Free trade agreement with Indonesia a long time coming - Speech, House of Representatives

HOUSE OF REPRESENTATIVES, 21 OCTOBER 2019

Selamat sore to those listening to this debate on the Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2019. When I was anak kecil I lived in Indonesia for three years. My father, Michael Leigh, was at Syiah Kuala University in Banda Aceh, funded by the Australian government to work in a special training program designed to improve social science research capability throughout Indonesian universities and Islamic institutes.

My mother, Barbara, was mostly looking after my brother, Tim, and me but also began the research into the Indonesian education system that became her PhD thesis, and wrote a book on traditional Acehnese textiles, Tangan-Tangan Trampil, or The Hands of Time.

Living in Aceh was a pretty extraordinary experience for an Australian boy to have. I attended the local school, where lessons were conducted in Indonesian and, where, in the face of a burgeoning Acehnese independence movement, we spent a large portion of the day singing nationalist songs to remind us all that we were Indonesian first and Acehnese second. The Suharto government was keen on that. We then played in the muddy playground—as the only white kid in the class, I was the only one whose white shirt had turned completely brown by the end of the day. My friend Niko Fahrizal and I would explore the local neighbourhood, playing by the river, watching the bigger kids at the volleyball nets, watching Scooby Doo at Niko's place. Niko is now an officer in the Indonesian military. When my mother, Barbara, visits, he calls her tante—auntie—Barbara.

We were following the many Australians who engaged with Indonesia in the immediate decades after independence. They were an extraordinary group of people. Herb Feith, who created Australian Volunteers Abroad, believed that volunteering was 'symbolic of human equality'. I still remember Herb's enthusiasm for Indonesia—the way he would energetically share his ideas with everyone, from President Sukarno down to a little child like me. Herb's subsequent PhD thesis was dedicated to his friend Djaelani, a Jakarta servant who lived in one of the city's many slums. When I speak to young Australians looking to volunteer in South-East Asia, I encourage them to read Jemma Purdey's biography of Herb Feith before they go.

But those Indonesia experts didn't believe in just helping our large neighbour after independence. They also believed Australia had to get out our policies right. Jamie Mackie helped draft Control or Colour Bar? and organised street protests against the White Australia policy. My father was among those who marched from Melbourne university, between tight rows of police officers, to campaign to scrap that policy. In the 1980s, thanks in part to the repeal of that policy, Chusnul Mariyah came to live with our family for several years while she wrote her PhD thesis—on the topic of Australian local government corruption, as it happens. My brother, Tim, and I still refer to Chusnul as our Indonesian big sister.

The arc that the Indonesian economy has taken over the past two generations is superbly traced out in a recent article by the Australian National University's Hal Hill. He noted that, while growth rates have moderated in the post-Suharto era, Indonesia has benefited from sound macroeconomic management, economic openness, inclusive social progress and institutional development. Indonesia still faces significant challenges; my own economics research with Pierre van der Eng on Indonesian inequality shows just one of those challenges. But, for all the challenges it faces, Professor Hill’s major conclusion is one of development success, broadly defined.

Yet, when it comes to Australia and Indonesia, we've too often neglected our relationship with what Hal Hill calls 'Asia's third giant'. Indonesia is a G20 nation with 10 times Australia's population and enormous diversity. It is the largest Muslim nation in the world. Indonesia and Australia have worked together in countless international forums to secure a more prosperous and peaceful region. But, between our two countries, we've got too little economic activity: just two per cent of Australia's exports go to Indonesia. There are too few interpersonal connections. We need a relationship based on more than batik, Bali and Bintang.

This free trade agreement with Indonesia has been a long time coming. Negotiations began under the Gillard government in 2010, restarted in 2016 and concluded in 2018. The signing process was then derailed for a time, when Prime Minister Morrison suggested that Australia might join Guatemala and the United States as the only two countries in the world placing their embassies in Israel in Jerusalem. We did eventually get there, and it's a good thing that we did.

This is a bilateral agreement, a preferential trade agreement, and therefore not the best way of achieving trade liberalisation. Multilateral agreements are preferable; next after that, large plurilateral agreements; and then bilateral agreements. Businesses recognise this. According to the latest Australia's International Business Survey, just seven per cent of businesses identified such agreements as a key reason for choosing their first overseas market.

The strength of the relationship is certainly there on the Indonesian side. You only have to go through some of the stars of Indonesian politics who have spent substantial periods in Australia: Chatib Basri, known as Dede, Indonesia's former finance minister; Mari Pangestu, the former trade minister; former Vice-President Boediono; and Marty Natalegawa, the former foreign minister. The first cabinet of President Widodo included Pratikno, who is the Minister of State Secretariat, and Airlangga Hartarto, the Minister of Industry, both of whom had studied in Australia -- at Flinders University, Monash University and Melbourne Business School.

On the Australian side, too few Australians have a deep understanding of Indonesia. When I was born in 1972 there were more Australian school students studying Bahasa Indonesia than there are today, despite the fact that Australia is much bigger than it was. That costs us in multiple ways. Language isn't just a communication tool; it is also a window into the culture. While I've forgotten much of the Bahasa I knew as a child, it is something I will use with my three little boys. When we're out at a restaurant and someone says their food is too hot, we'll have a conversation about whether they mean 'panas', meaning scalding, or 'pedas', meaning spicy. Sometimes English lacks the right adjective, and Indonesian can step in to fill the void.

As Santo Darmosumarto, director of the East Asia and Pacific division of Indonesia's foreign ministry, said:

For a long time we have looked north; to Japan, Korea and China, and so has Australia, but in both looking north we have missed each other.

The recent Asialink report, Match fit: shaping Asia capable leaders, found that at least eight out of 10 large Australian firms are inadequately equipped to do business in Asia. What is vital for Australia is to plug into those services supply chains in Asia. There are significant benefits of this free trade agreement on the goods side. Australian farmers will be able to export half a million tonnes of grain a year into Indonesia tariff-free, which especially matters given that Indonesia is Australia's largest wheat export market. The tariff on cattle will be eliminated. The tariff on steel will be reduced from 15 per cent to zero.

The real long-term importance will be in assisting Australia's businesses to plug into the services supply chains in Asia. Australia's vocational education and training providers will be able to establish ventures in Indonesia with up to 67 per cent Australian ownership. That's vital, given that Indonesia's industrial sector will need around 600,000 new skilled workers every year. Australian VET providers will be able to step up to the provision of high-quality in-country programs, including train–the-trainer teaching models and models that combine online education and in-person education. If it is to achieve the population-to-care ratios recommended by the World Health Organization, Indonesia needs to train around a million new nurses over coming years. Australian education and healthcare providers could work with Indonesia on that important services export. There are important opportunities in allied health care, social services companies and professional services firms in areas like waste, water and infrastructure.

We also know that Indonesia is targeting 23 per cent renewable energy by 2025, up from just 12 per cent currently. Indonesia is working on ensuring greater reliability while moving towards cleaner power supply to reduce both carbon pollution and the direct impacts of poor air quality. In this vein, an ANU Grand Challenges project funded last year, Zero-Carbon Energy for the Asia-Pacific, is going to be an important piece of Australia's energy engagement with Indonesia. Among the academics involved in that project are Ken Baldwin and Emma Aisbett, as the joint leads; Chief Operating Officer Karen Warnes; Dr Matthew Stocks; Dr Fiona Beck; Associate Professor Paul Burke; Dr John Pye; and Associate Professor Janet Hunt.

They are working on proposals, such as exploring why Indonesia needs climate finance for its energy transition and new opportunities to grow Indonesia's solar sector. The engagement with Indonesia on the services trade front will only grow in coming years.

In supporting this trade agreement, I am following in a long and distinguished line of Labor members of parliament who have argued the case for Labor as the party of trade liberalisation. Open markets are simply an extension of comparative advantage. Just as most of us don't fix our own cars, cut our own hair or make our own clothes, so too it makes sense for Australia to specialise in what we do best. As a country that constitutes just 0.3 per cent of the world's population, it naturally makes sense for us to focus on our comparative advantages. And in so doing we don't get beaten by the rest of the world. Trade isn't a zero-sum game, like the Olympics or the Eurovision Song Contest. Trade is an opportunity for us to get the gains from comparative advantage and from specialisation.

Within the Labor legacy this was first and most strongly recognised by the Whitlam government, with its 25 per cent tariff cut in 1973. It was then recognised by the Hawke and Keating governments, which significantly reduced Australia's tariff levels. Those tariff cuts, brought about through the 1980s and 1990s, delivered almost $4,000 a year into the pockets of the typical Australian household. This meant, in practical terms, that high tariffs, which had been over 100 per cent in the 1970s and which were still around 40 per cent in the early 1990s, were brought down on products such as cars, clothing and shoes.

When I wrote a book called Choosing Openness, I calculated the cost of a pair of children's shoes in 1987 and again in 2017. I found that children's running shoes had gone from $10 in 1987 to $9 in 2017 and that men's workboots went from $28 to $34. Given that wages had tripled over that period, that meant the amount of time that a typical worker needed to work to buy a pair of children's shoes had gone from 44 minutes to 13 minutes. And when I looked at cars, I found that the price of a base model Corolla had gone from $12,000 to $20,000 over that 30-year period. That meant that the amount of work required to buy a Corolla had fallen from six months work to three months work.

Those changes were progressive; the cuts in tariffs delivered more in proportional terms to low-income households than to high-income households. That's why, when Australians were asked by the Lowy Institute poll this year whether they believed that free trade is good or bad for their own standard of living, 75 per cent said it was good. It is why there is such a risk to Australia if we follow down the road that too many countries are on towards narrow, tribal nationalism. Labor's commitment to free trade has not been an ideological one; it has been a practical commitment, recognising that the benefits of trade flow most strongly to the most vulnerable.

I want to commend the shadow minister for trade for the vital work that she has done in ensuring that this agreement backs Australian jobs and that significant concessions were achieved from the government to ensure that this agreement, like past free trade agreements that Australia has supported, is in the interests of the Australian economy, Australian households and Australian jobs.

ENDS

Authorised by  Paul Erickson, ALP, Canberra.


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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | Andrew.Leigh.MP@aph.gov.au | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.