Experts say local industries not yet ready for AFTA
Adianto P. Simamora, The Jakarta Post, Jakarta
The full implementation of the ASEAN free trade area (AFTA) on Jan. 1, 2003 will further hurt already weak local industries as they remain unprepared to face open competition, experts warn, blaming Indonesia's worsening investment climate.
"Frankly speaking, we are not yet ready to face competition next year, mainly due to the unfavorable investment climate here," Soy Pardede, a senior official at the Indonesia Chamber of Commerce and Industry (Kadin) told The Jakarta Post on Sunday.
The five other Association of Southeast Asian Nation (ASEAN) member countries to slash import tariffs on almost all products under the AFTA scheme early next year are Brunei, Malaysia, Singapore, the Philippines and Thailand.
Soy said the unfavorable investment climate had hindered local industries from improving their competitiveness and efficiency, thus making their products more expensive than that of their regional competitors.
"Poor competitiveness is our main problem now," Soy said.
He said the government's aggressive tax policy, by imposing various taxes such as the value-added tax and luxury tax on local-made products, had made local products more expensive.
Other long-term problems faced by local industries here included labor conflicts, security concerns, a weak legal system and poor implementation of the regional autonomy policy, he said.
Sri Adiningsih, an economist at Gadjah Mada University, shared Soy's opinion, saying the problems had made local industries unready to compete against cheaper imported products from other countries.
"The competition will be very tight as most ASEAN countries produce similar products. Unfortunately, we are in a difficult position now," Sri said.
By slashing import tariffs, Sri said cheaper products from neighboring countries would further penetrate the domestic market.
Sri urged the government to step up efforts to help boost the competitiveness of local products.
AFTA was agreed upon in 1993, with the implementation of the free trade scheme initially scheduled for 2008. The timeframe was later accelerated to 2003.
But ASEAN ministers agreed in 1998 to bring the second deadline forward and started cutting import tariffs on many products in January this year.
Under AFTA, the six founding members of ASEAN will reduce import tariffs on all products in the inclusion list to between 0 percent and 5 percent next year.
The four other ASEAN members -- Vietnam, Laos, Cambodia and Myanmar -- are to be allowed to delay their tariff reductions until between 2006 and 2010.
The inclusion list is the list of products that all ASEAN members have agreed to be included in the tariff reduction program in the first year of AFTA.
Indonesia registered 7,206 items in the inclusion list.
Import tariffs on 7,137 items have been set at between 0 percent and 5 percent since January 2002, while the tariffs on the remaining 69 products, mostly chemicals and plastics, are still above 5 percent.
ASEAN agreed to allow its members to delay imposing lower import tariffs on several products until 2003 under its flexibility scheme.
Indonesia proposed delaying the inclusion of the 69 items in the hopes the related industries could improve competitiveness.
Aside from the inclusion list, there is also the sensitive list, containing products considered "sensitive", including rice and sugar, for which ASEAN members have agreed to delay tariffs until after 2010.
The government has repeatedly said that AFTA would bring benefits rather than losses to the country's industries as the country could boost its exports to other ASEAN countries.
The government is determined to slash import tariffs on all products to between 0 percent and 5 percent next year in line with AFTA requirement.