Jokowi lauds Australia free-trade deal as boost for relations

Posted on 11 February 2020

Source: The Edge

Indonesian President Joko Widodo says the long-delayed free-trade agreement with Australia will lead to improved relations with its neighbor, with education and services a key focus of the deal.

“This means in the next five years our bilateral relations will [be] better directed,” Jokowi, as Widodo is commonly known, told reporters in Canberra on Monday. “Going forward, economic relations between the two countries will grow and bring more tangible benefits for the people.”

Indonesia’s often-strained relations with Australia are on the upswing, and on Monday Jokowi became the first Indonesian leader to address Australia’s parliament since Susilo Bambang Yudhoyono in 2010. The deal, which has now been ratified by both nations and is expected to be enforced imminently, was inked 10 months ago after more than eight years of negotiations and 11th-hour delays, underlining the sometimes terse ties between the two countries.

The visit has been heavily focused on the nations’ economic relationship, viewed as underdeveloped considering their geographical proximity. A series on diplomatic tensions and scandals have hindered ties between Australia and Southeast Asia’s biggest economy, which is also the world’s largest Muslim-majority country.

Tariff cuts for Australian goods into Indonesia:

Product:     Immediate Benefit:     Longer-Term Benefit:
Live cattle     Duty free (from 5% tariff) access for 575,000 cattle     4% annual growth in volume over 6 years
Frozen beef and sheep meat     Tariff cut to 2.5% from 5%     Tariff eliminated in 5 years
Feed grains     Duty free access for 500,000 tons     5% annual growth in volume
Hot and cold rolled steel coil     Duty free access for 250,000 tons     5% annual growth in volume

Education Investment

Along with completing the free-trade agreement, which Trade Minister Simon Birmingham expects will be implemented by May, Australia has also agreed to look at simplifying visa entry for Indonesians, while it was announced Melbourne’s Monash University will become the first Australian campus to open in the country.

The nations also agreed to establish an “energy dialogue,” Prime Minister Scott Morrison told reporters, ensuring the “fuel sources for the future are very much part of Indonesia’s development and Australia’s.”

Two-way trade and investment between the nations is relatively small and significantly lags other nations in the region, including Singapore (US$30.4 billion) and Malaysia (US$16.7 billion). It was worth US$7.8 billion last year, down from the US$10.5 billion recorded in 2014, according to Indonesian Trade Ministry data. Over that same period, Australia’s trade surplus with Indonesia has steadily grown from US$700 million to US$3.2 billion.

The deal will see more than 99% of Australian goods exports to Indonesia enter duty free or under significantly improved and preferential arrangements, while Australia will immediately eliminate all remaining tariffs on imports from Indonesia.

Re-Balancing Ties

While Australia’s agriculture exports, including wheat, live animals and sugar, were valued at A$2.8 billion in 2018, services including education led the way, with two-way trade valued at A$5.8 billion that year. The deal will allow Australian-owned companies to invest in more Indonesian assets, supply mining and energy-related services, and operate railway in road transport infrastructure.

The deal paves the way for Indonesia to boost exports of petroleum, furniture, wood products and footwear. It opens the door for Australia’s education sector in Indonesia, something that pleases Jokowi as he looks to up-skill a labor force the size of the combined populations of Germany and South Korea. Of the 127 million Indonesians with jobs, less than 10% have a university degree.

Jokowi also sees the deal as an opportunity to address the country’s overall trade shortfall and current account deficit. Indonesia posted a trade deficit of US$3.2 billion last year, after recording a record US$8.6 billion shortfall in 2018, while the central bank says the current account deficit narrowed to about 2.7% of gross domestic product last year.

The relationship has been tested many times, from revelations Australia attempted to tap the phone of Yudhoyono’s wife to issues over asylum-seeker boats, and the live cattle trade. More recently, Morrison caused a diplomatic row when he suggested Australia could formally recognize Jerusalem as the capital of Israel and move its embassy there.

Morrison said the two nations will seek to increase cooperation on maritime security, as Indonesia shares “our commitment to sovereignty, stability and respect for the rule of international law” in the South China Sea. 

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