FTA :BIG SHOW, MANY WORDS, MUCH STILL TO COME

A DONE DEAL - OR A DEAL NOT YET DONE? 

Trying to do business in Java on a Friday is seldom a good idea.

The chantings that Prime Minister Scott Morrison heard mid-morning last Friday were not part of the standard welcome to overseas VIPs, but calling the faithful to prayer. That included Indonesian President Joko ‘Jokowi’ Widodo, much of his Cabinet and most senior bureaucrats.

That Widodo took time to talk to his visitor on the Islamic holy day, when the Asian Games are concluding and campaigning about to start for next April’s presidential election, suggests he sees it’s important to maintain relationships with Australia, even if other politicians are indifferent or openly suspicious.

For the week before Morrison took his first overseas trip as PM, the Australian media ran curtain-raisers claiming a free trade agreement, properly known as the Indonesia Australia Comprehensive Economic Partnership Agreement, or IA-CEPA, was in the bag after an eight-year chase.

Not yet. The document under the PM’s pen was not a ‘trade deal’ as predicted - that may come by year’s end.  It will also have to be ratified by the Indonesian Parliament Dewan Perwakilan Rakyat.

By then all will be engrossed in the upcoming election and in no mood to arouse the anger of protectionists led by Widodo’s rival, Prabowo Subianto, 67.

This will be the former general’s fourth tilt at the presidency and he’s campaigning - much like Donald Trump - on sovereign rights and keeping outsiders outside.

The official release said Widodo and Morrison had ‘successfully concluded negotiations’. A few tid-bits were tossed to the media, like the 500,000 tonnes of ‘feed grains’ getting tariff-free entry; but otherwise it was soft jargon rather than hard facts. 

No surprise for those who read government announcements for a living, and only believe when they can hold the paper up to the light, check the adverbs and lab test the ink.  

Indonesians understand this well. Last month Mohammad Mahfud Mahmodin (known as Mahfud MD), 61, was widely applauded as Widodo’s choice for a running mate.  The popular former judge was waiting in a hotel for the call only to see on TV news another picked just before the close of nominations.

Hustled to the front by advisors, and to the President’s obvious chagrin, was hardline cleric Ma’ruf Amin, 75, ignored by commentators because of his hostility to ‘liberalism’ and lack of political experience.

If Widodo 57, gets a second five-year term in office as expected, there are fears Amin will steer the nation away from its moderate Islam position, impacting business confidence. 

There have been hints the IA-CEPA might include a relaxing of Indonesia’s opaque investor rules. Unless these are accompanied by a massive purge on corruption and rigid enforcement of the rule of law, few corporates will take the risk. 

If and when a real pact is completed between the world’s fourth most heavily populated nation and its few-folks neighbour (the ratio is 11 to one), the show won’t start till 2020.

Morrison’s visit was no earth-shaker, rating only 360 words on page nine of Kompas, the  most prestigious and top-selling national daily. It reported the signing was just a ‘framework for cooperation between the two countries’.

A little pic of the two leaders wandering the Presidential Palace gardens in Bogor lifted the verbiage. Absent were fun shots like those of Malcolm Turnbull and Widodo in 2015 doing a blusukan (freestyle wanderings in a market), an event which did much to set up a somewhat suspect bromance story. 

There was a bigger photo in the other mass-circulation broadsheet Jawa Pos though few words.  This exercise was always about selling our surpluses, with little interest in the Republic’s offerings,   

Australians may eventually start seeing a few more consumer goods from next door, like textiles, kitchen equipment, perhaps even Japanese-brand cars built in Javanese factories. 

Indonesia is also resource rich, exporting oil, coal, gas, gold, copper and other minerals in competition with Australia.  It produces little we don’t already get from China, Thailand  and Vietnam.

Australian universities may be allowed to open campuses in Indonesia if the DPR approves. This is one to watch as local staff who’ve bought their qualifications will fear skilled foreigners threatening their status and jobs.

The Indonesian equivalent of Australia’s energy debate is food security articulated as self-sufficiency. The goal will not be hastened by importing more primary produce from Australia.  Subianto’s isolationist supporters will likely make much hay while this sun shines.

What the Indonesian negotiators really want is access to jobs in Australia through an arrangement like the Seasonal Worker Programme now used by Timor Leste, Papua New Guinea and eight Pacific Island nations.

Workers stay for six months and must get a minimum hourly wage of AUD 18.29, double the daily rate for similar tasks in Indonesia. 

According to the World Bank more than nine million Indonesians work abroad; that’s almost seven per cent of the national labour force, mainly employed in Singapore, Malaysia, Hong Kong, and the Middle East.  

In 2016 they sent around USD 9 billion back to relatives in Indonesia.  Villages supplying overseas workers boast double-storey houses with cars in driveways.

Adding Australia would boost the economy and benefit short-staffed employers; Indonesian workers are keen and obliging - as all who’ve stayed in Bali hotels know well.

However Canberra, always fearful of a flood, and aware this could become an election issue, is unlikely to agree.  To appease it’s offering training programmes.

So: Some important signatures, but not yet a done deal.

(The full Widodo-Morrison statement here: https://dfat.gov.au/geo/indonesia/Pages/joint-declaration-comprehensive-strategic-partnership-between-the-commonwealth-of-australia-and-republic-of-indonesia.aspx )

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First published in Pearls and Irritations, 3 September 2018.  See: http://johnmenadue.com/duncan-graham-a-done-deal-or-a-deal-not-yet-done/

FREE TRADE AGREEMENT AT LAST. WORTH WAITING FOR?

CHEAP SHEEP: Primary produce is NZ's principal export industry - but lamb and beef is still out of reach for most Indonesians

Tariffs tumble – will prices follow?

On Tuesday 10 January the long awaited Free Trade Agreement between Indonesia, Australia and New Zealand comes into effect, slashing tariffs, the contentious taxes added to imports.

Tariffs delight local industries, particularly the sloppy and inefficient wanting protection against smarter overseas manufacturers. But they anger consumers seeking lower prices.

This FTA is hardly racing ahead of the pack. The original documents were signed in February 2009, part of an overall agreement embracing the ten-member Association of Southeast Asian Nations (ASEAN). The changes were expected to come into force on 1 January 2010.

However a further 18 months passed before Indonesia ratified the agreement – the last cab off the rank. Even then the engine may have been running but the gears weren’t engaged.

Last July the director general for international trade cooperation Gusmardi Bustami said he hoped the FTA paperwork could be completed and the deal finalised that year.

His optimism was misplaced, but in the labyrinthine world of trade diplomacy getting real results would test the most skilled and patient. If trade negotiators were developing cellphones we’d still be using housebricks.

Fortunately for NZ its trade minister had an insider’s understanding of Indonesia’s arcane bureaucracy. Before entering Parliament Tim Groser was a diplomat heavily involved in the World Trade Organization. In the mid 1990s he was the NZ ambassador in Jakarta and speaks Indonesian.

Domestic politics, largely driven by the meat industry fearing competition from Australian and NZ beef exporters, are believed to have been behind the delays.

The RI milk industry was also reported to be opposing the FTA. However the rising demand in the archipelago for dairy products seems to have placated local producers who are hard pressed to quench the thirst.

Will Indonesians now be licking ice cream made with milk from cows, not coconuts, and grilling prime Angus T-bones fresh from the lush pastures of the South Pacific? Some, maybe, but even with tariffs down costly steaks will still be off the menu for the majority. They’ll continue to get their protein from locally produced chicken, fish and tempe (soy bean cake).

And will Kiwis be enjoying barbecues lounging on outdoor furniture made in Indonesia? That’s already happening, though business has been constricted by buyers insisting only plantation timber is used.

There’ll be no snappy changes with the FTA. About 11 per cent of NZ goods currently have duty free access to the Republic. That figure will slowly rise to more than 90 per cent by 2015.

Nor will improvements be dramatic. Most tariffs on NZ imports are around five per cent, though ‘prepared foods’ are burdened with a whopping 25 per cent. Which is why your favorite processed cheddar might be handy on the supermarket shelf but still out of reach.

Will prices fall? Only if traders pass on the cuts. The more unscrupulous will argue higher costs absorb the savings.

Although politicians are trumpeting the agreement as a major advance (Mr Groser described it as “a high-quality, regional trade agreement that provides benefits to all of its parties”) Australasia will be the prime beneficiary getting easier access to ASEAN markets – around 625 million people.

Business between the nations currently favors sellers to the Republic. Indonesia is NZ’s ninth largest export market and not surprisingly the biggest in Southeast Asia. Kiwi meat and milk products – worth NZ$ 865 million (US$ 670 million) go to Indonesia. The ships return with goods like petroleum and paper products worth NZ$ 628 million (US$ 490 million.)

Australia’s trade in the region, boosted by mineral sales, is already worth about US$ 100 billion.

Kiwis shopping for archipelagic products need ample time and comfortable shoes, preferably made in Indonesia. A major retailer is importing, but shoes and sandals are seldom promoted by the country of origin. (The exception is Italy.)

Instead they are mixed with footwear from Malaysia, Vietnam and China, the major supplier of consumer products.

Unlike Chinese imports on sale in Indonesia the goods found in stores from Darwin to Invercargill are generally well made and guaranteed for a year or more. Tough consumer protection laws, backed by government departments and the courts, mean customers can return duds and get a rapid refund or smiling exchange.

In Indonesia buyers usually insist boxes are unpacked and devices tested before their eyes prior to purchase. Guarantees, if offered, last only weeks. Retailers in Australia and NZ demand their overseas suppliers maintain strict quality control.

That issue needs to be addressed by Indonesian companies seeking to sell in markets where consumers are kings and queens – and knaves rapidly routed. Slapping thick black varnish on cracked green-timber furniture will give Indonesia the shoddy goods image once held by China.

The Indonesian Embassy in NZ is planning a trade and culture fair later this year to boost business. In the past it has backed displays of batik, a material almost universally associated with Indonesia and widely admired.

However follow-up merchandising hasn’t been effective, raising the question: Are Indonesian exporters serious about building markets in the south?

The problem is that many manufacturers seem happy supplying the domestic market, expanding in number and wallet size, particularly the cashed-up middle classes. NZ has only 4.4 million people, about the number living in Surabaya. Australia’s 22 million is much less than Jabotabek’s 28 million.

By contrast Australasians have to export or perish. That’s made us aggressive sellers and innovative marketers. Tariffs haven’t been the only problem. Although Indonesia is NZ’s nearest Asian neighbor it’s a long haul getting goods to the Republic. In the way is the big southern continent, its major competitor.

Glaciers have melted and species become extinct since free trade talks began, but the agreement removes barriers that for too long have been used as excuses by tardy traders. This should be good news for the public.

Governments have unlocked the gates. Now it’s up to business to push them open.

(First published in The Jakarta Post 10 January 2012)

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BEEFING ABOUT INDONESIA

Beefing about Indonesia Duncan Graham

In the slightly less polluted suburbs of Jakarta and other big Indonesian cities, restaurants specialising in beef dishes are doing well, particularly those serving steaks from New Zealand and Australia.

It’s another sign of the growing prosperity of the middle classes, their discriminatory palates and smart marketing; the flashing signs outside the eateries are usually in English (for snob value) and often stress the breed of beast customers will allegedly consume. Black Angus is a favourite.

It’s also an indicator that the Indonesian economy is managing to fend off the global recession. While Westerners suffer negative or minimal growth keeping us housebound, Indonesians are enjoying a four per cent growth rate allowing the well heeled to continue dining out.

Beef has long been out of reach of poor Indonesians who get their protein from chicken, fish and soybeans. Feedlot local beef tends to be tough and apart from a speciality called rujak cingur made from the cow’s snout, few know how to cook it well.

Free-range steaks from NZ and Australia have a reputation for being tender and tasty, and NZ’s clean-green image resonates with educated and health-conscious diners, mainly ethnic Chinese. Trendy restaurants give their customers a flat pre-heated stone and a slab of raw meat. The stone retains its heat long enough for diners to sizzle their own steak.

The growing popularity of Kiwi and Ozzie beef over the local product was one of the reasons put forward for this week’s sudden ban on Antipodean beef imports by Indonesian authorities, allegedly because the meat did not meet the halal (permitted) standards demanded by Muslims.

The ban was triggered by a letter from the Majelis Ulama Indonesia (MUI – Indonesian Islamic Scholars’ Council). This advisory body issues fatwa, or religious edicts. Apart from rejecting Kiwi T-bones it has passed fatwa on men and women exchanging texts, chanting during yoga and, more importantly, smoking in public places.

In brief the MUI implied Kiwi cattle were not having their throats slit while facing Mecca by an approved Muslim butcher chanting the name of Allah as the knife goes for the jugular.

There are 60 meatworks in NZ licensed to supply halal meat to the Indonesian market and they’ve been operating smoothly for decades. The trade is worth almost $100 million a year.

But suddenly the abattoirs’ halal licences were found to have expired, just as more than 70 containers landed on Jakarta’s Tanjung Priok wharf. A similar surprise ban occurred last July when Kiwi export labelling was deemed defective.

That problem was quickly and effectively handled by Amris Hassan, the Indonesian Ambassador and his Wellington staff, but this time the task has been tougher, involving Trade Minister Tim Groser who was in Bali for trade talks.

Groser is no naïve newcomer to dirty trade wars. He’s a former ambassador to Jakarta and the World Trade Organisation, a trade negotiator before entering politics and an Indonesian speaker. So when he told National Radio that he “didn’t quite know what went wrong” - the sub-text suggested devious doings.

After three days of confusion the containers started rolling off the wharves. The face-saving explanation was that an MUI letter warning the halal licences had to be renewed before October had been misinterpreted by government authorities.

During the 2008 labelling crisis there were dark hints that Indonesian importers of Brazilian beef had used their political clout to engineer the ban on NZ beef. Since then NZ and Indonesia have signed a free trade agreement (FTA) which progressively reduces tariffs on Kiwi exports to the republic.

During the negotiations the Indonesians lobbied for a deal similar to the FTA signed in April 2008 with China. This involved work visas for a swag of Chinese professions and trades, including chefs, tour guides and teaching aides.

But by February this year unemployment was rising in NZ and the jobs vanished from the negotiations. Jakarta trade officials publicly accused NZ of giving too little and demanding too much, but the agreement was signed despite the posturing.

Then the local meat trade demanded protection, with Agriculture Minister Anton Apriyantono promising to impose quotas to protect the nation’s four million beef farmers who supply about 70 per cent of the local market.

Indonesia’s leading and conservative English-language newspaper The Jakarta Post commented: ‘Beef importing business practices have been rather murky with numerous vested interests backed by top government officials reportedly working together to maintain their advantage in the huge Indonesian market of 230 million people.’

The fourth most populous nation in the world presents great trade opportunities, but it’s a market where exporters need to tread warily.

(First published in Scoop, 10 June 2009)