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Blaming China: Indonesian garment makers say free trade pact leaves them on brink of collapse

LA Times

Blaming China: Indonesian garment makers say free trade pact leaves them on brink of collapse

By Chris Blake, Associated Press Writer

26 April 2010

JAKARTA, Indonesia (AP) — Mufardi Rusli’s neighbors hunch over tables covered in brightly colored fabric, the whirring of their sewing machines echoing across his Jakarta neighborhood. For Rusli, the sound is a bitter reminder of the $2 line of jackets that bankrupted him, costing him a garment business it took 15 years to build.

He blames himself. He blames the government. But most of all he blames China — specifically, the flood of cheap clothing that has poured into Indonesia this year under a free-trade agreement between the rising economic giant and its Southeast Asian neighbors.

The new competition quickly drove down prices, forcing Rusli to sell the jackets for less than they cost to make. Within months, he was broke and unable to pay his 22 workers.

The Indonesian government and many businesses leaders have hailed the pact as an economic boon that will allow the free flow of goods between countries encompassing 1.7 billion people, lowering prices for consumers and offering new opportunities for producers. The Trade Ministry expects two-way trade between Indonesia and China to double to $50 billion within five years. But some Indonesian industries say their small operations can’t keep up with the Chinese juggernaut and they’re calling on the government to do more to save their businesses from collapse.

"We’re the ones losing this trade war," Rusli says, warning that soon his neighbors’ sewing machines will follow his into silence.

The deal between China and six founding members of the Association of Southeast Asian Nations — Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand — went into full effect Jan. 1, eliminating barriers to investment and trade on 90 percent of products. Four more ASEAN countries — Cambodia, Laos, Myanmar and Vietnam — will be added by 2015.

The deal is expected to benefit Indonesian industries such as palm oil, rubber, coffee and coal by making it easier for them to feed China’s voracious appetite for industrial raw materials and other commodities. Yet there are other industries — among them textiles and garments, tires, steel and footwear — who say they aren’t ready to go head-to-head with China’s aggressive, lower-cost producers and have called on the government to delay the elimination of protective tariffs on 228 product lines.

Despite signs ministers were not unanimous in supporting the trade pact, the government has said delaying is not realistic because it would involve renegotiating not only with China but with all the Southeast Asian nations.

Baso Rukmana, chairman of Indonesia’s National Workers Union, predicted the trade deal would drastically increase unemployment in labor-intensive industries, with up to 7 million jobs lost.

"We are not ready to compete with China, and the government must have the courage to admit that," he said.

Rukmana’s estimate of job losses couldn’t be corroborated by other sources. Manpower Minister Muhaimin Iskandar said the government doesn’t have figures on how many people could lose their jobs but has set up a task force to monitor the impact.

"We realize now that Indonesia is not yet quite able to compete in global markets with a full commitment to free trade," Iskandar said. "But we should not be left behind other ASEAN countries in facing global trade competition."

While some analysts believe the impact of the deal so far has been relatively positive — the contentious tariff lines account for only a fraction of the goods covered by the agreement — it is too soon to say how it will fully play out. Still, early trends on who will be hardest hit are clear.

"The main losers in Indonesia would be the low-skilled workers and the sectors that produce low-end products, mainly the textile sectors," said Maria Patrikainen, an Indonesia analyst with IHS Global Insight in London.

That would describe much of Kalibata, a working class neighborhood in south Jakarta that is home to an estimated 3,000 small garment businesses. The area is a warren of winding lanes, each lined with tiny brick and concrete buildings that double as both homes and factories.

One of the larger ones is that of 62-year-old Daris, whose front yard is a mess of cutting tables, sewing machines, bolts of fabric and stacks of children’s shirts, skirts and hoodies in every color of the rainbow.

Daris, who like many in Indonesia uses a single name, said his business has been decimated since the trade deal went into effect.

A year ago he was selling market traders 1,800 bundles of clothes each week for a net profit of about $330. This year he said demand and profit has plummeted as those same traders load up on cheaper Chinese made clothes selling for 25 percent less. He said he’s lucky to sell 600 bundles a week.

"Can you imagine trying to support a family of eight on ($55) per week? The government should know we are suffering," he said.

Daris said he has cut his work force from 25 employees to just 11, but even that may not be enough to keep him above water.

"If the business comes back in the next three months I can continue," he said. "If not I will close up shop and go back to my hometown. What else can I do?"

Indonesian Trade Minister Mari Elka Pangestu has acknowledged that many industries have valid concerns and ways should be found to help them.

But she says Indonesia’s textile industry needs to become more competitive and should take advantage of the benefits of the trade deal, such as the cheaper cost of more sophisticated machinery. The government would do its part to address any unfair competition and work toward better remedies.

There are also parts of the industry that have benefited from the deal, Pangestu said, pointing to Indonesia’s successful denim industry, which imports cotton from China turns it into denim and then exports it back to China.

She said that worries about the trade deal appear overblown.

"In a way there is this underlying, perhaps unfounded, fear that ’Oh we’re not ready, we’re going to be unable to compete.’ And then when you talk it through and you look at the numbers and look at some of the sectors that are sort of screaming, it’s not as bad as it turns out to be in terms of perceptions."

That explanation is little comfort, though, to Rusli, the bankrupt garment maker. He said he doesn’t have much hope for the future of the garment makers of Kalibata.

"It’s a bitter business now," he said, clutching the last of his red jackets, a morbid souvenir. "And there are thousands of others facing the same fate as me."

Associated Press Writers Irwan Firdaus and Niniek Karmini contributed to this report.