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

By Zac Chami, Dylan Sherman

13 Sep 2018

The forthcoming Indonesia-Australia Comprehensive Economic Partnership Agreement continues to develop Australia's open market strategy by providing opportunities for Australian agricultural businesses to access new marketplaces and take advantage of reduced or tariff-free exports for key primary industry products.

After concluding substantive negotiations on 31 August 2018, the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) will soon be finalised and brought into effect by 2020. The agreement will open the growing $16.4 billion (2017) trade industry between neighbouring allies Australia and Indonesia, recognising that at present both are only around each country's 13th-largest trading partner 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.

Benefits for Australian agribusiness under the IA-CEPA

Capitalising on commitments in the ASEAN-Australia-New Zealand Free Trade Agreement the IA-CEPA will provide a major boost to agricultural business including cattle, beef, milling wheat, grains dairy and sugar by providing preferential arrangements, including lower or eliminated tariffs, to 99% of Australian exports to Indonesia. Indonesia will also guarantee automatic issue of import permits for these key products and general administrative procedures will be improved to facilitate good trade.

Key mobilisers for agribusiness include:

  • Duty-free exports of feed grain up to 500,000 tonnes in year one with 5% annual growth thereafter. After Jakarta banned feed grain imports in 2015, Australian farmers will be one of the sole overseas suppliers of grain including feed barley, wheat and sorghum for a growing livestock industry in Indonesia. This equates to around $150 million in value for the Australian industry, based on a price of $300/t (assuming supply of the whole quota).
  • Duty-free exports of live male cattle for 575,000 cattle in year one, with 4% annual growth in volume reaching 700,000 by year 6.
  • Tariff reductions to 2.5% for frozen beef and sheep meat, with elimination of tariff after 5 years.
  • Elimination or reduction of tariffs across dairy and sugar markets.
  • duty-free exports of oranges for 10,000 tonnes in year one, with 5% annual growth thereafter.
  • tariff reductions to 10% for potatoes, carrots and mandarins for 10,000, 5,000 and 7,500 tonnes in year one respectively, followed by progressive reductions over 15-20 years to 0%. This will aid the $3.7 million vegetable export trade to Indonesia, nearly half of which is potatoes.

The agreement also focuses on services and investments, including guaranteed levels of Australian ownership up to 67% to bind market access in sectors such as work training, construction services, transport and mining.

Getting ready for the FTA

Australia's agribusiness sector should eagerly prepare for the enforcement of IA-CEPA, which will bring two powerful economies closer. New marketplaces will be opened and current ones strengthened. There is potential for immediate growth as well as sustainable expansion for stability over time in primary exports. This will, in turn, bring growth to domestic agribusiness as well as the related supply chain – including importers, retailers and foodservice operators. It is important to remember, however, that any trade agreement is a two-way street and the IA-CEPA will also remove all tariffs and taxes on Indonesian exports into Australia.

Although the text of the agreement is currently being finalised, there are still things that businesses should be thinking about now to be ready for when both governments sign and incorporate it into domestic law.

In particular, anyone currently negotiating commercial arrangements such as long-term supply contracts should consider the possibility of a future FTA and contemplate what, if any, effect it could have on those arrangements down the track. There could also be scope for additional certification to capitalise on these new opportunities.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.