logo logo

Indonesians discontent with free trade agreements

UPI Asia | February 12, 2010

Indonesians discontent with free trade agreements

By Harjo Winoto
Guest Commentary

Jakarta, Indonesia — Thousands of workers protested outside the House of Representatives complex in Central Jakarta, Indonesia on Jan. 28, demanding that the government abolish the Association of Southeast Asian Nations-China Free Trade Agreement, as it badly impacts workers.

ACFTA contains mutual commitments by all ASEAN member states and China to liberalize their markets. Simply put, ASEAN and China are under international obligation to gradually eliminate all tariffs and non-tariff barriers to trade. Such barriers include tax, regulatory measures and quantitative restrictions or quotas.

The agreement was ratified on Nov. 29, 2004 and as per Article 8 (1) of the preliminary agreement, obligations to liberalize markets are effective by 2010 for the ASEAN 6 group – Brunei, China, Indonesia, Malaysia, Philippines, Singapore and Thailand and 2015 for the ASEAN 4 group – Myanmar, Vietnam, Laos and Cambodia.

The public outcry in Jakarta rejecting the enforcement of ACFTA is due to at least two reasons: The Indonesian government’s failure to publicize the exact substance of the agreement and its inability to comprehend the consequences.

Free trade and ACFTA are two strenuous and delicate issues. It is impossible to expect a commoner to fully grasp what free trade is. Even if one reads the ACFTA, it is impossible to fully understand the intricate regime.

It is believed that the Indonesian government is not fully aware of the pertinent consequences or obligations it accepted when it ratified the agreement. For example, there was barely any published feasibility study of commitments undertaken within the ACFTA or public hearings before the agreement was ratified.

Second, the government’s support to fortify its domestic industries with comparative advantages is barely felt by any industry. This premise supports the conclusion in the previous paragraph.

Free trade is a tough game and therefore requires a country to prepare and contemplate the consequences carefully before liberalizing its market. For example, in a sprinting game an athlete can compete if he runs from the same starting point, using the same shoes, and has physical abilities relatively similar to other contestants. If any of such prerequisites are not met, it should come as no surprise if the athlete loses the race.

ACFTA was ratified in 2004. So the Indonesian government had some five years to improve its industrial competitiveness. But one is barely aware of any shocking revelation of economic strategy or industrial advancement in the international arena. In fact, Indonesia suffered from sugar and rice scarcities in 2008 and had to import both products despite being a major producer.

All the above explanations suggest that the Indonesian government does not know what it agreed to and has no idea how to tackle it now.

But when it figures out the danger, it surreptitiously conceals the information from the public. Think of it this way – the agreement was ratified during former President Megawati Sukarnoputri’s era but the effects of liberalization take place only in 2010. As Indonesia’s Constitution allows only a five-year term, assuming Megawati had won the 2004 election, she would not be responsible for the hardship faced by the 2010 administration.

Another possible scenario why President Susilo Bambang Yudhoyono’s 2004-2009 administration did not pay much attention to advance local industries’ competitiveness is because there was a possibility that he would not have won the 2009 election.

One of my strongest criticisms of democracy is the risk of self-absorbing, selfish and short-term policies where a president or political leader is discharged of formal responsibility over consequences arising out of his or her decisions and subsequently assumed by the next administration.

Indonesian businessman Sofjan Wanandi, during a seminar held by HukumOnline, said that the Indonesian government is not serious, or is even nonchalant, about local industries’ competitiveness. For instance, he complained that China’s imported products evade the 10 percent value added tax by illegal means while local industries have to pay the same up front. This provides China a 10 percent head start in terms of price competitiveness. In addition, poor quality control, labor exploitation and copyright violations are additional factors that contribute toward making Chinese products cheap.

Assuming that Indonesia’s local industries and China’s industries compete cleanly, I strongly believe that numerous industries in Indonesia will shut down. Among the many reasons for such a premise are economics of scale and productivity. Industries can reduce production costs by enhancing production quantities, which in turn reduce marginal costs incurred for one additional unit of production.

Presently, China’s manufacturing base is without a doubt the largest in the world. For instance, according to a BBC report, part of a global drive toward trade liberalization has resulted in a huge increase in Chinese clothing exports, with sales of certain items to the European Union rising by up to 500 percent.

Consequently, the EU had to fence off its textile industry due to huge Chinese imports. Second, China is well known for its hardworking culture of 16-18 hours a day. An extremely competitive environment also drives this culture. The ratio of China’s productivity compared to Indonesia’s average productivity is approximately 4:1.

That means if a Chinese worker can produce four shoes per day, an Indonesian worker can only produce one, assuming the Chinese worker receives two and a half times more in salary than that paid to workers in Indonesia. It is a misleading myth that China is famous for its cheap labor. Rather it has effective and cheap labor.

In the final analysis, market liberalization could hurt Indonesia the most when it least expects to be hit.

(Harjo Winoto is a final-year law student at the University of Indonesia and a paralegal in a top Jakarta law firm. He writes on various legal and social issues.)

 source: UPI Asia