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.