What does GATT mean for Indonesia?

What does GATT mean for Indonesia?

The recent GATT ministerial conference in Morocco endorsed the
results of the Uruguay Round of trade negotiations. Economist
Mari Pangestu looks at what the endorsement means to Indonesia.

JAKARTA (JP): The recently signed Final Act of the Uruguay
Round of Multilateral Trade Negotiations was hailed with
jubilance as well as trepidation.

Free traders and countries which rely on international trade
also breathed a sigh of relief. After all one of the important
reasons for the initiation of the Uruguay Round in 1986 was to
thwart the increase of protectionist tendencies by both developed
and developing countries.

Especially worrisome was, first, the acceleration of
unilateral actions to offset perceived "unfair trade" by the U.S.
and EU through anti-dumping laws, countervailing duties,
voluntary export restraints and use of the Super 301.

A second worrying development was the development of regional
(e.g. European Union) and bilateral (e.g. U.S.-Japan) trade
agreements.

The collapse of the Round and the multilateral trading system
had been weighing on the world economy since its initial due date
of completion was imposed for the end of 1990.

A strengthened GATT system also provided additional relief to
those who feared that there would be an increase in economic
friction in the post cold war era as economic tensions that had
been muted due to the importance of cooperation on the security
front were unleashed.

As such, developing countries should rejoice because the
completion of the Round has removed one of the big dark clouds
that have affected confidence with regard to the future of the
world trading system.

This, in turn, is expected to contribute to the recovery of
the world economy which has moved sluggishly through the first
three years of the 1990s.

World trade is expected to grow at four to five percent per
year for the remainder of the decade and one percent of this is
estimated to be a result successful completion of the Uruguay
Round (GATT Secretariat).

The majority of the increase in trade will come from
previously protected industries, mainly the textiles and
agriculture sectors -- both of which are important for developing
countries.

The trade liberalization that has come the Uruguay Round is
also expected to contribute one percent to world income growth in
the next 10 years because of increased efficiency in resource
allocation.

And these estimates include just the static gains. There will
also be dynamic gains from opening up of markets due to increased
innovation, increased technological capability and economies of
scale which could mean higher growth in world trade and income.

Other than the improved opportunities due to market opening
and income growth, developing countries such as Indonesia should
celebrate the strengthened GATT and the accompanying
institutional changes.

Such countries can now fall back on the GATT rules and
principles in fending off strong protectionist, often unilateral,
actions.

Developing countries are in a weak bargaining position when
facing large industrial nations bilaterally or regional groups of
industrialized nations. Indeed the strengthened GATT was intended
to discipline trade practices that would take us away from the
principles of free trade.

Another reason for the initiation of the Uruguay Round is to
make GATT more relevant and responsive to changes in the
international trading environment by including new issues such as
services, trade related investment and intellectual property
rights.

The more credible GATT is founded on its ability to address
new issues flexibly and fairly, otherwise once again there would
be deviations from the multilateral trading system. Thus, while
developing countries may feel that new issues are being
championed by developed countries, they should remember that the
alternative -- an escalation of unilateral, bilateral and
regional action -- is much less attractive than a strengthened
multilateral system.

These new issues will in the medium and long term be important
for developing countries also.

Of course we are not out of the woods yet. The Uruguay Round
agreement is far from perfect. It contains many weaknesses and
compromises that are inevitable in negotiations between 125
countries.

The increased trade tensions between Japan and U.S., which
preceded the signing in mid-April, is sufficient to underscore
that the multilateral system will continue to coexist with rules
of the game being determined at the regional, bilateral and
unilateral levels.

The cynical are predicting that the emerging pattern will be
one of GATT or no GATT, but this is partially true.

Efforts to limit imports for various reasons such as
protection, environmental considerations and labor rights, will
continue and there will be mechanisms to achieve this within and
outside of the GATT treaty.

For instance while the rules on antidumping have been
improved, there is still likely to be antidumping actions put
into effect under the guise of protection.

Despite its limitations, the GATT system is still the best to
ensure a fair trading environment. Thus, it is really up to the
developing countries to prepare so they can take advantage of the
improved rules under the improved GATT.

It is now especially important that all GATT nations
understand how to use the strengthened dispute settlement
mechanism so they can go through the WTO effectively. There is
also a need to anticipate the new issues in the post Uruguay
Round with regard to trade and environment, labor standards and
competition policy.

Finally, it is important to note that there will be no free
ride for developing countries. For the first time developing
countries are participating fully in the GATT negotiations and
will have to commit to open their markets and follow GATT
discipline, as well as being monitored of the new GATT policeman,
the WTO.

Therefore, the process of opening up in the next ten years
will mean increased competition in the domestic market. But this
is nothing new, since this has been the direction of policy since
deregulation and reforms were undertaken in 1986.

Now, however, we cannot postpone this process because of our
commitments. To be able to take advantage of new international
trade opportunities, Indonesia will have to be competitive.

Indonesia's homework to prepare for the new treaty is clear.
There is no turning back, and many steps need to be taken to
ensure our competitiveness. These range from improving the
investment climate, continued deregulation, alleviating
infrastructure bottleneck, increasing our technological
capability and so on.

The writer is head of the economics department at the Center
for Strategic and International Studies and a lecturer at
University of Indonesia.