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)