Australia ratified a free trade agreement with Indonesia called Comprehensive Economic Partnership Agreement on 10 February 2020.
This agreement will eliminate tariffs on many agricultural products; allow majority ownership in hospitals, universities, mining, aged care, tourism, energy, construction and transport companies as well as vastly increase work visas for young Indonesians.
Indonesia has the largest Muslim population in the world. Australia enjoys an extensive framework of cooperation with Indonesia spanning political, economic, security, development, education and people-to-people ties.
In 2018-19, the total two-way trade in goods and services with Indonesia was worth $17.8 billion, making it Australia’s 13th largest trading partner in the world.
Agricultural products are among Australia’s key exports to Indonesia, while crude petroleum and manufactured goods are key imports.
Under this Agreement, 99% of Australian goods exports by value to Indonesia will be tariff-free or have significantly improved preferential arrangements.
In addition, Indonesia guarantees automatic issue of import permits for key Australian products such as live cattle, frozen beef, sheep meat, feed grains, rolled steel coil, citrus products, carrots and potatoes.
The issuance of import permits has been a major irritant for many Australian exporters into Indonesia.
The major highlights of the Agreement are as follows:
• Live Male Cattle: there was a 5% tariff which was abolished under this agreement and hence, there will be no tariffs for 575,000 live cattle in year 1. From year 2, there will be 4% annual growth in volume reaching 700,000 cattle in year 6 which will then be reviewed for subsequent increases.
• Frozen Beef: the current tariff of 5% will be cut to 2.5% which will apply to unlimited volume of frozen beef exports. This 2.5% tariff will be eliminated after 5 years.
• Sheep Meat: the current tariff of 5% will be reduced to 2.5% which will apply to unlimited volume of sheep meat exports. This tariff will be eliminated after 5 years.
• Diary Products: this agreement eliminated or reduced tariffs across a number of diary lines and will remove all remaining tariffs in 5 years.
• Vegetables: the current tariff of 25% on potatoes will be cut to 10% for 10,000 tonnes per year for 5 years. After 5 years, this tariff will be reduced to 5% for 12,500 tonnes per year. There will be a 2.5% annual growth in volume thereafter. The tariff on carrots will be cut to 10% from 25% for 5,000 tonnes per year. This will be progressively eliminated over 15 years and unlimited carrots in volume would be exported free of tariffs.
• Sugar: an early outcome reached in 2017 to reduce tariff on sugar to 5% from 8.8% and this reduced level of tariff will continue into the future.
• Feed Grains: feed grains will be exported tariff-free for 500,000 tonnes in year 1. There will be an annual growth of 5% in volume thereafter.
• Citrus: oranges will be exported tariff-free for 10,000 tonnes in year 1 which will increase by 5% annually in volume thereafter. Lemons will be exported tariff-free for 5,000 tonnes in year 1 and this volume will be increased by 2.5% annually thereafter.
• Hot and Cold Rolled Steel Coil: the current tariffs of up to 11.25% will be eliminated and 250,000 tonnes of coils will be exported tariff-free in year 1. There will be a 5% annual growth in volume thereafter.
Services and Investment Markets
• Australian companies and investors are able to invest and acquire ownership of up to 67% in companies from a wide range of industries. These industries include mining and related services; hospitals and in-house pathology, paramedics as well as specialised medical and dental clinics; aged care services; construction services; professional services (architectural, urban planning, engineering and surveying); energy; transport; tourism and waste management.
• Australian universities and vocational training providers are given the green light to set up branches or tertiary education institutions in Indonesia.
• Australian working and holiday visas for young Indonesians will be increased from the current 1,000 to 4,100 in year 1, growing to 5,000 over 6 years. This will provide useful work experience for young Indonesians and assist regional Australia in meeting seasonal labour requirements.
Australia’s free trade agreement with Indonesia has been depicted as a win-win proposition for both the nations.
Australian agricultural and higher education sectors will particularly gain from this agreement.
It represents an opportunity for Australia to politically, economically, socially and culturally benefit from this significant neighbouring Muslim country, and likewise for Indonesia.