Asean-China FTA: Indonesian drama unfolds

By Malini Hariharan

Eight years after agreeing to the Asean-China FTA (ACFTA) and a few days after its implementation the Indonesian government has succumbed to industry pressure to ask the Asean Council to renegotiate tariff reductions on 228 categories of goods across eight industrial sectors. In return, it has offered to accelerate implementation of tariff cuts on 153 tariff categories.

The 228 tariff categories include steel, iron, textiles, electronics, basic inorganic chemicals, petrochemicals, furniture, footwear, machinery, cosmetics and herbal medicines.

The government has been facing intense pressure from local companies who fear that competitive imports from China will force closure of their businesses.

Last month, a senior official at the Indonesian Employers Association (Apindo), warned that as many as 7.5 million workers (about a quarter of the country’s 30m strong formal sector workforce) could lose jobs. He predicted that layoffs would begin gradually in about eight months’ time.

But Indonesia had sufficient time to prepare the domestic industry for the rigours of Chinese competition. And if this was impossible the government could have approached the Asean Council much earlier.

“What were you waiting for?” questions the Jakarta Globe in this report and blames the government and industry for failing to anticipate consequences.

Anwar Suprijadi, former chief of the country’s customs and excise office is reported to have said that he had warned colleagues in the Trade Ministry as well as those on the House of Representatives budgetary commission two or three years back about the problems the country would face once the Asean-China trade pact was implemented. “I warned that this [pact] should be reviewed,” he said.

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Pic Source: Jakarta Globe

Edmund Sim, Singapore-based trade lawyer with Appleton Luff, points out in this excellent analysis that other Asean members may be tempted to follow Indonesia.

“That Indonesia and the Philippines, with active business lobbies and media, reacted so strongly was somewhat predictable. Nevertheless, that business interests in those countries and elsewhere in ASEAN waited until the last minute, months and years after the negotiation, ratification and implementation of the FTAs, reflects fundamental deficiencies within the region’s operating system. Clearly ASEAN governments and institutions such as the ASEAN Secretariat did not adequately prepare the business sector for trade liberalization. The corporate sector should have been more involved in the process from the earliest stages,” he writes.

It is still early to say if Indonesia will be successful. The Jakarta Globe states that the Asean FTA council has 180 days to make a decision. Meanwhile, the trade deal will be implemented as planned.

A clause in the deal states that the council can reject Indonesia’s request if other Asean countries oppose it. However, if the council sees Indonesia’s offer as reasonable, it will represent the country in new negotiations with China.

But the Indonesian government has indicated that it will maximise the use of safeguard duties. A senior government official said recently safeguard measures would be used as soon as 30% of the domestic market for any product was controlled by China.

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