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.