Indonesia-Australia FTA Feasibility Study - Background Paper for Industry Consultations
17 October 2007
- Australia has a substantial trading relationship with Indonesia. In 2006-07, two way merchandise trade totalled $8.8 billion, making Indonesia our thirteenth largest merchandise trading partner.
- Merchandise exports to Indonesia reached $4.2 billion in 2006-07. Major exports include wheat; crude petroleum; live cattle; unwrought aluminium; cane sugar; alumina and cotton. Services exports were valued at almost $840 million in 2006, with education the single biggest item.
- Merchandise imports from Indonesia were valued at $4.6 billion in 2006-07. Substantial imports included crude petroleum; filtering equipment; gold; television receiving apparatus and other electronic equipment; wood and iron ore. Services imports were valued at $564 million in 2006, with personal travel services (other than education) the biggest single item.
- In 2006, Indonesia’s average tariff was 9.5 per cent. However, some Australian exports to Indonesia, such as sugar and motor vehicles and parts, face much higher tariffs. In addition, Australian companies experience inconsistent rules and regulations in exporting goods to Indonesia.
- There are significant barriers to some categories of services exports to Indonesia. Indonesia ranks among the more restrictive ASEAN economies for legal services and accountancy. There remain impediments to financial services and telecommunications services which are of concern to Australian industry.
- Australia’s tariffs on imports from Indonesia averaged just under 3.3 per cent in 2006. There are, however, higher tariffs in some areas, most notably textiles, clothing and footwear and passenger motor vehicles and parts, though Australia’s tariff peaks are significantly lower than Indonesia’s.
- Both countries support stronger investment links. Australian direct investment in Indonesia amounted to $1.5 billion at the end of 2006, well below investment in some other East Asian economies. Indonesian investment in Australia is quite limited.
- A free trade agreement (FTA) with Indonesia would need to address comprehensively impediments to trade in goods and services, as well as investment. It would also need to address other areas of importance to two-way trade and investment, including a range of non-tariff barriers.
- An FTA would need to include clear rules of origin (ROO). A product specific approach based primarily on Change of Tariff Classification (CTC) is used in three out of the four FTAs to which Australia belongs.