Today the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) enters into force, marking the beginning of a new era for the business and investment relationship between Indonesia and Australia.
The agreement comes at a crucial time for both countries.
A time when both Indonesia and Australia seek to emerge from the twin health and economic crises brought on by COVID-19. When people are looking for opportunities to restore their livelihoods and looking to governments to work together to remove barriers to those opportunities.
Only three weeks ago, Australia announced a new development strategy, Partnerships for Recovery, which focuses on working with our closest neighbours on health security, regional stability and economic recovery, and on protecting the most vulnerable, especially women and girls.
Now, with the entry into force of IA-CEPA, the framework is in place for Australia and Indonesia to unlock the vast potential of our economic partnership, and to work together to increase our trade within the region and beyond.
The potential rewards are significant – Australia and Indonesia are the two largest economies in our region and our economies have many complementarities.
Yet the economic relationship remains underdone.
We are each other’s 13th most important trading partner. Indonesia ranks 27th as a destination for Australian foreign investment and Indonesia is the 38th largest source of foreign investment for Australia.
IA-CEPA can help unlock our trade and investment potential.
It will allow all goods produced in Indonesia to enter Australia tariff-free. This makes Indonesian goods such as clothing, footwear, vehicles and pesticides more competitive in the Australian market.
Australian goods will also face lower tariffs in Indonesia, including for our high quality agricultural products such as potatoes and carrots, which will reduce costs for consumers. But the vast majority of Australian goods exports to Indonesia are used in Indonesia’s manufacturing sector, which means they directly contribute to jobs for Indonesians and growing Indonesian exports.
IA-CEPA also looks to a future where Indonesian electric motor vehicles, a core priority in Indonesia’s industrial development plans, will be available in Australia. Australia has provided the most liberal origin requirements for Indonesian electric motor vehicles of any Australian trade agreement. We see opportunities for Australian industry expertise and trade in components, core material and other inputs that will support the design and development of batteries for electric vehicles.
Trade is not just about goods though. Indonesia already enjoys a trade surplus with Australia in services, particularly in the tourism sector. IA-CEPA provides greater certainty for Australian investors in Indonesia’s tourism industry. And when we can all travel overseas once again, Indonesia will be the first place many Australians will again choose to visit, contributing to Indonesia’s post-COVID recovery.
There will be significant gains for both countries.
Indonesian businesses and investors already have considerable access to the Australian market. Now under IA-CEPA there are increased opportunities for future collaborations and partnerships. Enabling Australian businesses to bring capital, practical knowledge and technical expertise to important sectors in Indonesia such as education, communications, health, aged care and mining services.
Sharing technical expertise and building the understanding of each other’s economies is vital for the continued growth of our economic relationship. Because of this, IA-CEPA also contains a comprehensive skills package aimed at equipping our youth with job-ready skills and experience.
In response to requests by Australian and Indonesian businesses, we have agreed to a Skills Exchange Program in the financial and insurance services, mining, engineering and related technical services, and information media and telecommunications services sectors.
We will also have a pilot program on workplace-based training that, when borders are open again, will initially allow up to 200 Indonesians per year to undertake workplace-based training in Australia for up to six months in certain sectors.
For those looking to develop their skills in other sectors, Australia is increasing the number of Work and Holiday Visas available for Indonesians each year from 1,000 per year to 4,100 as of today and increasing to 5,000 over the next few years.
Lastly, we have established an Economic Cooperation Program to maximise the benefits of IA-CEPA, to support trade and investment and promote inclusive economic growth in Indonesia. Australian and Indonesian officials and business stakeholders have already identified areas for collaboration through this program, including in areas such as agrifood, advanced manufacturing and skills development.
The effects of COVID-19 will continue to be profoundly felt by business in both our countries and mobility restrictions are likely to be in place for some time. But Indonesia and Australia are finding new ways to connect our businesses and investors. And our success in doing so will be important for the economic recovery in both our countries.
IA-CEPA will help us achieve a brighter future together as we develop a significantly more dynamic and beneficial economic partnership in the years ahead.