Accelerating AFTA

Accelerating AFTA

It is understandable that Indonesia was the most surprised by
Brunei's call for advancing the target date of the ASEAN free
trade area to the year 2000, because the nation is the least
prepared for the transition. No wonder, while member countries
such as Malaysia, Thailand, Singapore and the Philippines said
they would seriously consider the Brunei proposal, Indonesia
ventured a very cautious response.

Indonesia, as Industry Minister Tunky Ariwibowo said early
this week, will also study the proposal very carefully. But he
called for caution because the country, with a population of over
190 million, is the largest market among the seven-member
regional economic grouping.

It is simply legitimate for Indonesia to judge the Brunei
proposal primarily by its own national interests and not by the
objective of strengthening the economic competitiveness of ASEAN
in relation to other economic groupings.

When we talk about national interests we mean the
competitiveness or survival of manufacturing companies in a free
trade area where import tariffs stop at 5 percent.

But Sultan Hassanal Bolkiah's proposal also makes much sense
in view of the keener competition from other regional groupings
in Asia and Latin America and even foreign investment from the
potentially huge economies of China and India. After all, every
member has agreed that the primary objective of the ASEAN free
trade area (AFTA) is, at least for the first few years, to make
the region more attractive to foreign investment. Since Vietnam
was inducted last week, AFTA creates an inconceivable common
market of 420 million people.

But geographical proximity is not the most important
precondition for creating a free trade area. The stage of
economic development or economic competitiveness of the members
is the most crucial factor. It is therefore common within a
regional economic grouping that the pace of its cooperation
programs is determined by the least developed member, in this
case Indonesia -- which also happens to be the largest potential
market.

We saw it as very significant progress when Indonesia agreed
to advance the creation of AFTA from its original target of 2005
to 2003, as agreed by the ASEAN summit in Singapore in January
1992. It is also encouraging to note that Indonesia is truly
committed to the new AFTA time table, as shown by its May package
of economic reform measures which firmly schedules the gradual
reduction of all import tariffs to a maximum of 5 percent by the
year 2003.

AFTA could actually be used by Indonesian companies to test
their competitiveness before entering more developed markets.

But the proposal for further accelerating the AFTA time table
by three years seems to be unfeasible. Indonesia has introduced
numerous reform packages to improve the efficiency and
competitiveness of its economy. But a great deal more has yet to
be done to further improve its economic efficiency to be on par
with other ASEAN countries.

Other ASEAN members should also realize that the cause of
Indonesia's high-cost economy, such as arduous licensing,
bureaucratic inefficiency which borders on inertia, inadequate
physical infrastructure, and market distortions such as quasi-
monopolies and oligopolies, are not merely economic problems.

Many market barriers in Indonesia are more political in
nature. Therefore, the pace of economic reform is often not
dictated by economic imperatives like international competition,
but by what the highest political leaders' perceive to be
politically feasible right now and what they believe should be
postponed.