Towards a free trade nation<\/p>\n
The following is an excerpt from a paper by Ali Wardhana
\npresented at the seminar of "Indonesia and the World at the
\nBeginning of the 21st Century" jointly organized by The Jakarta
\nPost and the Centre for Strategic and International Studies on
\nOct. 17 in Jakarta in connection with the 50th anniversary of
\nIndonesia's independence. This is the first of two articles.<\/p>\n
JAKARTA (JP): Indonesia began the process of securing the
\ngains from integration with the global economy a long time ago.
\nFor twenty five years, for example, we have had an open capital
\naccount. The lack of exchange controls meant that we could
\nbenefit from the growing and increasingly sophisticated
\ninternational capital markets. The results are reflected in the
\nbooming foreign direct investment figures, and in the more recent
\ninflows of foreign funds into our stock exchange.<\/p>\n
Integration with the world economy accelerated in the mid-
\n1980s, when we took actions to open our domestic market to
\ninternational competition, and to encourage firms here to compete
\nin export markets. By and large, these actions were independent
\nof international trade or investment agreements. We reduced
\ntariffs, non-tariff barriers, and investment restrictions
\nunilaterally and voluntarily because doing so was in our
\ninterest; because we recognized the benefits of free trade and
\ninvestment for our economy.<\/p>\n
We were driven especially by the need to diversify our
\nexports. At that time we were heavily dependent on oil and gas,
\nwhich made up over three-fourths of our foreign exchange revenue.
\nThe success of the effort is apparent. In 1984 exports of
\nmanufactures amounted to less than US$2 billion and accounted for
\nless than 8 percent of total exports. By 1994 less than one-
\nquarter of our foreign exchange came from oil and gas.
\nManufactured exports had risen to over $20 billion and accounted
\nfor more than half the total value of exports.<\/p>\n
Along with the boom in manufactured exports, the structure of
\nour economy underwent a transformation. In 1983 manufacturing
\naccounted for just 13 percent of GDP, while mining accounted for
\n21 percent and agriculture for 23 percent. By 1994,
\nmanufacturing's share had risen to 24 percent, while mining's
\nshare had fallen to 8 percent and agriculture's share to 17
\npercent. Less than half of labor force is currently employed in
\nagriculture, a major milestone in development. As a result of
\nthis progress, Indonesia is well on its way to becoming a newly
\nindustrialized nation.<\/p>\n
Although Indonesia began the journey towards free and open
\ntrade and investment long before the Bogor Declaration or the
\nUruguay Round, and will continue on this journey with or without
\nprogress on international agreements, building through
\ninternational agreements has many advantages.<\/p>\n
One advantage is that it is obviously better for us, and
\neasier, if other economies move toward free trade and investment
\nat the same time as us. As the Economist magazine recently noted,
\n"thinking of free trade as a concession to others, rather than a
\nboon for one's own citizens, is a cardinal error of trade
\ndiplomacy." Nonetheless, getting together with like-minded
\neconomies to discuss ways to lower trade barriers simultaneously
\nmagnifies the gains for all concerned.<\/p>\n
Also, important, regional agreements can be especially helpful
\nin our efforts to cooperate to counter some of the risks
\nassociated with the global economy. We believe that like-minded
\ncountries that trade intensively with each other can cooperate to
\nreduce the instabilities that can emerge.<\/p>\n
For all these reasons, we are committed to the progress of
\nAPEC and AFTA, as well as the WTO. Since it is so timely, with
\nthe Osaka meetings coming up soon, let me turn to APEC.<\/p>\n
The decision taken at last November's APEC meeting in Bogor to
\nrealize free and open trade and investment in the Asia-Pacific no
\nlater than the year 2020 was potentially the most far-reaching of
\nall recent international economic agreements. Although the
\nvarious rounds of the GATT involved more nations than APEC and
\nmade major gains in reducing trade barriers, the GATT never had
\nthe goal of establishing free trade and was not much concerned
\nwith investment. If the Bogor vision can be translated into
\nreality, and in particular if concrete and meaningful measures
\ncan be agreed upon for moving toward free trade and investment
\nwell in advance of the twenty-five year deadline, APEC will live
\nup to its historic potential. Initiating this process will be the
\nchallenge for next month's APEC Economic Leaders meeting at
\nOsaka.<\/p>\n
Not only must we make progress on the steps we will take to
\nimplement the Bogor Declaration; we must do so while maintaining
\nconsistency with the fundamental APEC principle of "open
\nregionalism." The Bogor Declaration explicitly rejects the notion
\nof creating an inward-looking trading bloc, and asserts that
\nbarriers will be reduced not just among APEC members "but also
\nbetween APEC economies and non-APEC economies."<\/p>\n
Encouraging the principle of "open regionalism" is important
\nfor Indonesia, as some of our major export markets are in Europe
\nand North America. Adherence to this principle helps limit the
\ntrade diverting tendencies of regional trade blocs, such as the
\nEU and NAFTA. Maintaining "open regionalism" encourages others
\nnot to build exclusionary trade blocs.<\/p>\n
Indonesia's commitment to an open world trading system can be
\nseen from the non-discriminatory way that we have been lowering
\nour own tariffs. We have adhered to the most favored nation
\nprinciple in all our deregulation packages. Within AFTA, we have
\nsupported the creation of a free trade area, rather than a
\ncustoms union or a common market so that there is no risk of
\nAFTA's becoming inward looking, with a common external tariff to
\nkeep out goods from the rest of the world. In line with this, our
\nmost recent deregulation package generally followed the AFTA
\nschedule, but made the benefits of tariff reductions available to
\nall, members of AFTA and non-members alike. We will continue to
\nurge other APEC members to reduce their trade and investment
\nbarriers in a way that supports the world trading system.<\/p>\n
Not all of the issues that APEC must eventually resolve can be
\nsettled next month at Osaka. However, Indonesia will seek
\nsubstantial progress in order to live up to the visions of the
\ntwo previous APEC Leaders meetings -- at Seattle and Bogor -- and
\nto prevent APEC from losing its momentum.<\/p>\n
Indonesia can also support the APEC process by living up to
\nthe principles embodied in our existing international agreements.
\nWe cannot resort to the easy -- but costly -- policies of
\nincreasing barriers to import competition when we have, or want,
\nan industry that is not efficient by world standards. On the
\nother hand, our commitment to free and open trade and investment
\nmay require special attention to policies that help small and
\nmedium businesses, including small retailers, adjust to
\ninternational competition.<\/p>\n
Our commitment to a fair world trading system also means that
\nwe cannot subsidize our exports. Consequently, we cannot counter
\nhigh costs caused by inefficiency at the firm level or due to
\ngovernment red tape. This will force us to push ahead with
\nderegulation, to reduce the number of bureaucratic hurdles that a
\nbusiness faces in establishing itself and in its day-to-day
\noperations. But it also means that we will have to do a better
\njob in carrying out those functions that government must perform.<\/p>\n
The growth of a rules-based world trading system also prevents
\nus from being inward looking with respect to investment. World
\nTrade Organization rules restrict "trade related investment
\nmeasures". Under these rules, for example, we are committed to
\neliminate domestic content requirements. This will again mean
\nthat we will not be able to rely on administrative solutions that
\nencourage inefficiency. Rather than telling investors what they
\nmust buy and from whom, we will have to make our products
\nsufficiently attractive that firms will want to buy them. In
\nfact, we know that firms such as shoe exporters are constantly
\nseeking local suppliers of their inputs; this, without government
\npressure.<\/p>\n
Sometimes they are constrained by the costs and quality of
\nsome local supplies. We believe that domestic suppliers will
\nincrease their efficiency and their quality as protection
\ndisappears. But again, government must also stop burdening these
\nsuppliers with extra costs in the form of unnecessary regulations
\nand in the form of delays and costs in obtaining tax and tariff
\nrebates, for example.<\/p>\n
The growing mutual commitments within APEC will lead us toward
\nmore open policies on foreign investment. The vision of a region
\nopen to investment flows will eventually mean that our procedures
\nfor approving foreign investment will have to be transparent. The
\nrules will have to be clear and open for all to examine. In fact,
\nwe will probably find ourselves considering the implications of
\ngrowing competition for foreign investment, and the actions of a
\nnumber of other developing countries in removing the hurdle of
\napproval for all, or at least for broad classes of foreign
\ninvestment.<\/p>",
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