Indonesia pushes for Australia to import more palm oil and paper

06.03.2017

One of Indonesia's top trade officials has questioned whether "artificial" trade barriers are preventing Australia importing more palm oil, pulp and paper and wood products as the two countries negotiate a free trade deal to be concluded this year.

In an exclusive interview with Fairfax Media ahead of this week's Australian trade mission to Indonesia, Thomas Lembong said President Joko Widodo had been "revolutionary" in changing Indonesia's historical mindset of "insecurity and fear of globalisation".

Australia and Indonesia agreed to restore defence co-operation following a bilateral meeting between Malcolm Turnbull and Joko Widodo.

However, Mr Lembong, the chairman of Indonesia's Investment Co-ordinating board, said Indonesia had to acknowledge that its regulations – which "change very frequently and often with no prior notice" – were a big obstacle to investment and a big source of complaints for foreign and domestic investors.

During his visit to Australia last month, President Jokowi, as he is popularly known, said he had conveyed to Prime Minister Malcolm Turnbull some of the key issues in the free trade deal. The first was the removal of trade barriers – both tariffs and non-tariffs – for Indonesian products such as paper and palm oil.

"As you can imagine, as a country that is posting large and persistent trade deficits with Australia, we are especially motivated to look at opportunities to balance the trade," Mr Lembong told Fairfax Media.

"Certainly the products where we are extremely strong and extremely competitive would be, palm oil, pulp and paper products and wood products."

Mr Lembong said Indonesia wanted to make sure there were not artificial barriers or constraints to the export of these commodities. "In a way it's a bit of a test right? Why isn't that trade happening? We can talk goodwill all we want but ultimately we have to see concrete proof of unfettered and natural trade. If even the commodities in which we have the lowest cost, the strongest comparative advantage are not entering the Australian market, it feels like something might be wrong."

Palm oil is controversial in Australia because of its links to deforestation and the loss of orangutan habitat, with Independent Senator Nick Xenophon introducing a bill that would mandate the labelling of palm oil in all Australian foods.

The chairman of the Indonesian Palm Oil Board, Derom Bangun, said Australia imported more palm oil from Malaysia than Indonesia because Malaysia had started its industry earlier and its marketing was more aggressive.

He had read on the Internet there was resistance in Australia to importing palm oil from Indonesia in 2014-15 because Australia's production of other oils, such as soybean oil and cottonseed oil, exceeded its domestic needs.

Meanwhile, the Construction, Forestry, Mining and Energy Union has campaigned against "dumping" of paper products by Indonesia, Brazil, Thailand and China and called on the federal government to impose tariffs on imports.

An Austrade briefing for Australian exporters says Indonesia's "long-standing goal to reach self-sufficiency remains a top priority", with the country aiming to boost its farming capability production and value-added activities, while lessening commodity imports.

However, Mr Lembong said President Jokowi had pointed out on numerous occasions that globalisation was a reality. "I think the most revolutionary part of President Jokowi's impact has been … changing the mindset rather than this historic insecurity and fear of globalisation."

He said there were numerous examples of Indonesian companies thriving when exposed to competition, citing the example of the national airline. Garuda initially struggled when the opening up of the sector saw the number of airlines jump from three to 70, but in 2014 became one of just seven airlines to earn the prestigious 5-star rating from Skytrax.

Mr Lembong said he saw "tremendous opportunity" for Indonesia and Australia to work together in areas such as marine tourism, with Indonesia an untapped market for yachting and recreational boating despite its beauty and ideal climate. "Even if the amount of investment is small but if they create new industries like marine tourism and create thousands and eventually tens of thousands of high-quality service sector jobs then we should focus on those."

He had given Mr Turnbull examples of Indonesian tech companies that had received millions of dollars from the likes of Alibaba and said it would make sense for Australia to participate in Indonesia's digital boom. He also suggested Australia – which had a "strong advantage in management, design and systems" – could form consortiums with countries such as Japan, Korea and China and invest in Indonesian projects.

Mr Lembong said it "makes sense" for Australian universities to have a presence in Indonesia and he was "furiously analysing" what regulatory changes would be required to enable that to happen. "We think it would enrich the local university landscape and frankly conserve some hard currency in the process. So if for example someone could go to RMIT campus Jakarta rather than having to go to RMIT campus in Australia than those students would pay their tuition in rupiah and spend their living expenses in Indonesia."

Mr Lembong also championed using the free trade agreement to find ways for the countries to work together to raise Indonesia's standards in areas such as food safety and animal and plant health measures (sanitary and phytosanitary measures). Indonesian tropical fruit growers, for example, have often complained that Australia's import conditions make it extremely difficult to enter the market.

Mr Lembong said that in advanced countries regulations were stable for a long time and when they did change it was after lengthy periods of public consultation, which usually resulted in high quality regulations.

"Here, frankly, regulations change very frequently and often with no prior notice," he said. "So, it often leads to poor quality regulations, that come as a surprise and that makes business planning and long-term investment so much more difficult."

The Australian live cattle industry has often been buffeted by abrupt changes to import quotas to Indonesia and new rules such as a fixed ratio of breeder cattle.

Last month Indonesia announced import permits for live cattle would be extended from four months to one year and an increase in the weight and age limit of live feeder cattle. Mr Lembong said this and an agreement Indonesia would lower its tariff on Australian sugar to 5 per cent represented meaningful progress for both sides.

"But again I think we still have a long way to go," he said. "Indonesia has improved from ranking 106 to ranking 91 in the World Bank's ease of doing business [index]. But it is still a lousy 91 out of 180 countries. And we are a G20 economy which shows you how much further we still have to go to improve our business climate. I think deregulation, rationalising and modernising regulation is almost a cost free way to grow the economy. That's why I actually think it is very smart of President Jokowi … to start on reform right away."


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