEs) in government procurement. The chapter also includes an article to pursue further negotiations, allowing the Parties to seek to expand the scope of the Government Procurement chapter in the future, including on market access.

Competition policy

The Competition Policy chapter aims to advance the shared goals of both Parties for a transparent, predictable and competitive business environment, and establishes strong requirements for procedural fairness. This ensures that Canada’s and Indonesia’s competition authorities will uphold transparency in their investigative and enforcement processes, and safeguards the rights of those under investigation. It also encourages cooperation and sets out measures for competition authorities to identify and protect confidential information.

State-owned enterprises

Canada and Indonesia agreed on disciplines for state-owned enterprises (SOEs). This marks the first commitment of this kind for Indonesia and introduces provisions for SOEs about non-discriminatory treatment, commercial considerations, regulatory impartiality, transparency and technical cooperation. The text ensures that large, commercial SOEs generally operate in accordance with market principles, while recognizing the role of SOEs in the public domain.

Trade and sustainable development

The Trade and Sustainable Development chapter promotes trade and economic flows that contribute to enhancing decent work, a high level of environmental protection and inclusive economic growth, set out in three distinct sections:

For trade and environment: Comprehensive environmental provisions aim to level the playing field by ensuring the Parties do not lower their levels of environmental protection to attract trade or investment. The Environment section includes provisions recognizing the importance of mutually supportive trade and climate change policies, articles to address global environmental challenges, including on plastic pollution and the protection of biological diversity, as well as commitments dealing with fisheries and aquaculture, forest management and agriculture, and the promotion of responsible businesses conduct. The Parties’ commitment to enforce domestic environmental legislation and not derogate from it to encourage trade or investment is subject to the CEPA’s dispute settlement mechanism. The Environment section also provides for enhanced consultations and cooperation to resolve any other related matter that may arise.

For trade and labour: Comprehensive labour provisions are enforceable through the CEPA Dispute Settlement chapter. The labour provisions commit each Party to provide protection for International Labour Organization (ILO) fundamental principles and rights at work, and acceptable conditions of work, in their respective laws and regulations, and to effectively implement the fundamental ILO Conventions that it has ratified. In addition to including a non-derogation article, the labour provisions further require that a Party not fail to effectively enforce its labour laws through a sustained or recurring course of action or inaction in a manner affecting trade or investment. Dedicated provisions recognize the importance of addressing forced or compulsory labour and violence against workers, as well as the possibility of undertaking cooperative activities in these areas. Institutional mechanisms such as public awareness, procedural guarantees and an article on cooperation are also included to facilitate the implementation of labour provisions.

For trade and women’s economic empowerment: The trade and women’s economic empowerment provisions recognize the importance of incorporating a women’s economic empowerment perspective into the development of each Party’s trade policies and practices. It includes a framework for the Parties to participate in cooperation activities and a commitment to domestically promote existing laws, regulations and policies that protect the rights of women and foster equality between men and women.

Trade and small and medium-sized enterprises

The Small and Medium-sized Enterprises (SMEs) chapter highlights the crucial role SMEs play in both economies and commits the Parties to work together to remove barriers so that SMEs are better positioned to leverage the opportunities created by the Agreement. The chapter also includes commitments on information sharing, on undertaking cooperation activities, and on establishing a committee to oversee its implementation.

Economic and technical cooperation

The Economic and Technical Cooperation chapter enables Canada and Indonesia to undertake technical assistance and capacity-building activities. These activities will strengthen the ability of the Parties to implement the CEPA and maximize its opportunities and benefits while promoting inclusive and sustainable economic growth.

Transparency, anti-corruption and responsible business conduct

The Transparency, Anti-corruption and Responsible Business Conduct chapter includes comprehensive provisions to facilitate a transparent and predictable environment for trade and investment. This will be Indonesia’s most comprehensive chapter on transparency, anti-corruption and responsible business conduct included in a trade agreement.

Bilateral dialogues on priority matters

The chapter on Bilateral Dialogues on Priority Matters establishes a means to discuss cooperation on critical minerals and matters related to sanitary and phytosanitary measures, which are operationalized through Memoranda of Understanding.

Critical minerals: The establishment of a Bilateral Dialogue on Critical Minerals Cooperation aims to strengthen the partnership between Canada and Indonesia in their shared ambitions to develop secure and resilient global critical mineral supply and value chains with high environmental, social, and governance (ESG) standards. This dialogue will facilitate information exchanges, including the sharing of knowledge regarding best practices related to legislative and policy frameworks for supporting high ESG standards in the mining and refining sectors, environmental impact assessments, mine closure protocols, the reduction of greenhouse gas emissions in the mining and refining sectors through the application of clean technology solutions, and other mutually agreed upon areas of cooperation. The dialogue will also support bilateral mining and service sector trade and investment with a focus on “green” solutions for the mining and refining sectors.

Matters related to sanitary and phytosanitary measures (SPS): Canada and Indonesia negotiated a Memorandum of understanding (MOU) that establishes a bilateral dialogue on SPS issues, effective upon signature of the Agreement. Both countries will use this dialogue to facilitate market access for trade in Canadian beef and Indonesian bird’s nests, as well as to enhance collaboration on food safety. The CEPA chapter on Bilateral Dialogues on Priority Matters references the SPS MOU and allows a Party to bring any matter arising from the SPS Dialogue to the CEPA Joint Committee.

Dispute settlement

The Agreement provides for a fair, transparent, efficient and effective means of resolving differences related to the Agreement that may arise between the Parties. The dispute settlement mechanism applies across the Agreement, with few specific exceptions. The public in each country will be able to follow the proceedings, as the Parties’ submissions, hearings and final reporting presented by a panel will be made available to the public. The mechanism provides robust rules that give the Parties every opportunity to resolve disputes through cooperation and consultation and encourages the use of alternative dispute resolution mechanisms when appropriate.

Model and data

With overall macroeconomic considerations and overall trade and investment as a backdrop, the next section presents the modelling results for the potential economic and trade impact of the Canada-Indonesia CEPA based on simulations using a dynamic computable general equilibrium (CGE) model of global trade. The model follows the structure of the Global Trade Analysis Project (GTAP) model.^{Footnote 5} For a detailed description of the model, see Annex 2.

As a note of caution, the modelling results should be interpreted with an understanding of both the strengths and limitations of a CGE model. In particular, the model captures only the expansion of trade links in products already traded between Canada and Indonesia (i.e., the intensive margin of trade). It cannot account for the creation of new trade for products that were not previously traded but could emerge under the CEPA (i.e., the extensive margin of trade). The model has no historical patterns to analyze and project under the new agreement. Moreover, the model assesses gains only from the liberalization in goods, services and investment, without taking into account potential benefits from deeper economic cooperation in other areas. Consequently, the estimated gains should be viewed as a lower-bound measure of the CEPA’s overall potential impact.

To address the above limitation, this report complements the CGE results with an extensive margin analysis—focusing on products that Canada currently exports to other ASEAN countries, but not to Indonesia due to high tariffs. By integrating data on Canada’s existing exports to ASEAN markets with Indonesia’s tariff profile, the analysis assesses the potential for Canadian exporters to enter the Indonesian market once prohibitive tariffs are reduced or eliminated. This approach helps uncover potential export opportunities that the CGE model alone cannot capture.

Accordingly, the potential benefits of a trade agreement between Canada and Indonesia are quantified using the following approaches:

1. The CGE model
2. An extensive margin analysis

Together, these two analyses cover both gains identified in the CGE model and products that would not be picked up in an analysis solely based on CGE modelling.

Modelling approach

The economic modelling assesses the impact of the Canada-Indonesia CEPA on Canada, Indonesia and the rest of the world by comparing how the global economy would evolve with and without the Agreement along a projected trajectory to 2030:

1. Baseline: How economies are expected to evolve over the time horizon in the absence of the CEPA.
2. Scenario: How economies are projected to evolve following the implementation of the CEPA, incorporating the Agreement’s actual tariff schedules for goods trade and binding commitments for services trade.

The impact of the CEPA is measured as the difference between the scenario and the baseline. This framework ensures that other influencing factors—such as macroeconomic trends, exchange rate movements, and technological developments—remain constant across both cases. Consequently, the model isolates the CEPA effect, providing a clear and comparable estimate.

Barriers to trade in goods

The assessment of the CEPA’s impact relies on information about MFN tariffs, identifying those lowered or eliminated under the Agreement. For Indonesia, this analysis is based on its average imports from Canada during 2021–2023 and Indonesia’s 2023 MFN tariff schedule, providing the most up-to-date measure of trade-weighted tariffs faced by Canadian exporters.

As mentioned above, during 2021–2023, Canadian merchandise exports to Indonesia averaged $3.1 billion annually. Of this total, 88% already entered the Indonesian market duty-free, while the remaining 12% faced tariffs at varying levels.

Under the CEPA, about 9% of Canada’s exports to Indonesia—valued at $267 million—that currently face tariffs (i.e. dutiable affected trade) would benefit directly from tariff reductions or elimination (Figure 3). The remaining 3% of dutiable exports would continue to face tariff barriers and therefore remain unaffected by the CEPA.

Figure 3: Tariffs faced by Canadian exporters in Indonesia

Data: Government of Indonesia.
Source: Office of the Chief Economist, Global Affairs Canada.

Table 4 presents the top 10 Canadian exporting sectors that are expected to see the biggest tariff savings from the CEPA. Machinery and equipment, some chemical products, and agricultural products would benefit the most from tariff reductions and elimination. More specifically, the largest tariff savings would occur in machinery and equipment, turbo-propellers, machines for making paper, and parts for boring or sinking machinery. In chemicals, ethylene polymers stand to gain. In agricultural products, potatoes and peas stand out with the top gains.

These savings underscore the areas where Canadian businesses could expand their presence and enhance their competitiveness in Indonesia.

Table 4: Top 10 Potential tariff savings for Canada’s exports to Indonesia

On the import side, between 2021 and 2023, Canadian merchandise imports from Indonesia averaged approximately $2.5 billion annually. Of this amount, an estimated 57% (approximately $1.4 billion) of imports entered the Canadian market duty-free. Dutiable imports totaled about $1.1 billion over the same period.

Approximately 34% of total imports (valued at $848 million) are expected to benefit from tariff reductions under the CEPA (dutiable affected trade, see Figure 4). The remaining 9% ($216 million) of imports would not receive tariff reductions under the terms of the Agreement. Once the CEPA is fully implemented, 92% of Canadian imports from Indonesia will benefit from either locked-in duty-free access or reduced tariffs.

Figure 4: Tariffs faced by Indonesian exporters in Canada

Data: Global Affairs Canada.
Source: Office of the Chief Economist, Global Affairs Canada.

Table 5 outlines the top 10 Indonesian exports that would see the biggest tariff savings from the CEPA. Canada imposes 17% tariffs on wearing apparel, 15% on leather and related products (mainly shoes), and about 5% on other manufactured products. In terms of the biggest savings on specific products, imports of wearing apparel would benefit directly from a full tariff elimination under the CEPA.

Table 5: Top 10 potential tariff savings for Indonesia’s exports to Canada

Barriers to trade in services

With regards to barriers affecting trade in services, including through commercial presence (investment), countries often have a set of practices and regulations that are less restrictive with respect to their trade commitments at the multilateral level (i.e., WTO). However, a country is only bound to follow its legal obligations and can re-introduce or introduce new barriers at any time to more restrictive legal commitments. The unpredictability of rules regarding trade in services could have a negative impact on these industries. For this reason, binding the current domestic regime in a CEPA would provide predictability for services trade.

To account for certainty in a preferential trading relationship, the analysis follows the “shrinking water” approach in estimating the effect of certainty on trade costs. The Services Trade Restrictiveness Index (STRI) from the OECD is used to measure the level of restrictions based on the current regime, and the same index is used to estimate the level of services commitments under the General Agreement on Trade in Services (GATS). This generates an index referred to as the GATS Trade Restrictiveness Index (GTRI). The limitation of this type of analysis is that changes to mode 3 supply of services (commercial presence) are limited to services sectors only. Changes in binding commitments for investment in goods sectors cannot be measured using this methodology due to a lack of data.

When the current domestic regime is bound, the difference between the previous commitments (represented by the GTRI) and the obligations under the newest Agreement (generally binding to the current regime, represented by the STRI) is referred to as “water”. Minimizing the difference between the GTRI and the STRI by agreeing to bind to the current regime is referred to as “squeezing the water” and is assumed to provide more certainty for services exporters and thereby encourages increased trade in services. It is also assumed that the effect of binding commitments is less effective than new market access commitments. As such, estimated changes to trade costs resulting from changes to binding commitments are assumed to be half as effective as new market access commitments.

Modelling results

Macro impacts

The economic modelling results indicate that both Canada and Indonesia would achieve positive gains from the CEPA. However, for Canada, the projected economic gains are modest. GDP is projected to increase by $226 million upon implementation of the Agreement, reflecting the fact that 88% of current Canadian exports to Indonesia already enter duty free; only the remaining 12%—valued at $361million—face tariffs at varying levels.

Indonesia’s GDP impact is both larger and more enduring, with immediate gains of $234 million and sustained benefits over time, supported by its ongoing population and income growth.

Canadian exports to Indonesia are expected to rise by $173.2 million (4.8%) in the first year, and $216 million (5.2%) in the longer term. Imports from Indonesia could grow by $1.3 billion (38.9%) in the first year and by $1.6 billion (40.0%) in the longer term. This gain is concentrated in just two sectors—textiles and apparel, and leather products. The increase would largely substitute imports from other sources, such as China and Vietnam, resulting in only a modest rise in Canada’s global imports of $240 million.

With respect to employment, the CEPA is expected to generate a positive but very modest growth in Canadian jobs. The manufacturing and business services sectors are expected to see the largest potential increase.

Table 6: Trade impacts as a result of the Canada-Indonesia CEPA

Sectoral impacts and trade

Canadian exports to Indonesia benefiting the most from tariff savings are concentrated in the manufacturing sector (see Table 4). Overall, exports to Indonesia are projected to rise by $173.2 million (Table 6), with gains across electronics, machinery, motor vehicle parts, chemicals, and metals.

On the import side, the largest tariff reductions apply to labour-intensive products such as textiles, apparel, and leather goods—areas where Canada imposes the highest tariff protections among all manufactured products and has relatively limited domestic production. As shown in Table 7, Canadian imports of wearing apparel from Indonesia are projected to rise by $917 million, and imports of leather products by $203 million. These additional imports are expected to primarily displace Canada’s existing imports from other suppliers—particularly China and Vietnam, while Canadian domestic production would be less affected.

From a production perspective, the modelling results indicate that the Canada-Indonesia CEPA is expected to generate economic gains across three broad sectors of the Canadian economy: agriculture, manufacturing, and services. The agriculture sector is projected to increase by $34 million (Table 7).

Within manufacturing, sectors expected to benefit the most from tariff eliminations in Indonesia include machinery and equipment, non-ferrous metals, motor vehicle parts, computer and electronic products, electrical equipment, and chemical products. Canadian exporters in these sectors are anticipated to gain from improved market access and enhanced competitiveness. The gains for these manufacturing sectors are sufficient to more than offset the declines in the textile, apparel, and leather sectors. Overall, the manufacturing sector is projected to grow by $169 million.

The service sector is expected to benefit both directly from trade cost reductions through improvement in certainty, and indirectly from gains in employment and consumption resulting from the CEPA. As the largest component of the Canadian economy, services are projected to experience a noticeable expansion of $166 million.

Table 7: Changes in trade and production as a result of the Canada-Indonesia CEPA

Extensive margin analysis

Economic modelling using computable general equilibrium (CGE) models of global trade are the international standard in evaluating the potential economic impacts of free trade agreements. These models function very well when determining possibilities of expanding the existing trading relationship—also called the intensive margin of trade—between countries. In other words, the intensive margin of trade refers to increasing the amount of trade for products that were already traded before the agreement.

One area where CGE models have limitations is in determining the potential for new trade links where trade did not exist before—the extensive margin of trade. The extensive margin of trade refers to expanding the trading relationship to new products that were not traded prior to the agreement.

As a result of this technical limitation, CGE models of global trade can be considered a lower bound estimate of the potential gains from free trade. Accordingly, the examples provided in this section are illustrative in nature and should not be interpreted as a quantitative estimate. The purpose of this section is to explore possible opportunities for Canadian exporters to Indonesia on the extensive margin of trade.

Untapped opportunities for Canada’s exports to Indonesia

Between 2022 and 2024, Canada exported on average $2.6 billion in merchandise to Indonesia. These exports were spread across 2,954 tariff lines, out of 11,414. This means that for the remaining 8,460 tariff lines (74%) Canada had no exports to Indonesia. Most of these import lines (89%) are subject to Indonesian tariffs, and under the CEPA, 83% would become duty free. This suggests considerable untapped potential for Canadian exports across diverse sectors.

From a Canadian perspective, Canada exports a diverse range of products to ASEAN countries; however, many of these products are not yet exported—or are exported only in limited volumes—to Indonesia, despite its importance as a major regional economy. Indonesia’s relatively high MFN tariffs likely explain much of this gap. In contrast, Canada’s exports to its ASEAN FTA partners under the CPTPP—Malaysia, Vietnam and Singapore—where tariffs have been substantially reduced or eliminated, have performed strongly. This contrast underscores how tariff reduction or elimination can play a critical role in expanding Canada’s export presence in the region.

To identify these untapped opportunities, our analysis compares products that Canada exports to other ASEAN countries but not to Indonesia—where those products face tariffs. This approach helps isolate the effects of Indonesia’s tariff barriers from other factors such as Canada’s export capacity or competitiveness, providing a clearer view of where tariff reductions under the CEPA could open new market opportunities. These products represent potential gains not captured by the CGE model. By identifying them, the extensive margin analysis offers a more comprehensive assessment of the CEPA’s potential trade benefits beyond existing trade flows.

Data

The data used for this analysis is Canada’s export data to Indonesia and to the rest of ASEAN countries at the 8-digit harmonized system (HS) level, based on the average for the 2022-2024 period and reported in Canadian dollars. Canadian export data were chosen for this analysis to ensure the consistency of product definitions of Canadian exports to Indonesia and to the rest of ASEAN countries.

Indonesia’s tariff data, available at the HS 8-digit level, were matched to Canada’s export data where possible to identify select dutiable products for the analysis. One consideration is that Canada’s 8-digit export codes and Indonesia’s 8-digit import codes are not exact matches, as countries generally have some variation past the 6-digit standardized level. However, in most cases, Indonesia’s 8-digit HS codes under a single 6-digit HS code generally have the same tariff. Therefore, despite differences between Canada’s export codes and Indonesia’s import codes, it was possible to match Indonesia’s tariffs to Canadian export data with a relatively high degree of accuracy

Canada’s export potential in Indonesia

Total Canadian merchandise exports to ASEAN countries outside Indonesia amounted to $1.9 billion, of which $1.0 billion were for products that Canada is not exporting to Indonesia at all, while the remaining $847.8 million consisted of products also exported to Indonesia, but in limited quantities.

Table 8: Untapped export opportunity by tariff margin, $ million

In sectors where Indonesia applies moderate MFN tariffs (typically 5-10%), Canadian exports have been limited or absent, even though these products perform well in other ASEAN markets where lower or duty-free tariffs apply. For example, in 2024, plastic resins and chemical inputs were shipped in large volumes to Malaysia and Singapore under lower or duty-free access while Indonesia’s tariffs ranging from 5-10% have discouraged similar trade.

Canada exports significant volumes of radioactive cobalt isotopes, thermometers and pyrometers, static electric converters and transmission shafts to ASEAN partners like Malaysia, Singapore and Thailand. These markets offer duty-free access, while Indonesia applies MFN tariffs ranging from 5% to 10%. Similarly, Canada exported $7 to $20 million in transmission shafts and static electric convertors to Singapore and Malaysia, but only a fraction of that amount to Indonesia.

Canada also has a competitive edge in advanced machinery and industrial equipment, exporting tens of millions of dollars’ worth of aircraft engines, gas turbines, and boilers to Singapore and Thailand, where tariffs are low or zero. However, Indonesia’s tariffs of up to 10% coincide with the absence of Canadian exports in these categories. A similar trend is observed for hearing aids, which are exported to the Philippines and Vietnam under lower tariffs, but not to Indonesia, where a 10% duty applies.

In the consumer goods sector, Canadian exports to Indonesia remain underdeveloped. Products like beauty preparations, lip and eye makeup, and sunscreens are exported in substantial volumes—over $25 million combined—to Malaysia and Singapore, where they benefit from duty-free access. However, exports of these products to Indonesia are minimal under MFN tariffs ranging from 10% to 15%. Similarly, Canada exports over $2 million in hair care products to Malaysia, but none to Indonesia, where a 15% tariff applies.

In the non-domestic food and beverage machinery and air conditioning segment, Canada exported over $5 million in hot drink and cooking equipment largely to Malaysia and the Philippines, and $40 million in air conditioning machines to Singapore. Yet, exports to Indonesia were limited to $461,000 and $2,000 respectively, despite growing demand in Indonesia’s commercial and residential sectors. With MFN tariffs of 10-12.5%, these products could see a substantial boost in exports under an FTA, particularly as Indonesia continues to invest in hospitality, retail and infrastructure development.

These examples suggest that Indonesia’s relatively higher MFN tariffs have been discouraging Canadian exports in sectors where Canada is otherwise competitive. The extensive margin analysis identifies products that could see increased exports to Indonesia under the CEPA, representing additional export gains beyond what is captured in the CGE model estimates.

Conclusion

Indonesia is ASEAN’s largest economy. With favorable demographics and strong macroeconomic fundamentals, it is well positioned for sustained long-term growth, making it a key market for Canada’s Indo-Pacific economic diversification strategy.

The economic impact analysis indicates that the Canada-Indonesia CEPA would generate mutual benefits, providing positive gains in GDP, trade, and employment for both countries. While direct and immediate gains may be modest—since most Canadian exports to Indonesia are already duty-free—the agreement locks in market access, enhancing certainty and stability in bilateral trade and supporting sustained long-term trade growth by enabling a predictable business environment, encouraging investment in supply chains, and fostering incremental exports expansion over time.

As the region’s leading supplier of energy, minerals, and agricultural products, Indonesia plays a pivotal role in shaping resource flows across Southeast Asia. The certainty and stability promised by the CEPA would encourage Canadian resources firms to use Indonesia as a strategic gateway for broader access to ASEAN markets.

The analysis also highlights additional sectors and products that could benefit from tariff liberalization beyond the gains captured by economic modelling. These are areas where Canada already exports successfully to the region but faces limited exports to Indonesia due to high tariffs. Reductions in or elimination of these tariffs could unlock new trade opportunities, products, and markets for Canadian exporters.

Annex 1: Technical backgrounder for the CGE modelling

Model design

The Office of the Chief Economist at Global Affairs Canada employs a custom-built, in-house dynamic computable general equilibrium (CGE) model to assess the economic and trade impacts of international policy changes and emerging global economic issues. This multi-region, multi-sector model is a powerful analytical tool, particularly well-suited for evaluating long-term structural shifts driven by major policy developments such as trade, industrial or environmental policy.

The model is grounded in the standard CGE framework developed by the Global Trade Analysis Project (GTAP) at Purdue University—a widely recognized benchmark in trade policy analysis. GTAP-based models are extensively used by governments, international organizations, think tanks, and academic institutions around the world.

CGE modelling is used to explore what-if questions by simulating how markets respond under different assumptions. The state of the economy before a policy change is referred to as the baseline, while the state after the policy change is known as the scenario. The impact of a policy change is measured as the difference between the scenario and the baseline, where analysts quantify the economic effects of the change.

It is important to understand that both the baseline and the scenario represent snapshots of the economy in the same year. The baseline reflects how the economy would perform without the policy change, while the scenario shows how it would perform with the policy change. This approach ensures that all other influencing factors—such as macroeconomic trends, exchange rate movements and technological developments—are held constant for both cases. As a result, the model is able to isolate the impact of a policy change, providing a clear estimate of its effects.

Model data

The model relies on the GTAP Version 11 database, benchmarked to 2017 and denominated in U.S. dollars. This comprehensive dataset covers 141 individual countries and 19 aggregate regions, representing 99.1% of global GDP. It includes harmonized (i.e. comparable) data on bilateral trade flows, domestic production and consumption, international transport margins, and trade protection measures.

The database captures detailed economic structures within each country through input-output tables that describe inter-sectoral linkages, as well as the allocation of goods and services for intermediate and final use. It also reflects a range of domestic policy instruments, including value-added taxes, consumption taxes and producer subsidies.

Given the significant shifts in global trade since 2017—most notably, the realignment of trade between China and the United States and the COVID-19 pandemic, the Office of the Chief Economist has updated and rebalanced all bilateral trade and macroeconomic data to reflect the global economy as of 2024. This ensures that the model provides an accurate and up-to-date foundation for policy analysis.

The development of the baseline over the time horizon is very important because it provides a point of reference for the policy projection. The baseline projection is based on growth forecasts from outside sources such as the International Monetary Fund and Oxford Economics. It can indicate potential shifts in the trading trajectory as countries grow over time; developing countries that are expected to grow rapidly have the potential to become important trading partners for certain groups of products where they enjoy a comparative advantage, such as labour-intensive products.

Sector scope

The database covers 65 sectors, which are based on a combination of product classifications (for agricultural sectors) and industry classifications (for resource extraction, manufacturing, and services). All regions available in the database are mapped to this 65-sector classification using individual countries’ input-output tables.

For the purpose of sharing sectoral results, certain agricultural sectors have been aggregated. Agricultural sectors where Canada does not produce or trade in significant quantities (such as rice, sugar crops and silk) have been reported as a single “other agricultural” sector.