ASEAN-China trade has silver lining, minister says

Zakki P. Hakim, The Jakarta Post, Jakarta

Local industries here are anxious about anticipating in the launch of the biggest free trade area between the Southeast Asian grouping and China, but the government has given its assurance that it would be beneficial for the country.

Minister of Trade Mari E. Pangestu acknowledged that the cheaper Chinese products were posing a threat to local producers, especially the small and medium enterprises (SMEs).

"Therefore the government will assist SMEs, through partnership programs, capacity building and providing microcredit, in preparation for the free trade area," she told The Jakarta Post.

Moreover, she said that the government realized that Indonesia's competitiveness would depend heavily on its effort to curb rampant corruption and red tape, relax the rigid labor law, improve tax rates and administration, guarantee legal certainty and work on the country's ailing infrastructure.

Nevertheless, as the bulk of all goods traded would have their import duties gradually reduced to zero by 2010, the country's manufacturers still have time, albeit limited, to anticipate the full impact of ASEAN-China free trade area, she said.

She went on to say that China was strong, particularly because its manufacturers run in high economies of scale, therefore local producers should not compete in a head-on fashion.

According to the minister, the cost of labor in the countries was actually on a par, but Chinese workers were more productive. "We must not compete in the low-end consumer goods. We have to produce higher quality goods aiming at the medium-high segment," she said.

She said also that the country could and must develop its competitiveness, especially because Indonesia had a rich variety of abundant natural resources that China did not have.

Time might be up for China in enjoying efficiency from tapping state-of-art technology by dominating the world's foreign direct investments, as multinational firms had come to believe that it was too risky to put all their eggs in China alone.

"They will not rely on just one source. They will diversify their investments, including (placing them in) Indonesia. We have competitive labor, natural resources and don't forget our big market," she said.

The Indonesian Chamber of Commerce and Industry (Kadin)'s product development and marketing committee head Thomas Darmawan said that China was far more ready than Indonesia in embracing ASEAN-China FTA.

"They have new factories, built in integrated areas, producing low-end products ready to penetrate the ASEAN market," Thomas told the Post.

Certain industries would surely fall victim to the trade liberalization drive, although there are areas in which the local private sector could actually benefit from in the agreement through several ways, he said.

The country has to lobby and convince Chinese producers to use semi-processed Indonesian goods, and then keep informing them of the standards and demands of local consumers to ensure efficient trade, he said.

Indonesia has to be ready to facilitate Chinese manufacturers to expand production here.

"In order to do so, Indonesia must have a lobby team in China that moves to convince Chinese industry players. Thailand, Malaysia and Singapore have had such teams for years," said Thomas, who is also the chairman of the Indonesian Food and Beverages Association (GAPMMI).

Anton Supit, a top executive at the Indonesian Employers Association (Apindo) said that the 2010 liberalization schedule should provide more than enough time, but only if the government succeeded in waking up the local private sector.

"We have to admit the organization of local industry players is weak. Therefore, we cannot entirely blame the government if we are not ready to enter the trade liberalization era," he told the Post.