Indonesia-Australia Free Trade Agreement signed: A win for agricultural exporters

After eight years of negotiations, the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) has been finalised and signed by both nations. The agreement will open the growing $16.4 billion (2017) trade industry between neighbouring allies Australia and Indonesia, recognising that at present both are not in each other’s top 10 trading partners despite being two of the world's 20 largest economies. Half of Australia's exports to Indonesia, worth around $3.5 billion, are agricultural with a quarter of our wheat production exported to Indonesia – over $1.2 billion annually. This liberalisation of trade between Australia and Indonesia provides an important access point through which Australian agribusinesses can enter new marketplaces in the Indonesian economy (expected to be the world’s fifth largest by 2030).

Agribusiness opportunities and new marketplace access under the IA-CEPA

Trade with Indonesia forms a backbone for many of these Australian industries. Currently, Australia is Indonesian’s largest supplier of wheat, and a leading supplier of livestock, beef, fruits and vegetables. The agreement provides a major boost to agricultural businesses including meat and livestock industries, wheat, grain and sugar producers as well as fresh fruit and vegetable harvesters. Under the IA-CEPA these industries are benefited by preferential trade arrangements, including lower or eliminated tariffs. Prior to the agreement, for example, citrus growers faced limits on import permits for only certain periods of the year, often coinciding with ideal growing seasons in Australia. Now, under the IA-CEPA, citrus growers are guaranteed annual tariff-free quotas, with certain caps, for the entire year. A more detailed list of specific tariff quotes and reductions for agricultural products can be found in our previous article.

The agreement will also stimulate local markets, with Australia eliminating all tariffs on Indonesian imports. Along with broadening marketplaces, it is hoped the IA-CEPA will deepen Australian services and business knowledge. Potential new employment opportunities are created with the annual number of Australian work and holiday visas given to Indonesians increasing from 1000 to 4100 in the first year of the agreement, reaching 5000 by the sixth year.  Manufacturing and education sectors are also affected by clauses of the IA-CEPA that create new skill sharing and cross-border investment opportunities.

Along with the immediate bilateral trading, employment and investment opportunities, business growth could extend beyond the two nations’ borders. Australia’s Trade, Tourism and Investment Minister, Simon Birmingham, has emphasised that an aim of the IA-CEPA is to combine skills, raw products and labour from both nations. This is hoped to be used as a platform for creating new products that could be sold to third-party countries.

Preparing for new business opportunities

The agreement still needs to be ratified by both governments before it comes into force, but their trade ministers expressed a desire for this to be done by the end of 2019.

As markets open, businesses should begin to survey new potential business partners and clientele, ensuring a strong presence is created in new markets. New distribution channels should be investigated if required, with the relevant contractual relationships being formed in preparation for trade in 2020. New opportunities for investment in various stages of supply chains may also be relevant.

It is also important to be aware of the extensive international and Indonesian food and product standards, specifically relating to standards of transport, packaging and quality control. From October 2019, all beef and sheep meat imported into Indonesia, for example, must be halal certified.

Businesses should also be aware of domestic regulations that affect Indonesian businesses, so that business proposals and joint-venture structures can be tailored to any requirements, limitations and opportunities that domestic entities face. With agriculture forming 50% of Indonesia’s employment and 14% of its GDP, its government continues to express a policy of increasing local farming capability. The latest Indonesian live cattle importation regulation, for example, requires 20% of cattle imported by private companies to be breeding cattle. While in the long term this may become a risk to certain exports, developing strong business collaboration presently will assist in mitigating loss. Other sectors such as grain and wheat producers will likely benefit from such policies, with increased demand for products such as feedstock. The potential for cross border business interaction through knowledge sharing or employment, however, also means businesses should be cautious that the relevant legal protections, such as non-disclosure agreements, are in place to maintain control over any intellectual property.

Australian exporters should stay up to with developments relevant to their operations released by the Department of Foreign Affairs and Trade. By checking the FTAPortal, know how you can take advantage of the new agreement, and any required certification, to capitalise on these new opportunities.

Related Insights

• Opening access to new marketplaces for primary exports via the Indonesia-Australia Free Trade Agreement