Indonesia and the treaty on Trans-Pacific Partnership
Kompas | 15 October 2015
Indonesia and the treaty of Trans-Pacific Partnership
by Abdulkadir Jailani
The twelve States in the Pacific Rim have just concluded the negotiations of the Treaty on Trans-Pacific Partnership (TPP). The Treaty itself will serve as a legal framework for free trade cooperation and liberalization in a number of economic sectors. It also constitutes as a mega trade bloc which represents 40% of the world’s economic power (28.1 billion GDP in total) consisting of 792 million population which spreads between the United States, Australia, Brunei Darussalam, Chile, Japan, Malaysia, Peru, Singapore, Viet Nam, Mexico, Canada and New Zealand.
Although the Treaty has not been signed yet, the discourse on the possibility of Indonesia joining the TPP has caught both media and public attention. This is indeed a discourse that needs to be addressed thoughtfully. Indonesian accession to the TPP may potentially hamper the vision of the Jokowi administration to realize national economic independence.
Bearing that in mind, the decision to join the TPP should be built upon a very deep consideration, with particular scrutiny on the political, economic and legal aspects. These three aspects are critical to the decision to accede to the Treaty.
Political Aspect
The scope and implication of the TPP is very extensive and goes beyond a mere expansion of market access. Apart from having a close linkage to trade and investment, the TPP also provides rules on environmental issues, labour and other issues that are traditionally under national sovereignty.
Moreover, the TPP negotiation process was also driven by American interests. The entire negotiation process stood on its own and therefore was not part of the joint efforts to promote the ASEAN Economic Community, which is one of the priorities in Indonesia’s economic diplomacy.
Unlike the negotiation process in the Regional Comprehensive Economic Partnership (RCEP) negotiation process, which involves all of ASEAN member states and all of ASEAN external partners, the TPP deliberately did not involve China as the largest market in Asia Pacific. Within this context, President Obama categorically emphasized that the United States would not let China “write the rules” for global economy. Through the TPP, the US hopes to be the one formulating those rules.
This political aspect needs to be carefully examined in the view of Jokowi’s economic diplomacy strategic plan. Domestic political ramifications and its effect on the effort to materialize an independent ASEAN Economic Community also needs to be given particular attention.
Economic Aspect
The realization of the TPP does not necessarily create a freer trade in the Asia-Pacific region. On the contrary, the TPP has fleshed out more complex and difficult market access rules and requirements for goods and services originating from Indonesia. Consequently, based on Indonesia’s experience on the implementation of free trade agreements, many are concerned with the apprehension of Indonesia being just a “market” for imported goods and services, should Indonesia join the TPP.
Furthermore, the majority of the TPP commitments are far more excessive compared to WTO commitments as well as other FTAs. The right of States to adopt policies in order to protect their respective strategic national interests as guaranteed by the WTO or other FTAs (for example, policy on taxes and special provisions on sensitive goods) has been taken out of the TPP.
TPP also imposes obligations on liberalization of the government procurement sector. For developing countries, this is an extremely sensitive issue. Such undertaking will be obviously inconsistent with Indonesia’s position to protect its domestic enterprises through the limitation of foreign company’s participation in government procurement tenders.
Provisions on State-owned enterprises are also not in line with Indonesia’s interest. The TPP prohibits States to provide privileges or incentives to their enterprises. This will surely create detrimental effects to Indonesian State-owned enterprises.
On investment, miles apart from the current Indonesian new policy in reviewing its investment treaties, the TPP instead provides investors with more rights and privileges at the expense of national policy space.
Indonesia should also carefully address intellectual property provisions which could harm the interests of developing countries. The TPP is more in favour of the interest of multinational companies in intellectual property. There have been concerns that this will diminish the Government’s ability to adopt policies to protect their national interests, such as provisions on inexpensive drugs for the public and also facilitating technology transfer process.
Legal Aspect
The TPP imposes a significantly high standard of legal obligations. One of the consequences would be for Indonesia to rewrite its national laws in a number of sectors in accordance with TPP standards (for instance, laws related to finance, environment, labour, intellectual property, freedom of internet and some others). The obligation to realign national laws may adversely affect national legal development objectives.
The other legal issue is the Investor-State Dispute Settlement (ISDS). Indonesia has an issue with the ISDS provision under the TPP which gives the right for foreign investors to directly submit a claim against Indonesia in an international arbitration without a separate consent from the Government. Such provision is clearly not in line with Law No. 25/2007 on Investment.
Conclusion
Taking all of the above into account, joining the TPP is not something that has to be pursued in the near future. The TPP does not necessarily provide Indonesian goods and services a simpler access to penetrate TPP parties’ markets. Indonesian exports would instead face rules on market access that are more complex and harder to comply with. Furthermore, apart from the TPP focusing more on the interests of the multinational companies, it also imposes intrusive liberalization commitments and legal obligations which may harm national economic sovereignty.
