Experts say local industries not yet ready for AFTA

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.