Love thy neighbor

Can Oz-Indo FPA move from paper to practice?

Love thy neighbor

The glass-clinkings and backslaps that greeted signing of a free trade deal between Australia and Indonesia were genuine. But it was largely led by politicians and salaried bureaucrats who seldom back their words with their wallets.

What it needed was sober analysis from those with skin in the game.

The Indonesia-Australia Comprehensive Economic Partnership Agreement is positive, particularly for Australia selling bulk.

The deal has been eight years in the making; that it got a ministerial sign off in March is a triumph of Australian determination over Indonesian inertia, particularly just ahead of elections in both countries.  

Farmers planning to plant more hectares to wheat and boost beef stocking rates should resist the next drink and remember there’s a long drive ahead.

In Indonesia agreements seldom glide easily from document to execution. Bureaucrats who don’t like a policy can be skilled saboteurs.

Australians should ignore headlines implying instant gratification and a $35 billion windfall: the IA-CEPA still has to be ratified by the Indonesian House of Representatives with a different makeup after next month’s general election.

If peopled by outward-looking altruists who understand economics and the need for better foreign relations, then all may be well. Based on past results, many politicians will be partisans demanding Indonesia be self-sufficient in food and oust outsiders. That’s how they scored their seats.

For the insular, the IA-CEPA will be another example of the Republic losing its sovereignty. Understanding the country needs foreign goods, loans and services doesn’t mean nationalists will applaud the deal. 

Australians have long been battered by government boosters telling normally canny investors, they’ve overlooked this economic Eldorado, where 260 million have cash for Oz goodies.

Meanwhile, Indonesians must be wondering how taking down tariffs will impact their lives. Lower shop prices are unlikely. There’s been negligible commentary apart from Presidential candidate Prabowo Subianto reportedly saying its “suicidal,” apparently  because he thinks it favors Australia.

Annual two-way trade between the neighbors is currently worth about $16.5 billion.   That’s woeful. The world’s fourth most populous country yet it ranks 13th; Australia does more business with population squibs like Malaysia (32 million) and Singapore (5.6 million.)

Why? There are many differences, but traders in those Commonwealth countries share some common understandings. English is widely spoken and the rule of law generally applies. 

Indonesia ranks 89 against Australia’s 13 on Transparency International’s Corruption Perception Index in the past year.  Many hope that if President Joko “Jokowi” Widodo gets a second (and final) five-year term at the April 17 poll, he’ll start the purge that clean-hand Indonesians demand.

That seems unlikely. The job needs a tough stare-down autocrat like the late Singaporean leader Lee Kuan Yew, and Widodo is not in that league. Every slice of society is tainted and resistance would be formidable.

It’s illegal for Australian businesses to bribe public officials at home and overseas.  Although the opportunities in Indonesia are everything that’s claimed, the free trade champions are not disclosing the reality: this is a market only for red-bloodied investors. 

The nimble Japanese and Chinese have been here for decades; they’ve adapted and thrived. In this tiger territory Australians are fawns.

Apart from graft, research shows that while high tariffs are a damper, they’re not the only factor crimping trade. With Indonesia, the extra hazards include bureaucratic inefficiency, poor infrastructure and a flawed legal system largely inherited from the Dutch. This is rarely impartial when dealing with foreigners.
Then there’s Australian ignorance of Indonesian protocols, culture and business practices. 

Since Eve started marketing fruit, the business rule has always been: know your customer. Polls by agencies like the Lowy Institute demonstrate year after year that Australians know little about their big neighbor, its history, values and politics.

This may well be the result of secondary and tertiary educators dropping Indonesian studies this century.

Some cheerleaders for the deal have borrowed Trumpian arrogance by suggesting.  Australians are the finest and most efficient food producers, so buyers are lucky to have this resource on their doorstep. 

The truth is that Indonesia could get on well without this deal. There’s ample wheat from the Black Sea region, often cheaper although the haul is longer. India is selling buffalo meat and locals are adapting.  

The teachers found in English language schools are now more likely to be from the Philippines. Australian universities may be world class, but so are those from Europe and North America. 

Tertiary education is huge in Indonesia – quantity, not quality. Malang, an East Java city smaller than Western Australia’s capital Perth, has six times more campuses. Many are linked to religion and ethnicity – not an environment where the liberal arts and Aristotelian inquiry always flourishes.

What Indonesians wanted, apart from more markets for noodles and furniture, they didn’t get: access to the labor market. The World Bank estimates more than nine million Indonesians work overseas, remitting US $9 billion a year. They are dubbed heroes of the economy, sacrificing relationships to help their families and the nation.

Most are laborers, domestics and health workers in Malaysia, Hong Kong and Taiwan. Getting into high-wage Australia, even just to pick fruit and vegies, would be a coup.  

The IA-CEPA agreement includes a quota of 4,100 work and holiday visas, eventually rising to 5,000. This is a sop when measured against almost 800,000 visitors already in the country on similar visas, yet it’s being opposed by Australian trade unions. 

About half the non-Indonesian workers are overseas students, mainly from the UK and Europe. (Only around 10,000 Indonesian high-level students are in Oz unis, according to the Australian Embassy.)

Australia has plenty of non-tariff weapons it can use to hold back a tsunami of trashy goods by imposing quarantine rules and quality standards. Genuine documents certifying old growth forests haven’t been felled and minorities exploited in manufacture will be needed. 

While this could encourage producers to lift their game, others may look away from a fussy market with only 27 million consumers. No matter, it’s a start. Better a free trade agreement than a tariff war.


"Duncan Graham is an Australian journalist based in Malang, East Java Province, who has been writing about Indonesia for the past 22 years. "

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