Two sectors not ready to compete

Zakki P. Hakim, The Jakarta Post, Jakarta

The government will continue supporting the country's automotive and electronic industries after the Association of Southeast Asian Nations (ASEAN) liberalize the sectors in 2007, a senior official said on Friday.

Ministry of Industry and Trade's director general of metal, machinery, electronics and miscellaneous industries Subagyo said that Indonesia was not yet ready to compete with neighboring countries in both sectors.

Indonesia is permitted to continue supporting both industries after 2007 by benefiting the "exclusion list" facility.

"Liberalization will be postponed for products in the exclusion list. This will give time for the industries to grow stronger," said Subagyo, whose office supervises among others electronics, automotive and textiles.

Automotive and electronic industries are among the 10 "priority sectors" which ASEAN agreed, in their meeting in Jakarta last week, to be liberalized by 2007. The others are agro-based, e-ASEAN (e-commerce), fisheries, healthcare, rubber- based textiles and apparel, tourism, and wood-based industries.

The countries also agreed to set aside limited "sensitive" products for later liberalization. Each country can only put into the "sensitive list" an average of 15 percent of the total products from all the 10 sectors, he said.

The 10 sectors have some 1,400 products, which are about 13 percent of the total 11,000 products traded in the region.

Despite the public's perception that the nation's textile industry is now very weak, Subagyo said the government had no intention to much support the industry, since it already had a relatively strong structure from upstream to downstream.

The industry has been capable of engaging competition in the world's market, let alone in Southeast Asia, said Subagyo.

"Thus, the sensitive list could be dominated by automotive products," he said.

Expanding the industries would need new investment, but most investors would be reluctant to do so in an open market environment, he said.

"Without tariff barrier, the investors will be crushed by the inflow of goods, before they can reach adequate capacity," he said.

Currently, there are only 200 companies producing automotive components in Indonesia, compared to 700 in Thailand, according to Subagyo.

The government has targeted to boost the number of the component companies so that 80 percent of the domestic demand can be supplied by local producers in the next five years. It will thus offer facilities, including tax incentives, to attract investors into the sector.

Similarly, the government will also expand supporting companies for the electronics industry, according to Subagyo.

Automotive and electronics are among Indonesia's top manufactured goods exports, with a respective export value of US$605 million and $7.36 billion last year.