Australia and Indonesia Sign Free-Trade Deal as Elections Near

(Bloomberg) -- Indonesia and Australia signed a free-trade agreement, overcoming more than eight years of negotiations and 11th-hour delays in a move designed to bolster their under-developed economic relationship.

Indonesia’s Trade Minister Enggartiasto Lukita and Australia’s Trade Minister Simon Birmingham inked the deal in Jakarta on Monday. It will need to be ratified by parliaments in both nations before it comes into force.

The nations see the pact as an opportunity to enhance trade ties, with Indonesia only Australia’s 14th-largest trade partner despite their close proximity. Diplomatic tensions and scandals have hindered ties between Australia and Southeast Asia’s biggest economy, which is also the world’s largest Muslim-majority country.

“Today is definitely one of the brightest moments of the Indonesia-Australia relationship,” Lukita said at the signing ceremony. “Indonesia and Australia are definitely strategic partners that have to grow hand-in-hand, and that’s why our bilateral relations are so important for both countries.”

The latest delay came last year when Indonesia protested over Prime Minister Scott Morrison’s decision to consider moving Australia’s embassy in Israel to Jerusalem, a decision that angered many Muslims. The Australian leader, who faces an election in the next few months, later put the proposal on ice.

Australia and Indonesia Sign Free-Trade Deal as Elections Near

The signing of the deal is timely for Indonesian President Joko Widodo, who is bidding for a second term in an election that will be held April 17. Widodo has been under attack over his economic performance after Indonesia last year posted a record trade deficit of $8.6 billion -- the widest shortfall since 1975 when the nation’s statistics agency began the regular release of data.

Indonesia’s Lukita has previously said the deal would see both countries enjoy zero import tariffs for many goods, and that it could significantly increase Indonesian exports. He said it would pave the way for Indonesian car makers to export to Australia.

The deal will see 99 percent of Australian goods exports by value be able to enter Indonesia either duty free or with significantly improved preferential arrangements by 2020. Australian exporters will also gain automatic import permits for live cattle, frozen beef, sheep meat, feed grains, rolled steel coil and other agricultural products.

Australian industrial producers of steel, copper and plastics stand to benefit from the pact, along with service industries including health, mining, telecommunications, tourism and education. Australian farmers will be able to export 500,000 tons of feed grains such as wheat into Indonesia tariff free.

The agreement “marks a new chapter of cooperation, of economic engagement, that will further deepen the ties between our people,” Birmingham said at the signing. Both countries will work to expedite the ratification process, he said.

Tariff cuts for Australian goods into Indonesia --

Product:Immediate Benefit:Longer-Term Benefit:
Live cattleDuty free (from 5% tariff) access for 575,000 cattle4% annual growth in volume over 6 years
Frozen beef and sheep meatTariff cut to 2.5% from 5%Tariff eliminated in 5 years
Feed grainsDuty free access for 500,000 tons5% annual growth in volume
Hot and cold rolled steel coilDuty free access for 250,000 tons5% annual growth in volume

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