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The Indonesian FTA is a trade agreement which isn't really about trade

On 3:01 AM

The Indonesian FTA is a trade agreement which isn't really about trade

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Indonesian President Joko Widodo while campaigning in rural Java.
Indonesian President Joko Widodo while campaigning in rural Java. Jefri Tarigan
Angus Grigg AFR Woodcut by Angus Grigg

At a fish restaurant in rural Java, after a morning of campaigning, Indonesian President Joko Widodo had his lines prepared.

The free trade agreement (FTA) with Australia would be "more than a commercial project, it is a partnership" he told The Australian Financial Review.

That was in mid-March and the man known as Jokowi was signalling how Indonesia saw the Australian FTA, which will be sealed by Prime Minister Scott Morrison in Jakarta on Friday.

As Jokowi indicated, it's not really about trade.

Indonesia President Joko Widodo with your correspondent (middle).
Indonesia President Joko Widodo with your correspondent (middle). Jefri Tarigan

This has increasingly been the case for Australia over the last 30 years as FTAs have become a barometer on which to measure the health of bilateral relationships.

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Starting with New Zealand in 1983, then the US in 2005 and most recently China in 2015, these and Australia's six other FTAs were a signal to the wider world that relations were in good shape. In Beijing's case that relationship deteriorated soon after the deal was signed.

"An FTA is a cheap and easy way of building weight into a relationship," says Hugh White a professor of strategic studies at the Australian National University.

In the case of Indonesia, the FTA is designed to serve as the diplomatic bedrock on which to build stronger strategic ties, as Jakarta is facing many of the same regional challenges as Canberra. Like most issues around the region it's all about China.

Interlocking agreements

The Indonesian FTA fits broadly into the doctrine of former Prime Minister Malcolm Turnbull, who aimed to build a web of interlocking trade and strategic agreements across the region, which could be used to balance the rising power of China.

Australia has agreements of varying significance with Japan, South Korea, Malaysia, Singapore, and Thailand.

In March, Canberra sealed a strategic partnership with Vietnam and a trade deal with Pacific Islands countries has been signed but is yet to come into force.

Indonesia, the largest country in south-east Asia, was an obvious gap and one that will only become more pronounced over time.

As the Lowy Institute Asia Power Index shows, Indonesia will see its ranking jump from 10th to 4th by 2030.

This bump in power is on the back of Indonesia's economic output doubling to $US6 trillion ($8.2 trillion) in purchasing power parity terms over the next 12 years, making its economy larger than Japan' s.

Throw into this mix that Indonesia is one of Australia's closest neighbours and the lack of suitable diplomatic architecture becomes glaring.

That's why negotiators are describing the deal with Indonesia as more about "politics than trade" or "not your typical trade deal".

Closer strategic relationship

Business should therefore expect fewer breakthroughs on tariff reductions and access and more rhetoric around a "first step" in opening up the giant Indonesian market.

As Lowy also notes, Indonesia will have a working-age population of 202 million people by 2030.

The expectation is that enhanced trade ties will eventually morph into a closer strategic relationship with Jakarta.

Given the historically rocky nature of the relationship this would be a major breakthrough, but White doubts both countries are ready to have a "serious conversation" about their place in the region.

" ;An FTA might be a good first step, but it is no substitute for having this conversation," he said.

For Indonesia the conversation is similar to the one Australia began recently. It asks what will Jakarta's place in the region look like with a diminished US presence and the consensus in south-east Asia shattered by a rising China.

"Like Australia, Indonesia needs to find a foreign policy," says White.

He doubts, however, either Morrison or Jokowi are seriously engaged in this debate at home or abroad and therefore could come together with others to craft a strategy around managing the rise of China.

Source: Google News

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