RI needs to specialize to survive ASEAN-China FTA: Mari
RI needs to specialize to survive ASEAN-China FTA: Mari
Leaders of the Association of Southeast Asian Nations (ASEAN)
member countries and China on Monday signed a historic free trade
agreement (FTA) in Vientiane, Laos, that will pave the way for
creating the world's biggest free trade zone covering nearly two
billion people. Despite the potential benefits, local industry
players have expressed concerns on whether or not they can
compete with China's more efficient industries. The Jakarta
Post's Zakki P. Hakim on Thursday talked to Minister of Trade
Mari E. Pangestu, who has just returned from the Vientiane ASEAN
Summit.
Question: What are the chances for Indonesia in survive
competition with China under the newly signed free trade
agreement?
Answer: Even without a free trade area, Indonesian low-end
consumer products, such as clothing and toys, have already faced
difficulties in competing against Chinese goods, because our
import duties have been quite low.
But let's look on the bright side of this newly signed free
trade agreement.
The FTA is a good opportunity for Indonesia. Under the early
harvest program (an early liberalization program for several
groups of goods started early this year) between ASEAN and China,
we have started to slash tariffs for groups of mostly
agricultural products.
There was (initially) a problem because Malaysia got lower
entry duties than us for its crude palm oil derivative product of
stearic acid. We managed to get the same treatment starting next
year.
The next step will be to remove non-tariff barriers such as
the Chinese quota on palm oil products.
We will fight to get into the China market.
In order to do that, however, we have to identify which
products have the potential to win in competition against Chinese
products.
Now, we are talking about goods not included in the early
harvest program.
The goods include almost all manufacturing products such as
electronics, automotive goods and textiles, whose tariffs will be
slashed gradually starting next year until fully liberalized by
2010.
We must monitor these products, as well as maintaining good
communications with the local industries.
In some industries, we have already imposed lower tariffs but
many others still have high import duties. Therefore, we will
intensify dialog with the private sector in identifying which
products should get our attention.
There will be an exclusion list for certain merchandise,
however, they will also become subject to gradual tariff
reductions after an agreed period.
Facing the FTA is not a matter of whether we are ready or not.
The question is, when will we be ready? The answer depends on
the results of our assessment together with the private sector.
What are the advantages of the FTA for Indonesia?
We can and must take full advantage of the increasing tendency
of East Asia to become a regional production center where China
is the core. China becomes the center due to its big exports and
big domestic market.
Indonesia, however, could become an alternative supply source
or become a complement to China.
The bottom line is we must take part in the production
network. After all, this is the spirit of ASEAN Economic
Community and ASEAN-China Free Trade Area.
Eventually, all countries will move towards developing
specializations or expertise in producing certain goods.
Each market, each country, would be segmented based on its
production expertise or specialization.
We will then develop specialized production and logistical
technologies and eventually cut costs of transportation and
communications in the region.
It would be like outsourcing between countries.
However, according to some research papers, Indonesia has not
been very involved in the regional production center of goods,
which manufactures among others things electronics, automotive
goods and machinery.
We can and should specialize in those sectors.
For example, we know that we have potential in electronics.
Electronics export growth is the highest among the country's non-
oil and gas exports. It is our future industry.
Industry players doubt that we could win in competition
against China, especially in competing against China's cheaper
and more productive workers. How do you see this?
It is a fact we have to accept.
Thus, having the FTA, China gives us an earlier start and time
to overcome our problems. This is preferential treatment that
other countries outside ASEAN have yet to enjoy.
As time is limited, we might not be able to outmaneuver
China's massive manufacturing scale and high productivity.
Therefore, one solution is to develop distinctive expertise.
Are you sure that our industry can develop the expertise,
instead of collapsing?
Well, let's look at history. When Australia and New Zealand
signed CER (Closer Economic Relations) agreement more than a
decade ago, people said that New Zealand's industry would
certainly collapse.
On the contrary, New Zealand specialized in certain sectors
where it was strong and up graded the industry before eventually
penetrated specific niche segments. New Zealand industries
apparently survived.
The same story also took place in the early years of European
Union.
Liberalization is a process, which of course we have to
anticipate and the government will facilitate. However, the key
is fresh investment.
In which sector should we specialize?
Most of our natural-based goods have potential. As for our
manufacturing products, it varies between sectors.
For example our textiles are very competitive, especially our
synthetic yarns and fabrics, but lack of new investment in the
past few years has hampered the sector's productivity.
In the textile and clothing industry we must no longer play in
the low end products, as China already maintains a stranglehold
in that segment.
We have to enter medium end market, which means that we must
be more concerned about designs and brands, which will deliver
higher added value.