Will AFTA or won't AFTA?

Adianto P.Simamora, The Jakarta Post, Jakarta

Will the implementation of the ASEAN free trade scheme, which started on Tuesday, benefit local industries?

This question was repeatedly raised last year.

Many have contended the ASEAN free trade area scheme, popularly known as AFTA, should be delayed until after the world economy recovers. For them, the current global economic slowdown is by no means conducive for the implementation of AFTA.

"The government needs to delay the implementation of AFTA because, in view of the lack of preparations made by local industries, it will only hurt local businessmen," said Aburizal Bakrie, chairman of the Chamber of Commerce and Industry (KADIN), following a seminar on AFTA last year.

KADIN recently submitted to the government the result of its survey involving 80 business associations, which indicates that 27 percent of local products were not yet ready for AFTA.

AFTA was agreed upon in 1993, with the implementation of the free trade scheme initially scheduled for 2008. The timeframe was later accelerated to 2003.

In the meeting in Hanoi, Vietnam in 1998, ASEAN ministers agreed to further speed up the deadline to 2002.

Under the Hanoi agreement, as of this year, 42,377 import tariffs of the six founding members of ASEAN -- Indonesia, Malaysia, Singapore, Thailand, Brunai Darussalam and the Philippines - will be reduced to between 0 percent and 5 percent. The figures represent 96.2 percent of the tariffs for products contained in the Inclusion List of the six ASEAN members.

The four other ASEAN members -- Vietnam, Laos, Cambodia and Myanmar -- are to be allowed to delay their tariff reductions until between 2006 and 2010.

The Inclusion List is the list of products that all ASEAN members have agreed to be included in the tariff reduction program in the first year of AFTA.

Aside from the Inclusion List, there is also the Sensitive List, containing products considered "sensitive", which includes rice, sugar among others, for which ASEAN members have agreed to delay tariffs until after 2010.

There is also the General Exception List, which is the list of products that all ASEAN members have agreed to exclude from the free market scheme. The products include ammunition, drugs and others.

The six ASEAN members that implement AFTA starting Tuesday were allowed to propose a number of products for which tariff reductions are to be delayed until 2003. This has been called a "flexibility scheme".

The government has proposed to delay tariff reductions for 66 chemical and plastic products until 2003.

Many local businessmen are concerned about the low competitiveness and efficiency of local industries rather than the low import duties during the AFTA era.

Thomas Darmawan, chairman of the Indonesian Food and Beverages Association (GAPMI) voiced concerns over the numerous levies imposed by regional governments and the widespread practice of extortion by local officials.

These factors, he said, had led to the price increase of local food products and would make them difficult to compete with cheaper imported food products from AFTA.

"The number of regional levies and bribes demanded by government officials have increased since the implementation of the autonomy law," he said.

He also said that, aside from these levies, local players had also to pay high transportation costs in order to secure their business, which also contributed to raising the price of local food products.

"Don't be surprised when, for instance, in Jakarta, a kilogram of oranges from Medan is more expensive than those imported from other countries due to high levies and transport costs," he said.

He said local food industries are basically ready to compete in the ASEAN free market provided the government cut all unnecessary obstacles.

Senior executive of the Association of Indonesian Textile Producers (API) Indra Ibrahim said local textile companies held little hope about the AFTA.

Indra said the implementation of AFTA would only lead to an influx of cheaper textile products, accelerating the bankruptcy of the local textile industry.

The economic crisis in the U.S., aggravated by the Sept. 11 terrorist attacks, had also led to a drop in textile orders from the country.

This has subsequently forced many local textile companies to close down, while others have cut their output to around 70 percent.

The association warned that more than 100,000 jobs could be shed in the textile industry next year unless the situation improved.

According to Indra the high interest costs payable by domestic companies to local banks had also hurt Indonesia's businessmen.

He said the lending rates in Indonesia still hovered around 20 percent, while rates in Malaysia, Thailand and Vietnam were only around 6 percent.

However, Anthony Ch. Sunarjo, chairman of the Indonesian Pharmaceutical Association (GP Farmasi Indonesia) said the local pharmaceutical industry was anticipating AFTA with enthusiasm.

"Our products are the cheapest in Asia after India and China. So, we will certainly be able to compete on the ASEAN market," he said.

But Anthony voiced worries that other ASEAN member countries would seek to bar Indonesian pharmaceutical products from entering their markets by setting up various non-tariff barriers, including imposing complicated requirements for Indonesian drug producers to register their products in their respective countries.

"I believe ASEAN member countries, which remain unprepared for AFTA, will do their utmost to create various other kinds of barriers to block the entry of our pharmaceutical products," he said.

The government believes that AFTA will bring benefits rather than losses to the country's industries.

"AFTA will provide good access for local businessmen to boost their exports to other ASEAN member countries," Minister of Industry and Trade Rini MS. Soewandi said.

According to Rini, Indonesian non-oil-and-gas exports to ASEAN countries were relatively small, accounting for only 20.4 percent in 2000, up from 17,67 percent in 1996. Indonesian non-oil-and- gas imports from ASEAN countries were about 14.79 percent of the country's total imports, compared to 9.24 percent in 1996.

She said that Indonesia had yet to tap the potential of the ASEAN market.

Rini said AFTA's momentum should be an opportunity for Indonesian industries to boost their competitiveness and efficiency to win competition. The competition will be tight, she said, citing the fact that most ASEAN countries produced similar products.

Data from the ASEAN secretariat showed that ASEAN's total exports grew by 19.9 percent from US$353.3 billion in 1999 to $423.6 billion in the year 2000, whereas ASEAN imports were up by 22.8 percent from $293.1 billion in 1999 to $360.1 billion.

Intra ASEAN exports grew by 26.3 percent in 2000, while intra- ASEAN imports grew by 27 percent.