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September 9, 2008

Indonesia-Australia-New Zealnd Trade:
Indonesia calls for service market opening

Indonesia has proposed the liberalization of professional and service sectors in Australia and New Zealand under the free trade agreement (FTA) between the two countries and Asean members, reported local daily the Jakarta Post.

Gusmardi Bustami, Trade Ministry director general for international trade cooperation, said the government had asked the Australian and New Zealand governments to open up their service and professional sectors.

"We demand liberalisation of the service sector, including finance, banking and the professional sectors such as accountancy, nursery and construction," he said over the weekend.

The 10-member Asean concluded the FTA with Australia and New Zealand on August 28 in Singapore, during an annual ASEAN economic ministers meeting.

The Singapore agreement will provide the framework for more detailed discussions between the two countries and each ASEAN member state, with the official signing expected in December.

Gusmardi said that the Indonesian, Australian and New Zealand governments would have more talks to further determine which particular fields in the two sectors "will be opened up for us."

The FTA, which has been negotiated since 2003, will open free access for trade in goods, investment, financial services, telecommunications, electronics, commerce, movement of natural
persons, intellectual property, competition policy and economic cooperation between the Asean region and the two countries, by next year.

As part of the pact, Indonesia will have greater access to the workforce industry overseas, says Chatib Basri of University of Indonesia's Institute for Economic and Social Research (LPEM-UI).

"Labor costs in Australia and New Zealand are high," he said.

"Therefore, our nurses, accountants and architects, who have qualifications equal to those in Australia and New Zealand, will be more competitive there, once the FTA is implemented."

Chatib however admitted it would be very hard for the two nations to fully accept Indonesia's proposal. "It is very common for a developed country not to liberalise its professional sector
because of fear of being flooded by migrant workers."

In addition to the liberalization of service and professional sectors, Indonesia has also asked for zero tariffs on certain items.

"We've asked for total elimination of import duties on Indonesian goods, including food, footwear, textile and furniture, sooner than 2010," said Gusmardi.

Indonesian-made textile, apparel and footwear are at present subject to between 10 percent and 19 percent import duties in Australia and New Zealand, although duties on food and furniture
are already "quite low", Gusmardi added.

In return, Australia wants Indonesia to open up its automotive market, while New Zealand seeks zero duties on its beef and dairy products sold in Indonesia.

"We said OK to Australia, but we'll bring to zero our tariff barriers in the automotive sector in stages. As for New Zealand's request, we'll be able to start reducing import duties on beef and
dairy products in 2020," he said.

Indonesia imposes import duties of an average 5 percent on beef and dairy products, on products covered by around 12 tariff lines.

Referring to proposals for trade in goods from the respective countries, Chatib said Indonesia's textile and footwear should perform well in Australian and New Zealand's markets.

"Indonesia is more competitive than Australia and New Zealand in labor-intensive industries, as the two countries have higher labor costs.

"For Indonesian food products, however, Australia and New Zealand should also lift their non-tariff barriers concerning sensitive health issues."

The bulk of Indonesian fruit and vegetable products are usually ruined before being brought to market as they have to first undergo "a week-long, strict quarantine" inspection as part of
safety measures adopted by the two countries, Chatib said.

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