Australia-Indonesia FTA to go boldly where no agreement has gone before

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Sydney Morning Herald | 5 Aug 2016

Australia-Indonesia FTA to go boldly where no agreement has gone before

Jewel Topsfield

Jakarta: Trade Minister Steven Ciobo must have exhaled at a press conference on Tuesday morning when he heard his Indonesian counterpart utter the golden words: "There is no change with the schedule."

The timing of Mr Ciobo’s trip to Jakarta last week to push a free trade deal with Indonesia — his top priority as trade minister — had been unfortunate.

Just days before his arrival, Thomas Lembong, a Harvard-educated former investment banker who was committed to opening up the Indonesian economy, had been a surprise casualty of a cabinet reshuffle.

It was unclear if Mr Lembong’s replacement as trade minister — businessman and long-term politician Enggartiasto Lukita — would share his predecessor’s reformist zeal.

But after a breakfast meeting, the two ministers confirmed they would stick to the 18-month timetable for forging a Comprehensive Economic Partnership Agreement agreed to in March when Mr Lembong visited Australia.

The details of the negotiations were hazy and Mr Ciobo was fond of repeating that he didn’t intend to go into the "rats and mice".

But the ambitions are lofty. The Indonesia-Australia Business Partnership Group, tasked with setting negotiating priorities, paraphrased Star Trek when it opined: "It should go boldly where no Free Trade Agreement has gone before".

Specifically, the group said in a lengthy document, the agreement should "include progressive removal of all trade barriers and facilitation of two-way trade in goods and services, plus investment".

This is easier said than done.

"A strong rupiah, anti-foreign sentiment, increased Chinese competition, and lobbying by local business interests has pushed Indonesia, the region’s largest economy, toward protectionism," John Brandon, the senior director of The Asia Foundation’s international relations programs in Washington, wrote last month.

Indeed, on the day Mr Ciobo arrived in town, Indonesian President Joko Widodo ordered his agriculture minister to work on a plan that would see the country stop importing sugar by 2020 as part of Indonesia’s latest drive for food self-sufficiency.

Products such as rice, sugar, wine and spirits continue to be subject to high tariffs, in part to protect Indonesian farmers.

A recent ban on the export of raw minerals combined with low commodity prices has seen foreign mining companies pull out of Indonesia.

And the World Trade Organisation is expected to rule this year on a complaint from the US and New Zealand that Indonesia’s import restrictions on beef and other agricultural products are an unfair export barrier.

"The biggest challenge will be for the Indonesian government to get business to go along with measures which might open the market," former diplomat and international trade adviser Alan Oxley says of the Australian-Indonesian free trade deal.

"That’s what led to the foundering of the first set of negotiations."

Meanwhile, the Indonesia-Australia Business Partnership Group says, Indonesian businesses complain about lengthy delays when exporting handicrafts and coffee to Australia due to customs and quarantine processes.

Indonesians believe the qualifications required to work in Australia are unfair, such as the "unnecessarily high" standard of English required to obtain a 457 visa for temporary migrant workers.

And Indonesia is among several countries challenging Australia’s policy of cigarette plain packaging at a World Trade Organisation tribunal, arguing it breaches international trade obligations.

"I think the biggest single challenge for both sides is to acknowledge one is an advanced economy and one is a developing economy," says Australia Indonesia Business Council president Debnath Guharoy.

He says Indonesian farmers who own small plots of land would be devastated if the market was suddenly flooded with cheap produce from large, mechanised farms in Australia.

"Is anyone recommending all barriers drop to zero tomorrow? No," Mr Guharoy says.

Instead, he says, the Business Partnership Group recommends a reduction in tariffs over time, to "make sure the weak and vulnerable don’t get trampled on".

Meanwhile, it wants to see incentives for Australian investment in areas such as coffee, sugar, cattle breeding, grains, mineral refineries and the digital and creative economy to assist Indonesia to become more competitive.

The model is the red meat and cattle partnership, where the two countries work together to improve the competitiveness of Indonesia’s beef industry.

"We don’t just want this to be a regular free trade agreement, we think there should be capacity building as well," says Shinta Widjaja Kamdani from the Indonesian Chamber of Commerce and Industry.

The phrase "win-win outcomes" was bandied around all week.

Both ministers stressed they were keen to collaborate on areas such as infrastructure and vocational education, where Australia could provide skills training for Indonesia’s rapidly expanding labour force.

"As you know, Australia is very good in some areas like agriculture and then cattle and so many things," Mr Lukita said.

The two countries committed to early cooperation agreements ahead of the final deal.

This week they announced more training opportunities in Australia for Indonesian cattle workers and a collaboration between the fashion and jewellery design industries.

"Over the next 12 months, our two countries will expand this cooperation to other creative sectors identified as key growth areas, including digital technology, performing arts and film," Mr Ciobo said.

He was confident these would pave the way for a final deal within the "ambitious timeline" of 18 months.

"It puts pressure on our chief negotiator - I see Frances [Lisson, a DFAT negotiator] shift in her chair a little bit," Mr Ciobo quipped at a gala dinner in Jakarta.

"But I’m very confident we will be able to achieve a very good, high quality, meaningful agreement in that timeframe."

keywords: Australia, Indonesia