Thai-Japanese FTA threatens RI exports

Thai-Japanese FTA threatens RI exports

Zakki P. Hakim, The Jakarta Post, Jakarta

Indonesia risks losing up to US$5 billion in non-oil and gas
exports to Japan per year, should Thailand succeed in ongoing
negotiations with Asia's largest economy for a free trade
agreement, says an expert.

A Japan-Thailand FTA would in turn force Japan to switch its
import demand -- from Indonesia to Thailand -- for certain
products produced by both Indonesia and Thailand, said project
economist at Growth through Investment, Agriculture and Trade
(GIAT), William E. James.

"That (the Japan-Thailand FTA) would have the potential to
affect Indonesia's trade at a value of between US$4 billion and
$5 billion," said James in his assessment paper on potential
trade diversion in the world's two major export markets, Japan
and the U.S., should Thailand obtain FTAs and Indonesia does not.

James told The Jakarta Post on Tuesday that it was one of the
main reasons why Indonesia should now pursue free trade
negotiations with Japan.

Obviously, Indonesia would not want to lose one of its biggest
export markets by staying out of bilateral trade liberalization,
while neighboring countries were expanding their market access to
Japan through negotiations for maximum import duty cuts, he said.

In Japan, some 40 of Indonesia's top 50 groups of products are
competing head-on with Thai products.

And with a preferential treatment of duty cuts, that would cut
Thai merchandise end-prices and boost its competitiveness. In the
end, importers would surely prefer Thai goods over Indonesia's,
he added.

The top 50 products accounted for over 89 percent of total
Indonesian non-oil and gas exports in 2003, according to the
paper. Meanwhile, the 40 competing products -- which include
crustaceans, non-ferrous base metal and scrap, paper and
paperboard, automatic data processing machines and natural rubber
-- was worth $4.75 billion, it said.

Last year, Japan was Indonesia's top export market with non-
oil and gas commodity shipments reaching $7.58 billion or 14
percent of Indonesia's total exports.

"With a GDP of $4.3 trillion (in 2003), Japan is the largest
economy in the region, almost triple that of China, which comes
second after Japan," said James, who also works for U.S.-based
private consultant firm Nathan Associates, Inc.

As Indonesia only contributed some 1.54 percent of Japan's
total exports in 2003 (including oil and gas), a preferential
agreement with Japan would deliver more benefit for Indonesia
than to its counterpart.

Earlier, Ministry of Trade director general for international
cooperation Pos M. Hutabarat said that neighboring countries were
ahead of Indonesia in establishing an FTA with Japan.

Singapore and the Philippines have already signed such
agreements, although only the city-state has to date implemented
the deal with the Philippines still straightening out certain
technical details.

Negotiations with Thailand and Malaysia are also underway.

As for Indonesia, negotiation with Japan is still in the early
stages in which a joint study on the costs and benefits of
establishing a bilateral FTA with Japan was held only last week.

The meeting, formally called the Joint Study Group for Japan-
Indonesia Economic Partnership Agreement, was the first of a
three scheduled talks ahead of an actual formal negotiation for a
trade deal.

The preliminary talks will produce a full scale assessment on
the FTA in mid-April to be submitted to relevant ministers in
both countries, Pos said.

Afterward, "the ministers will determine whether or not an
Indonesian-Japan FTA is needed. If it is deemed necessary, we
will take the decision when formal negotiations will start," he
explained.

The meeting explored import duties, labor regulations,
immigration, taxation, trade facilitation and investment issues
in both countries.