Australia and Indonesia are poised to announce an “historic” free trade deal when Scott Morrison visits Jakarta on August 31, just a week after being sworn in as Prime Minister. “I am a fairly muted person, but this opens the door to a fairly significant step-up in the relations between the two countries,” a senior Indonesian government official told Fairfax Media. “It will be quite historic.”
An Indonesian Foreign Ministry spokesman said the two countries’ leaders would announce both nations had completed the deal, known as the Indonesia Australia Comprehensive Economic Partnership Agreement (IA-CEPA).
He said the trade ministers would sign the full text of the agreement later this year. Mr Morrison spoke to Indonesian President Joko Widodo over the phone on Saturday – the day after he became prime minister.
Former prime minister Malcolm Turnbull, who forged a close personal relationship with Mr Joko, had been scheduled to travel to Jakarta to announce the deal before losing the leadership. The free trade deal will be Indonesia’s first in almost a decade.
Australia and Indonesia’s trade relationship has been described as “undercooked” by successive Australian ministers. Australia’s two-way trade with Indonesia was worth $16.4 billion in 2016-17, making Indonesia only our 13th largest trade partner, despite its physical proximity.
Last year the two countries announced that under the agreement, Indonesia would reduce tariffs on imported Australian raw sugar and Australia would eliminate import duties on Indonesian herbicides and pesticides. They failed, however, to pull off an overall free trade deal by the end of last year, despite repeated vows to do so by Mr Turnbull, Mr Joko, and other ministers.
Talks foundered in a protectionist climate, with Indonesia expressing reluctance to fully open its markets if it harmed local industries and legislative constraints to Australia’s push to open university campuses in Indonesia. Fairfax Media understands that before being signed the deal will undergo a process known as “scrubbing”, where lawyers from both sides check terminology, consistency and translations.
Australia Indonesia Business Council national president Phil Turtle welcomed Mr Morrison’s visit to Indonesia. “This is an important step to give the trade and investment, and broader relationship between our countries a significant boost. Whilst the content of the agreement is yet to be released, we expect outcomes to be delivered across a broad range of sectors, unlocking some exciting opportunities in a variety of industries,” Mr Turtle said.
Under the agreement, the Indonesian government would open doors for Australian universities to operate in Indonesia, according to Patdono Suwignjo, a director general from the Ministry of Research, Technology and Higher Education.
Indonesia announced early this year it would allow foreign universities to partner with local private universities. In an interview with Fairfax Media last month, Mr Patdono said five Australian universities had held discussions, including Melbourne, Monash and RMIT.
“If possible the Indonesian government wishes that at least one of them will start this year, although they said it would be difficult to do. But one of them stated its readiness to be running this year because it has numerous experience of opening its branches abroad,” Mr Patdono said.
He said the parties had agreed that lecturers would meet Australian university standards so that all graduates would be recognised by Australian universities. Last year about 20,000 Indonesian students studied in Australia.
Mr Patdono said if Australian universities could open branches in Indonesia, more Indonesian students could afford to enrol. “The main thing is that if a university wants to set up a branch here in Indonesia it has to cooperate with an Indonesian university.”
In March this year, Tom Lembong, the Chairman of the Indonesian Investment Coordinating Board, said Indonesia should allow more open access for Australian cattle and agricultural products.
“It is in Indonesia’s best interest that we do that to address soaring food prices, supply disruptions and uncertainty,” he told The Australian Financial Review.
Aaron Connelly, the director of the Lowy Institute’s Southeast Asia Project, said the deal would allow Indonesia to send a signal of reform to international markets, which would reduce pressure on the rupiah.
He said Mr Morrison visiting Indonesia so soon after being elected Prime Minister would show he recognised the importance of the bilateral relationship. Negotiations on the free trade deal started in Jakarta in 2012, but stalled amid diplomatic tensions.