05 September 2018

Morrison’s Christmas promise: Indonesia-Australia free trade agreement

This article was written by Elizabeth Blanch and Suzanne Gibson of King & Wood Mallesons’ Singapore office. 

Australia’s new Prime Minister, Scott Morrison has promised the long awaited Indonesia-Australia free trade agreement by Christmas.  The announcement is a good news story for international trade in the midst of vexed trade relations between other global powers.

In a joint press release late last week, Prime Minister Scott Morrison and the Australian Minister for Trade, Tourism and Investment, Simon Birmingham, announced that Australia and Indonesia had successfully concluded negotiations on the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA).  The two countries also entered into a Joint Declaration on a Comprehensive Strategic Partnership

The IA-CEPA which has been in the pipeline since 2010 is expected to deepen Australia’s economic and security cooperation with one of its major trading partners and builds on the existing ASEAN-Australia-New Zealand Free Trade Agreement.

The agreement will allow over 99% of Australian goods exports by value to enter Indonesia duty free or under significantly better preferential arrangements by 2020.  Automatic import permits, which have been a major regulatory hurdle for Australian exporters, will be guaranteed for some of Australia’s key exports including live cattle, frozen beef, sheep meat, feed grains, rolled steel coil, citrus products, carrots and potatoes. 

The agreement also reflects the Australian Government’s increased focus on exporting Australian services.  Highlights include:

  • Mining and related services: Australian ownership up to 67% of contract mining services and mine site preparation services.
  • Healthcare: Australian ownership up to 67% of large hospitals and, within large hospitals, up to 67% of pathology, paramedic and medical and dental specialist clinic services.
  • Aged care services: Australian ownership up to 67% of aged care facilities.
  • Telecommunications: Australian ownership up to 67% of telecommunications.
  • Construction: Australian ownership up to 67% of most construction-related work.
  • Energy: Australian ownership up to:

−     95% of power plants (more than 10 megawatts)

−     75% of oil and gas platform construction

−     67% for electrical power construction, installation, operation and maintenance

−     55% for electrical power installation construction

−     51% of geothermal power plants (10 megawatts or less); geothermal surveying, drilling and operations; and offshore oil and gas drilling.

  • Tourism: 100% Australian ownership for 3, 4 and 5 star hotels and resorts; 67% Australian ownership of most other accommodation, restaurants, cafes and bars, tour operator services and tourism consultancy services; and 51% of marinas.
  • Transport: Australian ownership up to 67% for highways, bridges, tunnel concessions and parking services and 51% for operation of railways.
  • Agriculture: significant reductions in tariffs on the export of Australian live male cattle, frozen beef, sheep meat, feed grains, sugar, dairy, citrus, vegetables, steel coil and copper cathodes.

The full list of highlights is available here.

Australia will immediately remove all remaining tariffs on Indonesian imports into Australia.  In addition, Australia and Indonesia have agreed to a skills exchange which will allow professionals in both markets to gain 6 months experience in the reciprocal market and Indonesia will receive an increase in the number of Australian work and holiday visas.

With a population of 262 million and significant projections for population growth, rapid urbanisation and a growing consumer class, Indonesia will continue to be a strategically important trading partner for Australia.

The IA-CEPA will undoubtedly strengthen economic and political relations between Indonesia and Australia and significantly improve the regulatory conditions for two-way trade and investment.

King and Wood Mallesons has an International Trade and Investment Practice which assists its clients to capture the opportunities stemming from the rapid growth in Asia and to support the firm’s international strategy.

If you have any questions about this article or our International Trade and Investment Practice, please speak to your King & Wood Mallesons contact.

King & Wood Mallesons LLP is a foreign law practice and is not qualified to advise on the laws of Singapore. This publication is intended to highlight potential issues and provide general information based on our understanding, and not to provide legal advice. You should not take, or refrain from taking, action based on its content.

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