Free trade may not hurt small companies

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)