JP/6/SAURI

JP/6/SAURI

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.