Sat, 23 Aug 2003


Can Indonesia benefit from WTO membership?

Muhammad Sauri Hasibuan Researcher Fortech Consulting Jakarta

The World Trade Organization (WTO) replaced the General Agreement on Tariffs and Trade (GATT) in 1995. Compared to the GATT, the WTO is much more powerful as it has a legal and institutional foundation, backed by a dispute settlement system. Countries which do not abide by the trade rules are taken to court and can eventually face retaliation.

Today the WTO has 132 members with another 31 in the process of accession, 98 out of 132 members being developing countries, and 27 of the developing countries are classified as least developed countries (LDCs).

Yet the results for developing countries, particularly Indonesia, have been at best mixed and in many cases damaging. While it sets out to be a democratic institution, the WTO is dominated by the leading industrialized countries and by the powerful corporations within those countries.

The logic of commercial trade drives the WTO. The development goals articulated when the GATT was first formed have been put aside, or wrongly assumed to be the natural consequence of increased trade. The WTO, is at present mainly about fast track trade liberalization in the sectors and products benefiting those with power in the institution.

Indonesia and other developing countries have little power within the WTO framework for the following reasons. First, while Indonesia and other developing countries make up two-thirds of WTO membership and by their vote can influence the agenda and outcome of the trade negotiations, developing countries such as Indonesia have never used this to their advantage.

The Indonesian economy in one way or another is dependent on the United States, the European Union and Japan in terms of imports, exports, aid, security etc.

Hence, while many countries may be opposed to an agreement, as was the case with the Trade Related Intellectual Property Rights Agreement (TRIPS) concluded in the Uruguay Round, developing countries did not eventually object to its conclusions.

Second, trade negotiations can be best described like people playing cards, where the principle of reciprocity or "trade-offs" apply. For example, one country gives a concession in an area, such as the lowering of tariffs for a certain product, in return for another country agreeing to sign on to a certain agreement. This type of bartering benefits the large and diversified economies since they can get more by giving more.

Thus disparity between those who can give and those who cannot, or only a little, is increased. The stronger members accrue benefits, while the weaker ones have their interests sidelined. It is well known in WTO circles that developing countries almost never barter for benefits, but usually relent to the requests of the developed countries. For the most part, negotiations and trade-offs take place between the developed countries.

Third, Indonesia has fewer human and technical resources and therefore enter negotiations less prepared than its developed country counterparts.

Indonesia has positioned itself to be cautious on all clauses proposed by developed countries. In the Working Group On Interaction Between Trade and Competition Policy, the country has commented on the issues of support for progressive reinforcement of competition institutions in developing countries, that it will first strengthen its competition agency and its human resources.

Take the procurement sector, comprising of development projects including infrastructure development, foreign aid schemes and projects related to privatization process.

Without adequate supervision from Indonesia's competition authority, KPPU (Commission for the Supervision of Business Competition), it is not fair to insist that Indonesia liberalize this sector.

Procurement is a roughly Rp 200 trillion business from both the public and private sector; the influx of well-prepared overseas competitors that frequently follows after opening up a this sector will leave havoc in its wake.

Instead, the U.S. and other ruling members of the organization have pushed members to "fast track" the inclusion of new issues according to the emerging interests of their corporations. To gain market access in developing countries, they have succeeded, in record time, to finalize agreements in telecommunications, information technology and financial services.

The pressure to liberalize the financial sector has also been a regular mantra for the WTO. Indonesia's diplomat should have learned in the past that in the most recent Uruguay Round of trade negotiations, the subject of trade in services was introduced.

But in the end, markets were opened mainly for the services exported by the advanced countries -- financial services and information technology -- but not for maritime and construction sectors, where developing countries like Indonesia might have been able to gain a toehold.

One could also add to the list of this hypocrisy and inequities, recent measures developed by the U.S. such as the Rules of Origin (rules used to identify where a textile or clothing product comes from), changing the conditions of competition and adding to the restrictions against the products of low-cost textile exporting countries.

Finally, the concept of economic sovereignty would be best adapted if the country's policy makers had the vision of what kind of economy the country is heading to in the next five or 10 years from now.

Forcing a developing country to open itself up to products that must compete with those produced by developed countries can have disastrous consequences. Rapid liberalization without first putting safety nets in place will lead the country into dire poverty.

It is like setting the country off on a voyage on rough seas, before the holes in their hull have been repaired, before the captain has received training, before life vests have been put on board. Even in the best of circumstances, there would be a high possibility that they will sink when hit broadside by a big wave.