Trade agreements with Japan

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