Dumping a free trade deal Indonesia and Australia need to look hard at their protectionist policies

                                                         By Duncan Graham

For the past two years, Australian exporters’ prospects have been jollied along by forecasts of a looming free trade agreement with their giant northern neighbor.

Once in place, grain carriers and beef boats would sail past unconcerned customs officials and into the increasingly hungry ports of the world’s fourth largest nation; Indonesian vegetable and mineral oils will head Down Under to a similar welcome.

Prefacing this nirvana have been big show-and-sell missions to the archipelago, ministerial handshake photo-ops and glowing statements implying negotiations are running briskly and on the same page.
So all being well, the Indonesia-Australia Comprehensive Economic Partnership Agreement (CEPA) should be signed before 2018 dawns.

However, all is not well and that sunrise now seems remote.
The possibilities have been eclipsed - not by nationalist Indonesians fearing floods of foreign goods, but by parochial politics in Australia.

In April, the federal government abruptly announced dumping duties on Indonesian copy paper imports.

“The impact of the decision is potentially lethal,” Australia-Indonesia Business Council President Debneth Guharoy told members. 

“It flies in the face of the visiting president’s pointed request in Sydney for a fair go on paper and palm oil. [In February Indonesian President Joko ‘Jokowi’ Widodo promoted the CEPA in Australia.]

“We unilaterally decide to turn the [asylum seeker] boats around, stop the exports of live cattle, raise hell over the death penalty and now rollback their paper. Each and every time, we expect the Indonesians to bow to our self-promoted higher standards, our much-touted lofty principles.

“Those of us who have lived in, worked in or frequently travel to Asia cringe at the disdain with which these proclamations are treated by our neighbors.”

Indonesia Institute President Ross Taylor, a former national vice-president of the AIBC, warned that the problem should be “handled with subtlety”.

“Otherwise we run the risk of this tariff issue becoming a catalyst - for those who are anti-free trade - to have the CEPA stall or collapse,” he told Strategic Review. “That would be a great disappointment.

“Getting an agreement was always going to be a tough task - Indonesia is really focused on the need for big infrastructure projects that can be funded by North Asian countries.

“However, it can be done with goodwill and considered perseverance by both sides. The decision by Australian officials to impose the tariff at this time was less than helpful; Guharoy is right in that regard and we share his concern, as would Indonesia.”

The head of Indonesia's negotiation team was reported by Fairfax Media claiming the duties would affect discussions.

“We explained to Australia that it [the dumping accusation] is not true, but they insisted just to protect their industry,” Deddy Saleh was quoted as saying.

“So it means there is unfairness. How can we conduct negotiations when we know that our counterpart is not fair? Negotiation takes mutual trust from both sides.”

The duties will please supporters of trade barriers; they argue free trade agreements are an easy way to avoid developing complex policies to stimulate local yields and build food self-sufficiency. Instead, FTAs favor efficient producers like Australian wheat growers who can swamp local markets and put poor farmers out of business

‘Dumping’ means an exporter is selling goods overseas below the homeland price. 

Apart from deliberate attempts to weaken rivals through trade wars, there are two main reasons for dumping: a manufacturer has a surplus it can’t shift at home, or its products are being subsidized by government for local political reasons, such as keeping an unprofitable factory running to save jobs.

The upset started when a private company in Victoria complained to the independent Australian Anti-Dumping Commission that paper manufacturers in Indonesia (and some other countries) were undercutting local prices and threatening profits and jobs. The commission agreed and told the government.

Despite Australian Paper’s nationalistic name, the company is owned by Nippon Paper Industries of Japan.

Its two mills are in Gippsland, a rural area 160 kilometers east of Melbourne. AP is the biggest employer with around 1,300 on the payroll. It makes about 600,000 tones of paper products a year and much is exported.

The unemployment rate in Gippsland is 9.42 per cent against the national average of 5.7 per cent, according to Australian Bureau of Statistics figures.

To stop interest in trade with Indonesia flagging after the latest setback, the AIBC has asked National Development Planning Minister Dr Bambang Brodjonegoro to help buoy the disheartened.

“For the first time ever, a ranking Indonesian minister will visit five of our capital cities [in June] on a whistle-stop tour,” said Guharoy, who claims Indonesia could be the fifth largest economy by 2050, with Australia then ranking 32.

“The mission is to talk about Indonesia's economic outlook, the opportunities they present and against that backdrop, encourage Australian enterprises to engage.”

The AIBC has been pushing local businesses to recognize openings in the Indonesian market, with 250 million consumers and a growth rate of more than five per cent compared with Australia’s 2.4 per cent.

Indonesia is Australia’s 12th largest trade partner, mainly importing wheat, beef and sugar, and selling oil and some manufactured goods. Total two-way business is worth about US $11.4 billion.

An AIBC delegation will appear before a Parliamentary Inquiry on the Trading Relationship with Indonesia in Canberra this month. [May]  “We have an unintelligent relationship with our large neighbor and it does warrant examination,” said Gutharoy. “But I’m not so sure that the politicians will welcome the candor.”

Australia’s dumping duties are likely to be appealed to the Geneva-based World Trade Organization, a body not known for swift decision-making. Unless the Indonesians ignore Australian protectionism and abandon their own, a free trade deal is unlikely anytime soon. 

Duncan Graham is a East Java-based Journalist and writes extensively on issues within the region.