Indonesia-Australia CEPA Expected to Be Signed in March 2019

Negotiations related to the IA-CEPA started back in 2010 and were finalized in August 2018 (and at some points in these years negotiations between both sides were stopped altogether amid diplomatic tensions). However, actual signing of the free trade deal was postponed beyond 2018 because in October 2018 Australian Prime Minister Scott Morrison said Australia is considering to recognize Jerusalem as the capital of Israel and to move its embassy to the holy city.

Morrison's comments prompted concern and criticism, especially from Arab countries and other countries with big Muslim populations, including Indonesia. Various ambassadors said Australia's plans could disturb the peace process, while they also warned that relations between Australia and Arab countries (or Islamic countries) could be negatively affected by moving the Australian embassy to Jerusalem. Indonesian Foreign Minister Retno Marsudi immediately responded saying Indonesia strongly opposes the move.

A final decision in December 2018 shelved plans to immediately shift the Australian embassy but the country did recognize West Jerusalem as Israel's capital.

In the January-November 2018 period, Indonesia had a USD $2.85 billion trade deficit in terms of Indonesia-Australia trade, improving from a USD $3.31 billion deficit in the same period one year earlier.

Recent Diplomatic Tensions Australia-Indonesia

• The "2013 spying scandal" occurred in 2013 when allegations were made that the Australian Signals Directorate, which is an intelligence agency in the Australian Government Department of Defense, attempted to monitor activity on the mobile phones of then-President Susilo Bambang Yudhoyono, his wife and several senior government officials.

• Another major diplomatic fallout occurred when - despite Australia's pleas for clemency - Indonesia executed two Australian citizens (members of the so-called "Bali Nine" drug trafficking ring) in May 2015.

• In mid-2015 Australian live cattle exporters objected strongly when Indonesia imposed barriers on cattle imports from Australia, slashing total cattle imports by 80 percent. The Indonesian government made this move in a bid to enhance self-sufficiency in beef. However, the decision actually led to soaring local beef prices and good gains for the so-called "beef mafia" (which refers to certain groups that deliberately hold on to the beef supply in order to let prices raise before selling beef).

• In early 2016 Indonesian officials said Australia is not doing enough to help refugees in the Asia-Pacific region.

• In October 2018 Australian PM Scott Morrison said the Australian government considers to recognize Jerusalem as the capital of Israel and to move its embassy to the holy city.

For in-depth stories, we refer you to our monthly research report. This report provides detailed analyses of economic, political and social developments that have occurred in Indonesia over the past month.

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