Free trade set amid protection talk

Free trade set amid protection talk

JAKARTA (JP): The government continues to brush aside debate over the proposed tariff protection for a US$1.7 billion olefin plant, but has reaffirmed its determination to implement a free trade system.

"We have discussed with the President our preparations for free trade as called for by the Bogor Declaration of APEC leaders and for a new multilateral trading system under the World Trade Organization (WTO) treaty," Coordinating Minister of Industry and Trade Hartarto told reporters after a meeting with President Soeharto yesterday.

Hartarto was accompanied by Minister of Trade Satrio B. Joedono, Minister of Industry Tunky Ariwibowo and Minister/State Secretary Moerdiono.

The Bogor Declaration, drafted by Indonesia, was adopted by the leaders of the 18 member economies of the Asia Pacific Economic Cooperation (APEC) forum in November.

The Declaration, although legally non-binding, aims to create the largest free trade zone in the world. It stipulates that its developed member economies members should adopt free and open trade and investment by 2010 and the emerging ones by 2020.

The APEC members are scheduled to hold another forum in Osaka, Japan, next November.

Indonesia also signed and ratified the WTO treaty last year. The treaty stipulated that signatories must lower tariffs and eventually abolish all non-tariff barriers by early next century.

"We hope to reach a decision in Osaka on how the Bogor Declaration is to be implemented," Hartarto said.

Hartarto said that Indonesia must take full advantage when the developed members of APEC fully liberalize their trade and investment in 2010.

"By that time there will be a faster restructuring of the developed nations' economies. This will prompt them to increase their investments in the emerging economies including Indonesia," the minister added.

The country registered a record level of approved foreign investment in 1994 of US$23.7 billion, more than double the 1993 level.

Chandra Asri

Hartarto, who was recently appointed as the chairman of the country's tariff task force, declined yesterday to elaborate on the status of the proposed tariff protection for PT Chandra Asri Petrochemical Center's olefin plant.

"We are still assessing the proposal," he said.

Hartarto, while stating that Chandra Asri executives had not formally submitted their proposal for protection, said that "protection is possible as long as it does not adversely affect the downstream industries."

Debates on protectionism surfaced when Chandra Asri executives urged the House of Representatives in early December to support their proposal for the imposition of up to 40 percent import tariffs on olefin products, the basic materials for plastics.

Chandra Asri is controlled by the Napan Group, Barito Pacific Group and Bimantara Group, all of which are believed to have strong political connections.

Advocates of the olefin project have argued that the proposed protection will not harm downstream industries and is consistent with Indonesia's free trade commitments.

While it is not clear whether tariff protection had been accounted for in the feasibility study on the olefin project, proponents of Chandra Asri have called the project a "measurement of national pride."

The controversy over the proposed protection intensified when Minister of Finance Mar'ie Muhammad, who opposed tariff protection for the olefin project, was later replaced by Hartarto.

The olefin project, financed mostly by foreign loans, has become a controversial issue ever since its pre-development stage. The government, anxious about the widening current account deficit, ordered in 1991 that all major projects, including the Chandra Asri olefin project, be shelved.

The project was, however, revived in 1992 after it was restructured into a wholly foreign-owned venture, thereby ducking legal restrictions on overseas borrowings by Indonesian companies. (hdj)