INTRODUCTION
Thank you for the opportunity to address this conference.Your deliberations come at an exciting time for Indonesia with the election of President Joko Widodo.
The transition to the Jokowi era highlights the robust and resilient nature of Indonesias democracy.
With a population of nearly 250 million people, Indonesia is the worlds third largest democracy.
It is already South-East Asias biggest economy.
And it is on track to become the worlds fourth largest economy by the middle of this century.
Back in 1994, Paul Keating said: No country is more important to Australia than Indonesia. If we fail to get this relationship right, and nurture and develop it, the whole web of our foreign relations is incomplete. [i]
Its remarkable to think that in the 20 years since Prime Minister Keating made those remarks:
- Indonesias population has grown by more than 50 million people.
- The size of Indonesias economy has more than doubled.[ii]
- And the people of Indonesia have built a vibrant democratic political system.
But when Australia looks to our region, when we look to North Asia, we must not look over our nearest neighbour.
For Indonesia is a neighbour of paramount importance, and a great partner of Australia.
And nurturing and developing this relationship remains as critical today as it has ever been.
That is why the work of organisations like the Australia Indonesia Business Council and gatherings like this are so valuable.
Im going to speak tonight about:
- the Australian Labor Partys approach to trade;
- the Abbott Governments recent bilateral trade agreements;
- and the ongoing need to deepen the relationship between Australia and Indonesia by strengthening our trade, investment and strategic economic ties.
LABOR AND TRADE
Labor supports stronger trading relationships with our region and the world.This is a stance which can be traced back to the 1940s when Labor Prime Minister Ben Chifley recognised that Australias post-war reconstruction would require expanding trade with the countries of our region.
It is a stance which Labor has pursued vigorously in government over the last four decades, from Whitlams across the board tariff cuts, to Hawke and Keatings dismantling of protectionism, to Rudd and Gillards pursuit of multilateral, regional and bilateral trade agreements.
Trade creates new markets and new opportunities for innovative and entrepreneurial Australian exporters and it also improves the competitiveness of Australias domestic industries.
Trade liberalisation generates economic growth, which means more jobs and better jobs for working Australians.
Trade also gives consumers lower prices and greater choice, which means higher living standards.
And trade is helping to lift millions of people out of poverty in the worlds developing economies.
As the general secretary of the United Nations, Ban Ki Moon, has said: An ounce of trade can be worth a pound of aid.
Labor has been a strong supporter of multilateral trade liberalisation and the World Trade Organisation.
The benefits of trade liberalisation are greatest when trade barriers are reduced through multilateral agreements compared to regional or bilateral preferential agreements.
The WTOs current Doha round of global trade talks is also designed to ensure that developing economies realise the benefits of trade and growth.
Labor has also placed a strong focus on Australias place in the Asia-Pacific region.
We helped found APEC, the Asia Pacific Economic Cooperation forum, to drive regional economic integration.
And in our last term in government, we issued the Asian Century White Paper to map out the opportunities and the challenges for Australia in our region.
The White Paper noted that Australian businesses and their employees can be big winners from the Asian century, with new opportunities for our miners, manufacturers, farmers and service providers.
It noted, however, that Australian businesses no matter how competitive cannot participate in the Asian century if they are locked out of markets.
Thats why the former Labor Government pursued multilateral trade liberalisation.
Its why we entered negotiations for regional trade agreements like the proposed Trans-Pacific Partnership and the Regional Cooperation and Economic Partnership.
And its why we were committed to high-quality bilateral trade agreements with our trading partners.
Labor is also committed to what I like to call making trade work complementing trade agreements with domestic policies to ensure our businesses and our people can prosper in a globalised economy.
As we open our economies, we must ensure our people have the skills and capabilities to maximise the opportunities and we must support those who are affected by structural change.
This is a challenge for both developed and developing economies.
THE ABBOTT GOVERNMENTS TRADE AGREEMENTS
This is Labors record on trade and on engagement with Asia.In Opposition, our policy continues to be outward looking.
But, as an Opposition, we will also scrutinise the trade agreements finalised by the Government.
Bilateral trade agreements can deliver significant opportunities.
Yet they are widely acknowledged as delivering second-best economic outcomes compared to multilateral trade liberalisation.
That is why the Opposition believes we need to look behind the political spin and assess the quality of the agreements which are negotiated.
How do the three bilateral trade agreements finalised by the Abbott Government stack up?
The first agreement was the Korea-Australia Free Trade Agreement, or KAFTA.
KAFTA will give Australian exporters more access to the Korean market.
Like Government backbenchers, Labor was disappointed that this agreement did not deliver better outcomes for many, including Australian sugar producers.
And we do not believe KAFTA should have included Investor State Dispute Settlement provisions which give Korean firms greater legal rights than Australian firms.
However after careful analysis of the agreement through Parliamentary committee inquiries, Labor concluded that the agreement was in Australias national interest.
That is why we voted for the Governments legislation to implement the agreement with Korea.
The Abbott Governments second agreement, the Japan Australia Economic Partnership Agreement, delivered disappointing outcomes for Australias agriculture sector.
The National Farmers Federation said the agreement falls short of the mark [it] does not improve or marginally improves market access and terms of trade for a number of sectors such as dairy, sugar, grains, pork and rice.
We all know that Japan has had a protectionist stance in relation to its farm sector.
Yet its hard to avoid the conclusion that the Abbott Government short-changed Australian agriculture in its rush to finalise an agreement to coincide with the Prime Ministers visit to Tokyo in April.
The agreement does, however, improve access to the Japanese market for Australian exporters of goods such as beef, wine, horticultural goods, for energy and resources products, and for services exports.
In recognition of these benefits, Labor supported the enabling legislation for the Japan agreement in the Senate last week.
The third of the Governments trade agreements is the China-Australia Free Trade Agreement which was announced when Chinas president Xi Jinping visited Canberra last month.
There is no doubt that China is critical to Australias long-term economic prosperity.
The proposed agreement has the potential to drive economic growth and create and support Australian jobs.
We are pleased that a number of the benchmarks which Labor set out for a high-quality Free Trade Agreement with China appear to have been met.
But it is important to realise that what the Trade Minister Andrew Robb and his Chinese counterpart Gao Hucheng signed last month was a declaration of intent to enter a free trade agreement not the final agreement itself.
The agreements text is not expected to be finalised until next year.
When the text is released Labor will scrutinise the detail.
The fundamental test we will apply is whether this agreement is in Australias national interest and whether it will support growth and jobs.
AUSTRALIA AND INDONESIAS TRADING RELATIONSHIP
So where does Indonesia fit in Australias trading relationships and in the complex network of trade agreements which are shaping those relationships?Indonesia is Australias 12th largest trading partner.
Trade in goods and services between our two countries was worth $14.9 billion in 2013. [iii]
Australias biggest exports to Indonesia were wheat, sugar, live animals, aluminium and crude petroleum.
Indonesias biggest exports to Australia were crude and refined petroleum, iron, steel and aluminium structures, ships and boats, and gold.
Trade in services between Australia and Indonesia was worth $3.7 billion last year, representing a quarter of all trade between the two countries.
A sizeable slice of that trade in services reflects the large numbers of Australians who holiday in Indonesia.
The number of Australians travelling to Indonesia is now more than 1 million a year, second only to New Zealand as a short-term travel destination for Australians. [iv]
The value of Australian-Indonesia trade has grown at an annual trend of 6.3 per cent over the last five years.
However, there is significant scope to expand Australias trading relationship with Indonesia.
The governments of Australia and Indonesia have put considerable emphasis on security issues, and on aid and development cooperation, which is understandable. [v]
But while there are extensive political and people to people links, the economic relationship is not as well developed as it might be.
Indonesia is the largest economy in ASEAN yet it is Australias fourth largest trading partner in south-east Asia, after Singapore, Malaysia and Thailand.
Australias $14.9 billion in trade with Indonesia last year compared to $27.1 billion in trade with Singapore, $19.6 billion with Thailand and $17.9 billion with Malaysia.
Trade between Australia and Indonesia amounted to $60 for every Indonesian man, woman and child.
By contrast, our trade with Thailand was worth nearly $290 for every Thai resident; with Malaysia it was worth nearly $600 per head of population; and with Singapore it was worth more than $5,000 per head of population.
These differences reflect, in part, the different stages of development between Indonesia and those economies.
They also suggest there is significant potential to expand trade and investment flows between Australia and our nearest neighbour.
This potential is also drawn out in the PriceWaterhouseCoopers report Passing us by, released earlier this week, which suggests that the majority of Australian businesses are not taking up the opportunities emerging in Asia.
This report showed that Australia currently invests more in New Zealand, a country of less than 4.5 million people with modest growth prospects, than we do in Indonesia, a country of 250 million people which is growing twice as fast as our trans-Tasman neighbour. [vi]
As a member of ASEAN, Indonesia is covered by the ASEAN-Australia-New Zealand free trade agreement which was finalised by the former Labor Government in 2009.
This agreement entered into force in 2012 and has seen significant reductions in tariffs on trade between the 12 countries that are covered, including Indonesia.
However, more can be done to build on these efforts.
This is why the Australian and Indonesian Governments launched negotiations in 2012 for a Comprehensive Economic Partnership Agreement.
A joint feasibility study found that removing all remaining barriers to bilateral trade and investment would deliver worthwhile economic benefits to both countries. [vii]
It found that benefits would be highest for Indonesia.
This reflects the fact that Indonesia has higher trade and investment restrictions than Australia.
It therefore stands to reap a productivity dividend by reducing these barriers, complementing domestic economic reforms.
I note that Minister Robb has set the goal of lifting Indonesia into Australias top 10 trading partners.
For the Oppositions part, I am happy to endorse that goal.
And I acknowledge that business organisations have taken the lead through a range of initiatives by the Australia Indonesia Business Council and its counterpart the Indonesia Australia Business Council.
The Australian Chamber of Commerce and Industry and KADIN Indonesia have also played a positive role by supporting the Indonesia-Australia Business Partnership Group.
So we need to advance the negotiations for the Australia-Indonesia Comprehensive Economic Partnership Agreement.
But we need to make progress on other fronts as well.
As a developing nation, capacity building is critical for Indonesia when it comes to trade liberalisation.
Australian government and business are helping here, and this effort will need to be maintained.
If Australian policy-makers expect their Indonesian counterparts to make the difficult arguments for trade liberalisation, then we need to support Indonesias efforts to deliver sustainable growth, poverty reduction and economic reform.
Australia also needs to provide assistance to Indonesia on trade facilitation.
Trade facilitation involves simplifying and harmonising the customs, licensing and transit procedures which can act as grit in the cogs of the international trading system.
The WTOs member countries reached a ground-breaking agreement on trade facilitation in Bali last December.
Developing nations like Indonesia stand to benefit the most from these trade facilitation reforms.
That is why it was good to hear last week that the WTO has now resolved the impasse which had been delaying implementation of the agreement.
Looking further ahead, Australia and Indonesia will both benefit from pursuing more widespread regional and multilateral trade liberalisation.
In recent years we have seen a proliferation of overlapping bilateral preferential trade agreements, a phenomenon in international trade policy which has been dubbed the spaghetti bowl effect. [viii]
Bilateral trade agreements do boost trade between those countries covered by the deals but this can come at the cost of diverting trade away from countries which are not covered.
Trade diversion is not the only problem with bilateral trade agreements.
Compared to multilateral trade liberalisation, a spaghetti bowl of criss-crossing preferential agreements increases costs to business.
Under preferential agreements, exporters have to navigate complex rules of origin and other administrative requirements before they can take advantage of market access opportunities.
There is also a risk that countries on the periphery of the complex network of trade deals may be sidelined.
Some of these problems can be ameliorated through so-called mega-regional trade agreements which aim to free up trade across large groups of countries.
These agreements may help untangle the spaghetti bowl of overlapping agreements.
They would deliver increased market opening across larger numbers of countries while reducing the problems of red tape and trade diversion which arise under bilateral deals.
Australia is a party to negotiations for the Trans-Pacific Partnership, a proposed regional trade agreement which would cover a dozen countries from both sides of the Pacific.
But the TPP does not include Indonesia nor does it include China.
Australia is also involved in the Regional Comprehensive Economic Partnership.
This is a proposed regional trade agreement bringing together the 10 ASEAN nations, including Indonesia, and six non-ASEAN countries in the region, including China.
Labor believes Australia needs to place as much emphasis on the RCEP negotiations as on the TPP.
Progressing regional trade liberalisation on both of these tracks will ensure that countries like Indonesia are not shut out of the emerging new regional trade arrangements.
It will also lay the ground for an even more ambitious proposal the concept of a Free Trade Area of the Asia-Pacific, which the Chinese Government advocated at this years APEC summit in Beijing.
A single free trade area embracing all the nations of the Asia-Pacific would be a game-changing outcome.
It would mean our trade architecture reflected our desire for deep, comprehensive and seamless regional economic engagement.
This is a long-term project but it is a project worth advocating and advancing in coming years.
CONCLUSION
Let me conclude by repeating that Australias relationship with Indonesia is one of our most important international relationships.The economic links between our countries are already significant.
But there is considerable scope to improve the flows of trade and investment across the Arafura Sea.
To achieve that, Australia and Indonesia should put economic integration at the centre of our relationship and we should pursue it vigorously in bilateral, regional and multilateral forums.
I wish you well in the rest of your conference.
ENDS
[i] Speech by the Prime Minister, the Hon. P.J. Keating, 16 March 1994, http://pmtranscripts.dpmc.gov.au/transcripts/00009155.pdf
[ii] International Monetary Fund, World Economic Outlook Database, October 2014.
[iii] Department of Foreign Affairs and Trade (2013) Composition of Trade Australia
[iv] ABS, Overseas Arrivals and Departures, September 2014, Catalogue No. 3401.0
[v] Lindsey, Tim (2010) Preposterous Caricatures: Fear, Tokenism, Denial and the Australia-Indonesia Relationship, Dialogue, 29(2), pp 31-43 at 32.
[vi] PriceWaterhouseCoopers (2014) Passing us by: Why Australian businesses are missing the Asian opportunity and what they can do about it, p 8.
[vii] Australian Government Department of Foreign Affairs and Trade/Republic of Indonesia Ministry of Trade (2007) Australia-Indonesia Free Trade Agreement Joint Feasibility Study.
[viii] Bhagwati, J. N (1995) US Trade Policy: The Infatuation with FTAs, Columbia University Discussion Paper Series 726, New York, Columbia University.
