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Mari Rebuffs Free Trade Agreement Criticism

Jakarta Globe, Indonesia

By Irvan Tisnabudi & Ardian Wibisono

Mari Rebuffs Free Trade Agreement Criticism

18 January 2010

Indonesian Trade Minister Mari Elka Pangestu on Monday dismissed criticism that she had been slow to respond to concerns about the Asean-China Free Trade Agreement, insisting the ministry has been engaged in “informal communications” about the deal with Asean.

“An informal communication process has been conducted to get a win-win solution,” Mari said.

She said her ministry had informed Asean of concerns that domestic industries would suffer because of the free-trade deal, which has cut tariffs on many Chinese goods. “But because the process is still proceeding, I can’t explain any further. At the right time, we will release information about it,” she said.

Gusmardi Bustami, director general of international trade cooperation at the Trade Ministry, said last week that the ministry sent a letter on Dec. 31 to the Asean council, but that it was only a letter of notification, “which explains that a number of industrial sectors [in Indonesia] may have trouble with the free-trade agreement.” Gusmardi said the letter made it clear that Indonesia “remained committed to carry on with the pact.”

Nasril Bahar, a lawmaker from the National Mandate Party (PAN), reiterated his previous view that Mari had moved slowly and shown a lack of willingness to renegotiate the trade deal.

Sources have told the Jakarta Globe that the cabinet is divided on the issue, with Industry Minister MS Hidayat pushing for renegotiation while Mari is opposed to it.

“Even though Indonesia agreed to the FTA years ago, if we continue to be lacking in these sectors, the government should not force it,” said Nasril, a member of the House of Representatives Commission VI overseeing trade and industry.

Domestic manufacturers are already struggling because of high borrowing rates, poor infrastructure and electricity shortages and the free-trade pact with China will apply extra pressure.

China’s agreement with the 10 members of Asean scrapped tariffs on about 90 percent of goods, and duties must be cut to no more than 50 percent on “highly sensitive” items by 2015.

Tai Hui, head of economic research for Southeast Asia at Standard Chartered Bank, argued the trade deal would be positive for Indonesia, as a large exporter of natural resources to China.

“Indonesia has the advantage of producing natural resources needed for giant economies such as China, which needs the commodities and capital goods that can be produced here,” he said.

Gerard Lyons, Standard Chartered’s chief global economist, added that the country could take advantage of foreign inflows, which are expected to continue coming into the country this year, to develop key sectors.

If Indonesia is to benefit from the opening up of markets in China and Asean, investors will have to be convinced to move from portfolio investment to direct investment.

Lyons said the government needs to improve hard and soft infrastructure to persuade investors to do so.

The free-trade agreement may help by reducing the price of imported building materials and thereby lowering the cost of infrastructure developments.