China, ASEAN to begin FTA despite business anxieties

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.