China, ASEAN to begin FTA despite business anxieties

Zakki P. Hakim, The Jakarta Post, Jakarta

Starting on July 20, Indonesia and five other members of Association of Southeast Asian Nations (ASEAN) begin the journey of entering a free trade agreement (FTA) with China -- creating a massive single market of approximately 1.8 billion people.

Despite anxieties from domestic businesses here, the top six economies of ASEAN and China are to start slashing their import tariffs by up to 85 percent on all their goods and gradually reach a zero-tariff level by 2010.

The other five countries are Singapore, Malaysia, Thailand, the Philippines and Brunei Darussalam.

There are 5,255 groups of commodities traded between ASEAN countries and China.

Under the "Normal Track I and II" scheme, Indonesia has 4,192 (track I) and 263 (track II) groups of goods concurrently in the trade liberalization drive that would have their tariffs gradually cut to zero by 2010 and 2012 respectively, Ministry of Trade said.

Ready or not, the free trade implementation has already ignited skepticism and protests from observers and particularly, industry players.

Learning from the implementation of the "Early Harvest Program" -- a prelude of sorts to the liberalization scheme that ASEAN and China had agreed to enjoy before going into the main course of the Normal Track -- some, if not many, local stakeholders reportedly have a lack of understanding about the trade liberalization concept.

Some local industry players, in an apparent move to prevent Chinese products from penetrating the Indonesian market, recommended to the government not to include some of their products in the liberalization drive.

A move the industry players eventually regretted, after they realized that neighboring countries enjoyed wider market access to China for the very products they tried to protect.

At least two associations have requested that the government lobby China to include their left-out commodities, namely a crude palm oil derivative product of stearic acid and several cacao products, since the EHP started in Jan. 1, 2004.

Under the EHP, Indonesia agreed to start slashing tariffs on 449 groups of farm products to eventually reach zero by Jan. 1, 2006.

The government should be prepared for more "stearic acid cases", as the normal track program is 10 times bigger in the number of commodities involved.

The problems could occur from the differences between each countries' lists of sensitive and highly sensitive sectors.

Indonesia's list of sensitive sectors consists of 304 tariff categories covering among other things, the automotive and electronics industries, as well as their component industries, a few branches of the textile industry and the chemical industry.

Meanwhile, the highly sensitive list consists of 47 tariff categories that include rice, sugar, soybeans, corn and several other food staples.

The sensitive groups of products would have their tariffs slashed starting in 2012 to reach a level between zero and 5 percent by 2020, while highly sensitive goods may maintain their import duties but only to a maximum 50 percent in 2020.