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Indonesia And Australia To Strengthen Economic Ties

While our economy has been suffering the brunt of being too heavily dependent on investment and trade with and tourists from China, which is now virtually isolated globally because of the coronavirus pandemic, President Joko “Jokowi” Widodo has taken a strategic step to formally expand economic ties with Australia, our closest major neighbor.

The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) signed by Jokowi and Prime Minister Scott Morrison on Monday is to build a stronger and broader framework for the two countries to unlock their vast potential, fostering economic cooperation between businesses, communities and people. The House of Representatives had just ratified the agreement on Thursday.

Indonesia’s trade with Australia has not expanded significantly over the past 70 years of relations because both countries produce largely similar commodities such as minerals and agricultural commodities. Latest data showed their two-way trade over the last few years averaged A$11 billion (US$7.4 billion) to A$12 billion annually, but the prospects for larger exports from Indonesia have increasingly improved, especially those of labor-intensive manufactured products like garments, footwear, electrical appliances and electronics and commodities such as rubber, wood, pulp and paper.

But trade facilitation is only a small part of the goal of the IA-CEPA. Unlike a free trade agreement (FTA), which is designed mainly to expand trade ties through the reduction or even complete removal of tariffs, the IA-CEPA will provide broader opportunities for both governments and the private sector not only in the trade of goods and services and investments, but cooperation across the entire spectrum.

Broader than a conventional FTA, the IA-CEPA contains a set of high-quality, modern rules governing the treatment of services and investment, as well as rules on digital trade. Obligations are balanced with robust safeguards to preserve Indonesia’s and Australia’s right to regulate in the public interest.

The IA-CEPA is framed around five pillars of cooperation: enhancing economic and development partnership, connecting people, securing the region’s shared interests, maritime cooperation and contributing to Indo-Pacific stability and prosperity.

Yet more beneficial to Indonesia is the broader opportunity for cooperation in health and education, including skills training and capacity building. As part of an overall skills package, Australia and Indonesia have agreed to a reciprocal skills exchange, allowing people with tertiary level skill qualifications from both countries to gain six months of experience in the other’s market.

The technical assistance Australia is to give Indonesia under the partnership would be a great boon for accelerating institutional capacity building because inadequate or poor institutional capacity has been one of Indonesia’s weaknesses in managing its economic relations with other countries.

Furthermore, the IA-CEPA has been ratified by the legislatures of both countries and is thus strongly based on a national political consensus, allowing for immediate implementation, but as the old adage says: The devil is in the details. Both governments should therefore tread carefully. As Foreign Ministry spokesman Teuku Faizasyah cautioned last week, the implementation of the agreement should initially focus on the low-hanging fruit to build up confidence among all the stakeholders, especially farmers and businesspeople.

(source: The Jakarta Post)