RI needs to push trade reform to gain from GATT
RI needs to push trade reform to gain from GATT
JAKARTA (JP): Indonesia must continue to deregulate trade,
including eliminating distortions in the domestic economy, if it
is to gain the maximum benefit from regional trade
liberalization, several economists said yesterday.
"Indonesia, China, and the Philippines committed to relatively
modest tariff reductions (4-8 percent) and correspondingly gain
little in real gross domestic production from the elimination of
distortions," Jeffrey D. Lewis and Sherman Robinson argued in
their joint paper presented during a World Bank-sponsored seminar
here yesterday.
"The pattern and magnitude of tariff cuts has substantial
impact on how much each country can expect to benefit from post-
Uruguay Round trading opportunities," said the paper, which is
entitled Partners or Predators? The Impact of Regional Trade
Liberalization on Indonesia.
Lewis and Robinson reached this conclusion using an economic
model which takes into account figures obtained from the 18
member economies of the Asia Pacific Economic Cooperation forum.
Last year Indonesia signed the Marrakesh treaty, which marked
the completion of the Uruguay Round of the General Agreement on
Tariffs and Trade (GATT) talks.
Lewis's and Robinson's model shows, they say, that if
Indonesia does not exceed the modest tariff cuts it has promised,
its fulfillment of its free trade commitments will result in a
mere 0.08 percent increase in domestic production and an increase
of only 0.07 percent in exports.
The need to push trade deregulation is stressed again in one
of the concluding remarks of their paper: "The gains from
liberalization, however, are greater for countries that eliminate
protection and domestic distortions in an environment where their
trading partners also open their markets."
Standstill
Lewis's and Robinson's messages gained additional weight as
the findings of another economist present at the forum yesterday
showed that Indonesia's tariff reduction scheme has been somewhat
lax since 1990.
Sherry M. Stephenson, a consultant at the Ministry of Trade,
argued yesterday that Indonesia's efforts to reduce tariffs "have
come to a standstill as regards the lowering of tariff protection
after 1990, and the past five years have seen a fairly constant
level of tariffs, with few changes of significance."
Also at yesterday's seminar, a paper explaining recent export
trends which was jointly prepared by economists Dipak Dasgupta,
Edison Hulu and Bejoy Das Gupta, states that the slackening in
the reduction of various trade barriers since 1991 contributed
significantly for the slowdown in export performance in 1994.
"The marked slowdown in the reduction of non-tariff and other
trade policy barriers since 1991...not only continues to distort
investment, but also raises the direct and indirect cost of
exporting," their paper says.
Distortions
Stephenson said that Indonesia was plagued by distortions
caused by the persistence of effective rates of protection for
various sectors which often exceeded the official protection
rates.
"Nearly one fifth of all productive activities enjoyed
effective protection of over 100 percent in 1994," she said in
her paper, entitled An Improved Tariff Structure for Indonesia.
"Such high protection is most damaging to the country's
efficiency," she said in summarizing her paper.
Stephenson said the best way to go about tariff reform would
be through a series of pre-announced, proportional, across-the-
board tariff cuts which would affect all tariff lines equally.
The economist said she was well aware that tariff reforms were
subject to political constraints.
"Producers which have built up vested interests in protection
and benefited from this must lose their privileged positions if
reform is to work properly," she said.
State Coordinating Minister for Economic, Financial and
Development Supervision Saleh Afiff said yesterday that "we have
no illusions that the deregulation program is complete."
He cited various obstructions, including market failures and
institutional shortcomings of government agencies, as factors
hindering the deregulation drive.
"We are constantly struggling to determine what is appropriate
for Indonesia," he said. (hdj)