Govt rejects appeals for AFTA delay

Adianto P. Simamora, The Jakarta Post, Jakarta

The government reminded struggling industries here that it remained committed to lowering more import tariffs next year, as it rejected the chemical and textile industries' appeals for exemptions from the ASEAN free trade deal.

The Ministry of Industry and Trade's director general for regional cooperation, Budi Darmadi, said the government remained committed to the 1998 Asean Free Trade Agreement (AFTA) it had signed.

"Like it or not, we have to lower our import tariffs to between zero and five percent next January in line with AFTA requirements," Budi told The Jakarta Post on Wednesday.

He said the government had refused to protect the petrochemical industry for another year from lower trade barriers under AFTA, which came into effect this year for a number of products.

It also turned down appeals by the textile industry that it be given more time to prepare itself against falling trade barriers next year, Budi added.

Member countries of the Association of South East Asian Nations (ASEAN) agreed in 1998 to gradually cut import tariff rates to between zero and five percent.

In effect since the start of this year on a wide range of products, AFTA aims to expand its product coverage gradually over the coming years.

The government's determination to commit itself to AFTA comes against the backdrop of landmark deals for creating free trade zones binding the ASEAN markets with China, Japan and India.

China led the move by clinching a deal with ASEAN leaders on Monday to lay the groundwork for the world's largest free trade zone by 2010. Japan and India jumped on the bandwagon, and signed similar deals with ASEAN a day later.

Analysts said that the free trade deals, although milestones, would be unrealizable if AFTA failed to live up to its promise.

Indonesia, like other ASEAN members, has backtracked on several items which should have been covered by AFTA tariffs. These involved a total of 66 items this year, including chemical products.

Budi explained that a flexibility scheme allowed countries to delay the imposition of AFTA tariffs but added, "we can't easily delay such agreements. "

He said that backing away from the agreed AFTA terms would erode investor confidence in this country. Indonesia also had to pay other countries compensation if it wanted to exempt products from the AFTA list, he said, but did not elaborate on the compensation required.

But, the opposition to AFTA has been determined. A number of business associations have claimed they would not be ready for import competition if trade barriers were torn down, and warned that doing so would impact on the local economy.

The Indonesian Textile Association (API), whose industry will be covered by AFTA starting next January, said it needed at least another three years to bolster its competitiveness.

The API's head of international relations and foreign trade, Sunjoto Tanudjaja, said the 1 January deadline was too soon.

Textile producers have been plagued by a slump in global markets, and rising labor and energy costs.

For now, their products are shielded from overseas competition by 20 to 30 percent import tariffs.

A surge of smuggled textile products has also exposed many textile producers to a supply glut at home, and Minister of Trade and Industry Rini M. Soewandi once sought to raise the import tariff to 40 percent on garments.

Elsewhere, local chemical players have been urging the government to defer yet again AFTA's application to their industry, claiming that many firms were mired in financial troubles and had difficulties upgrading their technologies to match those of their competitors.