After a Holy Land hiccup, IA-CEPA steps up synergy in a fast-transforming region

Posted on March 5, 2019 By Kevin Evans and Dwi Yuliantoro

Australian Trade Minister Simon Birmingham and Indonesian Trade Minister Enggartiasto Lukita sign the IA-CEPA in Jakarta on Monday 5 March 2019. (Credit: Dwi Yulliantoro/AIC)

In late August 2018, during his first week as prime minister, Scott Morrison fulfilled his predecessor’s commitment to visit Indonesia to witness the initialling of the conclusion of negotiations for the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA). During the same visit the prime minister and President Joko Widodo also declared a deepening of the bilateral partnership through establishing a Comprehensive Strategic Partnership between the two countries.

The hiccup

With the initialling of the IA-CEPA by respective trade ministers during this visit, the next step was to review the document to ensure its compliance with respective legal regimes of each country, prior to a formal signing. That date was delayed in no small part due to the proposal by the Australian Government to move its embassy in Tel Aviv to Jerusalem. This proposal put Australia out of step with a wider view that such a move should await serious progress toward resolving the establishment of a Palestinian State as part of the all but universally accepted two-state solution to the Israeli–Palestinian imbroglio.

For Indonesia, the issue of Palestinian independence is an article of faith as indeed reflected in the preamble to its Constitution which declares that ‘independence is indeed the right of all nations, and because of that, colonisation of the world must be eradicated because it does not accord with humanitarianism and natural justice’. While many may see Indonesia’s high-profile interest in the Palestinian cause as reflecting an Islamic religious identity – and certainly many Indonesian Islamists portray the issue in such a naive light – its core driving force has always been about seeing the occupation as a form of colonial residue that must be resolved.

Australian Prime Minister Scott Morrison and Indonesian President Joko Widodo walk and talk in August 2018. (Credit: ABC)

Rubbing a little salt into the bilateral wound was that on the very day the Australian announcement was made the Palestinian National Authority’s foreign minister was visiting Jakarta – creating considerable embarrassment in Jakarta. Thanks to some deft discussions between diplomats and other officials in subsequent months, plus clarification of Australia’s specific intent in the matter, and despite (or perhaps reflecting) impending elections in both countries, Monday 4 March 2019 became the day the IA-CEPA took another big step forward with a formal signing by trade ministers Sen. Simon Birmingham and Drs. Enggartiasto Lukita in the presence of Vice-President Jusuf Kalla.

“We are providing an equal opportunity for our farmers, our teachers and our students to learn from each other and build prosperity together,” said Sen. Birmingham at the signing ceremony in Jakarta. Indonesian Trade Minister Enggartiasto Lukita noted among the impacts of the Agreement “greater opportunity for Indonesians to benefit from working holiday visas and participate in vocational education and training” – an opportunity Sen. Birmingham encouraged Indonesians to take advantage of.

Towards legislative ratification

With signing now achieved, the next step is for respective parliaments to deliberate and hopefully endorse this Agreement, passing it into law. For an Agreement such as IA-CEPA, with wide legal and public-financing implications, Indonesian trade law states the government must submit it to the Parliament within 90 working days of its signing, and the Parliament must conclude deliberations, and endorse or reject the Agreement, by the end of the following session. Elections will take place for Indonesia’s president and Parliament on 17 April. The existing Parliament, rather like the American system, will continue to sit in session despite its ‘lame duck’ status until the newly elected Parliament is inaugurated on 1 October 2019. This means that the existing constellation of factions will be responsible for deliberating on this Agreement.

One reason why a parliament may reject an international agreement is if the agreement is deemed a threat to the national interest. As elsewhere, the definition of national interest is rather open to interpretation here, but will likely promote the notion that the broader interest of the nation, society and populace must take priority over the particular interests of any group within the country. It is our view that while some MPs may take the chance to do a little populist grandstanding on the Agreement (which will be submitted to the Parliament as an overarching draft law by the President, as Head of Government), the Parliament will ultimately endorse this draft law, which will then be sent to the President, as Head of State, for signing into effect. The Australian Government will also need to seek endorsement from the Australian Parliament, which will certainly oblige.

Situating the Agreement

While both countries have been somewhat active in concluding trade agreements in recent years, for Australia the commercial heft of this Agreement is obviously smaller than those that have been signed with three of Australia’s four biggest trading partners, namely China, Japan and South Korea. These three countries represent almost half of all Australian exports and imports.

For Indonesia, the IA-CEPA represents its largest signed agreement in several years. Others with whom Indonesia have signed include several nations in the Afro-Middle East region, all useful but none as large as this one. Larger negotiations are being launched with the EU and South Korea, both of which would be important boosts for Indonesia. Indonesia has also been part of wider regional trade agreements and updates, especially through its membership of ASEAN.

Exploiting new opportunities

The use of the term Comprehensive Economic Partnership Agreement, rather than the more standard Free Trade Agreement, should be understood to be more than just linguistic semantics. This is more the case given that the scale and intensity of trade in goods and services between the two countries is surprisingly modest. For Australia, the bilateral trade relationship (in exports and imports) is only Australia’s fourteenth largest, or 1.8 percent of all Australian trade. Australia is also Indonesia’s fourteenth largest export market and eighth largest source of imports. The value of commercial investment in each other’s economy is also well below its potential.

The philosophical approach of a CEPA should transcend the rather archaic transactional, even mercantilist, mindset of what we can sell to each other. Rather, we should look at each other’s economy as a potential springboard for expanding the universe of commercial opportunities. Afterall, the collective size of the Australia-Indonesia economy is less than three percent of the global economy. Our immediate region, namely of East Asia and the Pacific, represents 30 percent of the world economy. Adding North America in the East Pacific brings an additional 26 percent of the global economy. This means that our countries enjoy close access to over half of the global economy.

The ‘Succeeding Together’ report, prepared by ANZ and PwC for the Australia-Indonesia Centre, was launched at the Indonesia Australia Business Council 2015 conference in Yogyakarta by the then Australian minister for trade and investment, Andrew Robb. (Credit: AIC)

We need to maximise the benefits of this new Agreement, given our geographic advantages of being located within this fast-transforming region. In this regard we should also look to each other’s economy not necessarily as the final destination, but rather as part of a longer production/value-added line. This calls for exploration of how to add collective value to the natural resources of which both countries are well endowed, across various sectors, together with the manufacturing base of each economy and finally with the service and quaternary sectors, be that in education and training, financial services, marketing, communications or the digital economy.

The Australia-Indonesia Centre outlined in its Succeeding Together study a few examples of low hanging fruit that may offer early opportunities to boost collective exports to better penetrate the wider regional economy. The priority focus by the Government of Indonesia on raising the skills base of the Indonesian workforce reflects a growing realisation that the country is facing a development bottleneck as the skills base of the workforce is now below that needed to power future development.

In the area of education and training, Australia offers Indonesia serious value-added advantages that can enable Indonesia to raise the skills base of its workforce. The recently released regulation on foreign campuses by Indonesia’s minister of research, technology and higher education suggests that the Government is now ready to address the challenge of raising the skills base of its population.

 

Kevin Evans

Kevin Evans

Indonesia Director

The Australia-Indonesia Centre

Dr Dwi Yuliantoro

Dr Dwi Yuliantoro

Associate Director, Indonesia

The Australia-Indonesia Centre