Aug. 20 (Bloomberg) -- Japan, Indonesia's biggest export market, signed a free-trade agreement with the Southeast Asian nation that aims to eliminate tariffs on more than 90 percent of trade between the countries by 2016.

Japanese Prime Minister Shinzo Abe and Indonesian President Susilo Bambang Yudhoyono signed the Economic Partnership Agreement in Jakarta today.

Abe, who travels to India tomorrow where he will discuss a similar deal, wants to raise Japan's global standing through stronger trade and security ties. Agreements with India and Indonesia, two of Asia's most populous nations, may help Japan counter China's growing influence in the region, said Yuri Sato, a researcher at the Institute of Developing Economies of the Japan External Trade Organization.

``Japan and Indonesia can complement each other,'' said Sato. ``By forming a partnership, Japan and Indonesia are trying to avoid the situation where their markets are flooded with Chinese electric appliances.''

China has been expanding its role in Indonesia, the world's largest exporter of coal for power plants, by building electricity generating plants. Four Chinese companies including Harbin Power Equipment Co. and China National Technology Import Export Co. have won contracts to build four coal-fired power plants with a total capacity of 2,870 megawatts.

Indonesia's First Accord

Japan aims to put the accord, its eighth and Indonesia's first, into effect in 2008, after obtaining parliamentary approval and establishing rules by the end of 2007.

It lifts tariffs on about 96 percent of Japan's exports to Indonesia and on 93 percent of Indonesia's exports to Japan. Indonesian exports, largely of coal and gas, to Japan averaged about $1.8 billion monthly in 2006, according to data compiled by Bloomberg, while exports to China averaged $803 million in the same period. Japan sold about $580 million in goods monthly to Indonesia in the same year.

Under the agreement, Indonesia will scrap the 15 percent tariff on Japanese steel used by the automotive, electronics and heavy machinery industries, Trade Minister Pangestu said. That may help lower costs for PT Toyota Motor Manufacturing Indonesia.

``It will be cost efficient and spending could be used elsewhere to help the company expand,'' Irwan Priyantoko, head of corporate planning at Toyota Motor in Jakarta, said in a telephone interview today.

Japanese Cars

The agreement calls for Indonesia to remove tariffs on Japanese automobiles and auto parts by 2016, and levies on Japanese electric devices by 2010. Japan will immediately scrap tariffs on almost all industrial products imported from Indonesia.

Indonesia will eliminate tariffs on apples, grapes and other agricultural products that Japan wants to export. Japan will gradually lower tariffs on Indonesian bananas and pineapples and abolish import taxes on Indonesian footwear, textiles and wood products. The agreement excludes rice, wheat, dairy products and meat.

Japan has signed economic partnership agreements with seven countries -- Singapore, Mexico, Malaysia, the Philippines, Chile, Thailand and Brunei. It is also in talks with South Korea, Vietnam, Australia, the Association of Southeast Asian Nations, the Gulf Cooperation Council and Switzerland.

To contact the reporters on this story: Keiichi Yamamura in Tokyo at kyamamura@bloomberg.net; Wahyudi Soeriaatmadja in Jakarta at wahyudi@bloomberg.net.

Last Updated: August 20, 2007 04:10 EDT