For years following the Cold War, Australia’s economic relationship with Indonesia can be described as, what was called, ‘paradoxically, dramatically underutilized’. They are neighbours just separated by miles of water, fellow G20 members with similar commodity base and equal emphasis on foreign policy and regional perspective and it was proved beyond any doubt that actual volume of trade between the two is minimal and certainly much less than what is warranted. That has all changed: all livestock, wheat, dairy products and food products will enter Indonesia with preferential access; better than that of the world’s biggest food exporting nations. Australian exporters also gain significantly increased access to Indonesian markets for automotive parts, footwear, textiles and apparel and prepared foods. For sensitive goods, despite tariff reductions on progressive to full liberalization, there will be specific process of progressive movement to supply assurance for the supply chain access over a longer-term. Australian exporters will receive immediate market access to sectors from the agriculture sector to that of high technology manufacturing.
And it’s through services and investment that IA-CEPA has really become quite a game changer. Prior to the IA-CEPA movement between workers in Australia and Indonesia has been difficult, because of discrepancies between standards of certification; within the scope of the IA-CEPA agreement a number of training and standards authorities have been working to standardise practices within trades such as hospitality and tourism, construction, engineering and auto maintenance. IA-CEPA provides access to its market to a greater extent than had been available through the WTO. It’s important, however, to reiterate that this is not an “open border, free movement of people” type of deal. In the case of Australia, it has opened a new labour channel and, in the case of Indonesia, provided with the ability to continue to develop their young workforce, while also allowing their citizens to be temporarily employed abroad and then return money via remittance, thus generating capital. According to the agreement, Indonesian workers are able to earn wages while simultaneously learning, thereby producing certified technicians out of young workers; Australia is able to benefit from temporary access to trained workers, while Indonesia is able to produce well-trained young workers and obtain capital from them. The agreement allows Indonesia National Treatment and MFN treatment along with a clear mechanism to arbitrate disputes involving investors with safeguards.
Besides the benefits that the deal will bring commercially, it’s also massive strategically. At this time with the shift towards protectionism, it can be seen as a model in which each country can adopt leadership for furthering a rules-based and open liberal system in Southeast Asia. Economic integration will bring a level of stability to this. In addition, it sends a message to all stakeholders that Indonesia—not traditionally as committed to liberalization as some others—will indeed pursue such an agenda and Australia will find a strong partner in Asia beyond China. Tender transparency and anti-discrimination against technical specifications are put in the rule of Government Procurement, opening up a sector hitherto controlled exclusively by the local market.
There’s even more to this than that. In the current trend toward protectionism, it provides a model whereby both countries can take on a leadership role in advancing a rules-based and open liberal system in Southeast Asia. In times of increasing uncertainty, the agreement will provide certainty, stimulate trade, and establish the rule of law. Also, it provides a signal to all parties that Indonesia, which has historically been less committed to liberalization, is moving toward this direction and Australia will indeed have a significant partner in Asia apart from China.
However, it is a step in the right direction. Various agreements such as in mobility sector were greatly affected due to COVID-19, and certain non-tariff barriers are still persisting such as long licensing processes, volatile custom valuation and local content regulations. This framework known as IA-CEPA is not an end in itself; rather it’s the outcome from achieving mutual trust which will come out from mutual economic advantages. It gives the facility of solving trade issues through negotiations rather than retaliatory trade barrier imposition under the Joint Committee mechanism of IA-CEPA. Thus far, the result from merchandise trade has been successful and the investments are increasing. This is also due to an increasing investment in Indonesia from Australia firms in logistics, health, and digital infrastructure. The main challenge for IA-CEPA will be the transition of preferential arrangement into genuine long-term economic integration. This kind of arrangement can only succeed if businesses capitalize on them to their full potential, and the overall awareness among SMEs need to be increased. Several outreach programs have been done, but still need more cities other than major cities in both ends. Henceforth, we see IA-CEPA not as the ultimate destination for a modern FTA, but as an arrangement towards developing an institutionalized strategic trust through mutually gained economic advantages.
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Prerna Bhakoria is a skilled Legal Associate at LEGALLANDS LLP, in the field of Corporate Law. She holds a BBA LLB degree with a specialization in Banking and Finance from the University of Petroleum and Energy Studies (Batch 2018-2023).
Her areas of practice in Corporate Law include drafting of legal agreements, corporate compliance, client management.
