RI textile industry afraid of AFTA
Adianto P. Simamora and Moch. N. Kurniawan, The Jakarta Post, Jakarta
Already significantly affected by the economic slowdown in the United States, Japan and Europe, Indonesia's textile industry will be suffering more once the Association of South East Asian Nations (ASEAN) implements the free trade scheme in two months, industry players said.
Senior executives of the Association of Indonesian Textile Producers (API) said on Saturday that the country's textile companies were initially optimistic that they could survive the tighter competition emerging in the ASEAN Free Trade Area (AFTA) era.
But, with the economic slowdown hitting the country's major textile export markets, such optimism has evaporated.
"We were previously upbeat that AFTA would benefit local producers but we are now facing the most difficult situation ever," API executive director Indra Ibrahim told The Jakarta Post over the weekend.
Textile products are one of the country's major non-oil and gas export products and employ a total workforce of 1.2 million people.
The U.S., Japan and European Union markets consume 45 percent of Indonesian's textile products, with the U.S. being the largest buyer, taking 26.3 percent.
Under the AFTA scheme, starting in 2002, the six oldest members of ASEAN -- Indonesia, Malaysia, Singapore, Brunei Darussalam, Thailand and the Philippines -- must reduce the import tariff on textile products to between zero and five percent.
New ASEAN members Vietnam, Laos, Cambodia and Myanmar, are allowed to delay opening up their markets until between 2006 and 2010.
API earlier said the economic crisis in the U.S., aggravated by the Sept. 11 terrorist attacks, had led to a drop in textile orders from the country. This has subsequently forced many local textile companies to close down, while others have cut their output to around 70 percent.
The association warned that more than 100,000 jobs could be shed within the textile industry next year unless the situation improved.
Indra said local textile companies held little hope.
"We are dying now," he said.
The implementation of AFTA will lead to an influx of cheaper textile products into the country, accelerating the death of the local textile industry, he said.
Non-ASEAN countries with cheaper labor costs, such as China, Pakistan and India, might establish partnerships with ASEAN countries so that they could enter Indonesian markets with cheaper import duties, he warned.
API director Lili Asdjusdiredja agreed that Indonesia's textile industry was not ready for competition in the AFTA era, citing the high interest costs payable by local companies to local banks.
He said lending rates in Indonesia still hovered at around 20 percent, while rates in Malaysia, Thailand and Vietnam were only around 6 percent.
"The government should create policies to allow banks to cut their lending rates to a level, at least similar to those of our neighboring countries, so that we can compete with textile producers in those countries" he said.
The Association earlier said that it expected the country's 2001 textile exports to decline by 25 percent from the US$8.2 billion recorded last year.