Free Trade in Indonesia

Free Trade in Indonesia

Implications and policy cooperation between Indonesia, China and Japan

. China

The implications of free trade policy between Indonesia and China

The Government of Indonesia and China will set the year 2010 as the year of friendship for the Indonesian and China. It is characterized by force or free trade agreement known as CAFTA between the two countries. The move comes after at the regional level, ASEAN has signed a free trade agreement that ASEAN-China in the year 2010 will be held this.

There are some things that should be government's concern with the approval of free trade agreements, particularly the readiness of the industries in our country, as well as enabling factors in improving the competitiveness of China's products. Then, if China is a country right in cooperating in these free trade? This is a growing concern among the industry.

As we have seen in practice, the China market accounted for only slightly from an average income of multinational companies operating in that country. China market accounted for only less than 2 percent of sales peruahaan caliber Pfizer, Astra-Zeneca, and Bayer. Another example, Procter and Gamble (P&G), one of the giant multinational manufacturing company who only get less than 5 percent of total market revenue of China (The Economist, October 17, 2009). Protectionist practices continue to occur in the PRC, even after incorporation of the countries in the WTO free trade regime in 2001.

Until 2007, Indonesia's import value of China has reached 8.5 billion dollars the United States. This figure ranks second in the list of importers to the Indonesian State. Singapore occupied the first rank with a value of 9.8 billion U.S. dollars, while China became only the fourth largest export destination for Indonesia after Japan, U.S., and European Union.

Irony is still going on in the country. When viewed from the industrial production index medium and large in the first quarter of 2008, almost all sectors in manufacturing industry in Indonesia has decreased. There are only four sectors experiencing reinforcement, ie food and beverage industry, indsutri tobacco processing industry, leather goods and footwear, as well as furniture and other manufacturing industries.

This fact is shown in the weakening of credit growth to businesses and individuals during the month of November 2008 to May 2009 from 45 percent and 30 percent to 16 percent and 22 percent. This weakening of credit would have a negative impact for the prospects of industrialization in the future. This plus the percentage of bad loans (nonperforming loans) reached 4.5 percent in June 2009, this figure increased by 0.7 percent since December 2008.

Manufacturing and other business indicators can be seen from the symptoms of decline in sales of truck / pick up the identical used for business purposes. Compared with the year 2004 the sales reached 164 001 units (Gaikindo, 2008). Nevertheless, there is increased number of purchases from 2006 to the year 2007 with a number of large, namely about 60,000 units. That is, increased vehicle sales business inversely with the decline of manufacturing industry's performance indicates that consume a decisive factor. If it is assumed linear, then the predicted future growth of imports will increase rapidly to sustain a national consumption has also increased.

It is unfortunate that efforts to improve national economic performance has not reached expectations. Government stimulus package that provided only about 15.5 percent, including infrastructure support for lifting jobs such as irrigation projects, Perumnas roads, and ports. The majority of the government stimulus package of tax incentives aimed at which again will increase the consumption society

The inclusion of products from China would be more beneficial to him because of our domestic consumption is increasing, but at the same time dropping the national manufacturing industry of Indonesia. In fact, from all economic sectors contributing the gross domestic product of Indonesia, the manufacturing industry until the year 2008 still ranks first with a percentage of 27.8 percent. The second position was agriculture, animal husbandry, forestry, and fisheries with a percentage of 14.3 percent and third positions are trade, hotels and restaurants that reached 13.9 percent.

From here we can see that free trade has been executed in the year 2010 it will threaten our domestic industry. This was due to signing a free trade agreement between Indonesia and China without involving the industriwan which is the main actor in the competition.

The signing of the ASEAN Free Trade Agreement, China is without involving the industriwan, so most of the industries in our country there are still many who are not ready to face free trade agreement. It is ironic at all, the industries in our country are invited to pioneer from the bottom up to achieve agreement.

If not we see the state of readiness in the face of China's free market, they are already preparing to build the industry seriously. This can be seen from the already inadequate infrastructure development, energy industry strongly supports the activities, as well as mortgage interest is so low compared to Indonesia. Credit interest in China could reach 4% per year, and China also were deliberately weaken its currency exchange rates and tax incentives to industries in the country. This is in contrast with the real situation in Indonesia. Amid the incessant-insurgent in the face of free trade in Indonesia, the government is paying less attention to the readiness of our domestic industry. Many factors are considered important in supporting the competitiveness of our products are less serious attention by our government. High-interest loans, infrastructure is still inadequate, as well as other supporting factors that are considered very important that our governments need attention in addressing this.

If the infrastructure in Indonesia in the fix seriously, it can enhance the competitiveness of our domestic industry within the free trade deal. Inadequate infrastructure resulted in high costs to industrial production, causing entrepreneurs face many difficulties in competing products from China in free trade. The government is expected to fix a serious re-factors is a priority in improving the competitiveness of our industries against imported products poduk China to Indonesia.

Policies in response to CAFTA in Indonesia

There are several things that must be run by the government in addressing the policy of free trade agreement between ASEAN and China that have been enacted in Indonesia since January 1, 2010 then.

First, the government should fix the infrastructure back in Indonesia, because Indonesia's infrastructure development is still inadequate when compared to our opponents in the competition such as China.

Second, high interest rates which makes the heavy burden borne by our employers. For that the government needs to reduce re-lending rates by Bank Indonesia as the monetary authorities.

Third, governments need to promote love domestic products to their communities, because the products produced within the country has a quality that is not less the same as that produced from China, the spirit of nationalism, our society needs to be rebuilt.


2. JAPAN and INDONESIA (IJ - EPA)

Free trade agreement between Japan and Indonesia have agreed, in several important respects including:

a. Trade and investment facilitation:

- Joint efforts to improve the investment climate and enhance

Japan's level of confidence for investors;

- Cooperation in the field of customs procedures, ports and services

trade, IPR, standards

b. Liberalization: eliminate / reduce trade and investment barriers

(Customs duties, provide certainty of law);

c. Cooperation: an agreement for cooperation in capacity building

Indonesia thus better able to compete and utilize optimally

market opportunities from the EPA.

There are several advantages gained from a free trade agreement between Japan and Indonesia lainnnya:

1. Agreement by the Japanese market liberalization includes more than 90% of goods exported Indonesia to Japan, including industrial and agricultural products.

2. This commitment will provide equal opportunities to the Indonesian market in Japan in dealing with countries other competitors

3. These commitments provide benefits to some industrial products such as products that are labor intensive industrial sectors. Such as wood products, it is expected to increase production of Indonesian timber industry.

4. Commitments in the field of labor services (mode 4 - movement of natural persons) will provide opportunities for skilled workers such as delivery nurses, hotel and tourism sector workers, and sailors.

Investment Benefits of the EPA

Indonesia is one important destination for Japanese investment, although its rank as the country declined since the economic crisis. Largest flow is to the automotive sector / Parts, electrical / electronics and chemical sectors as well as office equipment. Indonesia can deepen the industrial structure by supporting industrial investment (Components, parts, mold and dies), in which the supplier of Indonesia can also develop with the facilitation of the Manufacturing Industry Development Center (MIDEC). Investment to develop the agricultural sector, fisheries and forestry Indonesia, where partnerships and the involvement of SMEs can be facilitated with

kerjasama.termasuk projects in the energy sector bio-fuels which will also be facilitated through cooperation projects.

In the field of services, the largest flow is to finance and insurance sector,

trade, transportation and real estate. EPA will also improve the business climate and encourage business confidence through the improvement / legal certainty for investors. Results of EPA and other investment policy package which is being conducted by the Government of Indonesia is expected to become the new legal framework and is important in increasing trust and providing better treatment and certainly (the Investment Act, Revised Tax Act and Customs), EPA expected gains will provide traction for foreign investors to invest in Indonesia.


Benefits of Cooperation in Capacity Building (Cooperation in CapacityBuilding)

In addition to agree to eliminate / reduce the import duty, the two countries

also agreed on cooperation in enhancing the capacity of manufacturers producing industrial products of agriculture, fisheries and forestry.

5 Aspects of Cooperation in the field of market access is an important aspect of the EPA, and

this is the reason why is called WTO plus. Such cooperation includes:

- Industry Development Centre focusing on Automotive Manufacturing, Mould and Dyes, and Welding.

- Cooperation to ensure the availability of Fisheries Resources in

sustainable (Sustained Marine Resources) are important in the cooperation and help Indonesia preserve marine resources

in the long term.

- Agribusiness will benefit from several projects such as the Development Center for Food and Beverage and other programs to small farmers and fishermen.

- Japan will extend technical assistance in a number of other important sectors (including energy, labor and skills training, manufacturing, agribusiness, fishery, export promotion and SME).

- Utilization of wood (small size) for the industry to assist the forestry sector industries.

Economic and technical cooperation in the field of training and research that will be discussed further.

Indonesia's ability as a country or regions as a region facing the globalization and free trade is highly dependent on the relative competitiveness of economic sectors in the country (region). Many ways can be used to measure the level of competitiveness of an industry or sector, which are commonly called Revealed Comparative Advantage (RCA) according to the formula of the Balassa Index. This index compares the share of exports of a product in one country (eg Indonesia or West Java, for example, views on the regional level) with a share of total exports of these products in the world (world market). Value index = 1 indicates that Indonesia has a relative advantage (high-level specialization) of the product, and vice versa if the value is smaller than 1 means that Indonesia's competitiveness for such products is low, below the world average.

Implications of trade between Indonesia and Japan are things that must be the concern of government with the approval of free trade agreements, particularly the readiness of the manufacturing industry which focuses on automotive and electronics in our country, as well as supporting factors in enhancing the competitiveness of Japanese products.

This policy can be used to expand the marketing of Indonesian industry and to transfer technology and increase state revenues, this agreement is expected to expand employment opportunities by investing in Indonesia's doing.