Indonesia-Australia Business Conference Tuesday 17 November 2015 AEC and IA-CEPA The AEC comes into effect on 1 January 2016 creating the world s 7th largest economic bloc with a combined GDP of US$2.4 trillion. What will change? What does this mean for employment, trade and investment? What role does the proposed IA-CEPA play in this context? Are long-standing Bilateral Investment Treaties to be ignored? NOTE: Simon Merrifield will speak first and cover the AEC and RCEP. You will cover the IA-CEPA, AANZFTA and bilateral investment treaty. Australia and Indonesia both have much to gain from a strong trade and investment relationship. This potential goes beyond our proximity and size, as our two economies have many areas of complementarity. Despite the challenges that arise, our governments are working together to help realise this potential. Our negotiation of bilateral and regional economic partnership agreements is central to those efforts and a key plank of Australia s economic diplomacy agenda. Steven Barraclough, Minister-Counsellor (Economic, Economic Governance and Infrastructure) at the Australian Embassy Jakarta will look at the opportunities created by these agreements. What are the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) negotiations,as well as the existing ASEAN-Australia-New Zealand FTA (AANZFTA) and our Bilateral Investment Treaty (BIT), intended to achieve?what do these agreements mean for business, and how can business get the most out of them? Introduction. Ibu-ibu dan Bapak-bapak yang saya hormati. Selamat pagi dan salam sejahtera bagi kita semua.. I am delighted to join you in one of my favourite cities to share my views about how we the Australian Government are helping to enable stronger business ties - My position as Minister Counsellor in Jakarta is a new one, established explicitly with the goal of boosting our economic diplomacy efforts - I am also pleased to continue the long association between the Department of Foreign Affairs and Trade and the Indonesia-Australia Business Council.. Ambassador Merrifield has already spoken about the ASEAN Economic Community (AEC) and Regional Comprehensive Economic Partnership (RCEP). I willfocus more closely on our bilateral economic relationship.
. Australia and Indonesia both have much to gain from a strong trade and investment relationship - we are the two largest economies in Southeast Asia and we are both among the largest 20 economies in the world - but the potential for our economic relationship goes beyond our proximity and size, as our two economies have many areas of complementarity o Indonesia, as we all know, is an enormous market with a growing industrial and manufacturing base o Australia has world-leading resources and services sectors and a highly skilled (but also high cost) workforce - It seems self-evident that two such large, close and complementary economies should be important economic partners.. If I can be frank, however, we still have some way to go towards realising the full potential of our bilateral economic relationship - Indonesia is Australia s 12 th largest trading partner overall o and only our 4 th largest trade relationship in ASEAN - our two-way investment stocks arebelow other comparable partners - these numbers should be better.. I m not going to explore the possible reasons for this today - as business practitioners of the relationship, you will understand this better than I do.. Instead, as an Australian trade official I would prefer to look at what our two governments can do, and are doing, to help you build this relationship.. In particular, I want to talk about the opportunities created by IA-CEPA negotiations as well as the existing AANZFTA and bilateral investment treaty.
IA-CEPA. One of the priorities of our economic diplomacy with Indonesia is to conclude a comprehensive economic partnership agreement known as IA-CEPA.. As our gracious IABC hosts have mentioned in this conference, business works within an operating environment largely created by governments - it is our goal to make that operating environment as efficient and welcoming as possible on both sides.. Our two governments have committed to pursue a high quality and mutually beneficial economic partnership agreement that will expand our trade, investment and economic cooperation relationship - what does this mean?. Fortrade, it means deepening and binding tariff commitments and improving conditions for business - reducing tariffs helps everyone: good for consumers and domestic producers who rely on imported inputs - similarly, agreeingnew services rulesenables services suppliers to provide innovative services in our respective markets - binding such commitments in a new agreement reduces the scope to unwind them at a later point.. Forinvestment, it meansimproving the predictability and transparency of our investment environments - time and time again we hear from investors that the rules aren t the problem:business can adapt when it knows what is required o it is the uncertaintyabout how the rules are implemented and changed that causes headaches - we will aim to rein in regulatory uncertainty with new investment disciplines.
. Our pledge to expand economic cooperationmeans we will work with Indonesia to strengthen its regulatory capacity, expand its skills base and help improve productivity - this is not a normal approach for bilateral negotiations, but reflects that IA- CEPA is intended to be a genuine partnership.. To be a useful agreement, IA-CEPA must address the needs of business - this is why input from Australian and Indonesian business groups has been invaluable - I ll let Bryan talk more about the Indonesia Australia Business Partnership Group, but I want to assure you that we take business stakeholder engagement very seriously - the Partnership Group s recommendations have formed the basis of IA-CEPA discussions to date.. The IA-CEPA won t fix everything in our trade and investment relationship: far from it - but our goal will be to improve some of the conditions under which you all do business - and to help unlock further opportunities for economic partnerships between our two countries.. Quality takes time: the IA-CEPA negotiations will take a lot of hard work - there is no doubt that there will be some difficult discussions on both sides and some who will oppose any agreement - but we will persevere because it is too great an opportunity to let go.
AANZFTA. Amid all the interest in the RCEP and IA-CEPA negotiations, andpresident Widodo s announcement that Indonesia intends to join TPP, we shouldn t forget that Australia already has a comprehensive FTA with Indonesia.. The Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (or its wonderful acronym,aanzfta) is one of Australia s most ambitious trade deals to date - it was Australia s first multi-country FTA - it was ASEAN s first FTA covering all sectors (including goods, services, investment, intellectual property, e-commerce, temporary movement of business people and competition) simultaneously - it remains the most comprehensive FTA that ASEAN has ever negotiated.. More importantly, AANZFTA delivers real commercial benefits for Australian and Indonesian traders and investors. It has locked in serious tariff reductions - significant given Indonesia is currently looking to raise tariff barriers.. Its RegionalRules of Origin (ROO) enhance Australia s and Indonesia s ability to tap into global supply chains - for example, an Indonesian car that uses Australian components can now be traded to Malaysia using AANZFTA preferences.. Itoffers greater predictability for service suppliers and investors - including legal protections for investment and Investor-State dispute Settlement provisions.. Importantly, AANZFTA is a forward-looking FTA with substantial built-in agendas and review mechanisms - gives us a platform to update and improve the agreement, explore economic cooperation and discuss trade and investment irritants.
. As with any new agreement, AANZFTA has had its teething problems - on the positive side, this shows it is being used - we are committed to improving our implementation of the agreement, so encourage feedback from business. Bilateral Investment Treaty. Australia s Bilateral Investment Treaty (BIT) with Indonesia, signed in 1992, also remains in force - often overlooked as many of its terms have been superseded by the AANZFTA Investment Chapter - but it contains substantial protections andinvestors should be aware of it.. The BIT contains range of core investment protections, including: - protection against expropriation by the state; - permission to freely transfer investment capital and returns - guarantee of fair and equitable treatment ; and - permission for investors and key personnel to visit for investment purposes.. Importantly, the BIT also empowers an investor to initiateinternational arbitration directly with a host government over a dispute relating to their investment.. These are not meaningless rights: the central provisions of our BIT have been subject to international arbitration.. Indonesian Government is no longer renewing investment treaties as they fall due, but Australia s treaty will not expire until 2023 - even at that point, existing Australian investors in Indonesia will be guaranteed an additional 15 years of protection if the treaty is not renewed.. Key take-away: if your lawyers are not across these provisions, tell them they should be!
How can business make the most of these Agreements?. Any trade agreement is only as good as the use that business makes of it - importers need to claim trade preferences - and investors need to know their available protections in order to assert them.. This is where you all have a role to play. You can get the most out of AANZFTA, the BIT and agreements like them by knowing their terms, or at least ensuring your lawyers and freight handlers do - regulators are often unfamiliar with preferential FTA rules until a business asserts them - many businesses have found that small changes to their production processes make them eligible for improved tariff treatment - and we have seen investors restructure their investments on paper to gain access to new rights and protections.. If you are unsure, ask - the DFAT website has guidelines on how to use Australia s FTAs - and we have dedicated trade officers who can handle enquiries. Conclusion. The rest of our region, and indeed the world, is not standing still on trade and investment liberalisation - there have been some significant developments in recently concluded agreements including most recently the TPP - often these developments reach beyond what earlier regional agreements have done, in particular on services and investment. These new Agreements will no doubt attract new trade and investment to their participating countries
- this is a good thing, but of course it carries the riskthat countries that don t maintain attractive business environments may find investment capital and trade passing them by - we are working hard to avoid being left in the slipstream of developments elsewhere for the benefit of our economies as well as your interests as traders and investors.. The test for all of our ongoing negotiations whether for the RCEP and IA-CEPA or on our existing agreements like AANZFTA and the BIT will be whether businesseslike yours find the agreement commercially meaningful - we have a good track record on this - our existing FTAs with regional partners - such as AANZFTA, MAFTA, SAFTA and TAFTA - all have high utilisation rates (note: means a high proportion of bilateral trade is carried out under these Agreements) - but businesses and investors like you, as well as new businesses that are yet to follow in your footsteps, will be the ultimate judges.. We know you will be tough judges as you should be and that we will have some challenging negotiations ahead on the IA-CEPA, RCEP and the AANZFTA inbuilt agenda - I would encourage you to keep involved in these processes by reminding both governments of what you need out of these agreements - I m convinced the challenge is worth it - as with this challenge comes significant potential benefits for both Indonesia and Australia and everyone in this room if we get it right.