Free trade and the national interests

Endy M. Bayuni, The Jakarta Post, Santiago

Is forging trade liberalization measures, at a time when the economy is still struggling to get back on its feet, really in the best interest of the nation?

President Susilo Bambang Yudhoyono definitely thinks so, which is why he traveled all the way to Chile last weekend -- spending 70 hours flying there and back, and less than 60 hours in its capital, Santiago -- to attend the Asia Pacific Economic Cooperation (APEC) summit.

The trip and the timetable of back-to-back meetings, which he himself described as "inhuman" because it left little time to rest, was part and parcel of his economic policy to bolster exports.

The economic rationale is as follows: Indonesia needs to increase its exports to accelerate annual growth of gross domestic product to the targeted 6 percent to 7 percent and create the millions of new jobs needed to curb its massive unemployment.

In today's complex world, trade is a multilateral game: If Indonesia wants to export, it must also open its markets to foreign goods.

In the past, APEC was one of the forums through which Indonesia negotiated to ensure mutually open markets with the 20 trading partners in the grouping. Although no agreement is legally binding, APEC members are morally obliged to abide by the deals they make, especially since they are all endorsed by their heads of state.

On the other hand, trade liberalization under the World Trade Organization (WTO) -- of which Indonesia is also a member -- is binding and the APEC summits have been used effectively to push negotiations at the WTO.

Indonesia has also entered into binding free trade agreements (FTAs) within the Association of Southeast Asian Nations (ASEAN). ASEAN, for its part, has established FTAs with its East Asian partners, Japan and China.

Indonesia cannot excuse itself easily from its free trade obligations, especially since Susilo, along with the 20 other APEC leaders, reaffirmed on Sunday at the end of the Santiago summit their commitment to the so-called Bogor Goals of setting up an Asia-Pacific free trade and investment area.

The goals, set out at the 1994 APEC summit in the West Java town of Bogor under the Soeharto administration, give a deadline of 2010 for developed countries and 2020 for developing countries.

The Asian financial crisis of 1997-98 had, however, put a damper on these earlier moves to dismantle trade and investment barriers among APEC member countries.

Meanwhile, a rising anti-globalization movement arose across the world in response to the negative impacts of trade liberalization measures: increased poverty, particularly for weak and marginalized groups, and a growing gap between rich and poor countries.

To further undermine the credibility of the free trade, many countries that once championed the concept, including the United States, imposed trade barriers such as extending subsidies to protect their industries and workers in response to political pressures.

Such consequences thus beg the question as to whether Indonesia should once again embrace free trade fully, the way it did in the 1990s.

Still fresh in the minds of many people is Soeharto's famous -- and now infamous -- remarks in explanation of his initiative to launch the 1994 Bogor Declaration: "Like it or not, and ready or not, we have to join free trade in this era of economic globalization."

Little could he know then that many would later hold him accountable for moving too soon and too fast in dismantling trade barriers, leaving Indonesia, like many other "Asian Tigers", vulnerable to speculative forces, especially in the financial and stock markets.

Indonesia, more than any other country in Asia, paid the heavy price of too much free trade, many anti-free trade economists and activists argue today.

Not so fast, said Aburizal Bakrie, the chief economy minister.

"The financial crisis would have happened all the same, with or without Indonesia moving toward trade liberalization measures in the 1990s," the Coordinating Minister for the Economy said in Santiago.

Indonesia did learn its lessons from that episode to be on a sure footing once again in embracing free trade now, he said.

Aburizal, formerly chairman of the Bakrie Group, said at the end of the day, the benefits of free trade still outweighed the risks, so Indonesia actually had only one course.

Susilo went one step further: "We will move forward with globalization. In the past, we failed to take full advantage of free trade and to curtail or minimize the excesses of globalization. We're not going to make that mistake again."

Indonesia can continue to embrace free trade and at the same time protect some of its industries -- and jobs too -- against imports by using the "injury clause" permitted under the WTO rulings. This is something that Indonesia had not applied enough in the past while other countries, including the U.S. and Europe, invoked them freely in the name of protecting national interests.

Susilo has thus ordered Minister of Trade Mari Elka Pangestu to come up with a new trade strategy, one that seeks to bolster Indonesia's exports.

But no export strategy -- no matter how well it is designed to tap free trade -- can change Indonesia's fortunes unless it is complemented and supported by other measures at home.

For one, Indonesian products must be competitive, and most Asian countries today inevitably benchmark their products against China, which can manufacture just about any and every product cheaply, more efficiently and of international quality standards.

This means Indonesia must eliminate the many factors that have hampered its economic recovery: corruption, legal uncertainties, market distorting subsidies, inflexible wage policy, rising labor militancy and poor economic infrastructure.

Implemented holistically -- that is, in the international and domestic spheres -- embracing free trade can be in the greater interest of the nation.

Susilo and his Cabinet must now return home from Santiago to face the daunting task of turning the dream of free trade benefits, including more jobs, increased income and greater prosperity for the people, into a reality.