EPA offers opportunities and challenges

20 August 2007

EPA offers opportunities and challenges

Andi Haswidi, The Jakarta Post, Jakarta

When Indonesia and Japan sign their Economic Partnership Agreement today (Monday), local business leaders expect new opportunities to arise for improving the country’s global competitiveness.

However, the benefits will be minimal if the country fails to address the pressing challenges facing it, according to Indonesian Employers Association chairman Sofyan Wanandi.

Sofyan told The Jakarta Post over the weekend that with the EPA, Indonesia could secure parity in terms of competitiveness with other Southeast Asian countries that already have signed bilateral agreements with Japan.

Still, Sofyan said there was no guarantee of an increase in Japanese investment as a result of the agreement, as Indonesia still had to deal with its high-cost economy.

"In the end, it all comes down to how we can overcome this high-cost economy," Sofyan said, pointing to problems such as rampant corruption, a complicated bureaucracy and overlapping regulations.

Under the EPA, which is basically a type of free trade agreement, Indonesia will cut tariffs to about 93 percent from the existing 11,163 tariff posts, with 58 percent of them to be eliminated immediately upon implementation of the agreement.

In return, Japan will open up more than 90 percent from the existing 9,275 tariff posts, with 80 percent of them to start immediately, including for textile products and agriculture products.

On accessing the Japanese market, Sofyan said that because the main issue was mainly non-tariff barriers, the main focus for Indonesia after the EPA signing would be on pressing the capacity-building agenda offered by Japan’s Manufacturing Industry Development Center, as agreed upon under the agreement.

Bambang Trisulo, chairman of the Association of Indonesian Automotive Manufacturers, said the capacity-building programs of the agreement were essential to local players.

"The EPA is positive as an umbrella for the increase of cooperation in market access and industrial capacity development. Of course, in order to secure a mutual benefit, we must prepare activity plans and set exact targets," Bambang said.

The automotive industry and supporting industries, he said, must integrate their short and medium-term preparations to secure cohesive growth.

According to information from the Industry Ministry, the automotive, electronics and construction industries will experience the biggest immediate boost from the tariff cuts contained in the EPA, as there are at least 26 new Japan investment commitments — mostly expansions of existing operations — worth about US$557.5 million in these sectors.

Indonesia’s total exports to Japan in 2006 reached a total of $21 billion — mostly in natural resources — while total imports were $5.5 billion, mainly industrial products.

Indonesian Food and Beverage Producers Association chairman Thomas Dharmawan said the food industry was unlikely to experience a boost in exports from the EPA.

"The issue of food sanitation and health is not included in the EPA. So the agreement will not have a significant effect on our food industry," he said.

"If they open food factories here, such as what they did by opening meat factories in Australia and several other countries, that would be really beneficial for us," Thomas said.

Indonesia’s main export products to Japan - 2006

Agriculture, fishery and plantation US$919 million
Footwear US$118 million
Wood and its byproducts US$1.17 billion
Rubber US$971 million
Plastics US$380 million
Nickel and byproducts US$1.3 billion
Aluminium and by products US$449 million
Furniture US$204 million
Total US$5.5 billion

Japan’s major investments in Indonesia from 1998 to 2006

Electricity and electronic machine US$2.83 billion
Automotive and transportation equipment US$1.64 billion
Mineral and non-metal industry US$862 million
Chemical and drugs US$780 million
Trade US$661 million
Total US$6.77 billion

Source: Indonesian Trade Ministry

source: Jakarta Post