Trade between Australia and Indonesia offers much promise. For business, this means navigating an increasing number of bilateral and plurilateral trade agreements.
In 2012, trade between Australia and Indonesia reached AUD$14.6 billion. It sounds a lot, yet Indonesia is only Australia’s 12th largest trading partner, while Australia is only Indonesia’s 10th.
As the region’s two largest economies, there is much potential to grow our bilateral trade. There is a natural fit between Indonesian demand, from an expanding number of consumers, and Australian supply, not only of agricultural and resources exports but also services, especially education, finance, healthcare, ICT and tourism.
Bi, pluri or multi
As Australian businesses look to expand into Indonesia and Asia generally, one challenge will be navigating the ‘noodle bowl’ of bilateral and plurilateral trade agreements that govern Australia’s trade relationships.
With the stalling of the Doha Round of the World Trade Organisation (WTO) multilateral negotiations, despite progress at the Ministerial Conference in Bali last year, bilateral and plurilateral trade agreements have proliferated.
Australia is currently pursuing free trade agreements with China, India, Japan, South Korea and Indonesia. It will also explore the feasibility of agreements with the EU, Brazil, Hong Kong, Papua New Guinea, South Africa and Taiwan.
Simultaneously, Australia is engaged in negotiation of the Trans Pacific Partnership (TPP), which includes, among others, Japan and the US. The TPP might ultimately be the basis for an Asia-Pacific free trade area.
Australia and Indonesia are already parties to the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) which was Australia’s first plurilateral FTA. By 2020, AANZFTA will eliminate tariffs on 96% of Australia’s current exports to ASEAN.
In September 2012, Australia and Indonesia commenced negotiation of a bilateral trade agreement called the Indonesia-Australia Comprehensive Economic Partnership (IA-CEPA), which builds on AANZFTA.
It covers tariffs, co-operation, capacity building and investment. As a bilateral agreement, IA-CEPA may be able to add value to AANZFTA by addressing services (as plurilateral agreements tend to focus on goods), as well as specific implementation issues in both Australia and Indonesia.
The scope for IA-CEPA was addressed in a position paper by the Indonesia-Australia Business Partnership Group (IA-BPG), made up of the Australian Chamber of Commerce and Industry (ACCI), the Indonesian Chamber of Commerce and Industry (KADIN), the Indonesia Australia Business Council and the Australia Indonesia Business Council. This novel bi-lateral industry input has influenced the negotiations.
2012 also saw ASEAN – together with Australia, China, India, Japan, New Zealand and South Korea – commence negotiation of a Regional Comprehensive Economic Partnership (RCEP). A second round of negotiations was held in Australia in September 2013, with the aim to conclude the RCEP by the end of 2015. Like the TPP, the RCEP is a potential pathway to an Asia-Pacific free trade area.
What does this mean for Australian business?
It makes sense for Australia to pursue appropriate trade liberalization with our partners and neighbours. Since the Asia Pacific Economic Cooperation (APEC) was established in 1989, the average tariff in our region has fallen from 16.9% to 5.7%.
The noodle bowl of trade agreements, however, means that Australian businesses confront a complex web of rules, differing across agreements and jurisdictions, as well as across goods and services categories.
The challenge for government is to harmonise and integrate this web into future agreements, as well as the multilateral framework, to make navigation easier.
Bilateral and plurilateral negotiations do have advantages. Generally, they are faster to negotiate and more comprehensive and specific than multilateral processes. In time, these negotiations may inform the multilateral agenda.
To deliver new opportunities for Australia business, the current negotiations must go beyond tariff reduction at the border and address issues in relation to investment, services and intellectual property.
The way forward
Agreeing and signing a trade deal is not the end of the process. These agreements must also be implemented by the relevant states and utilised by eligible businesses. Compliance challenges, as well as disputes between states or between states and businesses, may arise and must be addressed.
As chair of the G20 in 2014, Australia must drive these trade initiatives. Business should encourage progress, shape the substance and actively explore the opportunities that flow from such initiatives.
With such engagement, AANZFTA, IA-CEPA and RCEP will lay the foundations for Australia to grow its trade with Indonesia.