Australia, Indonesia Sign Landmark Free Trade Agreement

Australia and Indonesia signed the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) on Monday – the product of negotiations dating back to 2010. The agreement will immediately eliminate remaining tariffs on Indonesian imports into Australia, while 99 per cent of Australian imports into Indonesia will enter duty free or under significantly improved preferential arrangements by 2020. In addition, the agreement will allow more people-to-people engagement and investment in services and infrastructure, especially in education and health care. However, both countries will go through elections this year, and any change-of-power may pose challenges to the deal’s ratification.

In 2017, the two-way trade between the two countries was worth C$15.88 billion. Currently, trade between the two countries is covered under an agreement between Australia, New Zealand, and 10 Southeast Asian countries that gives Canberra tariff-free or preferential access to 85 per cent of exports. Despite their geographical proximity, bilateral trade is relatively small with Indonesia’s exports to Australia amounting to just 1.5 per cent of its total exports. IA-CEPA aims to increase two-way trade and investment upon ratification. For starters, the deal will open up Indonesia’s cattle market to Australia, while Australia will increase the number of working holiday visas for young Indonesians from 1,000 to 6,000. Further, Australian companies will be able to have majority ownership of investments in health care, telecommunications, energy, mining, post-secondary education, and aged care in Indonesia.

It is unlikely, however, that IA-CEPA will come into effect anytime soon. Both Australia and Indonesia will hold elections within this year, but also the lack of tangible commitments on labour rights and environment will likely prompt opposition within civil society. All in all, any reliable prediction about the ratification of IA-CEPA will not be possible until after the elections in the two countries. But for now, the completion of the deal underscores Australia’s active engagement with and commitment to the Asia Pacific region.