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Indonesia unwilling player in global FTA
game
By Bill Guerin
A year
ago Indonesia's debut into the free-trade era took place
when it opened its markets to the ASEAN Free Trade Area
(AFTA).
The landmark event, on January 1, 2002,
was notable mainly for the silence of the government
that had preceded the move, and the apathy of the people
and business community. Public ignorance of AFTA
prevailed.
One year on, the six founding members
of the Association of Southeast Asian Nations reiterated
their commitment to opening up their national economies
when, on January 1 this year, they cut their tariff
barriers on major products to between zero and 5
percent. The five other countries are Brunei, Malaysia,
Singapore, the Philippines and Thailand.
The six
signatories of AFTA had agreed in 1992 to reduce tariff
barriers to these levels by 2008 but the timetable was
moved forward to this year in response to the rapid
introduction of free-trade initiatives around the globe.
The newer ASEAN member states, Vietnam, Cambodia, Laos
and Myanmar, have been given longer to ready themselves
and will come on board some time between 2006 and 2010.
In Indonesia labor organizations and members of
the Indonesian Business Association (Apindo) have joined
forces and are threatening a general strike if the
recent fuel, power and telephone tariff hikes are not
withdrawn. They contend that hundreds of businesses will
fold, and hundreds of thousands more will be thrown out
of work if these rises go through. The anti-AFTA
elements see the hikes, and those still in the pipeline,
simply as proof that the government is more concerned
about the country's global position than the welfare of
its people.
Some schools of thought put this
demonstrable anger and despair down to a lack of
"socialization" by the government. They note that there
is little public awareness of the importance of AFTA and
the government is said to have failed to communicate
with the public on the theoretical opportunities AFTA
offered Indonesia.
Former president Suharto
championed the cause of AFTA from the outset. From the
time of the first ASEAN summit in 1976 he was its
strongest protagonist. Domestic political stability at
home and the country's business conglomerates sustained
Suharto's grand vision of economic development or
otherwise, gradually geared up to expand their horizons.
After Suharto fell from power in 1998, his
successors have lost a lot of the respect and kudos for
Indonesia that came with the rapid enlargement of ASEAN
in the past few years.
A new collective
leadership marks the end of Indonesia's dominant role
under Suharto and the dearth of publicity about AFTA in
Indonesia has allowed domestic free-trade critics trying
to protect their industries to steal the moral high
ground. Hardly surprisingly, opposition to free trade
has come from business and labor groups.
The
increased levels of competition spawned by AFTA opens
the door to bankruptcy for inefficient companies that
have been hiding behind protectionist barriers.
The recent threat of terrorism may do more than
mutual economic interests to speed up progress toward
common goals in a regional body that came into being
almost unannounced. Indonesia, however, has little, if
any, prestige left.
After the terror attacks of
September 11, 2001, the United States, the region's
largest trading partner, and the West generally began to
pay much more attention to Southeast Asia. Washington
courted President Megawati Sukarnoputri, as the leader
of the world's most populous Muslim nation, but it took
the tragedy of Kuta Beach to bring Indonesia into the
fight against terrorism.
Prevarication cost
Megawati, and thus Indonesia, their long-held leadership
in ASEAN and the chance to speak from that position of
power when negotiating with their ASEAN neighbors.
Malaysia, Singapore, the Philippines, and even
Thailand gained US and regional respect for their harsh
actions against alleged terrorist organizations
operating in their territories.
Minister of
Industry and Trade Rini M S Soewandi has been consistent
in her belief that AFTA is a great opportunity for
Indonesian industries to boost their competitiveness and
efficiency on order to win against the tight competition
in a group of countries that produce similar products.
Indonesia by January last year had already cut
import tariffs on more than 90 percent of the 7,137
products in the AFTA inclusion list to 5 percent or
lower. Tariffs on the remaining 69 products, mostly
chemical and plastic products, were kept above 5 percent
but these were reduced to 5 percent or lower on January
1 this year.
Rini, as onetime chief executive
officer of Indonesia's biggest auto maker, Astra
International, has been unable to secure similar
protection for the Indonesian automotive industry as
that granted to Malaysia. Kuala Lumpur has won
protection for its national car, the Proton, against
imported vehicles until 2005.
Some sectors have
been looking forward to AFTA. Anthony Sunarjo, chairman
of the Indonesian Pharmaceutical Association (GP Farmasi
Indonesia) points out that Indonesian pharmaceuticals
are the cheapest in Asia after India's and China's, so
his members will certainly be able to compete on the
ASEAN market.
He worries, however, that other
ASEAN member countries will seek to bar Indonesian
pharmaceutical products from entering their markets by
setting up various non-tariff barriers, including
imposing complicated requirements for Indonesian drug
producers to register their products in their respective
countries.
For Indonesians imported goods will
no longer carry the high price tags they had in the past
and lower prices and a wider range of product choice
should benefit the public in the long run. However,
other, more domestic obstacles seem likely to negate
such theoretical benefits.
Thomas Darmawan,
chairman of the Indonesian Food and Beverages
Association (GAPMI) voiced concerns over the numerous
levies imposed by regional governments and the
widespread practice of extortion by local officials.
These factors, he said, had led to price increases of
local food products that will make it harder to compete
with cheaper imported food products from AFTA.
He also said that, aside from these levies,
local players also had to pay high transport costs in
order to secure their business, which also contributed
to raising the price of local food products.
However, Indah Suksmaningsih, chairwoman of the
Indonesian Consumer Foundation (YLKI), says that while
the AFTA scheme outlines in detail the benefit of free
trade for corporations across the region, it has
singularly failed to address the importance of consumer
protection.
"Where do consumers go to complain
about defective goods from Malaysia, for example?" she
asked, adding that AFTA will be beneficial to the public
only if the freedom of trade is balanced by a fair
disputes settlement system for consumers.
Another important objective, more pressing for
Indonesia than the other five countries, is to lure
foreign investment into the region. The free flow of
production goods among ASEAN countries should tempt
foreign enterprises wanting to set up a global
production base.
The increasing competition from
the might of China, especially since its entrance into
the World Trade Organization, and the ensuing billions
of dollars in investment it gained, has concentrated the
minds of ASEAN member governments.
They see the
pressing need to succeed in selling the regional market
bloc, with a population of more than 500 million, as a
more attractive, alternative manufacturing base to
China. Collectively, ASEAN stands a better chance of
competing against China than if its members were to try
to compete individually.
The United States is
focusing on bilateral agreements with ASEAN members
rather than a multilateral agreement, and thus
compromising ASEAN's commitment to regional integration.
Though the largest market among the six founding
member countries with almost 210 million people,
Indonesia's lack of strong leadership has taken its
toll. The government has yet to come up with any
semblance of a strategy for industries to make the most
of the benefits and opportunities offered by AFTA; hence
its poor cooperation with the Indonesian Chamber of
Commerce and Industry (Kadin), which is a staunch critic
of AFTA.
The ministers concerned will not only
need to drive hard bargains in negotiations to determine
common standards and mechanisms between members, but
will be intellectually challenged to create an
investment climate conducive for foreign and domestic
investors.
Inefficient domestic industries need
to be brought into line with neighboring competitors in
terms of cost, production and distribution.
Caving in to pressure from industrialists
demanding protection will not only weaken Indonesia's
economic prospects within the region but would have a
knock on effect leaving ASEAN industries uncompetitive
internationally, and ASEAN of little relevance to the
economic interests of the people of the member states.
If they succeed in bringing in new investment,
this will upgrade industries, improve the skills of the
workforce and stimulate economic activity in general. It
would also strengthen ASEAN's bargaining position to
negotiate free-trade agreements (FTAs) with other
regions and could push more ASEAN members to break rank
and conclude deals with other countries individually, as
Singapore has done.
Singapore has long been
impatient with the slow progress toward the regional
trade grouping and, in the aftermath of the 1997
economic crisis, has signed FTAs with Japan, Australia,
and, more recently, the United States.
The focus
was to promote the region as an open, stable and
low-cost manufacturing center with an integrated market
of more than 500 million consumers.
That may no
longer be the game plan. Economists say the lack of
enforcement mechanisms has allowed Malaysia, Indonesia
and the Philippines to take advantage of the rules and
temporarily announce higher tariffs on goods to protect
key domestic sectors.
Such protectionism weakens
the momentum for regionwide free trade in Southeast Asia
and appears to confirm the new target is a much larger
free-trade area - between ASEAN and China - that may be
in place as early as 2015.
(©2003 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com
for information on our sales and syndication policies.)
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