Geared up for free trade

The conclusions of many studies on whether, and how much, any country or groups of countries will benefit from the new multilateral trading system under the new General Agreement on Tariffs and Trade vary widely on most issues. But almost all the studies, including those by the World Bank, the Organization for Economic Cooperation and Development (group of developed countries) and the United Nations Conference on Trade and Development, share one point of view.

According to this view, at least within the immediate future, many least developed countries may become the losers or at least will encounter additional difficulties due to the erosion of the preferential treatment they have so far enjoyed and the keener market competition generated by a more disciplined, free and open trading system.

However, instead of preoccupying ourselves with worries about the pessimistic projection, we share the positive thinking of Minister of National Development Planning Ginandjar Kartasasmita. He told a seminar on Tuesday that the gloomy estimate should not be taken as a final verdict but simply as a challenge to cope with. Ginandjar is even confident that Indonesia will be able to create opportunities out of the challenges if it makes the necessary adjustments immediately. Indeed, the new GATT, which will come into force under the administration of the World Trade Organization in January, cannot be expected to satisfy all of its 120 member countries at the same time. Thus, it has both positive and negative points.

The benefits: World trade will expand substantially as a result of the liberalization that will develop an open, free global trading system with minimum tariffs and non-tariff barriers. Economists estimate the additional global income to accrue from the expanded trade at between US$220 billion to $235 billion annually beginning in the year 2002. The enforcement of the GATT rules on safeguard measures, subsidies, countervailing measures and anti-dumping practices will enhance a more disciplined multilateral trade, thereby protecting the least developed countries from unilateral actions and various other unfair trading measures which were often used by the major trading nations to protect their industries.

In so far as Indonesia is concerned, the biggest challenge obviously is how to maintain the competitiveness of its exports in the increasingly keener global market competition. The task will be made even more formidable because, as the competition in the export market becomes much keener, the competitive advantages of several of Indonesia's major export goods, notably textiles and garments, electric appliances and several other light industrial products, are being challenged by other exporters which offer cheaper labor costs such as India, Pakistan, Bangladesh, China and Vietnam. Ginandjar expressed a great concern especially over export goods which are produced by what he called "foot-loose industries", meaning manufacturing plants which depend largely on imported raw materials.

The most effective way for Indonesia to gear up for the new multilateral trading system, therefore, is to continue the economic reform measures or what Ginandjar termed as structural adjustments. That calls for more concerted efforts to improve the overall efficiency of the economy through market forces induced policies and other pro- business measures. Efficiency is the name of the game, especially because the process of economic globalization will gradually integrate the global and the domestic markets.

An efficient economy and a pro-business atmosphere will enable Indonesia to attract more foreign investors who are needed to help Indonesia to make inroads to the export market of higher value-added goods. A bigger inflow of direct foreign investments also will contribute to expanding Indonesian exports, in view of the increasingly significant role of intra-company transactions in international trade.

Hence, the government and the private sector should take stock of the new opportunities and challenges to be generated by the new rules and procedures of the GATT and work together to make the necessary adjustments in order to become better players in the new market game.