Textile industry calls for a delay in AFTA

Fitri Wulandari, The Jakarta Post, Jakarta

The Indonesian Textile Association (API) appeals to the government to delay slashing down import tariffs on textile products as the ailing local textile industry is not yet ready to compete with foreign players.

"Our textile industry is not ready to compete with others (foreign textile makers) because there are many policies at home that have made our textile products less competitive," Lili Asdjudiredja, an executive at API told The Jakarta Post last week.

He cited factors like the unfavorable labor law, high interest rates, high labor wages and the absence of tax incentives.

Import tariffs on textile products is supposed to come down to between zero and five percent next year as part of the implementation of the Asean Free Trade Area (AFTA).

The six original members of Association of Southeast Asian Nations (ASEAN)-- Malaysia, Thailand, Indonesia, Brunei, the Philippines and Singapore started the gradual implementation of AFTA earlier this year in a bid to boost regional trade.

Sunjoto Tanudjaja, the head of international relations and foreign trade at API concurred with Lili, saying the deadline for scrapping the tariff barrier was too soon.

"When we agreed to join AFTA, our economy was still good. But with the current (economic) condition, we need sometime to restore the industry," Sunjoto said.

Both Lili and Sunjoto agreed that it should be delayed for at least another three years to give time for the industry to recover.

"There are many problems that need to be fixed ... our industry is still adjusting to the condition," Sunjoto said.

In addition, they said, the three-year period would provide room for the country's textile industry to prepare for free competition in the global textile industry which will start in 2005. Under the World Trade Organization (WTO) guidelines, global textile industry will enter free trade market in 2005 as developed countries, such as the United States and Europe, had to eliminate their quota system by that year.

Sunjoto said that the government currently applies an average tariff of between 20 percent to 30 percent for textile products.

Once considered the most promising sector in the country, the country's textile industry is facing a downturn following the economic crisis in late 1997.

Before the crisis, Indonesia was ranked the 10th largest textile producers and now has plunged to 17th.

Textile exports declined by 0.07 percent to US$ 7.433 billion from $7.438 billion in 1997. It took a nose dive in 1999 to $2.279 billion but then it picked up sharply to $8.377 billion the next year.

Last year, the commodity's export was down again to $7.6 billion. Sunjoto predicts this year's exports would only reach $7 billion.

The industry succumb to myriad of problems from high interest rates, lack of trade financing facilities, slow progress in debt restructuring, rising minimum wages, labor conflict and the increasing cost of energy and infrastructure.

The problems are being aggravated by rampant smuggling and illegal levies imposed by corrupt officials.

The massive influx of smuggled textile products, especially from China, has also deteriorated the industry.

Meanwhile, a growing number of companies have closed down their operations, causing hundreds of thousands losing jobs.

Data from API shows that at least 40 textile companies are running at a financial loss, while 76 others have closed down their businesses.

Lili, who is also chairman of API West Java chapter, said that the number of textile companies closing down their business in the province is adding up.

Lili said that the government simply does not care with the problems faced by the industry.

"The government has not taken strong measures against smuggling nor settling labor disputes or have a clear policy about the industry. They just don't care about it," he criticized.