Indonesia considers moves to protect 11 sectors from China FTA
Jakarta Globe | December 08, 2009
Dian Ariffahmi
Indonesia considers moves to protect 11 sectors from China FTA
Ministers will meet on Friday to discuss a proposal to renegotiate the Asean-China Free-Trade Agreement, which will reduce thousands of trade tariffs to zero and make it hard for some Indonesian manufacturers to compete with cheaper Chinese imports.
Minister of Industry MS Hidayat said the government will ask Asean to give Indonesia “special status” and could begin renegotiating the FTA as early as next year. The special status would allow officials to open talks with Asean about whether those industries most at risk from Chinese competition, such as steel, could be given temporary exemptions from the FTA.
The agreement takes effect on Jan. 1. Import duties on 6,682 Chinese goods will be removed, and concerned manufacturers have called on the government to delay the agreement.
Last month, Hidayat insisted that it would be “very difficult” to renegotiate the deal at this late stage and that manufacturers should stop complaining and learn how to compete.
However, he said in Jakarta on Tuesday that after Friday’s ministerial meeting, he would seek President Susilo Bambang Yudhoyono’s approval to send a negotiating team to Asean as early as the middle of January.
Eric Sugandi, an economist from Standard Chartered Bank’s Indonesia unit, said the government should be very careful about how it deals with China over the FTA.
“When Indonesia signed the FTA with China, the main objective was to find a bigger market [for local products] and to make the local business community more efficient [through increased competition],” Eric said.
If the government postponed the deal for certain industries deemed “fragile” because they were inefficient or couldn’t compete, it could create negative sentiment toward the country among international investors, especially those from China.
“If we appeal for tariff cuts in some of the sectors to be postponed then we would have to give China some concessions or else we may have a trade war on our hands,” Eric warned.
“Putting aside our nationalism for once, why don’t we just let go some of the uncompetitive sectors and shift to more promising ones?”
Hidayat said he discussed the matter with Trade Minister Mari Elka Pangestu on Monday. He said she agreed to assign Gusmardi Bustami, director general of international trade cooperation at the Trade Ministry, and Halida Miljani, chairwoman of the Indonesian Trade Security Committee (KPPI), as the chief negotiators.
“During Friday’s meeting, we are also going to discuss which industries we will request exemptions for,” Hidayat said.
The government had previously planned to ask that five key industries be temporarily exempted from the agreement. But after meeting with various business associations, the government said it would seek exemptions for 11 industries.
“We invited 20 different business players, but 100 businessmen turned up at the meeting and asked to be put on the list,” Hidayat said.
The initial five sectors were textiles, footwear, steel and iron, food and beverages and plastic. The government later added transportation tools, electronics, forestry and plantations, the downstream chemical industry, the creative industry and machinery to the list.
“The government will examine each industry’s strengths and weaknesses to identify which sectors should be prioritized,” Hidayat said.
Once this process is complete, the government would open negotiations with Asean as soon as possible. “It might happen in the middle of January next year,” Hidayat said.
However, a member of Hidayat’s proposed negotiating team appeared to downplay Hidayat’s comments. Spoken to separately on Tuesday, the Trade Ministry’s Gusmardi told the Jakarta Globe that the FTA would only be renegotiated as a last resort, and it was still not certain that further talks with China would take place.
“The stalling of an FTA should be considered as the very last option after all things have been considered. This is because the FTA has already been committed to by the country,” he said.
China signed a preliminary pact for a free-trade deal with the 10 members of Asean, including Indonesia, in November 2002.
“Currently we’re still in the process of hearing the views of businesses and associations before any possible talks about postponing the agreement are realized,” he added.
