The plan, which Trade Minister Craig Emerson will discuss at the East Asian Summit in Phnom Penh this week, says short-term migrant workers with limited English skills should be allowed to enter Australia if they are accompanied by a skilled Indonesian supervisor. The approach is modelled on a scheme used in New Zealand to recruit farm workers from the Pacific Islands.
The agreement, reports The Australian Financial Review, says that labour shortages in parts of Australia are undermining economic growth and Indonesia's youthful population could provide a "dynamic workforce".
The proposal for a guest worker program is likely to be highly controversial, especially among unions, and illustrates the practical difficulty of establishing the closer economic integration with Asia advocated by the government's Australia in the Asian Century white paper.
The Australian Chamber of Commerce and Industry, the Indonesian Chamber of Commerce and Industry, the Indonesia Australia Business Council and the Australia Indonesia Business Council have agreed to the 100-page paper.
Two-way trade between Australia and Indonesia was worth about $14.8 billion in 2011. Forecasts say that Indonesia's economy will overtake Australia's economy at market exchange rates within a decade. Both countries concede economic ties have been underdone.
Dr Emerson and his Indonesian counterpart, Gita Wirjawan, are expected to discuss the business plan on the sidelines of the East Asia Summit. Dr Emerson declined to comment.
It is the first time since Australia began negotiating bilateral free-trade agreements that the business communities in the relevant countries have agreed on a detailed position on what they believe can be achieved before formal negotiations began.
Indonesian government officials have previously stressed that they want Indonesian workers to have access to Australia to help find jobs for their huge population and to improve the skills of Indonesians who would then return after working in Australia. Australian professionals would have easier access to Indonesian jobs.
Australian officials and business people understand they will have to make concessions such as in labour movement to overcome public concerns.
Other recommendations include reductions in trade restrictions, abolition of all foreign investment restrictions and harmonised health and safety standards.
The business groups say their agreement on many sensitive issues should help the governments negotiate faster than usual. They are hopeful of a deal by 2014.
Barriers to two-way people movement would be removed in agriculture, food processing, agriculture training, standard setting, mining, engineering, environmental management and skills development in mining, energy, engineering and the environment.
While Australia has secured easier access to Indonesia under its free-trade agreement with the Association of South-East Asian countries, there are still many complicated and overlapping regulations and procedures which hurt business in industries with great potential, including agriculture, food, mining and professional services.
The report tries to rebuild ties with Indonesia after last year's Australian ban on cattle exports by focusing on common standards, two-way investment in the meat supply chain and the use of Australian expertise to help develop Indonesia's cattle industry.