Accounting for Regulatory Distance and Looking for the Most Potential Indonesia's FTA/CEPA Partners

As tariff is declining, Non-Tariff Measures (NTMs) become significantly important to supercede tariff role in protecting domestic industry. To overcome the negative impact of NTMs, some countries, including Indonesia, have been actively developing economic cooperations, so does . This study seeks to identify the most potential FTA/CEPA partners for Indonesia, from regulatory distance (RD) perspective. The study utilizes regulatory distance analysis on 11 Indonesian CEPA/FTA partners which are selected from certain criteria. Analysis shows that the regulatory distance between Indonesia and its main FTA/CEPA partners is small, it is between 0.003 – 0.132. The most potential Indonesia’s FTA/CEPA partners are from ASEAN countries such as Malaysia, Singapore, Thailand, and Vietnam. While the most potential partners from outside ASEAN countries are Pakistan and the USA. This is indicated by the similarity of NTM patterns at the product level as resulted from the regulatory distance analysis. It reveals a sort of common pattern of NTM regimes. Moreover, the results reveal that Indonesian regulatory structure is relatively different from the Philippines and Australia and these countries tend to be outlier. The regulatory structure of Japan, EU and Korea is relatively closer to Indonesia. Therefore, it is important for Indonesia to address NTMs issues when negoatiating its economic cooperation, in particular with Australia and the Philippines, through Mutual Recognition Agreement and Harmonisation of Standard. Keywords— Non-Tariff Measures (NTMs); Regulatory Distance Analysis; Free Trade Agreement