Australia's 'pro-Israel' stance stalls billion dollar Indonesia trade deal

Australia's 'pro-Israel' stance stalls billion dollar Indonesia trade deal
A key trade agreement between Indonesia and Australia has been delayed following Canberra's indication that it could recognise Jerusalem as Israel's capital.
2 min read
13 November, 2018
Canberra's position on Jerusalem could trigger a backlash in Indonesia [Getty]

Australian Prime Minister Scott Morrisson has expressed uncertainty about the future of a huge free trade agreement with Indonesia, which could be threatened due to indications that Canberra could recognise Jerusalem as the capital of Israel.

The trade deal was due to be finalised by the end of 2018, however, relations with Indonesia - the world's most populous Muslim-majority country - encountered difficulties after Morrison signalled that Australia could follow the US and move the country's embassy in Israel from Tel Aviv to the contested city of Jerusalem.

Morrison on Monday attempted to dispel speculation about the deal's delay, saying that he would brief Indonesian President Joko Widodo on Australia's position at upcoming international conferences.

"The intention was the trade ministers would be able to deal with that by the end of the year, but there's no hurry," Morrison told Bloomberg.

"Australia doesn't conflate these issues," he added, referring to the possible embassy move and the free trade agreement.

Speaking to Sky News, Morrison added that he would emphasise Australia's "100 percent commitment" to a two-state solution for Middle East peace.

Although Australia has attempted to separate the two issues, Indonesia has openly objected to Australia's signalling of a possible embassy move in October and tied the signing of the deal with Canberra's position on the Jerusalem issue.

"It (the FTA) can be signed anytime, but when you will sign it... depends on Australia's position" on the embassy issue, Indonesian Trade Minister Enggartiasto Lukito told reporters this week.

Indonesian Foreign Minister Retno Marsudi also "stressed that if Australia insists on moving its embassy to Jerusalem, the signing will be delayed", Lukito added.

The trade agreement would allow 99 percent of Australia's merchandise exports to enter Indonesia either under significantly improved preferential terms or duty free, while all Indonesian goods exports would enter Australia duty free.

Businesses in both countries have attempted to push the deal through, however fears have risen over a possible backlash in Indonesia over Australia's position on Jerusalem.

If Canberra moves its embassy to Jerusalem, it would follow in the steps of President Donald Trump's administration, which turned its back on decades of US policy last December by recognising Jerusalem as Israel's capital. In May, it moved the US Embassy from Tel Aviv to the disputed holy city.

The decision angered the Muslim world and was seen as setback for Palestinian aspirations for statehood.

Palestinians see east Jerusalem, captured by Israel in the 1967 war, as the capital of a future independent state.