It’s so obvious, and so is the question: Why wasn’t it done long ago?
The logic of geography is clear; on one side a huge under-populated continent efficiently producing vast amounts of food. Next door an overcrowded archipelago that can’t grow enough to satisfy its almost 270 million citizens.
Clearly the two should get together and trade. No doctorate in economics needed to see the sense, but understanding the social and political realities helps explain why it hasn’t happened.
“A New Platform for Deepening Economic Ties” tries to untangle the almost completed Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA).
The 36-page report is from the USAsia Centre – “Australia's leading think-tank for the strengthening of relationships between Australia, the Indo-Pacific and the US.” Most funding comes from governments. It’s based at the University of Western Australia.
The report’s clunky title and bland text suggest authors Poppy Winanti and Kyle Springer have been seduced by the negotiators’ bureaucratese. Fortunately clever infographics lift understanding. Here are the issues:
“Indonesia’s share of Australian trade has remained far smaller than Australia’s trade with other nations in the Indo-Pacific region. It has consistently sat at around two per cent of Australia’s trade, with no growth trends for the past ten years.
“Not only does Australia trade far more with distant economies in the region than with its closest neighbor, Indonesia-Australia economic ties suffer from the lowest bilateral trade volumes of any contiguous pairing within the G20.”
Minus jargon, the IA-CEPA is a free trade agreement between Australia and Indonesia that rubs out tariffs and other barriers. These have long boosted Jakarta and Canberra tax takes, but made buying and selling across national borders costly and onerous.
Inevitably many traders have given up and looked elsewhere for easier deals.
It took more than a decade to create the IA-CEPA and it’s still unsettled. The eager Aussies have done their bit; now they’re waiting for Indonesia’s April-elected parliamentarians to say OK.
They probably will, as their advisors recommend uncapping pens. Last year President Joko Widodo urged Indonesians to shake off any inferiority complex and see their potential as international business stars.
The talks have been arduous and tough. However the walk ahead may be even longer as rent-seekers won’t lift barricades that quickly.
Another fear is that an unforeseen event might tip the deal on its side before it gets traction. Like a blown tire on a motorway can lead to a roll-over and a pile up, so perceived insults to national pride could shut down the show.
This happened in 2013 with revelations of Australian spies tapping the phones of President Susilo Bambang Yudhoyono and his late wife Ani. Unsurprisingly the trade talks shuddered to a halt.
When about to restart Indonesia executed two Australian drug runners, ignoring mercy pleas from the then Prime Minister Tony Abbott.
This is why all the urgency in getting this deal moving is being fueled by Australia.
The IA-CEPA gets a run almost every week in the mainstream media Down Under, and often outside the business pages. The rural press has gone gaga with forecasts of huge sales. However, it’s rare to read much in the Republic.
This suggests there’s more here for Australia than Indonesia, although the report points to the benefits “anticipated to boost Indonesian exports to Australia”. Electric cars get a mention – although they’re way down the road – along with furniture and textiles.
Even with a showroom-polished IA-CEPA some Indonesian exporters won’t buy; complex quarantine rules and quality controls stay put, making the small Australian market too bothersome unless profits are sizeable.
Also contentious is the increased quota on work and holiday visas eventually allowing 5,000 Indonesians a year into the Great South Land. Australian unions have objected yet these visas are unlimited for most European backpackers who labor on market gardens and farms.
After an IA-CEPA handshaked by all, bulk carriers of Australian wheat won’t necessarily offload straight into Surabaya’s silos. If Black Sea growers can deliver quality grains cheaper than the neighbors, then that’s where the bakers will buy.
Service industries like education and health care will be open to Australian providers. Getting approvals may be the easiest part; the labyrinthine Indonesian bureaucracy is infamously corrupt, opaque, and untouched by the IA-CEPA. Only the most persistent and flexible entrepreneurs will survive.
The Australian industry-backed group Sustainable Skills has been struggling for three years to develop trade training in Indonesia. It’s still talking. So are German providers who’ve also spotted a market.
President Widodo has been calling for foreign money but lenders are wary. According to the report Australia has $5.6 billion invested next door, compared with $720 billion in the US and $480 billion in the UK. Even little Luxembourg gets four times more in deposits from Australia.
The reasons for this weird imbalance include Indonesian nationalists’ fears of relying on a Western country for loans and food security, and a flawed Investor State Dispute Settlement system. In short – distrust.
Ironically trade was flourishing long before European colonialists arrived in the region and started imposing rules. Makassan adventurers were regular visitors to the Kimberley coast, gathering shellfish and sea slugs for Chinese medicine.
They brought iron cookpots, metal tools, cloth, rice and exotic plants like tamarinds in their multi-hulled prau. Some returned to South Sulawesi with Aboriginal wives and artifacts. Where trade treads, friendships follow – another reason for pushing the IA-CEPA.