Tue, 27 Apr 2010


By Chris Blake
Mufardi Rusli’s neighbors hunch over tables covered in brightly colored fabric, the whirring of their sewing machines echoing across this Jakarta neighborhood. For Mufardi, the sound is a bitter reminder of the $2 line of jackets that bankrupted him, costing him a garment business it took 15 years to build.

He blames himself. He blames the government. But most of all he blames China - specifically, the flood of cheap clothing that has poured into Indonesia this year under a free-trade agreement between China and its Southeast Asian neighbors.

The new competition quickly drove down prices, forcing Mufardi to sell the jackets for less than they cost to make. Within months, he was broke and unable to pay his 22 workers.

The government and many businesses leaders have hailed the pact as an economic boon that will allow the free flow of goods between countries encompassing 1.7 billion people, lowering prices for consumers and offering new opportunities for producers. The Trade Ministry expects trade between Indonesia and China to double to $50 billion within five years. But some Indonesian industries say their small operations can’t keep up.

“We’re the ones losing this trade war,” Mufardi said, warning that soon his neighbors’ sewing machines will follow his into silence.

The deal between China and six founding members of the Association of Southeast Asian Nations, including Indonesia, went into full effect on Jan. 1, eliminating barriers to investment and trade on 90 percent of products.

The deal is expected to benefit Indonesian industries such as palm oil, rubber, coffee and coal by making it easier for them to feed China’s voracious appetite for commodities. Yet there are other industries - among them textiles and garments, tires, steel and footwear - who say they aren’t ready to go head-to-head with China’s lower-cost producers and have called on the government to delay cutting tariffs on 228 product lines.

Baso Rukmana, chairman of Indonesia’s National Workers Union, predicted the trade deal would drastically increase unemployment in labor-intensive industries, with up to 7 million jobs lost. Baso’s estimate of job losses couldn’t be corroborated by other sources.

Manpower Minister Muhaimin Iskandar said the government doesn’t have figures on how many people could lose their jobs but has set up a task force to monitor the impact.

“We realize now that Indonesia is not yet quite able to compete in global markets with a full commitment to free trade. But we should not be left behind other ASEAN countries in facing global trade competition.”

While some analysts believe the impact of the deal so far has been relatively positive it is too soon to say how it will fully play out. Still, early trends on who will be hardest hit are clear.

“The main losers in Indonesia would be the low-skilled workers and the sectors that produce low-end products, mainly the textile sectors,” said Maria Patrikainen, an Indonesia analyst with IHS Global Insight in London.

That would describe much of Kalibata, a working class neighborhood in south Jakarta that is home to an estimated 3,000 small garment businesses. The area is a warren of winding lanes, each lined with tiny brick and concrete buildings that double as both homes and factories.

One of the larger ones is that of 62-year-old Daris, whose front yard is a mess of cutting tables, sewing machines, bolts of fabric and stacks of children’s shirts, skirts and hoodies in every colour of the rainbow.

Daris said his business has been decimated since the trade deal went into effect. A year ago he was selling market traders 1,800 bundles of clothes each week for a net profit of about $330. This year he said demand and profit has plummeted as those same traders load up on cheaper Chinese made clothes selling for 25 percent less. He said he’s lucky to sell 600 bundles a week.

Trade Minister Mari Elka Pangestu has acknowledged that many industries have valid concerns and ways should be found to help them.

But she says Indonesia’s textile industry needs to become more competitive. The government would do its part to address any unfair competition and work toward better remedies, Mari said.

“In a way there is this underlying, perhaps unfounded, fear that Oh we’re not ready, we’re going to be unable to compete.’ When you talk it through and you look at the numbers it’s not as bad as it turns out to be in terms of perceptions.”