RI textile industry afraid of AFTA

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.