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ndonesia and Australia have agreed to begin negotiations to create a framework for a comprehensive economic partnership agreement (CEPA) to further enhance trade and investment exchanges between both countries.

The formal nod to start the negotiations was made after a bilateral meeting between President Susilo Bambang Yudhoyono and Prime Minister Julia Gillard at the state palace on Tuesday.

“To accommodate the interests of both countries we agree to establish a comprehensive economic partnership to enhance bilateral trade,” Yudhoyono told a press conference.

The scope of the proposed partnership is much broader and more strategic than a traditional free trade agreement, as it seeks to bring the two economies closer together, covering investment and industry cooperation, dealing with “behind the border” issues that frustrate business and delivering significant capability transfer initiatives.

Prime Minister Gillard said the partnership would cover a full range of economic issues “that bring our countries together, including investment, business-to-business and capacity building.”

According to Trade Ministry data, Indonesia’s trade with Australia increased from $4.8 billion in 2005 to US$8.1 billion in 2009. However, despite the increasing trade value, Indonesia has recorded a continuous trade deficit with Australia, which stood at $0.3 billion in 2005 and $0.17 billion in 2009.

The data also reported that in the last five years Australian investment in Indonesia totalled $79.7 million, making Australia Indonesia’s 12th largest foreign investor.

Indonesian Coordinating Economic Minister Hatta Rajasa said that even though both countries had the potential to enhance their trade relationship, the Australian economy was more developed than Indonesia’s.

“Thus, a bilateral framework has to be nurtured for a more comprehensive [cooperation] that can provide a balance of mutual benefits,” he said.

Adding to that, Trade Minister Mari Elka Pangestu said that to achieve mutual benefits, cooperation should not only aim to enhance the economy and expand the market, but also facilitate the flow of goods and services, and pioneer strategic cooperation in some sectors, such as agriculture.

The Australia Indonesia Business Council (AIBC) welcomed the announcement. The AIBC’s Indonesia Perceptions surveys have consistently found that while the economic relationship between the two nations is good, it can be improved.

A CEPA provides an opportunity to identify and remove barriers to trade and investment and deepen the bilateral economic partnership, and now is the right time for our countries to enter into negotiations, AIBC National president Chris Barnes said.

“The opportunities are enormous for Australia to position itself to take advantage of the strong future growth outlook for Indonesia,” Barnes said. (map)