RI's quiet entry into AFTA breeds free trade distrust
Berni K. Moestafa, The Jakarta Post, Jakarta
Marking its debut into the free trade era, Indonesia opened its market on Tuesday to the ASEAN Free Trade Area (AFTA), but economists warned a lack of publicity about AFTA has given rise to public distrust of the benefits of trade liberalization.
With AFTA in effect now, six members of the Association of Southeast Asian Nations (ASEAN) have cut their tariff barriers on major products to between zero and five percent.
The five other countries are Brunei, Malaysia, Singapore, the Philippines and Thailand.
By lowering tariff rates, ASEAN expects to force industries into boosting their trade competitiveness, and to lure investment into the region.
After 10 years in the making, AFTA turned most of Southeast Asia into a free trade area on Jan. 1, 2002.
But in the run up to AFTA, little was heard of from the government to raise public awareness on the importance of AFTA.
"The government's publicity about AFTA has been overrun by local free trade critics trying to protect their industries," said Umar Juoro, an economist at the Center for Information and Development Studies (CIDES), on Tuesday.
He said the government had failed to properly inform the public of the opportunities AFTA offered this country.
State sponsored seminars on AFTA are few if not nonexistent.
This lack of attention was evident in President Megawati Soekarnoputri's new year speech, which did not even mention AFTA.
"They (the government) talk a lot about AFTA, and how we cannot stop it from coming into effect. But they never get into the details of what AFTA can actually do," Umar said.
With the government silent, he said, the public took its clues from comments by the local business community, which were in general negative.
Umar said the government should have come up with a strategy for industries to make the most of the benefits and opportunities offered by AFTA.
That way, he said, the government could have secured better cooperation with the Indonesian Chamber of Commerce and Industry (Kadin).
Instead, Kadin has turned into a staunch critic of AFTA.
The chamber recently issued a report claiming that 27 percent of local products were unprepared to compete under AFTA.
Yet the government said nearly 95 percent of the country's industries were already operating under AFTA import tariff rates.
An economist at the Center for Strategic and International Studies (CSIS), Hadi Soesastro said that as Indonesia's tariff rates were almost compliant with AFTA, the actual beginning of the AFTA era would have a minor impact on Indonesia's industries.
Nonetheless, he said, companies preferred to keep hiding behind trade protection rather than spending money to boost efficiency.
"It's the same everywhere in the world: there is no other way other than to force companies to boost their competitiveness," he said.
AFTA was first planned in 1992.
At first, the six countries agreed on a January 2008 deadline, but decided to bring forward the date to 2003 and later to 2002.
Hadi said that compared to the European Union (EU) market, AFTA would have a smaller impact on the ASEAN market.
Trade among EU member countries makes up 70 percent of their entire trade activity, leaving only 30 percent in trade with the rest of the world, he said.
By contrast, intra-ASEAN trade made up only 20 percent of the region's entire trade activity. That means ASEAN countries depend more on rest of the world in trading their goods.
Hadi said with ASEAN's high dependence on global trade, one key objective of AFTA was to raise the competitiveness of the region's products in the world market.
Another important objective is to lure foreign investment into the region. The free flow of production goods among ASEAN countries is attractive to firms wanting to set up a global production base, according to him.
In that respect, ASEAN is competing against China, which recently made its entrance into the World Trade Organization (WTO), and is attracting billions of dollars in investment.