Indonesia's Industry Groups, Government Dozed as China Trade Pact Neared: Critics

Jakarta Globe, Dian Ariffahmi, Irvan Tisnabudi & Muhamad Al Azhari

Some fear Indonesia will be swamped by cheap imports from China. (AFP Photo)

What were you waiting for? That is the question many analysts are asking of trade groups, industry players and the government about the belated move to renegotiate aspects of the Asean-China Free Trade Agreement.

Some observers blame both the government and industry for failing to anticipate sooner the consequences of the FTA, which some fear will undermine domestic manufacturing as cheaper Chinese imports flood in.

“It is a bit funny. Why did all the noise emerge just now?” said Pande Radja Silalahi, a senior economist at the Center for Strategic and International Studies.

Pande has a point, one echoed by Anwar Suprijadi, former chief of the country’s customs and excise office. In his farewell speech on Dec. 31, Anwar said he had warned officials at the trade and industry ministries years ago about the problems the country would face once the Asean-China trade pact was implemented.

“Two or three years ago, I warned my colleagues in the Trade Ministry as well as those on the House of Representatives budgetary commission that this [pact] should be reviewed,” Anwar said.

“If it needs to be revised, it should have been done six months before it came into effect. We usually like to do something when it is too late and we only start making noise when it becomes a big problem,” Anwar added.

In September, Trade Minister Mari Elka Pangestu blamed industry players for failing to officially ask the government to try to delay or modify the agreement earlier.

“This agreement was signed years ago. And I had told the industry players about this. But somehow, they just realized about the impact later,” Mari said.

Mari represented Indonesia at the 2005 signing of a limited trade pact between China and Asean. The preliminary agreement was signed in November 2002.

Indonesia has notified Asean of its plan to seek modification of the FTA by renegotiating 228 tariff categories in eight industrial sectors, Coordinating Minister for the Economy Hatta Rajasa said on Monday.

He declined to say when the request was sent.

The government wants to give local industries more time to become competitive to withstand the onslaught of cheap Chinese imports.

In return, it has offered to accelerate implementation of tariff cuts on 153 tariff categories.

The Asean FTA council has 180 days to make a decision. Meanwhile, the trade deal will be implemented as planned.

A clause in the deal states that the council can reject Indonesia’s request if other Asean countries oppose it.

However, if the council sees Indonesia’s offer as reasonable, it will represent the country in new negotiations with China.

Under the trade agreement, which took effect on Jan. 1, tariffs will be reduced or eliminated on thousands of products. Some reductions were effective immediately, with others scheduled to take effect in 2012, 2018 and 2020.

Meanwhile, the government has also made a series of efforts to shield the domestic market from cheap imported products by using non-tariff barriers.

In 2008, it issued a regulation requiring that imports of clothing, footwear, food and beverages, electronics and toys could only enter the country through five main ports.

In addition, the Indonesian Chamber of Commerce and Industry (Kadin) said the government should also enforce rules that require imported products to meet national standards for quality.

While the government is trying to renegotiate aspects of the FTA, it believes that the agreement as a whole can still be beneficial. Mari argued that the FTA could help Indonesian exporters benefit from greater access to regional emerging markets.

“Demand for Indonesian-made products from these emerging market countries will rise at a faster rate compared to demand from the more-developed countries that are expected to have a slower recovery. This will have a positive impact for Indonesia,” she said.

The collaborative spirit behind the agreement is also positive, officials said. Asean and China are aiming to become the world’s third-largest free-trade area, with a combined population of 1.9 billion and a combined GDP of nearly $6 trillion.

However, the impact will vary from country to country.

In 2008, Indonesia experienced a significant trade deficit with Asean countries. Exports totaled $23.51 billion, lower than the $27.17 billion of imports, resulting in a $3.66 billion deficit, according to data from the Central Statistics Agency (BPS).

In the same year, the trade balance with China worsened, with Indonesia posting a deficit of $3.6 billion after recording a $1.1 billion surplus in 2007.

Razeen Sally, a director of the European Center for International Political Economy, told Bloomberg that the FTA “takes down the tariffs but does little on all the non-tariff barriers, where you would have much bigger gains to trade.”

Indonesia can leverage its plentiful natural resources and large labor force, Pande said. “What we don’t have is the expertise from people,” which is needed if the free-trade pact is to be truly positive for the country, he said.

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