6 March 2019
Trade deal hype
Almost nine years ago, then prime minister Julia Gillard visited Jakarta and announced that talks had started on a free trade deal that would transform ties with Indonesia. On Monday, the agreement was signed. Scott Morrison did not attend the ceremony in Jakarta, perhaps wary of reminding Indonesians of his proposal last year to move the Australian embassy in Israel to Jerusalem, which angered Indonesia and further delayed negotiations. Nonetheless, Morrison and his predecessors have all expressed hope that the agreement will finally address one of the great challenges of Australian foreign policy: to strengthen the nation’s thin links with its largest neighbour. The question, then, is whether bilateral trade deals such as this actually create meaningful ties between the two partner countries.
The answer, according to Jeffrey Wilson, research director at the Perth USAsia Centre and expert on Australian free trade deals in Asia, is that they do not. Historically, he explains, Australia’s trade deals were intended to apply to products that were not already covered by the World Trade Organization, but policymakers have increasingly tried to use them to promote “broader strategic partnerships”. “These are international treaties on tariffs and trade-related regulations – they are not a promise to be best friends,” Wilson told me. “They seem an odd foreign policy instrument for building relations. You can’t codify relationships.”
Some experts have suggested the deals have a “CNN effect” – that is, they draw attention to the other country and encourage local policymakers, businesses and others to consider avenues for new partnerships. “This is widely believed and is often cited by business groups as a benefit of FTAs [free trade agreements],” Wilson says, “but I have never heard any evidence to prove it. It is not incredible, but no one has actually done a quantitative study on it.”
Australia has nine bilateral trade deals in force, ranging from its first, with New Zealand in 1983, to more recent ones with the United States (2005), South Korea (2014), Japan (2015) and China (2015). In the past year, three others have been ratified – with Hong Kong, Peru and now Indonesia. These agreements often appear to crown an era of warming diplomatic ties between Australia and its partner, but they do not provide any guarantee that closeness will continue. For instance, the agreement with China has not prevented turbulence in the relationship, including tensions over Australia’s foreign interference laws. New Zealand was the first Western country to sign a free trade deal with China, yet many analysts believe that Auckland has been a sort of testing ground for Beijing’s efforts to intervene in domestic affairs or retaliate against perceived slights.
There are high hopes for Australia’s deal with Indonesia, a nation of 270 million people that is expected to become one of the world’s five biggest economies by 2030. Since Gillard announced the negotiations, Indonesia has slipped from being Australia’s twelfth-largest trade partner to its thirteenth, even as Indonesia’s economy has grown by more than 5 per cent a year. The political relationship has been famously marred by missteps and misunderstandings. The flow of migrants and international students from Indonesia remains relatively low, and most Australian visitors do not travel there beyond Bali. As Jennifer Rayner wrote in an essay in Australian Foreign Affairs, Indonesia’s rise, coupled with its current weak links with Australia, creates “a risk that it will simply look straight past us, to partners elsewhere in the region and beyond . . . That would be a grievously missed opportunity for Australia as we look to diversify our economy away from China and protect our own affluence in the years to come.”
To the credit of Australia and its diplomats, this deal is one of the first major bilateral trade agreements that Indonesia has signed. It will promote mining and agricultural trade and will allow Australian universities to operate in Indonesia. Significantly, it will also increase the number of work and holiday visas for Indonesians from 1000 to 5000 over the next six years.
But, according to Wilson, its overall effects are likely to be limited – and any opportunities that it creates should be seized within the first twelve months, while both sides are firmly committed to its success. “This would be one of the best deals anyone has got out of Indonesia, but it is still not a great deal,” he says. “It is better than nothing. There is a transitory effect in the wake of the signing where it jams your foot in the door. If there is a time for our government and businesses and political diplomats to walk through that door, that time is now.”