AFTA: A wake-up call for RI business

AFTA: A wake-up call for RI business

A'an Suryana and Fitri Wulandari, The Jakarta Post, Jakarta

Ira Murweni, a 34-year old housewife, strolled along an aisle in
a supermarket in South Jakarta. To meet her family's needs, she
goes shopping at least twice a month.

She recalled an interesting discovery.

"Since the beginning of last year, the price gap between
imported and locally made products has shrunk," Ira observed.

Susanna Merry, a 35-year-old housewife living in Bekasi, had a
similar view.

According to her experience, shampoo made in Thailand, for
example, was priced at Rp 6,000 (about 70 U.S. cents) for a small
bottle in supermarkets here, while her favorite, locally produced
brand is Rp 17,500.

She added that she could also find Thai-made clothes, which
are less expensive than locally produced clothes, at Mangga Dua,
a popular shopping center in Central Jakarta. not West or North
Jakarta?.

She acknowledged that the quality of the imported products was
good enough for her, and for a thrifty housewife like herself,
prices always mattered.

"I'm delighted about buying these imported goods, because the
price is more attractive and the quality adequate," she said.

Indonesia is now indeed under attack by foreign goods.
Imported juice, rice, domestic appliances and even small items,
such as needles, nails and others, can easily be found in
supermarkets throughout the country.

You may even find them along sidewalks, right below your very
nose -- at the Slipi intersection, on Jl. Matraman Raya, in
Glodok and at other places in Jakarta. Foreign products, from
China to Malaysia, are abundant, and much more competitive than
local products.

Inexpensive? Yes. Quality? Adequate.

This new trend should be warmly welcomed by consumers, who are
always on the lookout for better prices. But, for local
producers, who have always had a tough time competing with
imported products, the influx of imported goods has made their
lives even tougher.

Whether this new "Asian invasion" was due to the ASEAN Free
Trade Area (AFTA), or smuggling, was not clear.

However, as far as the products that are imported from ASEAN
member countries are concerned, the first explanation seems more
plausible.

The influx of goods from ASEAN countries started in January,
when AFTA was launched "softly". By Jan. 1, 2002, Indonesia had
cut import tariffs on more than 90 percent of 7,137 products in
the AFTA inclusion list to 5 percent or lower.

Only tariffs on the remaining 69 products, mostly chemical and
plastic products, were kept above 5 percent.

Yet, Indonesia must also cut the tariffs on the remaining 69
products to 5 percent or lower by Jan. 1, 2003, in line with the
AFTA agreement. Under AFTA, which was first conceived in 1993,
the six founding members of ASEAN -- Indonesia, Singapore,
Malaysia, Thailand, the Philippines and Brunei Darussalam --
promised to reduce import tariffs on all products in the
inclusion list to zero percent to 5 percent in 2003.

Newer ASEAN member states -- Vietnam, Cambodia, Laos and
Myanmar -- will implement AFTA between 2006 and 2010.

Local companies, which were troubled by imported goods even
before AFTA was completely implemented, now see more danger ahead
with 2003 only a few days away.

Some businesspeople in the country have complained that the
government's move to reduce tariffs was too hasty. According to
them, local industries were not yet ready to enter the AFTA era.

For example, president director of PT Indomobil Sukses
International Gunadi Sindhuwinata said that the government should
not have complied with AFTA on automotive components by 2002,
given that Malaysia and Thailand were still allowed to impose
higher tariffs.

Malaysia is set to reduce tariffs on automotive components to
5 percent in 2005 and Thailand will do so in 2003.

"Indonesia did it (reducing tariffs on automotive components)
in 2002. It has meant losses for us at a time when the country's
automotive industry is still struggling under the weight of the
financial crisis," he said, adding that the lower tariffs had
sparked off an increase in imported automotive components to
Indonesia.

Farchad Poeradisastra, director of PT Ciracasindo Perdana, the
producer of SunFresh juice, agreed, saying that the poor
investment climate in Indonesia had weakened local producers'
competitiveness under the AFTA scheme and had made Indonesian
products easy targets for foreign goods.

"Our production costs have soared because we also have to meet
higher and higher labor costs, illegal 'fees' to officials and a
lot of double taxation: taxes on luxury goods and tariffs on the
imported juice ingredients," said Farchad.

He lamented the fact that all the other ASEAN countries were
better places to invest, as they allowed producers to work more
efficiently and to make their products more competitive, compared
with Indonesian-made products.

Many businesses from all sectors have roundly criticized the
government for not better preparing local manufacturers for AFTA.
This, they said, was clearly evidenced by the fact that the
government had not published any information about the list of
items included in AFTA.

At a recent meeting of the Association of Soft Drink
Manufacturers, for example, several members of the association
conceded that they were entirely in the dark on which goods were
included on the AFTA list.

"AFTA will certainly hurt local businesses," Farchan, an
association spokesperson said.

However, he added, the government could act to contain the
damage by striving to create a good investment climate for
investors, both local and foreign, and by fighting to defend the
interests of local companies in regional talks.

"In these talks, the government should be more aggressive and
sometimes say no to proposals for imposing a free-trade scheme on
Indonesian goods, if we feel our products are not ready for it,"
he said.

"If the government fails, local businesspeople will simply
become traders rather than manufacturers in the future. They will
simply import goods and sell them here," warned Farchad, which
would mean massive closures of manufacturing plants that employ
millions of local workers.

"Indonesia still desperately needs people who want to be
producers rather than mere importers, because the manufacturing
sector creates many job opportunities," he added.

"If local producers scrapped their domestic manufacturing
plants and started importing and trading foreign goods, and local
consumers preferred buying foreign products, it would mean that
we, as Indonesians, would be mostly supporting the livelihoods of
foreigners, and not the children of our own nation," Farchan
concluded.