Australia and Indonesia have signed a trade deal designed to boost relations between the two countries and make selling goods easier for businesses.

The agreement was reached in Jakarta this week and must now be ratified by parliaments in both nations, as well as subjected to an inquiry by the Australian treaties committee.

This is the first major agreement Indonesia has signed and Australian trade minister Simon Birmingham said it would allow 99 per cent of Australian goods to enter Indonesia duty-free or under more preferential arrangements.

Import licences, which have previously been a major frustration for Australian exporters, will also be simplified under the new rules.

Meanwhile, Australia will eliminate all tariffs on Indonesian imports and relax country of origin requirements for Indonesian cars.

Both the Business Council of Australia and National Farmers' Federation have welcomed the news.

The trade deal was supposed to be signed last year, but a diplomatic spat concerning the movement of Australia's embassy in Israel delayed it.

Indonesia is predicted to be the world's fifth-largest economy by 2030 and has a population of 270 million.