FOR AFTA SUPPLEMENT Jan 31---

FOR AFTA SUPPLEMENT Jan 31--- CHECKED CHECKED 29 JAN ;JP;HEN; ANPAf..r.. AFTA-trade-speakup

JP/ /

It offers golden opportunity, but ...

The Jakarta Post

Many of Asia's protected industries are way beyond the infant stage, when they arguably needed special nurturing. Yet some still cling to protectionist tariffs like an overgrown child to a security blanket. Take the latest grumbling about the ASEAN Free Trade Area (AFTA), which aims to liberalize trade in the 10- nation grouping. Despite a recent agreement by ASEAN economic ministers to extend the schedule to 2002 from the original target of 2008, threats of delays lurk. Businessmen and government officials have generally agreed on the importance of developing ASEAN as a common market and single production base for member countries. However, they disagreed on when the trade pact should be fully realized. Below are some of their comments related to the free trade agreement.

Aburizal Bakrie, chairman of the Indonesian Chamber of Commerce: Indonesia needs to pull back from AFTA because the current domestic economic situation isn't yet conducive to such a move.

It is not the right moment to fully implement free trade liberalization in the region this year, although the region's economy needs AFTA to benefit from the rising business opportunities in the region.

The unified ASEAN market will, in fact, create opportunities to increase exports and to attract foreign investment. With lower labor costs, Indonesian exporters are in the best position to take advantage of relaxed tariffs in the region. And the threat of damage to local business is actually limited. Only 15 percent of Indonesia's imports come from ASEAN countries, representing about 2 percent of GDP. It is only a matter of time. Indonesia is not yet ready. Four business sectors, automotive, chemical, retail and food industries, for example, could lose from the free trade agreement.

For that reason, the government should be more flexible, by at least placing the four business sectors on the so called Temporary Exclusion List.

As Indonesia is still in a difficult situation, it should be given more time to enter the free trade agreement.

Rini Soewandi, Minister of Industry and Trade: Although not all Indonesian business sectors are ready to fully implement the free trade agreement, adopting the free trade agreement is not really a problem for some sectors.

The trade pact has been implemented since 1992 by a gradual reduction of import tariffs of respective member countries. It has also become a common commitment between business players and the government to stick to the trade agreement. Due to the economic crisis, many industries have called on the government to delay the full implementation of the free trade commitment until they fully recover. It is understandable then if some companies are worried. But from my observation, many industries are ready to implement the free trade deal. Of course, some industries might lose and there are also others that will win.

The fact that some ASEAN countries have imposed non-trade barriers to protect their goods despite their full commitment to the trade pact is normal. It is common -- even the European Community imposes, for example, a non-tariff barrier on Indonesian goods. The most important thing is that we have to find the solution.

Indonesia's non-oil exports to other members of ASEAN are still relatively small, indicating that Indonesian companies have yet to pay serious attention to increasing their trade in the region. The regional market is still relatively untapped by Indonesian companies.

Indonesia has no choice but to adopt the pact; if not, it will be left behind by other ASEAN member countries. Indonesian companies should, therefore, be aware of the need to improve the quality of their products and to promote their efficiency. If not, Indonesia will be flooded by goods from other ASEAN members, rather than getting a bigger slice of the expanded market.

Martha Tillar, the founder and chairperson of cosmetics producer Martha Tillar Group: The free trade accord offers a golden opportunity for companies in the region to raise their exports in the expanded market.

With the free trade agreement, ASEAN will become a single market for the region's companies. We no longer talk of Indonesia's 210 million people, but the whole region's population.

There is no exception. All the business players in the region should prepare themselves if they want to benefit from the expanded market. However, in order to take advantage of the wider business opportunities, every single company in the region should be able to offer products with superior quality. Otherwise, the trade agreement will only create a nightmare for them. Erwin Elias, a member of the council for the development of small-scale export-oriented companies (UKM): As long as there is no market distortion, Indonesian small-scale exporters will find the free trade agreement to be an opportunity to expand their foreign markets, particularly in ASEAN.

A market distortion, such as unofficial levies, has become a classic problem for Indonesian companies in competing with foreign producers. Such market distortions have eliminated the competitive edge of local products. In addition to the market distortions, financial institutions such as banks still lack a commitment to providing credits to small-scale companies. The banks' requirement that Jakarta-based assets be provided as the collateral to obtain loans is an example of the banks' half- hearted treatment of small companies.

Achmad Saifun, the chairman of the federation of car parts producers (GIAM): The issue related to the AFTA is not new at all. It was approved by member countries a long time ago. ASEAN member countries have also agreed to speed up the process of reducing import tariffs within the region to 0-5 percent this year, instead of 2008 as originally agreed. This is a long term process, which should have been followed by all business players in the region. For Indonesian auto-related companies, the free trade agreement adopted by the 10 ASEAN nations should be regarded as a light exercise before entering a wider scope of free trade agreements such as those implemented under the World Trade Organization (WTO).

In the case of AFTA, Indonesian companies are given the opportunity to compete with rivals of the same class before being engaged in a real fight on the global free trade market.

Lily Yuliani, a wood handicrafts producer: Small companies, which are mostly located outside Jakarta, have become easy prey for corrupt government officials. How could they compete with foreign producers if they have to pay various kinds of payments to almost all government institutions. It is really burdensome because the money spent on such payments is quite large. To obtain a license, for example, we have to pass through all levels of government agencies from the head of the village to those at the regency and provincial levels, and sometimes we have to go to Jakarta. It costs a lot of money for small firms, which mostly receive a slim margin from their export activities.