FTA with China 'will deal a blow to manufacturing sector'

The Jakarta Post, Jakarta

Free trade between the Association of Southeast Asian Nations (ASEAN) and China will deal a blow to Indonesia's manufacturing sector, but provide opportunities for the nation's natural resources-based industries to expand their market in the world's most populous nation, industry players say.

They said there was a little chance of the local labor- intensive manufacturing sector being able to compete against China given its cheaper but more productive manpower.

Indonesian Chamber of Commerce and Industry deputy chairman for international economic cooperation, John A. Prasetio, noted that the nation's electronics and textile producers would be particularly worried about the prospects of greater competition from China.

"It's like an amateur trying to play against top tennis player Serena Williams. The amateur will definitely lose," John told The Jakarta Post on Wednesday.

However, as trade liberalization between the two areas would be implemented gradually, local firms still had some time to prepare tactics to survive the competition, he said.

Not all manufacturing products from Indonesia would be unable to compete with Chinese-made products, he said, citing for instance Indonesia's high quality fabrics and garments, which would still be able to compete on the global market.

As far as such products were concerned, Indonesia should prioritize getting these establishing in the Chinese market.

"Industry and the government must quickly study the opportunities and threats that will arise in respect of each commodity as a result of the FTA. Otherwise, it is a foregone conclusion that we will lose out to China, and other ASEAN members, especially Thailand and Malaysia," he said.

The leaders of ASEAN and China signed an historic free trade agreement (FTA) on Monday in Vientianne, Laos, that will pave the way for the two markets to integrate. If completed on time, the overall ASEAN-Chinese deal will result in the creation of the world's biggest free trade zone, covering nearly two billion people.

Under the FTA, most goods traded between the two regions will have tariffs slashed starting Jan. 1, 2005, to be eventually eliminated altogether by 2010.

There are, however, some exceptions. Nations participating in the FTA may submit lists of so-called "sensitive and highly sensitive goods" with regard to which liberalization will be postponed. In fact, such goods could be excluded completely from full liberalization.

The leaders of ASEAN and China agreed that for "sensitive goods", tariffs would be reduced starting in 2012 before being eliminated altogether by 2017, while for goods categorized as "highly sensitive", designated rates of import duties would remain in place after the full implementation of the FTA.

Indonesia has submitted a list of 398 categories of sensitive and highly sensitive goods, which includes rice, sugar, soybeans, corn, automotive components, textiles and garments, and ceramic tableware.

Separately, Indonesian Oleochemical Manufacturers Association (Apolin) chairman Kris Hadisoebroto agreed that local labor- intensive manufacturing industries would be incapable of competing against China given the low productivity of Indonesian workers.

"Indonesian workers are not as industrious as workers in China, Thailand and Malaysia," Kris told the Post.

He warned that in the near future, Vietnamese workers were likely to outperform Indonesians in terms of productivity in anticipation of the implementation of the FTA if Indonesia did nothing to improve productivity.

"We need to prepare our workers to face the ASEAN-China FTA, or else there will be another wave of lay-offs," said Kris.

Unlike manufacturing industry, the nation's agricultural and other natural resources-based industries would benefit from the FTA as these industries were not labor intensive, and thus not affected by labor productivity problems. China also had a big appetite for Indonesia's abundant natural resources, both raw and semi-processed, Kris said.

Total trade between China and Indonesia reached US$10.2 billion last year with a surplus of over $1 billion in favor of Indonesia. Crude palm oil, and wood and paper products are among Indonesia's top exports to China.