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

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.