Follow-up deregulation aims at easing protectionism<\/p>\n
The government announced Monday a new deregulation package on
\nimports. While cautious about its implementation, economist Mari
\nPangestu argues that there are other means to achieve the
\nobjectives of the deregulation.<\/p>\n
JAKARTA (JP): The June 27 deregulation package appears to have
\ntwo major objectives. The first is the reduction of input costs
\nand facilitating the sourcing of inputs from domestic suppliers
\nin order to assist exporters and develop small and medium scale
\nindustries.<\/p>\n
This is evident from the tariff reductions on inputs such as
\nmachinery, parts, components and raw as well as processed
\nagriculture inputs.<\/p>\n
It is also evident from the improvement in regulations that
\nwill facilitate subcontracting of production and leasing of
\nmachinery from outside the bonded zones and Production Entrepot
\nfor Exports (EPTE). The value added tax on goods sold to bonded
\nzones and EPTE from outside has also been eliminated.<\/p>\n
These improvements answer one of the frequent complaints of
\nexporters with regard to the difficulties in sourcing
\ndomestically. Garment exporters for instance have indicated that
\nthey would source 20-30 percent more domestically if the
\nadministrative processing and costs were low.<\/p>\n
It was faster and cheaper for exporters to import and obtain
\nthe duty exemption than source domestically. In some cases the
\nproducts that they imported were actually made in Indonesia.<\/p>\n
The development of competitive domestic suppliers of parts and
\ncomponents is essential for the continued competitiveness of
\nIndonesia's manufacturing exports.<\/p>\n
Domestic industries that have to supply exporters, many of
\nwhich can be small and medium sized, can grow and learn by having
\nto meet the high quality needs of exporters who have to compete
\nin the world market.<\/p>\n
Many of these exporters will be foreign companies who can
\nsupply them with continuous information on changes in needs and
\ntechnology, as well as provide technical assistance. The
\nimprovements should also encourage foreign investment in supplier
\nindustries.<\/p>\n
However, the issue of processing the duty exemption for
\nindirect exporters still remains and needs to be resolved so that
\nthe linkage between exporters and domestic producers will grow
\nand strengthen.<\/p>\n
The second objective is to reduce protection by reducing
\ntariffs and phasing out non-tariff barriers and replacing them
\nwith tariffs.<\/p>\n
This is in accordance with the direction of trade deregulation
\nthat has taken place since 1986 and is thus not surprising.<\/p>\n
However, this package did not contain the expected significant
\nreduction in protection, either tariff reductions or elimination
\nof non-tariff barriers, that was expected in line with the
\nsubstantive investment package announced last month.<\/p>\n
The major barometer of progress in trade deregulation is
\nwhether non-tariff barriers or high tariffs in the agriculture
\n(e.g. rice, wheat, sugar, soybeans), food and beverage (e.g.
\nwheat flour), paper product and the automotive sectors are
\nreduced or at least phased out over some specified timetable.<\/p>\n
These are the sectors which continue to be the most protected
\nand once again there seems to be little progress in these areas.
\nWhile the tariffs on rice, sugar and wheat have been reduced to
\nzero, the non-tariff barriers still exist so that the price to
\nusers will continue to be higher than world prices.<\/p>\n
The users include not just final consumers, but most
\nimportantly the downstream users such as the food processing and
\npharmaceutical industries. The higher cost of inputs is often
\npointed out as one of the reasons for the lack of competitiveness
\nof these industries, not to mention the costs to final consumers
\nbecause of higher prices.<\/p>\n
A final word about approaches to trade liberalization. Since
\nlast year the government has indicated that there would be no big
\npackages anymore, but instead a number of smaller ones.<\/p>\n
This package is an example of such an approach. The difference
\nis that there is an explicit mention of gradualism: tariff
\nreduction will be done in stages with a minimum reduction of five
\npercent each time. There is also an attempt to \"curb\" new demands
\nfor protection by indicating that new entrants will not be able
\nto seek higher tariffs and be forced to follow the existing
\ntariffs.<\/p>\n
While one can question the implementation of this approach, it
\nis still a positive development. However, one should also be
\naware that there are other means to achieve the same ends. There
\nis a lot to be said for gradualism since too rapid a reduction in
\nprotection will lead to high adjustment and dislocation costs.
\nBut the issue is of course how gradually it should be done, and
\nhow transparent the process should be.<\/p>\n
There are alternatives to achieve the same objective of
\ngradual reduction in protection such as pre-announcing a schedule
\nof reduction of tariffs, as well as more importantly the phase
\nout of non-tariff barriers, over a certain period of time. This
\napproach makes the phasing out process more transparent and also
\nprevents new entrants from obtaining protection.<\/p>\n
Another way to proceed is to gradually reduce Indonesia's
\ntariff binding under the Uruguay Round commitment from its
\npresent level of 40 percent for over 90 percent of tariff lines.<\/p>\n
Policy-makers may have chosen the present approach because of
\nthe need to balance the interests of different parties that will
\nbe affected, both within the government and in the private
\nsector.<\/p>\n
However, there is also much to be said for greater
\ntransparency and a bold commitment to reduce protection. In the
\nfinal analysis, both government agencies and the private sector
\nwill have to adjust to increased competition and greater
\nopenness. Why not start now?<\/p>\n
The writer is head of the economics department of the Centre
\nfor Strategic and International Studies and a lecturer at the
\nUniversity of Indonesia.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/follow-up-deregulation-aims-at-easing-protectionism-1447893297",
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