The Significance of I-A CEPA for Indonesia’s Agriculture Industry Enhancement and Trade Relations with Australia

Fostering a good bilateral relationship has been the key dynamic between Australia and Indonesia. The two countries have been cooperating with each other in order to achieve national enhancement in various aspects such as security, culture, and economy. Specifically, in aspects of economics, the two countries are aware of their potential and how they are complementary to each other. Considering that, it has led to the establishment of the Indonesia – Australia Comprehensive Economic Partnership Agreement (I-A CEPA), a bilateral framework that was constructed to maximize their economic relations and to achieve the greater good. Entered into force on July 5th, 2020, this agreement is expected to bring tremendous economic benefits by integrating businesses, communities, and individuals from each country. (Australian Government, n.d.) Considering the implementation of I-A CEPA, this paper aims to analyze its implications for the economy of Indonesia by focusing on the dynamics of Indonesia’s agricultural trade with Australia. Therefore, this paper would answer the research question of “Why is a trade liberalization framework needed for Indonesia’s Agriculture industry promotion and how can Indonesia achieve national economic enhancement through I-A CEPA?” This paper will answer the said question by analyzing Indonesia and Australia’s agricultural trade relations and the benefits of I-A CEPA for trade activity.

Indonesia’s Agricultural trade relations with Australia

The trade relationship between Australia and Indonesia might be fluctuate from time to time, for instance the occurrence of the Asian economic crisis and the global economic crisis. However, from time to time, these two countries managed to maintain a good economic relation with each other. They always strive to establish economic cooperation that would always facilitate a better trading and investment climate.

Although the cooperation of both countries is facilitated by their geographical conditions, Australia is positioned on the 11th listofn Indonesia’sexports destinations and 8th as an import source. For Australia, Indonesia is a key market when it comes to agricultural goods such as wheat, cattle, and sugar. On the other side, Indonesia has been the key provider for the Australian markets for goods such as crude palm oils and cocoa products. Indonesia itself is a major consumer of wheat, considering how bread and noodles appear on the Indonesian dining plate almost every day. Considering Indonesia’s inability to produce wheat due to the climate condition, Indonesia relies on Australia when it comes to fulfilling the needs for wheat. Given that, the two countries have seen each other as a key market for their respective agricultural goods. The bilateral trade relations when it comes to agricultural goods have been complementary to each other, and therefore it has been the goals of I-A CEPA establishment for creating better trade access and facilitating specific areas for agriculture industrial promotion to suffice their respective needs.

The trade tariffs elimination from I-A CEPA

Considering the cooperation, Australia would expect Indonesia’s adequacy for the provision of goods. However, there are several hindrances that lie within the agricultural industries of Indonesia. Indonesia is still struggling to suffice the efficient production rate for agricultural goods due to the lack of technological advancement. Most agricultural areas in Indonesia are located in rural areas and considering the infrastructure conditions of Indonesia, they are not well equipped with adequate technology for sufficient production of goods. Not only that, labor distribution across Indonesia in the industry of agriculture is not distributed equally. Some producing parties are still managed by families and small-scaled communities, therefore workers in the specific field are required. (Syarief, 2021) Therefore, considering Indonesia’s role in providing agricultural goods for Australia, there are areas that Indonesia has to focus on for its industrial promotion. It is fortunate for Indonesia to have the framework of I-A CEPA for assisting Indonesia in maintaining trade performance while at the same time contributing to their national development by pushing the development of their agricultural industry. This would also be beneficial for Indonesia to become a key actor for producing agricultural needs for the global markets.

Indonesia’s agricultural production has its own limitation. However, to maximize the gains from trade, it is important for Indonesia to trade with Australia through a beneficial trade framework, it has been provided by I-A CEPA. After the establishment of I-A CEPA, various trade barriers have been lifted from each other. This could be seen from the statement made by the Indonesian Minister of Trade, where he clarifies that Indonesia’s trade value has increased by US$ 3,2 billion, where it showed an increase of 76,84%. (Gunawan, 2022) Not only this shows the successfulness of I-A CEPA in becoming a trade liberalization framework, this also shows that the industries of Indonesia can be more reliant upon the agreement and Australia as a partner.

This has happened through the elimination of many kinds of trade barriers that have eased the inflow of goods to on from Australia and Indonesia. Within this framework, Australia has eliminated 6.474 tariffs for Indonesian goods to zero. This would ease the entry of Indonesian goods to Australia without tariffs and therefore Indonesian agricultural goods could be expanded into more of the Australian markets without extra costs. This reduction of cost for export would greatly benefit the Indonesian economy, especially since there will be extra money for funding agricultural promotion.

This new trade dynamics after the trade elimination would significantly affect the trade relations between Australia and Indonesia. In 2013, it was addressed by the Australian government department of foreign affairs and trade that their trade relations are still relatively low. This is because the total value of import from Indonesia to Australia was only 2.0% compared to the global scale.

I-A CEPA and Indonesia’s technological advancement

Lastly, I-A CEPA would be beneficial for the Indonesian agricultural industry’s development. In comparison to Indonesia, Australia’s technological advancement is way more developed. I-A CEPA does not only focus on trade liberalization, but it promised that Indonesia and Australia will work hand in hand to achieve technological advancement. I-A CEPA will ensure that the two countries will conduct the exchange of knowledge and technology in multiple ways. This is a great opportunity for Indonesia to receive technological aid from a developed country such as Australia. This is important for Indonesia considering the previous hindrance that are happening in the Indonesian agricultural industry. Indonesia is lacking an adequate technological equipment for the production of agricultural goods, and it is the priority of I-A CEPA to bring technological advancement.

 Aside from the importance of technological advancement for trade activities, the advancement that I-A CEPA bring will assist Indonesia to be more innovative when it comes to the agricultural aspect. This will help Indonesia unravel new ways to produce its goods and most importantly become more efficient in terms of duration. Moreover, this would also increase the livelihoods of farmers across Indonesia. Indonesia is still facing issues such as labor exploitation and problems of underpayment, but an increase in the technological aspect will contribute to the welfare of Indonesian workers and producers. Technological advancement would be important for Indonesia to maximize its production rate, considering the trade elimination that has been provided by the economic framework. This is because it would be useless for Indonesia if trade opportunities were expanded, but their capability of producing goods at an efficient rate is not yet possible. Lastly, this technological advancement with maximizing the potential of Indonesia as a global goods producer. Indonesia has been the key actor in sufficing the global need for crude palm oil. More technological advancement will expand Indonesia’s opportunities to find more markets for the agricultural goods that they produce.

In conclusion, the two countries’ effort in strengthening their economic relations has been moving into a new chapter. Considering their common goals and how they are complementary to each other, there is a need for establishing a framework that would govern their trade relations, in a way that it would ease the conduct of trade by reducing tariffs for better access to each other’s markets. Not only creating a better trade and economic environment but this framework is also committed to providing technological improvement. For Indonesia specifically, the benefits are a lot to count. Not only their trading relationship with Australia is more secure and low-cost, but Indonesia is also expected to see more improvement in its agricultural industry. The technological advancement of I-A CEPA will help Indonesia improve and promote its agricultural industry. The enhancement of technology will help Indonesia address several issues such as a lack of technology and labor-related issues. All in all, the analysis above has shown how the agriculture industry in Indonesia is in need of development and I-A CEPA brings not only development, but it brings prospects for the industry given that the trade tariffs have been eliminated.

Nicola Samuel Surah
Nicola Samuel Surah
Nicola Samuel Surah is a second-year student majoring in International Relations, at Gadjah Mada University, Yogyakarta, Indonesia. He is concentrated in International Political Economy and Development and is interested in specific areas such as sustainability, sustainable development, and Indonesia’s palm oil plantation development.