Free trade may not hurt small companies

JAKARTA (JP): Free trade in the next century may not hurt small-scale companies as much as is feared as long as they can still capture the lower market segment, an economist has said.

National Institute of Sciences' researcher Mahmud Thoha said yesterday that a study he did showed that free trade, due to take effect regionally in 2003, might not affect small companies very much, because they would still dominate the lower market segment in the country.

"As long as lower-income people still count more than those with higher incomes, market shares will be dominated by cheaper domestic products and services, most of which will be produced by small-scale companies," he said in a seminar.

Mahmud, a researcher from the institute's economic and development division, said much of the population had relatively low incomes and who could only afford cheap shoes, clothing, furniture and other products.

This market segment would not benefit large and international industries, he said.

He said free trade might even increase the export of small companies if exports were through partnerships with large companies, and if domestic products were relatively cheap and equal in quality with foreign products.

Mahmud based his study on a survey of 115 small export companies.

However, he said the companies faced obstacles with the increase in exports, such as a high interest rate, long bureaucratic procedures and illegal levies.

He said the interest rate was higher because of the country's high inflation.

"As long as our inflation rate remains the highest regionally, our banks will not be able to compete with the lower interest rates of other regional countries.

"And there goes the chance for our small companies to compete internationally," he said.

Mahmud said the long, bureaucratic procedures they had to hurdle to export their products impeded their activities and prompted them to pay illegal levies.

"There needs to be a regulation which sets the length of bureaucratic procedures, so that officials will not impose illegal levies on exporters due to uncertainty," he said.

Another researcher, Jusmaliani, said yesterday that the country's companies not only faced external pressure from the free trade arrangement, but also from the continuing practices of oligopolistic and monopolistic trade at home.

"Many industries with monopolistic and oligopolistic structures cause inefficiency and therefore they lower competitiveness in the international market," she said.

This was shown in industries dominated by a single company or group, which made it hard for other companies to enter the market, she said.

Jusmaliani said the government needed to establish an antimonopoly law soon, to regulate domestic competition, since many other countries had already adopted similar laws. (das)