Sydney, 20 February 2009
2009 Conference on ‘Australia and Indonesia: Partners in a New Era’
Thank you, Alex for your introduction.
Your Excellency Minister Mari Pangestu;
Ministerial colleagues;
Distinguished guests, ladies and gentlemen
I’d like to like warmly thank the organisers and sponsors of this very significant conference: the Australia Indonesia Institute, AusAID, the ANZ Bank, and the Lowy Institute for International Policy.
I’m very pleased to have the opportunity to engage again this afternoon with the business community from both countries. And I’m delighted that Indonesia has sent the largest ever business delegation to this conference.
It underscores the point that as important as government-to-government is to developing the framework of the relationship, the substance is enhanced significantly by strong business-to-business and people-to-people relations.
This conference highlights the importance of the business-to-government exchange in the trade and economic relationship, which is what I’d like to address in my remarks today.
There’s one thing I’d like to say at the outset in the wake of the devastating bushfires. And I say it as a Victorian Minister but I know I speak on behalf of Australians throughout this country.
I am profoundly touched by the generosity of the Indonesian government who have offered $1.5 million to refurbish fire-damaged schools in my home state. And for the generosity of the Indonesian people, who I’m told have collectively donated more than $1m dollars to bushfire relief.
We also welcome the assistance from the Indonesian victim identification team who is now on the ground helping us with the difficult recovery ahead.
Once again, Australia and Indonesia are brought together by shared tragedy. And as we reach out to the many Australians who have lost friends, family and loved ones, we also extend our hand to support Indonesian authorities as they search for two Indonesian students who were in Marysville at the height of the fires and are still missing.
These are difficult times. Under the tragic circumstances that we have faced in the past week, the normal routines of government and business seem almost out of place.
Yet getting back to work is part of the rebuilding process.
So it was my great pleasure yesterday to be able to re-engage with Mari Pangestu on the important trade relationship between our two countries as part of the Eighth Australia-Indonesia Trade Ministers’ Meeting.
The Rudd Government from day one understood the importance of the relationship with Indonesia.
We have worked assiduously to make it stronger. Overall, there have been 32 Ministerial-level visits each way since we came to office. In my case, I took the opportunity within 72 hours of being sworn in as Trade Minister, to visit Jakarta.
Not to mention that Mari and I have met at least a dozen times—not just for bilateral meetings but at ASEAN, APEC and the WTO. This reflects the breadth of Australia’s and Indonesia’s engagement at the regional and multilateral levels.
One of the first tasks we set in the trade portfolio was to bring forward the feasibility study into a potential Indonesia-Australia Free Trade Agreement. We’ve received the study yesterday. And we’re pleased to say it shows that a comprehensive free trade agreement would both complement the multilateral trading system and deliver worthwhile gains to both economies.
More importantly, we agreed that an FTA which covers trade, investment and capacity building issues would be the best way to build a new economic partnership between Indonesia and Australia.
It’s our shared view that a bilateral FTA could help realise the untapped potential in our two-way trade relationship, now worth around $10 billion, but which is underdone.
Indonesia is ASEAN’s biggest economy. But from 1997-2007, Australia-Indonesia trade grew at just 38 per cent compared with our trade with ASEAN of 159 per cent…
Chart 1: Our trade with Indonesia lags ASEAN
But the lack of engagement between Australia and Indonesia extends beyond trade.
A major report that I launched last week, called the Asialink Index, used seven broad criteria to measure Australia’s interaction with the region.
TABLE 2 Australia’s engagement with Asia between 1990 and 2007
Again, as the table shows, Australia’s engagement with Indonesia is failing to keep pace with developments in the region.
So there is a significant opportunity for all of us to build and strengthen this trade relationship. The commitment to develop a new economic partnership reached yesterday is more than a determination to improve the relationship.
It reflects the changing nature of trade, particularly the role of investment to trade. It also understands the different stages of development between our two countries and the importance of capacity building in closing that gap. It is a much more comprehensive approach that determines the depth of understanding and commitment between our two countries.
Trade matters
Trade flows have suffered significantly in the global financial crisis. But trade is not a cause of the problem; trade is a big part of the solution.
Trade is itself a stimulus for growth. The income earned from exports adds directly to national output and employment.
Export income provides funds that can be used to employ more workers and invest in new plant and equipment. It generates profits and creates the incentive for business to expand.
Imports, in their own way, are also an important stimulus to longer-term economic growth.
They reduce the prices of goods and services and give consumers more income to spend. They lower the cost of businesses, allowing them to compete more effectively at home and in foreign markets. They also drive innovation and provide a mechanism for the transfer of new technologies.
This is the interdependency that defines our global economy today. And it’s why, more than at any time since the end of the Second World War, the world needs to harness the multiplier effect of trade to stimulate growth and create new jobs.
As the chart demonstrates since the fifties world trade has grown three times faster than world output. Each round of trade liberalisation has grown the multiplier.
So trade is a multiplier that will stimulate the world economy. And we will diminish the significance of domestic stimulus packages being called for in a coordinated way by the IMF unless can harness the multiplier effect of trade liberalisation.
That’s why the coordinated response called for must include finalising the Doha Round. Both our countries are strongly committed to concluding Doha. That takes on an extra significance when we also understand the leadership role Indonesia plays in the WTO as chair of the G33 group of countries and Australia as Chair of the Cairns group, of which Indonesia is a member.
Committed also we are to tackling the flow on consequences of the Global Financial Crisis on trade finance, which keeps the wheels of international trade turning. Just as we are trying to come up with a new architecture to free up liquidity and bank credit, it must include the issue of trade finance. In the meantime we must monitor the impact on trade finance and stand ready to respond if circumstances require.
As a further demonstration of our commitment to the relationship, we have offered to help Indonesia deal with the impact of the global financial crisis by committing US$1 billion as a standby loan, should Indonesia require it as part of their structural adjustment and stimulus measures.
Concluding Doha has another advantage. It will also create an enhanced discipline against protectionism. Passing resolutions against protectionist policies must also be backed up with a strengthening of rules-based mechanism to outlaw protectionist measures.
Existing rules have provided important disciplines already. But concluding Doha, given what is already on the table, would strengthen those disciplines.
In their absence, protectionism would resurface. It will result in retaliatory measures. Those measures wouldn’t protect jobs; they will strangle them. A downward spiral of retaliatory measures would only worsen the global crisis we’re already in.
AANZFTA
On a more positive note, not deterred by the failure to conclude Doha last July, the following month we proceeded to conclude negotiations for the region-wide ASEAN-Australia-New Zealand Free Trade Agreement. It’s the largest FTA Australia has ever negotiated. It’s the first multi-country FTA we’ve negotiated.
ASEAN accounts for 17 per cent of Australia's total trade in goods and services; worth $81 billion in 2007-08. As a collection of countries, ASEAN is our largest trading partner.
It’s also the most comprehensive trade agreement ASEAN has ever negotiated, and will considerably strengthen trade and investment ties across the region.
It’s also an agreement Australia and Indonesia were committed to concluding. The agreement sends a very positive signal to the rest of the world of the region’s commitment to open trade flows in these difficult economic times.
We will be sign the agreement next week, in Thailand, after which the full details will be available.
From Australia’s perspective, it gives us market access gains in a wide range of sectors in a region of 570 million people with a combined GDP of US$1 trillion.
We took a straightforward approach: to seek to link Australia as closely as possible to ASEAN’s own economic integration – and to support ASEAN integration in the process.
AANZFTA is comprehensive in nature. It’s not restricted to typical chapters you’d find in FTAs with developing countries --such as goods; rules of origin; customs procedures; safeguards; services; and investment.
It also tackles some newer areas, such as movement of natural persons, electronic commerce, intellectual property, and competition.
Significantly, the agreement also includes a chapter on economic cooperation and an associated work program—which lists specific projects to assist implementation of the agreement.
This recognises the different levels of development of AANZFTA parties. And it recognises the vital role of structural reform behind the border; because there’s no point creating more trade opportunities at the border if economies aren’t competitive enough to take advantage of these opportunities.
On services, the Agreement contains a substantial “WTO plus” package that will enhance certainty and transparency for services suppliers exporting in the region.
This FTA is comprehensive. It is a WTO-plus agreement. It lays a solid platform for the future of economic engagement between Australia and all ASEAN partners.
I’d like to think that a prospective FTA between Australia and Indonesia I mentioned earlier would help us to build on that platform; to further expand and deepen the integration between our economies.
Indonesia’s economic progress
Of course, Indonesia’s remarkable economic recovery since the 1997 Asian financial crisis has played an important factor in our integration.
We ought to pay tribute to the significant reforming achievements of Ministers Pangestu, Sri Mulyani and their colleagues.
Yet like all of us, Indonesia faces some very significant economic and social challenges in the coming years, even before you take into account the global downturn.
As the Indonesian government knows all too well, to sustain growth over the longer term, and make inroads into reducing unemployment and poverty, it needs to address many of the structural challenges that affect its economy.
There is no point in an emerging economy like Indonesia reducing trade barriers if it doesn’t have the ability to take advantage of the new opportunities offered by increased market access.
That is why we are committed to work with Indonesia to help address its behind-the-border structural challenges, through capacity building in productive parts of its economy.
There’s no doubt that the Indonesian economy has enormous long-term potential. That potential, and the many unexploited opportunities in our bilateral trade relationship, make the prospect of a new economic partnership so interesting.
There’s considerable scope, I believe, to boost bilateral investment flows, especially from Australia to Indonesia. Services, too, represent a field in which there is much to be done. Indonesia’s economy is 40 per cent services; Australia’s is 80 per cent. Yet services were worth around 10 per cent of our total trade.
Conclusion
Australia and Indonesia are committed to building our trade relationship. We have approached this task at the multilateral level and want to build on those multilateral principles through a renewed engagement at the bilateral level.
And just as we will work hard, government-to-government, to
develop the framework for trade, the business-to-business
engagement provides essential substance to that
framework.
Whether it’s through the respective Australian and Indonesia business chambers who are here today or through the work of the many distinguished companies, we wouldn’t be able to strengthen our $10 billion relationship without your drive and your enterprise.
So let me finish by commending your role in building a new era of economic partnership between Indonesia and Australia.
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