Indonesia Australia Free Trade Agreement in Doubt

Indonesia and Australia’s trade ministers will meet in Argentina this week amid growing doubt the free trade deal between the two countries will meet the end-of-year deadline.

Sources close to the negotiations say it is hoped the deal will be signed at the ASEAN-Australia Special Summit to be held in Sydney in March next year, although some say even this is ambitious.

Negotiators failed to reach a deal in November – despite both ministers buoyantly predicting it would be the last round – with an eleventh round of negotiations held in Jakarta last week.

Both sides are tight lipped about the roadblocks but market access and legislative constraints to Australia opening university campuses in Indonesia are understood to be among them.

Asked if he was still optimistic that a deal would be concluded by the end of the year, Trade Minister Steven Ciobo said via SMS: “We are working toward that, only time will tell”.

“From the outset I have said I want a high quality trade agreement because that is what will drive economic growth and create jobs in both countries,” he said. “Both countries continue to hold the ambition to conclude shortly.”

Mr Ciobo said the countries would now consult closely with stakeholders in relation to their interests in the deal, known as the Indonesia Australia Comprehensive Economic Agreement.

He said he looked forward to discussing it with Indonesian Trade Minister Enggartiasto Lukita at the World Trade Organisation ministerial conference held in Buenos Aires from December 10 to 13.

Despite the physical proximity of the two countries, Indonesia is only Australia’s 13th largest trade partner with a paltry 2.3 percent share of total trade.

When Indonesian President Joko Widodo visited Sydney in February, Prime Minister Malcolm Turnbull said the two leaders were “very committed to concluding a high-quality bilateral Free Trade Agreement … by the end of this year.”

However by August Indonesia’s chief negotiator Deddy Saleh was already hosing down expectations, warning Indonesia was aiming for a “good quality” agreement instead of a high-quality one.

He told Fairfax Media at the time a high-quality agreement suggested fully opening up markets, something Indonesia would be reluctant to do if it harmed its domestic industries.

The two countries have also been at loggerheads over alleged dumping of paper, with Indonesia filing a complaint against Australiain the World Trade Organisation in the middle of free trade negotiations.

Minister Lukita told Fairfax Media last week that it was hoped the agreement would be “finalised at a technical level” by the end of the year “and we will try to sign it next year”.

“We have to remain optimistic, since there are things that may come to a deadlock, I will just negotiate them with the minister, we will do the negotiation at the final stage,” he said.

Lowy Institute research fellow Matthew Busch said free trade agreements frequently consumed years of negotiations and it had been ill-advised of the governments to commit to deliver a deal by the end of 2017.

“Turnbull has framed IA-CEPA as a testament to a relationship that is now (unlike with previous occupants of the office, wink, wink) getting better and better,” he wrote in The Interpreter.

“Unfortunately the government has painted itself in a corner here; it will be undeniably awkward if IA-CEPA is too hard and must be rolled into next year.”

Indonesia Institute president Ross Taylor has also publicly expressed doubt tweeting: “IA CEPA free trade agreement with Indonesia unlikely to be completed by year end. Better to get it right even if after any deadline”.

Indonesia and Australia have already twice announced that Indonesia would reduce tariffs on imported Australian raw sugar and Australia would eliminate import duties on Indonesian herbicides and pesticides under the deal.

Australia has asked Indonesia to remove import tariffs on skim milk/skim milk powder, copper cathode and hot and cold-rolled coil steel, while Indonesia has asked Australia to lift import tariffs on Indonesian textiles, clothing and footwear.

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