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Thai-Japanese FTA threatens RI exports

11 February 2005

Thai-Japanese FTA threatens RI exports

Zakki P. Hakim, The Jakarta Post, Jakarta

Indonesia risks losing up to US$5 billion in non-oil and gas exports to Japan per year, should Thailand succeed in ongoing negotiations with Asia’s largest economy for a free trade agreement, says an expert.

A Japan-Thailand FTA would in turn force Japan to switch its import demand — from Indonesia to Thailand — for certain products produced by both Indonesia and Thailand, said project economist at Growth through Investment, Agriculture and Trade (GIAT), William E. James.

"That (the Japan-Thailand FTA) would have the potential to affect Indonesia’s trade at a value of between US$4 billion and $5 billion," said James in his assessment paper on potential trade diversion in the world’s two major export markets, Japan and the U.S., should Thailand obtain FTAs and Indonesia does not.

James told The Jakarta Post on Tuesday that it was one of the main reasons why Indonesia should now pursue free trade negotiations with Japan.

Obviously, Indonesia would not want to lose one of its biggest export markets by staying out of bilateral trade liberalization, while neighboring countries were expanding their market access to Japan through negotiations for maximum import duty cuts, he said.

In Japan, some 40 of Indonesia’s top 50 groups of products are competing head-on with Thai products.

And with a preferential treatment of duty cuts, that would cut Thai merchandise end-prices and boost its competitiveness. In the end, importers would surely prefer Thai goods over Indonesia’s, he added.

The top 50 products accounted for over 89 percent of total Indonesian non-oil and gas exports in 2003, according to the paper. Meanwhile, the 40 competing products — which include crustaceans, non-ferrous base metal and scrap, paper and paperboard, automatic data processing machines and natural rubber — was worth $4.75 billion, it said.

Last year, Japan was Indonesia’s top export market with non-oil and gas commodity shipments reaching $7.58 billion or 14 percent of Indonesia’s total exports.

"With a GDP of $4.3 trillion (in 2003), Japan is the largest economy in the region, almost triple that of China, which comes second after Japan," said James, who also works for U.S.-based private consultant firm Nathan Associates, Inc.

As Indonesia only contributed some 1.54 percent of Japan’s total exports in 2003 (including oil and gas), a preferential agreement with Japan would deliver more benefit for Indonesia than to its counterpart.

Earlier, Ministry of Trade director general for international cooperation Pos M. Hutabarat said that neighboring countries were ahead of Indonesia in establishing an FTA with Japan.

Singapore and the Philippines have already signed such agreements, although only the city-state has to date implemented the deal with the Philippines still straightening out certain technical details.

Negotiations with Thailand and Malaysia are also underway.

As for Indonesia, negotiation with Japan is still in the early stages in which a joint study on the costs and benefits of establishing a bilateral FTA with Japan was held only last week.

The meeting, formally called the Joint Study Group for Japan-Indonesia Economic Partnership Agreement, was the first of a three scheduled talks ahead of an actual formal negotiation for a trade deal.

The preliminary talks will produce a full scale assessment on the FTA in mid-April to be submitted to relevant ministers in both countries, Pos said.

Afterward, "the ministers will determine whether or not an Indonesian-Japan FTA is needed. If it is deemed necessary, we will take the decision when formal negotiations will start," he explained.

The meeting explored import duties, labor regulations, immigration, taxation, trade facilitation and investment issues in both countries.

 source: Jakarta Post