FREE TRADE COMING SOON?

                    

Indonesian Free Trade – not there yet

                       

For much of 2019’s last quarter Australian rural journals and politicians were forecasting a bonanza.

2020 is supposed to be the year when the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) finally comes good.  Then tariff gates will be ripped off their hinges as a torrent of produce from Down Under pours into the hungry and overcrowded archipelago next door.

Fresh markets will cry for attention.  A new era of agricultural prosperity will rise.  While Pollyannas chorus, worrywarts quietly mutter. However some grounding in reality is overdue.

First is that nothing will happen till the Indonesian parliament – or President Joko Widodo if the debate gets stuck - ratifies the agreement.  It’s already been approved by Canberra. 

Signing was supposed to happen last month, but it’s not a high priority in Jakarta.  In November the Australian Financial Review reported some politicians concerned about a ‘flood of imports’, reminding colleagues that trade since 2013 had always benefited Australia.

The IA-CEPA does favour Australia, though boosters say Indonesia will be able to increase exports, citing goods like furniture, textiles and fruits.

One problem is market size.  Australia’s population is eleven times smaller than Indonesia’s. Some exporters won’t bother with complex quarantine rules and quality controls unless profits are sizeable.

Australian farmer hopes for an IA-CEPA boon need to be qualified by the realities of international commerce. If Black Sea growers can deliver grains cheaper than the neighbours, then Indonesian bakers will buy from Russia and Ukraine.

Poor rainfall in Australia’s western wheatbelts has kept silos less than full, so even if consumers are keen supplies may not meet demands.

The free trade agreement opens service industries like education and health care to Australian providers. Getting approvals may be the easiest part; the overweight Indonesian bureaucracy is almost impenetrable to those who won’t give ‘envelopes’ so public servants can scissor red tape.
President Widodo knows this is deterring investors and has proposed ‘omnibus’ legislation to consolidate regulations and cut-out overlaps.

Even if successful, it will take years to reform. Indonesia is ranked 73^rd among 190 economies according to the World Bank’s Ease of Doing Business index.  It had the same placement in 2018.  (NZ is number one, Australia 14^th.)

The IA-CEPA ratification delays are a concern, particularly as it’s taken a decade of on-off negotiations to get this far.  However the deal will probably go through unless something is said or done to rouse the wrath of ultra-sensitive Indonesians and stall settlement.  

Upsetting the people next door has long concerned Canberra, as the release of year 2000 Cabinet papers shows. The Howard government wouldn’t offer refuge to 1,500 East Timorese the UN believed were at risk for fear of stirring Jakarta.


Another reason to put pens in the hands of Indonesian lawmakers asap.

The last irritant was in 2018 when Prime Minister Scott Morrison canvassed an embassy move from Tel Aviv to Jerusalem.  The present most likely flashpoint is West Papua where Indonesian troops are fighting pro-independence guerillas.

Even well-warranted condemnation of human rights abuses in the poorly reported conflict could trigger the fury of radicals.  Claims that Australia wants to break up the Republic by repeating its ‘interference’ in the 1999 separation of the former East Timor are widely believed.

For a change religious issues may not be so volatile.  Indonesia – the world’s most populous Muslim country - has been remarkably quiet about the alleged Chinese persecution of Uyghurs and the Myanmar military’s oppression of the Rohingya.

It’s been reported that Indonesia’s Islamic organisations have turned off the rage after taking sponsored visits to Xinjiang where the Uyghur ‘reeducation camps’ are reported to be located. 

The slur was denied and a protest quickly organised outside the Chinese Embassy in Jakarta just after Christmas; only a thousand fronted.  The 2016 crowds baying for blasphemy charges against Jakarta Governor and ethnic Chinese Christian Basuki (Ahok) Tjahaja Purnama were 500 times larger.

The IA-CEPA also increases the quota on work and holiday visas eventually allowing entry for 5,000 Indonesians a year. Australian unions have objected yet these visas are unlimited for most European backpackers who labor on market gardens and farms.

President Widodo has been calling for foreign money and hopes the IA-CEPA will entice, though lenders are leery.  Australian government statistics show $5.6 billion invested next door, compared with $720 billion in the US and $480 billion in the UK.  

Widodo and his economic advisors want dollars, but nationalists fear relying on foreigners for loans and food security will impact sovereignty.

On the other side, investors know the rule of law is flexible and the state dispute settlement system is flawed.  All this, plus corruption, equals distrust.

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.

It’s another reason for pushing the IA-CEPA, though rarely mentioned by the spruikers.

First published in Pearls and Irritations, 13 January 2020 https://johnmenadue.com/duncan-graham-indonesian-free-trade-not-there-yet/