Trade agreements with Japan

The article Thai-Japanese FTA threatens RI exports (The Jakarta Post, Feb. 11) gives the impression that I am advocating bilateral free trade agreements and goes so far as to quote me saying the government "should" negotiate a trade agreement with Japan.

This is not the case. I provide some reasons why the government might consider negotiating a bilateral trade agreement with Japan. Among these are the large size of the Japanese economy and the possible diversion of Indonesian exports to Thailand, assuming the Thai-Japan FTA becomes a reality.

The amount of trade that could be affected by the Thai-Japan bilateral is likely to be less than the ceiling estimate provided but could still be substantial. This diversion of trade to Thai products is possible if tariff and non-tariff preferences in the Japanese market under the FTA make Thai products cheaper and more competitive than similar goods from Indonesia.

It also depends on the scope of the agreement, particularly its coverage of agricultural commodities that Indonesia and Thailand both export to Japan. Indonesia has several options in dealing with the potential loss. One is to fight fire with fire and to negotiate its own FTA with Japan. Another is for Indonesia to undertake unilateral reforms that make Indonesian goods so competitive that the tariff advantage given to Thai products (the difference between the tariff rates applied in Japan to preferred and non-preferred partners) can be overcome.

Third, Indonesia may work within ASEAN to try to accelerate the pace of ASEAN plus FTA negotiations with Japan. Finally, as the recent report The Future of the WTO (provided to the WTO Director General by a board of experts chaired by Peter Sutherland) indicates, a successful Doha Round that deeply cuts tariffs on a most favored nation basis would alleviate the discriminatory impact of bilateral trade agreements on non- members, including Indonesia.

I myself prefer the WTO route. Bilateral trade agreements are at best an interim fall back position should the WTO round stall.

TED JAMES, Jakarta