Japan and Indonesia in trade pact

Energy supplies are at the heart of the Indonesia-Japan pact

Japanese Prime Minister Shinzo Abe has signed a wide ranging free-trade agreement during a visit to the Indonesian capital Jakarta.

The deal ends most Indonesian import taxes, and requires Jakarta to commit to stable energy supplies for Tokyo.

Japan is the world's largest importer of liquefied natural gas (LNG), and Indonesia is the number-one supplier of the gas to Japan.

It is Japan's sixth free-trade pact with a south-east Asian state.

Shortly after the agreement was signed, Indonesian energy companies Pertamina and Medco Energi Internasional and Japan's Mitsubishi said they would begin building an LNG refinery next year.

Rice exempt

Mr Abe signed the deal with Indonesian President Susilo Bambang Yudhoyono during the first leg of a three-nation tour in Asia. He is also due to visit India and Malaysia.

The trade deal between the two countries also provides a framework for encouraging Japanese investment in energy development projects in Indonesia.

The Japan-Indonesia Economic Partnership Agreement, which will come into force early in 2008, will eventually remove 92% of import taxes on bilateral trade.

Japan is Indonesia's largest trading partner, and the deal removes taxes on items such as shrimps, and tariff quotas on bananas and pineapples imported from Indonesia.

But the agreement does not cover rice, a politically-sensitive issue for Japan.

The Japanese government enforces quotas and high tariffs on foreign rice, meaning most rice consumed in Japan is domestically produced.

As well as the current deal, the Japanese and Indonesian leaders pledged to work to cut the growth of greenhouse gases after the Kyoto Protocol climate change pact runs out in 2013.