Mon, 17 Oct 1994

Example for APEC members

Two significant approvals by the House of Representatives (DPR) last week deserve more praise than they were given.

One was the decision to amend the 10-year-old taxation system. The amendments will basically expand the functions of this country's taxation system beyond its previous revenue providing and income redistributing functions, to include resource reallocation.

The other was its approval to ratify the establishment of the World Trade Organization (WTO) which will administer the new General Agreement on Tariffs and Trade (GATT), hopefully by January next year. This ratification basically will thrust Indonesia further into the global, open and competitive market economy.

The two approvals complement each other.

The new taxation system will provide an additional tool to engineer the country's economy in coping with the ever-growing domestic, socio-economic requirements, as well as adapting to the fast-changing external economic conjunctures.

The WTO ratification will allow more Indonesian exports to enter the markets of industrialized countries, while at the same time it will require more opening of the country's market economy to global competition, which will consequently make it more competitive in the global arena.

Both are basic prerequisites for Indonesia if it hopes to achieve its not-too-ambitious development goals as set out by President Soeharto for the next 25 years. Quadrupling today's per capita income to around US$2,660 by the year 2019, or eradicating poverty completely within the next decade, are no simple tasks. But they are not impossible to achieve, if this country could benefit from the huge resources and market potential provided by a more open global economy.

The new GATT was signed by some 125 countries in Marrakesh, Morocco, in April after more than seven years of tough negotiations - known as the Uruguay Round - on freer trade of goods and services. It will replace the "old" GATT, set up in 1948 as a temporary body pending the creation of an International Trade Organization (ITO).

Some estimates project the total global value of the trade liberalizations at an annual US$755 billion in additional trade by the year 2002 as a result of the new GATT. That goal however, will not materialize if the signing of the new GATT is not followed up by the required ratification by member countries' legislatures. According to the latest data available, so far only 26 member countries have ratified the agreement. Many others are still deliberating on the ratification, wrongly concerned about the possibility of WTO becoming a super-government empowered to make decisions that are legally binding on member countries even if made against their will. Not a few seem to be stalling in the hope of squeezing more from their trading partners while simultaneously letting off less from themselves.

And even more discouraging, most major trading powers like the United States, Europe and Japan have not ratified the agreement. It is ironic since the U.S. has been such a driving force since World War II for free trade. And it reminds one of the fate of ITO which was sunk by U.S. congressional opposition.

It won't be easy either for Indonesia to accommodate the full implications of the new GATT. Several points of the Marrakesh Declaration, as pointed out by Minister of Trade Satrio B. Joedono after the signing of the agreement, do not meet Indonesian expectations. Indonesia however, cannot afford to miss the vast opportunities offered by the agreement, which among others opens the door for the country to become the fifth largest economy in the world by the year 2020 in terms of gross domestic product at purchasing-power parity as estimated by the World Bank.

It is more than justified for Indonesia to thrust this ratification as a good example for other members of the Asia Pacific Economic Cooperation (APEC) forum, which will hold its second leadership meeting in Bogor, West Java, next month.