Indonesia and Bilateral Trade Agreements (BTAs)

Alexander C. Chandra
The Institute for Global Justice
(IGJ)
I. Introduction
There have been a growing number of bilateral trade agreements (BTAs) in recent
years. Many such agreements are to be found in the East Asian region, such as the
agreements made between the Association of Southeast Asian ations (ASEA)
!
and the
three ortheast Asian countries, namely "hina, #a$an, and South %orea. These BTAs
have resulted in increased calls for stronger regionalism in the East Asian region under
the aus$ices of the ASEA $lus Three (A&T) initiative. The increasing tendency to form
BTAs in this region deserves s$ecial attention, $articularly in regard to the im$lications
for each individual state involved in an agreement. This $a$er attem$ts to address this
issue. More s$ecifically, it attem$ts to analyse the im$acts that the recently $ro$osed
BTAs in the East Asian region may bring towards the domestic agricultural and non'
agricultural industries, food security, and rural develo$ment of one ASEA member
country, (ndonesia. )nli*e the other original members of ASEA, such as Singa$ore,
Thailand, Malaysia, and the &hili$$ines, the (ndonesian government has been rather slow
in $ursuing a BTA $olicy with non'ASEA member countries. evertheless, due to the
$roliferation of BTAs in other ASEA countries+ foreign economic $olicies (,E&s), it
was inevitable that (ndonesia would $ursue similar agreements with one or the rest of the
plus Three countries in ortheast Asia. Moreover, the (ndonesian government is also
considering the $ossibility of o$ening free trade negotiations with the )S. To date,
however, one concrete BTA that (ndonesia is involved in is with "hina, which has come
about as a result of the ratification of the ASEA'"hina ,ree Trade Agreement (A",TA)
in -..-. Meanwhile, feasibility studies are being carried out on BTAs with #a$an
(ASEA #a$an ,ree Trade Agreements ' A#,TA) and South %orea (ASEA'South
%orea ,ree Trade Agreements ' AS%,TA).
Although the im$lementation of most of these agreements in the East Asian region
are still in their infancy, it is $ossible to identify some of the ma/or im$lications that these
agreements may have for (ndonesian industrial and agricultural sectors. After all, free
trade agreements (,TAs) that are not based on fair trade rules generally $roduce losers
and winners. The analysis in this $a$er is based on field research interviews with various
local business associations, the academic community, on'0overnmental 1rganisations
(01s) 2 "ivil Society 1rganisations ("S1s), and the re$resentatives of the various
foreign embassies concerned (i.e. The 3e$ublic of "hina, #a$an, and South %orea). (n
order to facilitate our discussion, this $a$er is divided into several sections4 (!) BTAs and
regionalism in the global $olitical economy5 (-) investments and trade regimes leading to
!
ASEA is a regional organisation that was formed in !678. The organisation is currently made u$ of ten
Southeast Asian countries, namely (ndonesia, Malaysia, Thailand, the &hili$$ines, Singa$ore, Brunei,
9ietnam, Burma, "ambodia, and :aos.
!
BTAs5 (;) BTAs and (ndonesia+s trade and investment $olicies5 (<) BTAs and their
im$lications for the (ndonesian economy5 (=) $olicy $ro$osals and recommendations.
II. BTAs and regionalism in the global political economy today
Figure 1.
TAs in force by date of notification
Source4 >T1 official website (accessed -..<) at4
htt$422www.wto.org2english2trato$?e2region?e2regfac?e.htm
(n theoretical terms, a bilateral trade agreement (BTA) is one feature of regionalism.
(ndeed, regionalism today can be formed on a $lurilateral basis or bilaterally between two
states or between an e@isting regional grou$ing and a state or another regional grou$ing.
The >orld Trade 1rganisation (>T1) (see figure !), for e@am$le, notes the e@istence of
!-< regional trade agreements (3TAs) during the $eriod !6<A'!66<. Since the creation of
the >T1 in !66=, about !.. additional regional arrangements have been formed to
$romote liberalisation of both trade and services. To date, there are -=. 3TAs, of which
!67, or roughly 8A.< $ercent, were o$erational as of August -..<, whilst the remaining
=< 3TAs are still under negotiation.
-
The ma/ority of the e@isting BTAs were formed
bilaterally, either as a custom union, free trade agreements, $referential agreements, or
service agreements. There is now one bilateral custom union (B")) between two states
and four B")s between a regional grou$ing and a state. ,urthermore, there are also
eighty'one bilateral free trade agreements (B,TAs) between two states and fourty'nine
B,TAs between a regional grou$ing and a state. (n addition, there is one bilateral
$referential arrangement (B&As) between two states, and thirteen bilateral service
agreements (BSAs) between two states with another thirteen between a regional grou$ing
and a state. The ma/ority, or twenty'five, of the e@isting BSAs are also $art of B,TA
deals. (n total, there are now !7- BTAs in o$eration, or about 7<.A $ercent of total 3TAs.
Thus, it can be said that Ba large $art of regionalism is new bilateralism+ (:loyd -..-).
By -..-, the total number of 3TAs had increased to -=., showing an increase of !;.
-
These are the u$dated figures from the last >T1 (-...) re$ort.
-
since the creation of the >T1. A >T1 (-...4 ;) study also suggests that by -..= the
total number of 3TAs could reach a$$ro@imately ;.. if those 3TAs $resently at the
$lanning or negotiation stage are $ut into o$eration.
(t is, therefore, clear that there are many forms of BTAs. A service agreement is the
sim$lest form of BTA. This is an agreement between two $arties to liberalise trade in the
service sector only (i.e. the )nited States ()S) and #ordan5 the Euro$ean "ommunity
(E") and Slovenia). The $rocess of economic integration between two countries, or
between a country and a regional grou$ing, becomes a little more com$le@ when they
decide to form B&As and B,TAs. The first normally refers to Btrade arrangements under
which a $arty agree C to accord Dthe otherE $arty $referential treatment in trade in goods
;
and services. They may give each other $references in the form of reduced tariffs, their
com$lete elimination, or in the case of services, $artial liberalisation+ (0oode !66A4 --.).
1ne e@am$le of this is the B&A between :aos and Thailand. Similarly, a B,TA also
Ballows for tariff'free trade DamongstE the member countries+ (:i$sey and "hrystal !6664
<A8), such as in the case of e@isting B,TAs between the )S and (srael and between the
E" and Egy$t. The $rinci$al difference between B&As and B,TAs is that the latter tends
to include full $roduct coverage in all sectors. A B&A normally only decreases tariffs
between the involved $arties through a product by product and 2 or sectoral based
mechanism. There are some B,TAs that also cover service agreements, such as B,TAs
between South %orea and "hile and Singa$ore and ew Fealand. ,inally, a B")
normally involves a su$$ression of any discrimination in commodity movements as well
as the im$osition of an eGualisation of tariffs towards non'involved countries (Balassa
!67!4 -). E@am$les of this ty$e of economic integration can be found in B")s formed
between the "Hech 3e$ublic and the Slova* 3e$ublic and between the E" and "y$rus.
Ies$ite the increased use of BTAs in foreign economic $olicy (,E&) for many
countries around the world, this ty$e of trade agreement is not a new $henomenon. The
first BTA was formed between the Euro$ean "ommunity and the 1verseas "ountries and
Territories (1"Ts) in !68!,
;
and was o$erated under an ,TA status. SubseGuently, many
other BTAs have been formed with any one of the aforementioned features, mostly
between a regional grou$ing and a state. The Euro$ean ,ree Trade Association (E,TA)
<
and the E" were $articularly active in $romoting bilateralism with other states, which is
still an ongoing $rocess conducted by both regional grou$ings. (n the Asia'&acific
region, BTAs started to emerge in the early !66.s. (t was the countries of the Southeast
Asian region that began to $ursue BTAs. (n !66!, for e@am$le, one BTA negotiation was
concluded between Thailand and :aos. (t was only eight years later, or in !666, that
other BTA negotiations were concluded in the Asia'&acific region, one was between (ndia
and Sri :an*a and the other was between (ndia and e$al. Since -..., there has been a
$roliferation of BTAs in Southeast Asia, starting with Singa$ore and ew Fealand in
-.... SubseGuently, ten other BTAs were formed between countries in the Asia'&acific
region. (n Southeast Asia, Singa$ore has so far been ta*ing a leading role in $romoting
BTAs. To date, there are eighteen BTAs under negotiation and five or si@ BTAs that are
still being researched.
;
The 1"T is made u$ of 0reenland, ew "aledonia, ,rench &olynesia, ,rench Southern and Antartic
Territories, >allis and ,utuna (sland, Moyotte, Saint &ierre and MiGuelon, Aruba, etherlands Antilles,
Anguila, "ayman (slands, ,al*land (slands, South 0eorgia, South Sandwich (sland, Montserrat, &itcairn,
St. Jelena, Ascension (sland, Tristan da "unha, Tur*s and "aicos (slands, British Antarctic Territory,
British (ndian 1cean Territory, and British 9irgin (slands.
<
The Euro$ean ,ree Trade Association (E,TA) which was formed on the ;
rd
May !67., included
:iechtenstein, orway, and SwitHerland. (celand was admitted into the grou$ing ten years later, or on ;
rd
March !68..
<
Table 1.
Bilateral trade agreements in the Asia !acific region
"o. Bilateral Trade Agreements #tatus
! Thai K :aos "oncluded K !66!
- (ndia ' Sri :an*a "oncluded K !666
; (ndia K e$al "oncluded K !666
< Singa$ore K ew Fealand "oncluded K -...
= #a$an K Singa$ore "oncluded K -..-
7 "hina K Jong %ong "oncluded K -..;
8 Singa$ore K )S "oncluded K -..;
A Singa$ore K Euro$ean ,ree Trade Area (E,TA) "oncluded K -..;
6 Singa$ore K Australia "oncluded K -..;
!. South %orea K "hile "oncluded K -..;
!! Taiwan K &anama "oncluded K -..;
!- Thailand K Australia "oncluded K -..;
!; Singa$ore K #ordan "oncluded K -..<
!< Bangladesh, (ndia, Myanmar, Sri :an*a, Thailand
(B(MST)' Euro$ean "ommunity (E")
"oncluded K -..<
!= Singa$ore K South %orea "oncluded K -..=
!7 "hina K ASEA ,ramewor* agreement concluded K -..-
!8 Thailand K Bahrain ,ramewor* agreement concluded K -..-
!A Thailand ' (ndia ,ramewor* agreement concluded K -..;
!6 ASEA K (ndia ,ramewor* agreement concluded K -..;
-. Thailand ' &eru ,ramewor* agreement concluded K -..;
-! (ndia K Southern "one "ommon Mar*et (Mercosur) ,ramewor* agreement concluded K -..;
-- Sri :an*a K &a*istan ,ramewor* agreement concluded ' L
-; Singa$ore K Me@ico )nder negotiation K -...
-< Singa$ore K "anada )nder negotiation K -..!
-= Jong %ong K ew Fealand )nder negotiation K -..!
-7 #a$an K Me@ico )nder negotiation K -..-
-8 ASEA K "loser Economic 3elations ("E3) )nder negotiation K -..-
-A #a$an K %orea )nder negotiation K -..;
-6 #a$an K &hili$$ines )nder negotiation K -..;
;. #a$an K Thailand )nder negotiation K -..;
;! Singa$ore K (ndia )nder negotiation K -..;
;- #a$an K Malaysia )nder negotiation K -..<
;; #a$an K ASEA 0overnment officials level consultation K
-..;
;< #a$an K (ndonesia 0overnment $re$aration meeting K -..;
;= Singa$ore K Sri :an*a )nder research K -..;
;7 Thailand K ew Fealand )nder research K -..;
;8 (ndia K Me@ico L
There are several reasons why countries in the East Asian region choose to $ursue
BTAs. At the macro level, the trend to conduct BTAs is constituent to broader $ost'crisis
changes in the $olitical economy of the East Asian region (Iobson -..!5 >ebber -..!).
(t is what Ient (-..-4 !'-) refers to as Ba general shift from a neo'mercantilist to a neo'
liberal a$$roach to trade $olicy amongst East Asian states+. (n ortheast Asia, "hina,
#a$an, and South %orea have been accommodating the $rinci$le and $ractice of free
trade, most of which is due to the advancement of domestic reforms in those countries
=
during the $ost'Asian economic crisis era. Southeast Asian countries have generally been
accommodating the same free trade $rinci$les and $ractices since the emergence of the
economic crisis of !668, $articularly as a result of the $rescri$tions made by the
(nternational Monetary ,und ((M,) and the >orld Ban*.
Another reason for the $roliferation of BTAs at the macro level is the $assion of some
East Asian leaders to dee$en regional economic co'o$eration. There can be little doubt
that one im$ortant e@ternal im$erative for East Asia to $urse a regional grou$ing for itself
is the fast growing economic regionalism in the world economy (Mansfield and Milner
!666). Technically, BTAs have been $erceived as $art of a trade $olicy that facilitates the
creation of an East Asian ,ree Trade Area (EA,TA) in the future. The idea was first
initiated in the early !66.s when the then &rime Minister of Malaysia, Ir. Mahathir,
$ro$osed the creation of the East Asian Economic 0rou$ (EAE0), which was com$osed
of all the Asian member countries of the Asia'&acific Economic "o'o$eration (A&E").
Jowever, as e@$ected, the $ro$osal received stern criticisms from the )S. SubseGuently,
(ndonesia suggested the creation of the East Asian Economic "aucus (EAE") as a
re$lacement for the EAE0, which then became a caucus within A&E" (M/endal -..!4
!7A5 "heng -..<4 -7-). The drive towards the dee$ening of regional economic co'
o$eration was $ushed forward after the economic crisis in !668. Iuring the Second
ASEA (nformal Summit in %uala :um$ur, ASEA invited the three ortheast Asian
countries of "hina, #a$an and South %orea to create the ASEA $lus Three (A&T)
initiative, which can act as a ste$$ing stone for the creation of EA,TA and the East Asian
(nvestment Area (EA(A). ,or some observers within the region, the develo$ment of
A&T, es$ecially during the recent economic crisis, is seen as a Bfresh infusion of $olitical
stability and economic dynamism+ (Alatas -..!4 !). Alatas holds that enhanced regional
economic integration under the A&T mechanism is logical for several reasons. ,irstly, it
increases economic interde$endence and com$lementarity in the region. Secondly, both
regions have $reviously signified their intentions to im$lement such a co'o$eration.
Thirdly, it is a res$onse to the challenges that globalisation $oses to the East Asian
region.
At the micro level, countries in both the Southeast and ortheast Asian regions have
their own motives for $ursuing a BTA $olicy. ,or Southeast Asian countries, there are
four reasons to $ursue a BTA $olicy. ,irstly, some members of ASEA have begun to
feel that the $rogress of A,TA is too slow (Eng -..;4 7;5 &angestu -..<). Since the
economic crisis in !668, intra regional trade in ASEA has only increased by about <
$ercent, from !6 $ercent to -; $ercent, des$ite the acceleration of the A,TA schedule
from -..; to -..-. By neo'liberal standards, A,TA+s achievement has been modest
(Economist -..<). The im$lementation of A,TA has had to face various obstacles, such
as when some member countries refused to lower tariffs on certain sensitive $roducts, as
evident in the automotive industry. (n fact, the $ursuit of a BTA strategy by ASEA
member countries, such as Singa$ore, was thought to be a way to com$ensate for A,TA
downward mar*et $otential (Ient -..-4 ;). Secondly, ASEA remains a wea* regional
grou$ing in the global economy. As a result, the ado$tion of a BTA strategy between
ASEA and ortheast Asian states is ho$ed to strengthen ASEA as a grou$ing, and to
increase the leverage of ASEA member countries+ bargaining $osition in the
7
international arena. Thirdly, ASEA states are also attracted by the o$$ortunities made
available by $ursuing a BTA strategy with their ortheast Asian counter$arts ("ai -..;4
;6A). (t is also interesting to $oint out that, between !666'-..., two'way trade between
ASEA and the three ortheast Asian countries grew from )SN !=A.- billion to )SN
-.!.8 billion (Eng -..;4 78). )$ until recently, "hina, #a$an, and South %orea were
amongst the to$ ten of ASEA+s ma/or trading $artners.
=
,inally, the slow $rogress of
multilateral trade negotiations under the aus$ices of the >orld Trade 1rganisation (>T1)
also $lays an im$ortant role in $romoting BTAs in the East Asian region (Jarvie and :ee
-..-4 !-=). The >T1+s failure to begin a new round of multilateral negotiation in
Seattle in !666 shows the difficulty $osed to the $ush towards global trade liberalisation.
The ga$ of interests between the develo$ed and the develo$ing countries is so wide that it
was nearly im$ossible for the two cam$s to come u$ with any converging view$oint on
the way in which global trade liberalisation could be achieved. Trade agreements that
involve a smaller number of $artici$ants are used as an alternative to $ush for trade
liberalisation in the region.
Meanwhile, the reasons for ortheast Asian countries to $ursue BTAs with their
Southeast Asian counter$arts are also varied, encom$assing both $olitical and economic
motives. Although the ma/ority of ortheast Asian countries generally ado$t a fairly
$ositive attitude towards ,TAs, there are still a number of $olitical issues that these
countries need to address $rior to committing into a real ortheast Asian regionalism.
This has been the case with the relationshi$ between, for e@am$le, "hina and #a$an.
0iven the com$le@ity of Sino'#a$anese relations, both countries $refer to ta*e an easier
route by conducting ,TAs with the smaller states of Southeast Asia ("hai -..;4 ;6A5
Ient -..-). This is not to say that regionalism has never been a $art of ortheast Asian
countries+ economic and $olitical agendas. A "hinese Embassy official mentioned in
interview that although there are tal*s to $romote East Asian economic integration,
unresolved $olitical issues between orth and South %orea, "hina and Taiwan, as well as
between "hina and #a$an, remain ma/or obstacles for the creation of economic
regionalism in the region.
7
Meanwhile, his #a$anese counter$art maintained that the
#a$anese government is ta*ing a rather cautious a$$roach to this issue. After all, "hina
has /ust /oined the >T1, and, according to this re$resentative, the #a$anese government
would want to see how well "hina is co$ing with >T1 rules.
8
As a result, it seems
unli*ely that the #a$anese government would want to $ro$ose any concrete regionalism
$lan in ortheast Asia soon.
(n his article, #ian Oang (-..;4 ;!<'=) has $in$ointed why it is li*ely that Southeast
Asia would maintain its strategic advantage in its relations with ortheast Asian
countries, $articularly "hina and #a$an. ,irstly, Southeast Asia $rovides a *ey strategic
influence for both countries. ,or "hina, in $articular, ASEA is an im$ortant regional
forum to counter the )S+ containment strategy (0anesan -...4 -8!). Secondly, #a$an
and "hina also see the Southeast Asian region as strategically im$ortant for geo'$olitical
=
Based on the data $rovided by the ASEA Secretariat (-..;)
7
An interview was conducted by the author with Tan >eiwen, the Economic "ounsellor of the 3e$ublic of
"hina Embassy, on ;.
th
#uly -..<, in #a*arta.
8
An interview was conducted by the author with Michihiro %ishimoto, ,irst Secretary "ommercial of the
#a$anese Embassy, on -A
th
#uly -..<, in #a*arta.
8
reasons, as most of their trade must $ass through the Southeast Asian region. (n addition,
Southeast Asia is an im$ortant source of raw materials for ortheast Asian countries.
Thirdly, ortheast Asian countries also $erceive the growing $o$ulation of Southeast
Asia (about <=. million to date) as a $otential mar*et to $enetrate. The dee$ening of
economic integration between ortheast and Southeast Asian regions is seen as crucial by
$olitical leaders in ortheast Asia.
Moreover, ortheast Asian countries are also interested in finding ways to e@$loit
A,TA ("heng -..<4 -77). There a$$ears to be a consensus amongst "hinese leaders that
A,TA would not only enhance economic co'o$eration in the Southeast Asian region, but
also in the Asia'&acific ("heng -..<4 -7=). Meanwhile, the #a$anese government has
also shown that it is willing to be fle@ible about $ossible ,TAs in the East Asian region.
(n 1ctober -..-, for e@am$le, the #a$anese ,oreign Ministry, Gaimusho, released a
document entitled Japans FTA Strategy, which $in$ointed ASEA as a $otential ,TA
$artner, along with South %orea. (t has also been highlighted in a re$ort $roduced by the
ASEA E@$ert 0rou$ (-..-) that the ASEA'#a$an "loser Economic &artnershi$
(A#"E&) will increase ASEA+s e@$orts to #a$an by <<.- $ercent and increase #a$anese
e@$orts to Southeast Asia by -8.= $ercent by -.-.. At the same time, a similar study
conducted by the ASEA'"hina E@$ert 0rou$ on Economic "o'o$eration (-..!)
concluded that A",TA would increase ASEA+s e@$orts to "hina by <A $ercent, and
would increase "hina+s total 0I& by ..; $ercent.
A

III. In$estment and trade regime leading to BTAs
As a regional grou$ing, ASEA generally ascribes to an o$en regionalism orthodo@y
(&almer !66!5 Jallet and Braga !66<), in which Bthe regional co'o$eration envisaged will
be outward loo*ing and ta*e $lace within an o$en framewor*+ (1dPn !6664 !7!). (ndeed,
o$en regionalism has become the new and dominant form of economic thin*ing (SchulH
-..!4 !!). Since the early !66.s, the Southeast Asian region has been closely associated
with the so'called new regionalism $henomenon, which characterises the $rocess of
regionalism as the transformation from $rotectionism to an o$en economic system,
outward and mar*et oriented, and s$ontaneous.
6
Another *ey feature of o$en regionalism
is com$etitiveness, which highlights the need for a country to Bmeet the test of
international mar*ets while simultaneously maintaining and e@$anding the real incomes
of its citiHens+ (1E"I !66-4 -<-). 1n the whole, mar*ets and technology have been the
*eys to the advancement of o$en regionalism (Barry and %eith !666). Ies$ite this, the
o$en regionalism conce$t in Southeast Asia has not been associated with advanced
integration schemes, such as a common mar*et, but with cross'border investments and a
fle@ible and a well'functioning system (1dPn !6664 !7!). Therefore, economic o$enness
has been the *ey to the investment and trade regime in the ASEA region.
The intensification of regional economic trade since the demise of the "old >ar has
made it $ossible for ASEA countries to enhance economic co'o$eration with countries
A
As Guoted in Eng (-..<4 7.).
6
See, for e@am$le, &almer (!66!), Jettne et al. (!666), Jettne and SQderbaum (-...) and SchulH et al.
(-..!).
A
beyond Southeast Asia. 1ne e@am$le of this is the interest shown by ASEA member
countries to become involved in Asia'&acific regionalism, under the aus$ices of A&E".
A more recent e@am$le of the tendency of ASEA member countries to $ursue a more
outward and o$en economic $olicy with e@ternal $arties is their involvement in the A&T
mechanism. Beyond East Asia and the Asia'&acific, ASEA countries have also begun
to rectify the wea*ness in their relations with the Euro$ean )nion (E)) by conducting
closer bilateral efforts on both sides and by using the Asia'Euro$e Meeting (ASEM) as a
framewor* for inter'regional co'o$eration (Ient -..!4 -=).
!.
These e@am$les suggest
that the attitudes of Southeast Asian $olicy ma*ers today have transformed, and are more
accommodating of the emerging $atterns of regionalisation and globalisation.
Table %
&'isting tariffs reduction agenda bet(een A#&A" and its ma)or trading partners
Trade
!artners Agenda Timeframe *etails
+hina &arly
implementatio
n (ith normal
trac,
1 January %--. / 01
*ecember %--1 (or
%-1- for full trade
liberalisation)
The early implementation of A+FTA
in$ol$es the tariff cuts on 1-- commodities
only
India &arly
implementatio
n
1 January %--2
(from an initially
"o$ember %--.)
The delay emerged as a result of the lac, of
agreement bet(een A#&A" and India on the
rule of origin mechanism
Japan Implementatio
n negotiation
"o$ember %--23
%-1% (target)
#lo( negotiation emerged as a result of
opposition from se$eral ,ey Japanese
go$ernment offices.
Australia Implementatio
n negotiation
January %--23 %-14
(target)
There ha$e been no discussions on the
products that (ill be listed in the proposed
BTA bet(een A#&A" and Australia
South %orea (m$lementation
negotiation
#anuary -..=, -..6
(target)
The im$lementation of B,TA between ASEA
and South %orea will only cover about A.
$ercent of total items whilst the remaining -.
$ercent of items will be $laced in the sensitive
list category.
Source4 Tem$o (-..<4 !8=)
Amongst the three BTAs that e@ist between ASEA and ortheast Asian countries,
the agreement with "hina is the most concrete and is already in the $rocess of
im$lementation. The idea was first initiated during the ASEA'"hina Summit in
!.
ASEM is com$rised of ten Asian nations, fifteen Euro$ean nations, and the Euro$ean "ommission. The
$rime motive for this meeting grew from the recognition of the need to strengthen the lin*age between
Euro$e and Asia. The first meeting was held on !'- March !667, in Bang*o*, and was followed u$ in
:ondon, on ;'< A$ril !66A. &rior to the creation of ASEM, however, both Southeast Asia and countries of
the then Euro$ean "ommunity (E") had a long'standing $artnershi$, and such a relationshi$ has been
regarded as a model for a grou$'to'grou$ inter'regionalism (:u*as !6A65 Mols !66.). Although ASEM has
different, even conflicting, agendas to other regional grou$ings that ASEA countries are involved in, such
as A&E", both forums allow the East Asian $olicy ma*ers to consolidate $olitical and economic
communication with orth America via A&E" and the E) via ASEM (Jiggot !6664 !6<). ,urther
information on the bac*ground to ASEM+s creation can also be found at the ASEM official website
(accessed -..<) at4
htt$422asem.inter.net.th2asem'info2bac*ground.html
6
ovember -... by "hinese &remier, Fhu 3ong/i. ,or a number of historical and
$olitical reasons, (ndonesia and Malaysia e@$ressed their reservations towards &remier
Fhu+s $ro$osal (Juang -..-4 -). Jowever, both Southeast Asian countries soon realised
that to turn down &remier Fhu+s $ro$osal would ma*e them more vulnerable in light of
the acceleration of the global economy, the rise of 3TAs, and "hina+s emergence as a
global economic force. early a year later in -..!, in Brunei, the ASEA'"hina E@$ert
0rou$ on Economic "o'o$eration (-..!4 ;.) issued a re$ort on the feasibility of A",TA,
which stated that this trade deal was an im$ortant move forwards in terms of economic
integration in East Asia and a foundation to the establishment of EA,TA. SubseGuently,
in -..-, "hina and ASEA agreed to sign a ,ramewor* Agreement on com$rehensive
Economic "o'o$eration (,A"E"), which, amongst other things, envisaged the o$eration
of an ,TA between "hina and the si@ older ASEA member countries from -.!., whilst
full trade liberalisation between "hina and the remaining ASEA members (9ietnam,
"ambodia, Myanmar, and :aos) would be in force by -.!= (>attana$rutti$aisan -..;4
;-). (t was ho$ed that by the end of -..6, tariffs between the two $arties would be cut to
as low as .'= $ercent on all commodities and all non'tariff barriers (TBs) would be
removed ("ai -..;4 ;67). The im$lementation of a B,TA between ASEA and "hina
will begin with the early harvest programme whereby "hina has agreed to $hase out
im$ort tariffs on selected items from the ASEA+s si@ core member countries (Eng -..;4
=6). More s$ecifically, this $rogramme will $hase out tariffs on 7.. agricultural $roducts
from si@ ASEA core countries, which includes live animals, meat, fishery, dairy
$roduce, other animal $roducts, live trees, etc.
)nli*e the free trade deal between ASEA and "hina, free trade deals between
ASEA and other two ortheast Asian countries, #a$an and South %orea, have achieved
little in terms of the institutionalisation of the agreements. This is Guite sur$rising in the
#a$anese case given the relatively more heterogeneous economic character between
ASEA and #a$an. #a$an has, so far, concluded an ,TA agreement with Singa$ore,
whilst the $ro$osed B,TAs with the &hili$$ines, Thailand, and Malaysia are still under
negotiation. (n the meantime, the status of the $ro$osed B,TAs between #a$an and
ASEA and between #a$an and (ndonesia are still under research. The current
negotiation between ASEA and #a$an is actually at the stage of official consultations
(as of -..;), whilst negotiations between (ndonesia and #a$an is still at the $re$aratory
meeting stage (as of -..;) ((ndonesian Ministry of ,oreign Affairs and (ndonesian
Ministry of "o'ordinator on Economy -..<). Iifficulties within the $ro$osed ASEA'
#a$an B,TA come from both sides. >hilst ASEA countries are still wary of $ast
#a$anese hegemonic'im$erialist ambitions, #a$an seems to lac* any clear long'term
ob/ective about East Asian integration. #a$anese domestic constituents a$$ear to have
been convinced that commitments to any regional co'o$erations would confine
#a$anese+s global ob/ectives ("ai -..;4 ;66). Moreover, unli*e the case of the A",TA,
where the "hinese government was able to influence its domestic constituents about the
$ossible benefits of ,TAs, $articularly after the country+s accession into the >T1, the
#a$anese government has not yet been able to influence, for e@am$le, its $olitically
$owerful farmers of the $ositive im$acts that ,TAs could have on #a$anese+s agricultural
sector (Eng -..;4 =6). #a$an was able to conclude its B,TA with Singa$ore in -..-
$artly as a result of the e@clusion of the agricultural sector in the negotiation $rocess.
!.
Meanwhile, although the South %orean government is generally Guite rece$tive
towards the strengthening of regionalism in the East Asian region, B,TAs, whether with
ASEA or with ASEA individual state, are yet to materialise. To date, the South
%orean government has only negotiated on a $ossible B,TA with its ortheast Asian
$artner, #a$an, and is conducting a feasibility study on a B,TA with Singa$ore. (t was,
after all, the then South %orean &resident, %im Iae'#ung, who initially $ro$osed the
creation of A&T during the Si@th ASEA Summit in !66A. Academics in South %orea
have $ointed out that ortheast Asian regionalism would boost South %orea+s gross
domestic $roduct (0I&) by ;.-. $ercent, or by about )SN !-.8 billion (%im Mi'Jui
-..-). Similarly, the former South %orean ,oreign Minister, Jan Sung #oo, was re$orted
to have claimed that the creation of an ,TA $act between ASEA and South %orea is
more than li*ely to boost additional foreign investments and com$etitiveness in the
region (,ore -..-). (n s$ite of the $ro$osed advantages, the South %orean government
remains cautious towards ta*ing active moves to create any B,TA with either its
ortheast Asian counter$arts, ASEA or any individual ASEA state.
Ies$ite the early sce$ticism e@$ressed by some ASEA member countries towards
the formulation of BTAs between ASEA and ortheast Asian countries, the ma/ority of
Southeast Asian $olicy'ma*ers have been ta*ing increasingly active roles in the
$romotion of BTAs. This is $articularly the case with (ndonesia. As mentioned earlier,
(ndonesia, along with Malaysia, initially e@$ressed reservations about the develo$ment of
BTAs. 3ecently, however, (ndonesian $olicy'ma*ers are ta*ing a more open attitude
towards the current develo$ment of BTAs. To start with, the free trade agreement
between ASEA and "hina was a$$roved by the (ndonesian &resident, Megawati
Su*arno$utri, on the !=
th
#une -..<, through the ratification of &residential Iecree o.
<A2-..<. ,ollowing the ratification of this ,TA deal, the Iirector 0eneral of
(nternational "o'o$eration at the Ministry of (ndustry and Trade e@$ressed (ndonesia+s
ho$e to double its e@$ort value to "hina from )SN -.6 billion in -..; to )SN =.A billion
by -..8 (Ja*im -..<a). Moreover, in a recent conference entitled Indonesias Readiness
to Face the evelopment o! Free Trade Areas "FTAs# Formation, which was held to
create an initial blue'$rint for the (ndonesian BTA $olicy, on =
th
August -..<, the
(ndonesian Minister for Economic "o'ordination, Iorod/atun %unt/oro/a*ti, said that the
increasing number of B,TAs conducted by (ndonesia+s ma/or trading $artners would
have to be observed closely as they would generate discrimination towards (ndonesian
$roducts abroad.
!!

Some non'state actors are eGually su$$ortive towards the $ush for further (ndonesian
involvement in BTAs. At the aforementioned conference, the 9ice'&resident of the main
(ndonesian business association, the (ndonesian "hamber of "ommerce and (ndustry
(%AI( K $amar agang dan Industri Indonesia), #ohn A. &rasetio, e@$ressed his
concerns over the lac* of concrete $olicy issued by the (ndonesian government
concerning (ndonesia+s future involvement in ,TAs (Bisnis (ndonesia -..<a).
&reviously, %AI( had also tried to $ersuade the two most notable (ndonesian
$residential candidates, Megawati Su*arno$utri and Susilo Bambang Oudhoyono, to
!!
See also Business (ndonesia (-..<a).
!!
consider $ushing through BTAs with (ndonesia+s ma/or trading $artners (Bisnis (ndonesia
-..<b). These develo$ments highlight the change of attitude amongst (ndonesian $olicy'
ma*ers and some domestic $ressure grou$s to $ush for BTAs with (ndonesia+s ma/or
trading $artners.
Jowever, this change of attitude amongst (ndonesian $olicy'ma*ers and *ey $ressure
grou$s is not so sur$rising. This new, more open, attitude has grown since the economic
crisis of !668. The conditions attached to the $ro$osed reform $rogrammes suggested by
the (M, and the >orld Ban* have $ressurised the (ndonesian economy to be more o$en
and more ada$tive to international economy and foreign direct investments. Aside from
that, (ndonesia is also involved in the ASEA ,ree Trade Area (A,TA) and the global
trade liberalisation agenda under the aus$ices of the >T1. (n fact, the acceleration of the
A,TA schedule from the initially agreed -..; to -..- was an indication of a move
towards a more o$en economic system. (n other words, the acceleration of the A,TA
schedule was com$lementary to the (ndonesian $olicy ma*ers+ $lan to reform the
domestic economy under the (M,+s $rogramme. This was also the case with (ndonesia+s
continued su$$ort for global trade liberalisation within the >T1 forum. (ndonesia+s
agricultural and industrial tariffs would be $hased out sooner or later.
I5. BTAs and their implications for Indonesian trade and in$estment policies
Table 0
Indonesia6s tariff reduction schedule3 17728%--0
(in 9)
Tariff
before
May
1995 1995 1996 1997 1998 1999 2000 2001 2002 2003
0 0 0
5 5 Max 5
10 5 Max 5
15 10 5 Max 5
20 15 10 5 Max 5
25 20 15 10 Max 10
30 25 20 15 10 Max 10
35 30 25 20 15 10 Max 10
40 30 25 20 15 10 Max 10
> 45 30 25 20 15 10 Max 10
Source4 ,A1 official website (accessed Se$tember -..<)
As mentioned in the $revious section, the orientation of the (ndonesian economy has
been relatively o$en since the economic crisis of !668. As they stand, (ndonesian trade
and investment $olicies remain in line with global trade liberalisation. (ndonesia+s
commitment in the >T1 and A,TA has generally lowered the tariff level for domestic
manufacture and agriculture sectors to between ='!. $ercent by -..; (refer to table ;).
The >T1 (-..;), for e@am$le, generally considers trade liberalisation as one of the *ey
!-
factors that can foster growth and stabilise the (ndonesian economy. (n a re$ort made by
the government of (ndonesia (-..;) to the >T1 Trade &olicy 3eview Body, it was stated
that increased national com$etitiveness was the *ey trade $olicy ado$ted by the
(ndonesian government to co$e with increasing global com$etition. Amongst some of
the *ey ob/ectives highlighted in the re$ort as $art of the general aim to revitalise and
further develo$ the (ndonesian economy were the maintenance and the increase of
foreign investment in (ndonesia. >hilst the revitalisation $rogramme includes those
relatively well'established industries, such as te@tiles, electronics, footwear, wood
$rocessing, and $ul$ and $a$er industries, industries earmar*ed for develo$ment include
those that have the $otential to absorb labour and foreign e@change earnings, such as
leather and leather $roducts, fish $rocessing, crude $alm oil, fertiliser, agriculture
machinery and $roducts, food $roducts, software, /ewellery, and handicraft industries.
These are the industries identified by the (ndonesian government as ca$able of com$eting
in the international mar*et.
Moreover, the continued elimination of tariffs and non'tariff barriers (TBs) is also a
*ey to maintaining the o$enness of the (ndonesian economy. These $olicies were
im$osed in order to e@$ose (ndonesian domestic industries to international com$etition.
The $rogramme of the reduction of tariffs and TBs is also in line with (ndonesia+s
commitment to global trade liberalisation under the aus$ices of the >T1 and regional
trade liberalisation within the s$here of A,TA and A&E", all of which were formally
ratified under the Ministerial Iecree of ,inance o. ;8A2%M%..!2!667. (n its
commitment to A,TA, for e@am$le, (ndonesia has been reducing most of its industrial
tariffs at the level of between .'= $ercent. The aforementioned re$ort $roduced by the
(ndonesian government also sti$ulated that tariff reduction has greatly affected the
structure of im$ort tariffs since the !668 economic crisis. (n !66A, for e@am$le, the
average im$ort tariff was 6.;< $ercent (covering =,-!< tariff lines or 8-.;. $ercent of the
total tariffs). The number of $roducts with tariff lines of .'!. $ercent was increased to
7,.7-, or about A;.- $ercent of total tariffs in -.... Moreover, the government of
(ndonesian has also acted aggressively in removing non'tariff barriers since the economic
crisis in !668, such as the elimination of restrictions on im$ort licenses for dairy
$roducts, and so on.
Meanwhile, (ndonesian investment $olicy has been more or less similar to the overall
ob/ectives of (ndonesian trade $olicy. This includes maintaining the notion of o$enness
to foreign investments. 1ne main modification of $ast investment $olicy has been the
sim$lification of the $rocedures $otential investors have to go through by the introduction
of the one stop service (Thanadsilla$a*ul -..<). This was made $ossible when the
Abdurrahman >ahid administration im$roved the e@isting ,oreign "a$ital (nvestment
:aw of !678, which gave substantial incentives to foreign investors (i.e. ta@ holidays,
etc). (n the $ast, for e@am$le, a$art from dealing with the Board of (nvestment "o'
ordination (B%&M K %adan $oordinasi &enanaman 'odal), foreign investors were also
reGuired to wor* closely with relevant technical de$artments, such as the Ministry of
,inance, the Iirectorate 0eneral of "ustom and E@cise, the Ministry of #ustice, and so
on.
!-
The new investment regulations, however, meant that foreign investors could deal
!-
Ruoted from the official website of the )S Embassy in #a*arta (-...)4
!;
directly with B%&M. (n addition, the >ahid administration also s$eeded u$ the (nitial
(nvestment A$$roval (((A), which had $reviously ta*en a few months, to a ma@imum
$eriod of != wor*ing days.
Since the economic crisis of !668, the main obstacles to investment in (ndonesia have
been international as much as domestic. At the international level, aggressive )S foreign
$olicy towards Afghanistan and (raG has had a damaging effect on the (ndonesian
economy. Such $olicies have stimulated threats and demonstrations against the )S and
its allies in (ndonesia (Anwar -..;4 8=). At the domestic level, issues such as regional
security, law enforcement, labour mar*et $roblems, the overla$$ing res$onsibilities of the
central and $rovincial government, regulatory burdens, and distortions in the ta@ system
remain ma/or $roblems to be confronted by $otential investors in (ndonesia (Ba$$enas
-..;).
!;
(n res$onse to gloomy international economic conditions and domestic
economic uncertainty, the Megawati administration declared the year -..; Indonesian
Investment (ear. Iuring the launching of the $rogramme in early -..;, &resident
Megawati $romised that her administration would create a favourable climate for
investment and would continue to introduce reforms in various sectors, $articularly the
fiscal and economic sectors (Sulistyowati -..;). (t was ho$ed that this $rogramme
would lead to conditions more conducive to the recovery of the national economy.
Amongst other issues, the so'called improvements in the year -..; and subseGuent years
include a revision of the investment laws, tightened security, as well as an attem$t to co'
ordinate the regulations of the central and $rovincial governments.
1n the whole, therefore, (ndonesian trade and investments $olicies have been
generally o$en and rece$tive towards international trade and foreign investments. The
conduct of BTAs between (ndonesia and its ma/or trading $artners would further o$en u$
the (ndonesian economy. >hilst the ma/ority of the current literature on BTAs a$$ears to
su$$ort the emergence of this model of trade agreement, the $ro$osed BTAs that involve
(ndonesia would be generally detrimental to (ndonesia+s overall national economic
interests. The first $roblem $osed by a BTA is that this ty$e of agreement is far easier to
negotiate in com$arison to an agreement that involves more $artici$ants. As a result,
agreements in a BTA can usually be achieved much faster. (n a multilateral trade
negotiation, however, full trade liberalisation that covers all $roducts is difficult to
finalise as a result of the wide divergence of interests between more develo$ed and
$oorer member countries. (n contrast, ,TA negotiations that involve only two
$artici$ating countries are easier to finalise. Jowever, in a case where a BTA involves a
more develo$ed country and a $oorer country, and given the relatively wea* bargaining
$osition of the latter, it is li*ely that the more develo$ed country will /eo$ardise the
$rocess of negotiation. (n the $ro$osed B,TA between (ndonesia and the )S, for
e@am$le, although some (ndonesian domestic industries, such as te@tiles and a$$arels,
furniture, etc, may benefit through this trade agreement (Ja*im -..<b), it is li*ely that
the )S would want to $ush for other trade deals, such as that of intellectual $ro$erty
rights, which have not yet been finalised at the global level. (n other words, BTAs are
htt$422www.usembassy/a*arta.org2econ2invest2investment-...'-.htmlSA!
!;
As Guoted in >aslin (-..;4 !.).
!<
$ushing develo$ing countries, such as (ndonesia, to be more aggressive in $ursuing an
o$en mar*et $olicy.
Secondly, BTAs would further com$licate custom $rocedures at the border,
$articularly when the countries involved also belong to a regional grou$ing or a
multilateral trade forum. This is $articularly relevant with the issue of rules o! origin,
which is a $owerful trade $olicy instrument arbitrating the mar*et access to goods
(Estevadeordal and Suominen -..;4 !). The rules of origin $olicy is $articularly useful
when the countries involved in a trade agreement grant each other $referential mar*et
access. More s$ecifically, it is used to determine whether or not the origin of im$orted
goods is eligible for $referential treatment in the im$orting country. A recent study
conducted by the >T1 Secretariat (-..-4 !!) demonstrates that the Bdiversity of 3TAs
(or T3TA'familiesU) results in a lac* of uniformity in $referential rules of origin regimes
worldwide+. ,or a su$$orter of multilateralism, such as Bhagwati (!66=), this would
create a spaghetti bowl e!!ect where $roducts in a $articular country en/oy access on
varying terms based on their country of origins. (f this occurs, then the fear is that such
,TAs can be inward'loo*ing in character. ,or a develo$ing country, such as (ndonesia,
the issue does not only de$end on whether the $ro$osed BTA would be inward or
outward loo*ing, but more on the ability of its custom officials to determine the origin of
the im$orted $roducts. The e@istence of BTAs would no doubt add confusion to the wor*
of (ndonesian custom officials who have been overwhelmed by the country+s overla$$ing
commitment in both multilateral and regional trade agreements.
(n relation to trade and investment in general, it also remains Guestionable whether
the (ndonesian business community is willing to conduct a substantial amount of foreign
investment in countries such as "hina, #a$an, South %orea, or even the )S. Although all
the above mentioned countries are considered to be (ndonesia+s ma/or trading $artners,
the ma/ority of (ndonesian businesses are still inward'loo*ing and de$end to a large
e@tent on (ndonesia+s already large domestic mar*et, with the current total $o$ulation of
-!. million.
!<
Moreover, it has been observed that although "hina would be an attractive
mar*et for foreign investments from the ASEA states, the ma/ority of these investments
come from Singa$ore ("heng -..<4 -8.). (n !666 alone, as "heng further sti$ulates,
Singa$ore too* about A. $ercent of total investments amongst ASEA countries in
"hina, which accounted to about )SN ;.-A6 billion. Similarly, in -... and -..!,
although the total investments of ASEA countries in "hina dro$$ed slightly to )SN
-.A<= billion and )SN -.6A8 billion, Singa$ore still too* a ma/or share of total
investments in "hina, or about 87.;8 $ercent and 8!.A! $ercent res$ectively. The ethnic
"hinese business networ* was $artly res$onsible for the considerable amount of
investments that Singa$ore had in "hina.
!=
An interview conducted with re$resentatives
of "hina, #a$an, and %orea
!7
also confirms that investments coming from (ndonesia to
!<
,or an analysis of the attitude of the (ndonesian business community see also Anwar (!66<) and "handra
(-..<).
!=
See also Ia/in &eng (-..-) for an analysis on the contribution of the ethnic "hinese business networ*s
towards the institutionalisation of economic integration.
!7
An interview was conducted by the author with the Economic 1fficer of the %orean Embassy who
wished to remain anonymous, on <
th
August -..<, in #a*arta.
!=
those three countries have been very minimal. Therefore, (ndonesia+s $artici$ation in a
number of $ro$osed BTAs might be $ointless to $ursue.
5. The effects of the proposed BTAs on the Indonesian economy
(t is a difficult tas* to analyse the im$act of the $ro$osed BTAs on the (ndonesian
economy. 1n the whole, it is rather unclear whether the relatively wea* current
(ndonesian economy is a result of either the economic crisis, (ndonesia+s commitment in
regional trade agreements, or multilateral trade agreements. 1ne thing for sure is that
current unem$loyment is high, whilst the number of $eo$le that fall below the $overty
line increases. This section analyses the attitude of (ndonesian domestic constituents
towards the various $ro$osed BTAs that will be conducted between (ndonesia and its
ma/or trading $artners. As mentioned earlier, research interviews were conducted with
(ndonesian government officials, members of the academic community, business
associations, and the re$resentatives of local 01s 2 "S1s. Iue to the limited time for
field research (two months) and the unavailability of res$ondents to $artici$ate in the
research interviews, there are some *ey domestic constituents that had to be left out in
this analysis. More s$ecifically, the analysis of each category of res$ondent will $lace
em$hasis on their $ers$ectives on the im$acts of the $ro$osed BTAs on domestic
industries, agricultural sector and small'scale farmers living in rural areas.
BTAs and Indonesian domestic industries
Iomestic industries are the *ey sectors that will most affected by the im$lementation
of the $ro$osed BTAs between (ndonesia and its trading $artners. To date, with the
e@ce$tion of the main (ndonesian business association, the "hambers of "ommerce and
(ndustry (%AI( K $amar agang Indonesia), the ma/ority of business associations and
other $ressure grou$s remain sce$tical about the $artici$ation of (ndonesia in this model
of trade agreement. 1n the government side, the Ministry of (ndustry and Trade
(Ie$$erindag K epartemen &erindustrian dan &erdagangan) and the Ministry of
,oreign Affairs (Ie$lu K epartemen )uar egeri) are the *ey government offices that
deal directly with (ndonesia+s bilateral trade affairs. Many other trade'related
government offices, such as the Ministry of Economic "o'ordination, the Iirectorate
0eneral of "ustom and E@cise (I0B" K ire*torat Jendral %ea dan +u*ai) and the
(nvestment "o'ordinating Board (B%&M K %adan $oordinasi &enanaman 'odal), were
reluctant to $artici$ate in the research interviews due to res$ondents+ $ersonal or formal
constraints.
!8
Those government officials that were willing to $artici$ate in the research
interviews gave different answers concerning the readiness of (ndonesia+s domestic
industries to $artici$ate in the $ro$osed BTAs between (ndonesia and its ma/or trading
$artners.
!8
Ies$ite this, the researcher was able to e@amine the views of some re$resentatives of these related
government offices through a number of seminars or conferences organised by the (ndonesian government.
!7
(n general, *ey (ndonesian government offices that deal directly with the formulation
of the (ndonesian ,E& are su$$ortive towards (ndonesia+s $artici$ation in BTAs.
Jowever, these government offices remain cautious towards announcing s$ecific $olicy
concerning BTAs. As stated by an official from the Ministry of Economic "o'ordination,
#ennas Jutagalung (-..<4 =), during a recent seminar on The Readiness o! Indonesia in
Facing the evelopment o! FTAs Formation, in #a*arta, the most a$$ro$riate a$$roach
for (ndonesia at the moment is Bto e@amine and to study further the $ossibility of
conducting ,TAs with eight countries, namely #a$an, the )S, "anada, South %orea,
Singa$ore, "hina, South Africa, and Timor :este+. >ith regard to the $ossibility of
creating a B,TA with the )S, for e@am$le, Jutagalung $ointed out that, at the moment,
)S e@$orts to ASEA accounted for only 7 $ercent of total )S e@$orts to the world
mar*et. (n contrast, ASEA+s e@$orts to the )S mar*et reached about -! $ercent of the
total of ASEA+s e@$orts to the world mar*et. Through the im$lementation of a B,TA
between (ndonesia and the )S, (ndonesia would gain as much as )SN !.; billion annually
whilst the )S would e@$erience a deficit in its trade with (ndonesia by as much as )SN
!86 billion. Therefore, in the view of this government official, ASEA needs the )S
more than the )S needs ASEA.
Meanwhile, officials from other *ey government offices were also su$$ortive of the
$ro$osed BTA deals between (ndonesia and its ma/or trading $artners. An official from
the Ie$lu, for e@am$le, reiterated the im$ortance of maintaining closer economic co'
o$eration within the wider East Asian region for (ndonesian develo$ment.
!A
(n the view
of this government official, the $ro$osed BTAs between (ndonesia and its East Asian
counter$arts, $articularly "hina, #a$an, and South %orea, have great $otential for the
(ndonesian economy. Economic $artnershi$ between (ndonesia and #a$an, for instance,
has been relatively close due to the economic com$lementarity of both economies. "hina
has also emerged as an im$ortant new, large mar*et within the world mar*et, es$ecially
after its entrance to the >T1. Meanwhile, South %orea, des$ite its slow $rogress in
develo$ing BTAs with either ASEA or the individual ASEA country, still remains a
new economic $ower in the East Asian region. Since the economic crisis of !668, these
three ortheast Asian countries have shown their willingness to $romote greater
economic co'o$eration with their Southeast Asian counter$arts. As a result, the
(ndonesian government sees the conduct of annual meetings amongst ministers of all the
interested states as crucial in fostering greater co'o$eration in the East Asian region.
:i*e his counter$art at the Ie$lu, the official from the Ie$$erindag also $erceived
the $ro$osed BTAs between (ndonesia and its ma/or trading $artners as new challenges
and o$$ortunities that should be embraced by (ndonesia.
!6
Jowever, this government
official also recognised the $otential negative im$acts that this model of trade agreement
may bring to (ndonesian domestic industries. (t is for this reason that the (ndonesian
government remains cautious about identifying the *ey domestic sectors to be included in
the u$coming BTA negotiations. The official from the Ie$$erindag also stressed that it is
rather naVve to e@$ect (ndonesian domestic industries to com$ete in the $ro$osed BTAs.
!A
An interview was conducted with Bambang 0uritno, Iirector of the Iirectorate of ASEA "o'o$eration,
on --
nd
#uly -..<, in #a*arta.
!6
An interview was conducted by the author with Ansari Buchori, Secretary of the Iirectorate 0eneral for
Metal, Machine, Electronics, and Miscellaneous (ndustries, on ;
rd
August -..<, in #a*arta.
!8
Je argued that resistance within the domestic industrial sector mainly came from large
firms in large industries, such as those in the metal, automotive, and motor industries.
Moreover, in his view, the ma/ority of large firms in large industrial sectors are s$oiled,
su$$orting the continued $rotection and incentives given to them by the government.
This government official also e@$ressed his confidence that most large firms in large
industrial sectors would $rovide similar res$onses in ten years to come if they are as*ed
the same Guestion regarding their readiness for trade liberalisation. 1ne thing that needs
to be reiterated here is that the (ndonesian government remains vigilant towards any
$ossible outcome that these BTA deals may $ose towards the continued survival of
(ndonesian domestic industries.
Jowever, other officials from other government offices were sce$tical about the
$ro$osed $lan to conduct BTAs with (ndonesia+s ma/or trading $artners. An official from
the Ministry of "o'o$eratives, Small and Medium Enter$rises (Ie$*o$')%M K
epartemen $operasi, -saha $ecil dan 'enengah), for e@am$le, e@$ressed her concerns
about the lac* of internal co'ordination amongst government officials and the minimal
amount of information disseminated to the $ublic about the government+s $lan to involve
(ndonesia in various BTAs.
-.
To start with, this government official argued that most
com$rehensive data and information concerning the com$etency of the (ndonesian
domestic sector are only available at the *ey government offices, such as the Ministry of
Economic "o'ordination, Ie$lu and the Ie$$erindag. The remaining government
offices are often left uninformed about the government+s s$ecific $olicy towards the
moves to im$lement BTAs with ma/or trade $artners. As a result, the involvement of
(ndonesia in various free trade deals remains abstract to many government officials.
(ndonesia+s e@$erience in A,TA is a case in $oint where the *ey government offices that
deal with the formulation of ,E&s did not listen to the concerns e@$ressed by other
related government offices. &rior to the im$lementation of A,TA, for e@am$le, Ie$*o$'
)%M warned the *ey ,E& $olicy'ma*ers (i.e. those within Ie$lu and the Ie$$erindag)
that the ma/ority of (ndonesian domestic industrial sectors were unsure about their ability
to com$ete with their ASEA counter$arts. (n this government official+s $oint of view,
the free trade deal with "hina would have had a much more significant im$act on the
well'being of (ndonesia+s domestic industrial sectors. (n the case of the furniture
industry, for e@am$le, "hina is far more able to offer $roducts that are chea$er and of a
higher Guality than (ndonesia. As a result, $ushing a free trade deal with "hina would
definitely generate a significant negative im$act on the (ndonesian furniture industry.
Another government official from the Board of Ievelo$ment &lanning Agency
(Ba$$enas K %adan &erencanaan &embangunan .asional)
-!
was eGually sce$tical about
the (ndonesian government+s overall $lan to $ursue an active BTA $olicy. The
res$ondent believed that (ndonesia+s domestic agricultural and non'agricultural sectors
are not ready to face the u$coming BTAs. There have been few changes in the way the
overall bureaucracy has wor*ed since the mid'!66.s. ,rom !66= until -..;, for
e@am$le, the government has $ushed for the tariff elimination $rocess to reach ='!.
-.
An interview was conducted by the author with Sri Ernawati, E@$ert Ministerial Staff on (nternational
3elations, on =
th
August -..<, in #a*arta.
-!
An interview was conducted with Ir. :u*y E*o >uryanto, Iirector of the Iirectorate of (ndustry, Trade,
and Tourism, on ;.
th
#uly -..<, in #a*arta.
!A
$ercent for most industries. Jowever, it has also failed to $romote the develo$ment and
the com$etitiveness of the domestic industries to com$lement the significant dro$s on
tariffs. Although the government has insisted that chea$ labour is the *ey com$etitive
advantage that e@ists within the (ndonesian mar*et, there has been little $rogress in
increasing overall (ndonesian $roductivity.
Moreover, the government official from the Ba$$enas was also sce$tical about the
studies conducted by other government offices to assess the im$act of the various free
trade deals on the (ndonesian economy. (n the case of the free trade deal with "hina, for
instance, (ndonesia lists =8; items under the early harvest $rogramme, =-8 items of
which are from the agriculture sector whilst the remaining <7 items are from the non'
agricultural sectors. The Ministry of Agriculture claims that the =-8 listed items are sa!e
to be included in this free trade deal. Jowever, the government official from the
Ba$$enas claimed that the Ministry of Agriculture is rather unclear about the s$ecific
definition of and criteria used for the word Bsafe+ when identifying those agricultural
items listed under the aforementioned $rogramme. ,urthermore, this official was also
$essimist about the overall orientation of the $olicy'ma*ers in the Ie$$erindag. The
Iirectorate of (nternational (ndustry and Trade "o'o$eration at the Ie$$erindag has
always insisted that the o$ening of the (ndonesian mar*et through BTAs would also mean
the o$ening of the mar*ets of some of (ndonesia+s ma/or trading $artners. Although this
argument is true, the government official from the Ba$$enas believed that the
Ie$$erindag has failed to e@amine the actual ability of (ndonesia+s domestic sectors in
com$eting with other countries. 1n the whole, therefore, the (ndonesian government is
thought to have been ta*ing a too brave a$$roach in dealing with all the $ro$osed BTAs.
>hilst state actors+ $erce$tions of the im$acts of the $ro$osed BTAs towards
(ndonesian domestic industries were diverse, (ndonesian non'state actors were more
united in their stance towards the issue. Those in the academic community, such as Ir.
Jadi Soesastro,
--
Ir. Marie &angestu,
-;
&rof. :e$i Tarmidi,
-<
and Ir. )mar #uoro,
-=
were
very sce$tical about the issue, $articularly as the government lac*ed any clear ob/ective
regarding the country+s involvement in the $ro$osed BTAs with its ma/or trading
$artners. (ndonesia, after all, can be considered a newcomer to the BTA trend (Soesastro
-..<4 -). The (ndonesian government has so far been e@amining this trade $olicy o$tion
as a res$onse to offers made by a number of countries (i.e. #a$an and the )S) and to the
formation of BTAs that involve many ASEA countries. (ndeed, the (ndonesian
government a$$ears to have been tem$ted to follow similar a$$roaches ado$ted by some
of its ASEA neighbours in $ursuing BTAs $olicy, $articularly Singa$ore and Thailand.
Jowever, (ndonesia remains unable to get involved in such arrangements, not only
--
The interview with Ir. Jadi Soesastro was conducted by the author on the -;
rd
#uly -..<. At the time of
the interview Ir. Soesastro held the $osition of E@ecutive Iirector of the "entre for Strategic and
(nternational Studies ("S(S).
-;
The (nterview with Ir. Mari &angestu was conducted by the author on 6
th
August -..<, in #a*arta. At the
time of the interview Ir. &angestu held the $osition of Senior 3esearcher at the "S(S.
-<
The interview with &rof. :e$i Tarmidi was conducted by the author on the !6
th
#uly -..<, in #a*arta. At
the time of the interview &rof. Tarmidi held the $osition of the Iirector of the A&E" Study "entre at the
)niversity of (ndonesia.
-=
The interview with Ir. )mar #uoro was conducted by the author on the -=
th
August -..<, in #a*arta. At
the time of the interview Ir. #uoro held the $osition of Senior ,ellow at the Jabibie "entre.
!6
because of the lac* of readiness of the various sectors listed in the $ro$osed
arrangements, but also as a result of the inability of (ndonesian negotiators to fully
re$resent the economic needs of the (ndonesian $eo$le. &rof. Tarmidi also added that
(ndonesia is not only lac*ing good negotiators but also trained officials ca$able of
handling technical $racticalities in the im$lementation of BTAs. At the moment, *ey
(ndonesian government offices handling the $racticalities of ,TAs, such as the
Iirectorate 0eneral of "ustom and E@cise, remains vulnerable to corru$t $ractices so that
the im$lementation of BTAs could be irrelevant.
,urthermore, Ir. Soesastro also suggested that the (ndonesian government should
ta*e immediate action to come u$ with a clear identification as to which sectors are li*ely
to e@$erience gains or losses under the $ro$osed BTA initiatives as well as the domestic
reforms needed to su$$ort this $olicy o$tion. (ndeed, as Soesastro (-..<4 ;'<) writes
elsewhere, Bit is often also the case that bilateral or regional ,TAs are used to hel$
$romote domestic reforms. D,or instance,E an agreement with the )S could have the
greatest effect on (ndonesia+s economic reform agenda. Jowever, C the wides$read
im$ression that the )S is bullying (ndonesia could DalsoE be counter$roductive+.
Similarly, Ir. &angestu also stressed that BTA deals that are conducted with larger and
wealthier $artners would generate limited benefits to (ndonesia. (n the $ro$osed ,TA
deal between (ndonesia and the )S, for e@am$le, it is very li*ely that the )S would hit
(ndonesia on a number of issues that have not been resolved at the multilateral level, such
as the intellectual $ro$erty issue, legal issues, domestic regulations, and services.
evertheless, as a *een $ro$onent of regionalism and multilateralism, Ir. Soesastro
believed that BTAs are inconsistent with the $rinci$le of multilateralism. According to
him, BTAs are discriminatory arrangements, and, as such, may have negative im$acts on
countries that are e@cluded from the arrangements, but have similar economic structures
with one or both country 2 countries involved in the BTA. Ir. Soesastro also $ointed out
the im$ortance of distinguishing between a clean agreement and a dirty agreement in
international trade. >hilst the former is a full trade liberalisation between the countries
involved, the latter refers to an agreement that often e@cludes sectors that are considered
sensitive by the $artici$ating countries.
-7
The BTA that was concluded between
Singa$ore and #a$an in -..-, for e@am$le, has so far had little im$act on the (ndonesian
economy due to the similarity of the economic structures of both countries involved in
this arrangement. The im$act would be much greater if #a$an and other ASEA
countries, such as the &hili$$ines and Thailand, both of which have been conducting
B,TA negotiations since -..;, concluded similar free trade deals to that of the #a$an'
Singa$ore B,TA. (n the absence of the #a$an'(ndonesian B,TA deal, most of (ndonesia+s
e@$orts would face stiffer com$etition in the #a$anese mar*et. Therefore, B,TAs tend to
strengthen the economic relationshi$ between two countries (i.e. #a$an'&hili$$ines or
#a$an'Thailand) at the e@$ense of a third country (i.e. (ndonesia).
-7
Jowever, Article WW(9 of 0ATT also sti$ulates that two or more countries may create an ,TA or a
custom union if the agreement substantially involves all sectors and does not discriminate against a third
$arty. Even when there are sensitive $roducts in the ,TA or custom union, it is im$erative that these
sensitive items are transferred into the inclusion list within a reasonable time $eriod. ,or further details on
Article WW(9 of 0ATT, visit the >T1 official website (accessed on August -..<) at4
htt$422www.wto.org2english2docs?e2legal?e2gatt<8?.-?e.htmSarticleWW(9
-.
As with members of the academic community, re$resentatives from (ndonesian
business associations were also rather $essimist about the readiness of (ndonesia+s
domestic industries to deal with any future BTAs made between (ndonesian and its ma/or
trading $artners. (n general, all the re$resentatives of the (ndonesian business
associations interviewed, including the (ndonesian Small Business E@$orters "onsortium
((SBE"),
-8
the Association of (ndonesian Entre$reneurs (A&(I1 K Asosiasi &engusaha
Indonesia),
-A
and the (ndonesian Association of Telematics Software (AS&(:)%( K
Asosiasi &iranti )una* Telemati*a Indonesia),
-6
have gradually started to show their
su$$ort for trade liberalisation, $articularly for those free trade deals that would boost
(ndonesian e@$orts. Jowever, the re$resentatives from the three business associations
remained sce$tical about whether (ndonesia was ready for BTAs. The re$resentatives
from these business associations believed that (ndonesia still lac*s the necessary
domestic co'ordination, $articularly on the governmental side. According to these
res$ondents, *ey government offices that are dealing with the $ro$osed BTAs, such as the
Ie$lu and the Ie$$erindag, are themselves confused about choosing the right ,E&s for
the country. Although there have been some im$rovements in recent years in the way in
which these *ey government offices involve non'state actors in their decision'ma*ing
$rocesses, they remain aloof when it comes to the im$lementation of the $olicies. All the
re$resentatives from the three business associations felt that they had $rovided the
necessary information and data to the *ey government offices, yet they felt that many of
the $olicies, such as e@cessive ta@es im$osed to businesses, created burdens on their
business activities.
The re$resentatives from the three aforementioned business associations were also
convinced that some (ndonesian domestic sectors, such as te@tile, garment, electronics,
and chemicals, were ready to deal with the im$lementation of any free trade agreements.
Jowever, the same res$ondents argued that it is im$erative that the (ndonesian
government comes u$ with the right formula in fostering com$etitiveness and efficiency
in domestic industries. To date, for e@am$le, the (ndonesian government has failed to
follow the Malaysian government+s suit in $rotecting its domestic industries whilst being
involved in a number of free trade deals. Jowever, rather than demanding $rotective
measures, the res$ondents believed that the eradication of corru$t $ractices, illegal
smuggling, and other *inds of economic reform are fundamental to the im$rovement of
domestic industrial com$etitiveness and efficiency. (n relation to the $ro$osed BTAs, the
res$ondents from the three business associations also reiterated the im$ortance of
choosing the right $artners and carefully identifying the sectors to be listed in inclusion
lists.
Meanwhile, although %AI(, the largest (ndonesian business association, is
generally su$$ortive towards the (ndonesian government+s $ursuit of BTA $olicy, this
-8
An interview was conducted by the author with the "hairman of (SBE", Ir. Erwin Elias, on the -
nd
August -..<, in #a*arta.
-A
An interview was conducted by the author with the "hairman of A&(I1, Ir. Sof/an >anandi, on the
!.
th
August -..<, in #a*arta.
-6
An interview was conducted by the author with the "hairman of AS&(:)%(, Teddy Su*ardi, on the !.
th
August -..<, in #a*arta.
-!
business association also $in$oints si@ *ey $roblems that need to be tac*led by the
government to increase domestic industrial com$etitiveness as well as to attract foreign
investments (%om$as -..<a4 !<). The si@ $roblems identified by %AI( are law
su$remacy, security stability, ta@ reform, labour issues, $rovincial autonomy, and
infrastructure. 3ecent survey conducted by this business association also reveals that
$oor infrastructure causes )SN -7 million losses in (ndonesia. There are also a number
of ta@ $olicies that are not su$$ortive enough to the local businesses. The value added
ta@es on certain strategic commodities, for e@am$le, are still considered e@tremely high
by %AI(. (n the absence of efforts from the government to manage those
aforementioned $roblems, it is li*ely that the (ndonesian local industries will be unable to
com$ete with industries in other countries.
As with most of the other res$ondents, the ma/ority of re$resentatives from non'
governmental organisations (01s) or civil society organisation ("S1s) were also
sce$tical about their country readiness to face the im$lementation of BTAs.
;.
The
ma/ority of the re$resentatives from 01s and "S1s underlined the danger that
(ndonesia may encounter through its $artici$ation in BTAs. Aside from general concerns
about the im$act of trade liberalisation on the well'being of the (ndonesian general
$ublic, they were worried about the government+s lac* of clear ob/ectives that might
render $ursuing a BTA $olicy ineffective. &rior to agreeing to any free trade deals, most
re$resentatives of (ndonesian 01s and "S1s wanted the *ey (ndonesian government
offices to clearly identify the wea* and strong industrial sectors that would have to deal
directly with all ,TAs. Such information is necessary for (ndonesian delegates who are
negotiating free trade deals with (ndonesia+s ma/or trade $artners. After all, as $ointed by
the ma/ority of re$resentatives from (ndonesian 01s and "S1s, the economic
sovereignty and the well'being of the (ndonesia $eo$le are at sta*e in these negotiations.
Some re$resentatives from the (ndonesian 01s 2 "S1s also felt that it would be
necessary to restructure the domestic economic regime as well as the $rocess of ,E&
decision'ma*ing. To date, international organisations, such as the >T1, (M,, and the
>orld Ban* are still dictating the conduct of (ndonesian ,E&s. 3e$resentatives from
01s 2 "S1s also believed in the necessity of creating $ressure on the government from
a grassroots level that involves civil society grou$s. (t was felt that it was u$ to civil
society grou$s to identify and $ro$ose alternatives to the government rather than merely
reacting to $olicies already issued as they had done in the $ast. Thus, for the ma/ority of
(ndonesian 01s 2 "S1s, there was a need to $ush for reforms in the way in which both
;.
The researcher conducted interviews with (the) re$resentatives from eight different (ndonesian 01s 2
"S1s, which included4 (!) 3iHa T/ah/adi, ational "o'ordinator, &esticide Action etwor* (&A), -!
st
#uly
-..<, in #a*arta5 (-) >ardah JafidH, "o'ordinator, )rban &oor "entre ()&"), --
nd
#uly -..<, in #a*arta5 (;)
Sumyaryo Sumis*un, Iirector, The Assemblage of (ndonesian ,ishermen (JS( K /impunan .elayan
Seluruh (ndonesia)5 (<) ,arah Sofa, (nternational "or$orate "am$aign "o'ordinator, (ndonesian ,riends of
the Earth (>alhi K 0ahana )ing*ungan /idup), -;
rd
#uly -..<, in #a*arta5 (=) Ji*ayat Ati*a %arwa,
,ederation of :abour )nion on Metals, Electronics, and Machinery (,S&':EM K Federasi Seri*at &e*er1a
)ogal, 2le*troni*, dan Mesin)5 (7) (ndah Su*maningsih, Iirector, (ndonesian "onsumer 0rou$ (O:%( K
(ayasan )embaga $onsumen Indonesia), -6
th
#uly -..<, in #a*arta5 (8) Oo$ie Jand/a/a, )ni Social
Iemocrat ()nisosdem K -ni Sosial emo*rat), <
th
August -..<, in #a*arta5 (A) Setiono, Iirector, :abour
)nion for #a*arta, Bogor, Tangerang, and Be*asi (SB# K Seri*at %uruh Jabotabe* "Ja*arta, %ogor,
Tangerang, and %e*asi), <
th
August -..<, in #a*arta.
--
state and non'state actors o$erate $rior to committing further to any trade liberalisation
deals.
Moreover, as with other non'state actors, the ma/ority of re$resentatives from
(ndonesian 01s 2 "S1s also concurred on the need to identify the right trade $artners.
Amongst the $ro$osed BTA deals that the (ndonesian government wishes to $ursue, the
BTA deal with "hina is $erceived as the most threatening by the ma/ority of res$ondents
in this category. %ey government offices, such as Ie$$erindag and Ie$lu, have been
arguing that "hina is a big mar*et and a BTA deal with this country would enhance
(ndonesia+s e@$orts to the "hinese mar*et. The ma/ority of (ndonesian 01s 2 "S1s did
not disagree with this line of argument, but they were sus$icious that the "hinese mar*et
would be a large mar*et for illegal smuggling from (ndonesia, such as illegal logging,
fishing, and so on. "hina is also seen as a threat because most "hinese $roducts e@$orted
to (ndonesia were com$eting with $roducts already $roduced in (ndonesia. Although the
Guality of many "hinese $roducts may not match the Guality of (ndonesian $roducts, the
fact that "hinese $roducers are willing to sell their $roducts at lower $rices scared many
re$resentatives of (ndonesian 01s 2 "S1s. Even before the im$lementation of any
BTA deal with "hina, the (ndonesian mar*et has already been flooded by "hinese
$roducts. The (ndonesian mar*et has been flooded by te@tiles, medicines, motorcycles,
etc, from "hina since the mid'!66.s. The same also a$$lies to the current bilateral
economic relations between the two countries. (n the furniture industry, for e@am$le,
although (ndonesian e@$orts show significant im$rovements from )SN !.< billion in -..-
to )SN !.7 billion in -..<, the (ndonesian furniture mar*et is still controlled by the
im$ort of furniture from "hina.
;!
The im$lementation of a BTA deal with "hina,
therefore, would further damage (ndonesian domestic industrial sectors. (n contrast,
however, BTA deals with both #a$an and South %orea were $erceived as less damaging
than deals with "hina. The ma/ority of re$resentatives from (ndonesian 01s 2 "S1s
believed that (ndonesia still needs technological e@$ertise from both #a$an and South
%orea. Jowever, they felt that the (ndonesian government needed to ta*e firm action to
ensure that (ndonesia does not become a consumer mar*et only. As a result, $rior to
im$lementing any BTA with either #a$an and South %orea, it was seen as im$erative that
#a$an and South %orea should su$$ort (ndonesia in develo$ing its own technological
e@$ertise.
BTAs and the Indonesian agricultural sector, food security, and rural development
Table 4.
Indonesias tariffs and non-oil !as trade "1994-1999#
$rod%&t
'es&ri(tion
")IT*
*ode#
+,era!e tariffs I-(orts .x(orts
*/an!e
in trade
s%r(l%s
1994-99
;!
As re$orted in %om$as (-..<b), or visit %om$as official website at4
htt$422www.*om$as.com2*om$as'ceta*2.<.;2.A2e*onomi2A68A8..htm
-;
"0)1#
1994
(%)
1998
(%)
Net
change
(%)
1994
(US$
million)
1999
(US$
million)
Annal
g!o"th
(%)
1994
(US$
million)
1999
(US$
million)
Annal
g!o"th
(%)
+!ri&%lt%re 22.8 8.4 -14.4 22678 32920 7.9 62442 62789 1.1 -895
3%bber "23# 6.1 5.3 -0.8 138 93 -7.5 12275 865 -7.5 -365
4is/
s/ri-( "03#
26 5.2 -20.8 16 25 10.2 12582 12556 -0.3 -35
*offee2 tea2
&o&oa2
s(i&es "07#
24.8 4.9 -20 18 76 33.2 12297 12310 0.2 -45
5e!etable
oils
"40242243#
13.2 5 -8.2 101 29 -21.9 12373 12828 5.9 527
4r%its
5e!etables
"05#
26.1 5 -21.1 197 147 -5.7 304 384 4.8 131
6e,era!es
toba&&o
"112 12#
105.2 88.4 -16.8 142 154 1.7 138 232 10.9 82
+ni-al
feed "08#
8.2 3.9 -4.4 417 274 -8.0 157 90 -10.5 76
*ereal 7
(re(aration
s "04#
8T6 8T6 na9 922 12899 15.5 58 61 1.0 -974
)%!ar 7
(re(aration
s "06#
8T6 8T6 na 63 559 54.9 73 68 -1.4 -501
:t/er "002
012 022 092
212 222 292
41#
16.2 5.2 -11 666 664 -0.1 186 395 16.2 211
4orestry 17.5 4.7 -12.9 934 963 0.6 52953 62172 0.7 189
Minin!
-inerals
8.9 6.4 -2.5 12005 665 -7.9 22383 32510 8.1 12467
:t/er
-an%fa&t%r
e
19.6 10.3 -9.3 242960 142741 -10 152582 222286 7.4
162922
Total 19.6 9.5 -10.1 292577 202290 -7.3 302360 382756 5.0 172683
Source4 Magiera (-...)
The im$acts of trade liberalisation on the agriculture sector, food security and rural
develo$ment are other *ey issues that need to be assessed by the (ndonesian government
$rior to $ursuing any BTA $olicies. (ndonesia is, after all, an agrarian country, with the
ma/ority of its $o$ulation, or about 8= $ercent, living in rural areas. The agriculture
sector alone absorbs about << $ercent of total em$loyment, whilst contributing, along
with forestry and fisheries, to around !8 $ercent of total 0I&, which ma*es it one of the
*ey sectors in the (ndonesian economy. 9arious academics have assessed the im$acts of
trade liberalisation on the (ndonesian agricultural sector. (n their analysis of the im$act
of A&E" trade liberalisation on the (ndonesian agricultural sector, for e@am$le, 1*taviani
and Irynan (-...) found that (ndonesia benefits from $artici$ating in trade liberalisation,
even if other A&E" develo$ing member countries do not $artici$ate. ,eridhanustyawan
-<
and &angestu (-...4 ;.) $rovide a similar line of analysis, arguing that (ndonesia+s
commitment to the )ruguay 3ound forces the removal of domestic distortions in
agriculture, which, conseGuently, increases (ndonesia+s welfare overall.
,eridhanusetyawan and &angestu are also o$timistic that A,TA will increase (ndonesia+s
$otential as a ma/or $roducer of agricultural commodities ASEA ($. ;!). 1ther studies,
such as those conducted by Ste$henson and Erwidodo (!66=) and Anderson and Strutt
(!666), suggest that (ndonesia will suffer a loss in e@$ort com$etitiveness and a decline in
net social welfare if it fails to $ursue trade deregulation measures similar to those of its
trading $artners.
Table 2.
Indonesian agriculture and food trade
(annual a$erages)
$eriod I-(orts .x(orts 8et .x(orts
Ag!iclt!e #oo$ Ag!iclt!e #oo$ Ag!iclt!e #oo$
US$ million %e! annm
1984-1986 "+# 985 589 22488 2243 12503 654
1989-1991 "6# 12775 911 22962 12329 12208 418
1994-1996 "*# 42545 22963 52414 12987 869 -976
1998-2000 "'# 42145 22901 52045 22038 900 -863
&e! annm g!o"th !ate'
$eriod + to * 16.5 17.5 8.1 4.8 - -
&e!io$ ( to ) *2+3 *0+5 *1+8 0+,
Source4 ,A1 official website (accessed on Se$tember -..<)
1n the contrary, those who o$$ose trade liberalisation are $essimistic about
(ndonesia+s $artici$ation in international trade liberalisation. (n the view of Setiawan
(-..;4 78'A), for e@am$le, the involvement of (ndonesia in the Agreement on Agriculture
(A1A) gave way to a radical liberalisation $rocess in the (ndonesian agricultural sector.
By committing to such an agreement, the (ndonesian government renders the (ndonesian
farmer and the country+s agricultural system vulnerable to the mar*et. (n other words, the
strong wins whilst the wea* losses. The wea* is no other than (ndonesian small farmers.
As Setiawan further notes, the value of (ndonesian agricultural im$orts to date reaches
around )SN !.; billion. Moreover, (ndonesia+s im$orts on agricultural and food $roducts
have been significantly increased as a result of the country+s tariff reduction commitment
(refer to table < and table =). Iuring the !6A<'!6A7, (ndonesia+s agricultural im$orts
accounted to )SN 6A= million, whilst its im$orts on food $roducts were accounted to
)SN =A6 million. By the end of -..., (ndonesia+s im$ort value rose to )SN <,!<= for
agricultural $roducts and )SN -,6.! for food $roducts. This is sim$ly an indication that
the (ndonesian mar*et is increasingly controlled by foreign agricultural $roducts. 1ther
sce$tics, such as Jidayat (-..-), also $oint out that the ma/ority of available studies on
the readiness of the (ndonesian agricultural sector to face trade liberalisation a$$ear
o$timistic on $a$er. Jowever, the economic crisis of !668 and (ndonesia+s $artici$ation
in various trade liberalisation measures under the >T1, A,TA, and A&E" ma*e
(ndonesia less well eGui$$ed to deal with the negative im$acts of free trade. Both the
-=
(ndonesian economic structure and its infrastructure are not yet com$atible with a trade
system that has little control over the flow of goods and services across borders.
1n the whole, there are three issues that need to be addressed in the current analysis
of the $robable im$acts that $ro$osed BTAs may have on small farmers, which include
(!) food sovereignty, (-) the overall com$etitiveness and efficiency of the (ndonesian
agricultural sector, and (;) the way in which the losers (or, in this case, small farmers) are
com$ensated. To start with, food sovereignty can be generally referred to as the right of
the $eo$le to define their food and agriculture (9ia "am$esina -..;). (n recent years,
food su$$ly in (ndonesia has not matched e@$ectations. The economic crisis of !668,
along with the stringent measures im$osed by the (M, and the >orld Ban*, has $ushed
the (ndonesian government to underta*e massive $olicy reforms in the agricultural sector.
Amongst other things, these reforms include4 (!) the elimination of im$ort mono$oly
over wheat, wheat flour, sugar, soybeans, garlic, and rice by the ational :ogistic Agency
(Bulog K %adan -rusan )ogisti*), (-) the reduction of tariff rates on all food items to a
ma@imum of = $ercent and the abolishment of the local content regulations, (;) the
removal of restrictive trade and mar*eting arrangement for several commodities, such as
rice, corn, eggs, soya, dried fish, flour, sugar, salt, and oil, (<) the deregulation of trade
across district and $rovincial boundaries, $articularly for cloves, oranges, and livestoc*
(Erwidado and 3atnawati -..<4 !;). The o$ening u$ of and the deregulation $rocess
within the agricultural sector have meant that the (ndonesian $oor cannot *ee$ u$ with
the ra$id $rice increase in essential commodities (Arifin et al. -..!4 8), thus diminishing
levels of food sovereignty amongst the (ndonesian $eo$le. (ndeed, although (ndonesia
maintains relatively high tariffs on certain agricultural commodities, such as rice, meat,
sugar, and several ty$es of fruit and vegetables, the (ndonesian government has more or
less agreed to introduce tariff reduction measures to the agricultural sector. Ies$ite its
relatively high tariff level on rice (about ;. $ercent), for e@am$le, (ndonesia has become
one of the ma/or rice im$orters in the world. "ertain forms of trade liberalisation have, to
date, undermined (ndonesian food sovereignty.
-7
Source4 "entral Bureau of Statistics, various data
Another *ey issue is the overall com$etitiveness and efficiency of the (ndonesian
agricultural sector. (t has been said that the future direction of (ndonesian agricultural
and rural develo$ment is de$endent, inter alia, on the (ndonesian government+s
commitment towards mar*et'oriented $olicy that $romotes efficiency and
com$etitiveness (Suryana and Erwidodo !667). Jowever, $overty remains the *ey
$roblem for the government to address $rior to $romoting efficiency and com$etitiveness
amongst (ndonesian farmers. 3ecent data from the "entral Bureau of Statistics (B&S K
%iro &usat Statisti*), for e@am$le, reveals that an increasing number of (ndonesians are
living under the $overty line. By -..<, there were as many as ;8.; million $eo$le living
under the $overty line, which accounts for around !8.< $ercent of the total (ndonesian
$o$ulation (refer to fig. ;). About -..;- $ercent of $eo$le live under the $overty line in
rural areas, and about !;.=8 $ercent in urban areas.
;-
The im$act of trade liberalisation
on the well'being of small farmers is clearly highlighted by the $light of rice farmers.
The o$ening u$ of the (ndonesian agricultural sector has led to the de$reciation of the
value of local rice, which directly hit small farmers.
;;
(n the absence of efforts to
eradicate the severe $roblems of $overty amongst small farmers in rural areas, it is very
unli*ely that the government will be able to $romote so'called competitiveness and
e!!iciency amongst (ndonesian small farmers. After all, the $oor are more concerned
about how they feed themselves than about em$ty economic /argons bandied about by the
government and academics.
;-
As re$orted in the &i*iran Ra*yat (-..<), or visit the official website of &i*iran Ra*yat at4
htt$422www.$i*iran'ra*yat.com2ceta*2.<.<2;.2.7a.-.htm
;;
As re$orted in the $ompas (-..<c), or visit the official website of $ompas at4
htt$422www.*om$as.com2*om$as'ceta*2.<.82-82e*onomi2!!76A<;.htm
Figure 0
!ercentage of Indonesian population belo( the po$erty line
0
5
10
15
20
25
30
35
40
45
1976 1980 1981 1984 1987 1990 1993 1996 1998 1999 2000 2004
-8
Jowever, if the (ndonesian government wishes to $ursue its BTA $olicy then it is
im$ortant to e@amine the way in which the losers are com$ensated. (n other words, who
will feed those small farmers who have suffered from the $rocess of economic
liberalisationL As mentioned earlier, to date, the o$ening u$ of the (ndonesian mar*et has
so far led to a dro$ in certain agricultural $roducts. Small farmers unable to *ee$ u$ with
the increased com$etition from agricultural $roducts coming from abroad are forced to
face ban*ru$tcy. Ie$ending on the content of the agreement, BTAs tend to accelerate the
$rocess of trade liberalisation. As a result, this form of trade agreement is li*ely to
increase the level of unem$loyment in the (ndonesian agricultural sector. This is one *ey
issue that the government fails to address when $re$aring the blue$rint for (ndonesian
,E& and the develo$ment of BTAs.
Ies$ite the overall commitment of the (ndonesian government to $ursue an o$en
economic $olicy, state and non'state actors ali*e have e@$ressed their concerns on the
im$acts that this trade $olicy may bring to the well'being of small farmers living in rural
areas. (n line with view$oints on the readiness of the (ndonesian domestic industrial
sector, those re$resenting government offices also hold contrasting $oints of views
regarding the im$act that the $ro$osed BTAs may have on (ndonesian small farmers.
;<
>hilst the re$resentatives from *ey government offices, such as the Ie$lu and the
Ie$$erindag, were relatively $ositive and o$timist about the issue,
;=
those re$resenting
Ie$*o$')%M and Ba$$enas felt that the situation should be fully assessed $rior to the
im$lementation of the $ro$osed BTAs. The re$resentatives from both the Ie$*o$')%M
and Ba$$enas, for instance, were concerned about the issue of food sovereignty and the
actual ability of (ndonesian small farmers to com$ete with their foreign counter$arts.
The (ndonesian government is $erceived by these government officials as rather irrational
when ma*ing decisions on food sovereignty. (n their analysis, (ndonesia should follow
#a$an+s e@am$le. The #a$anese government has been able to $rovide significant
$rotection to its agricultural sector so that the #a$anese mar*et would not become too
de$endent on agricultural $roducts from abroad. Moreover, the government official from
the Ie$*o$')%M also added that nationalism is the only reason that some (ndonesian
consumers $urchase local agricultural $roducts. Jowever, she believed that this situation
would be short'lived as the entrance of foreign agricultural $roducts drives the $rices
down in the local agricultural mar*et. :ocal (ndonesian oranges, such as those coming
from &ontiana*, %alimantan, were recently $riced at between 3$. A,... K3$. !.,... $er
*ilogramme, whilst better tasting, better Guality oranges from foreign countries are $riced
;<
)nfortunately, the researcher was unable to conduct research interviews with the re$resentative of the
Ministry of Agriculture. The individual contacted by the researcher from this Ministry claimed that BTA
issues were mainly the affairs of the Ie$$erindag. As a result, the researcher was advised to discuss this
matter directly with the a$$ro$riate staff in the Ie$$erindag.
;=
(n a recently $ublished re$ort about the (ndonesia+s economic u$turn, the Ie$$erindag (-..;4 =) also
sti$ulates that the (ndonesian Bgovernment+s focus in agricultural $olicy will be to maintain food security
and $romote efficient $roduction, $rocessing, and mar*eting of agricultural $roducts. A *ey aim of
(ndonesia+s rice $olicy framewor* will be to ensure food security by $romoting com$etition in this sector.
C The government of (ndonesia will continue to liberaliHe fertiliHer mar*et by $ermitting general im$orters
to engage in trade and o$ening domestic mar*et to new $artici$ants+. Therefore, it is clear that the
(ndonesian government+s agricultural regime is determined by $olicies that are in harmony with general
trade liberalisation.
-A
at about 3$. =,... $er *ilogramme. The issue is not that (ndonesian agricultural $roducts
cannot com$ete in terms of Guality with foreign agricultural $roducts, but that small
(ndonesian farmers have no means by which to $romote their $roducts to consumers.
(ndonesian small farmers are indeed able to offer better Guality $roducts since they use,
for e@am$le, less $esticides and chemicals commonly found in foreign agricultural
$roducts. evertheless, financial constraints ma*e it im$ossible for (ndonesian small
farmers to cam$aign about this issue to consumers.
)nli*e re$resentatives from (ndonesian government offices, members of the
academic community were still unsure if both the (ndonesian government and its
$otential BTA $artners would be willing to initiate negotiations concerning the
agricultural sector. According to Ir. Soesastro and Ir. &angestu, for e@am$le, (ndonesia
is not the only country concerned with the im$acts that the $ro$osed BTAs may have on
the well'being of small farmers. Similar concerns are shared by (ndonesia+s $otential
BTA $artners, such as #a$an and "hina. The e@$ort of (ndonesian $alm oil, for e@am$le,
still faces various non'tariff barriers from "hina. The (ndonesian government is recently
also re$orted to have agree on the im$lementation of a BTA with #a$an only if the latter
is willing to o$en u$ its agricultural sector.
;7
According to &rof. Tarmidi and Ir. #uoro,
on the other hand, although the $ro$osed BTAs would have a significant im$act on
(ndonesian food sovereignty, there would be little direct im$act as this trade regime deals
only with trade and investment in the industrial sectors. Ies$ite this, however, &rof.
Tarmidi and #uoro argued that the successful im$lementation of the $ro$osed BTAs
between (ndonesia and its ma/or trading $artners greatly de$end on the ability of
(ndonesian officials, $articularly those from the "ustom and E@cise office, to deal with
illegal smuggling. Iuring the interview, &rof. Tarmidi Guoted recent data from the ,ood
and Agricultural 1rganisation (,A1) that highlights (ndonesia as a *ey $roducer of rice
in the world today. Therefore, theoretically, in the absence of illegal smuggling, which
some argue can be eliminated through the lowering of trade barriers, (ndonesian rice
farmers would be able to com$ete with their foreign counter$arts.
Meanwhile, other (ndonesian non'state actors felt that the $ro$osed BTAs would not
increase the well'being of (ndonesian small farmers. To start with, as the re$resentative
from the (ndonesian "onsumer 0rou$ (O:%() sti$ulated, the issue of food sovereignty is
used li*e a slogan by the (ndonesian government and non'state actors ali*e. Jowever,
there have been few detailed analyses of the im$act of trade liberalisation on food
sovereignty. (n the $ast, the (ndonesian government introduced a number of initiatives to
$romote the enhancement of alternative $lantations, such as $eat moss, under the banner
of food sovereignty. To date, however, there are few $rogress re$orts $rovided by the
government about many of these initiatives. 1ther non'state actors also argued that
foreign investments and the ta*ing over of land owned by local farmers by large
multinational cor$orations $revailed even in the absence of BTAs. (ndonesian farmers
are still considered to be commodities whose $roducts are e@$orted to the host countries
of multinational cor$orations. To date, (ndonesia still lac*s the necessary technology and
e@$ertise to com$ete with its ma/or trading $artners. (f the government insists on
;7
As re$orted in the $ompas (-..<d), or visit the official website of $ompas at4
www.*om$as.com2*om$as'ceta*2.<.A2-72e*onomi2!-;!.;=.htm
-6
$ursuing BTA $olicy with its ma/or trading $artners, it is li*ely that (ndonesians will be
increasingly e@$osed to foreign $roducts, and (ndonesia will be the consumer mar*et for
its ma/or trading $artners. (t is, therefore, im$erative that the $ro$osed BTAs between
(ndonesia and its ma/or trading $artners are re/ected until (ndonesia is fully $re$ared.
5I. !olicy proposals and recommendations
Bilateral trade agreements are now on the rise and are ta*ing a ma/or role in
increasing the $ace of trade liberalisation in the global economy today. As with most
governments in the East Asian region, the (ndonesian government is increasingly tem$ted
to $ursue this ty$e of trade agreement. Amongst some of the *ey reasons that the
(ndonesian government use to $ersuade its domestic constituents to agree to its BTA
$olicy are the difficulties that arise in negotiations within the >T1, the increasing use of
this ty$e of trade agreement by (ndonesia+s neighbouring countries, and the way in which
such trade agreements might foster co'o$eration within the East Asian, if not Asia'
&acific, region. Jowever, it remains Guestionable whether (ndonesia+s $artici$ation in
such trade agreements will $roduce such $ositive results for (ndonesian domestic
industries and the well'being of small farmers. The attitude of the ma/ority of (ndonesian
domestic constituents to date remains sce$tical of this ty$e of agreement. 1ne must bear
in mind that BTAs create s$ecific obligations on a range of issues, from trade and
investment regimes, as well as intellectual $ro$erty rights. Moreover, BTAs have the
tendency to accelerate global trade liberalisation, which involves dee$er and more
com$rehensive commitments than those agreed to within the >T1. (t is, therefore,
im$erative that the (ndonesian government ta*es an e@tremely cautious a$$roach in
dealing with various $ro$osals to create BTAs with its ma/or trade $artners.
This $a$er has discussed the $ers$ectives of (ndonesian state and non'state actors
towards (ndonesia+s $artici$ation in various BTAs $ro$osed with its ma/or trading
$artners. To date, only *ey government offices that deal directly with BTA issues, such
as the Ie$lu and the Ie$$erindag, are *ey $ro$onents of (ndonesia+s BTA $olicy. 1ther
(ndonesian state and non'state actors, hold that the current domestic economic condition
in (ndonesia, such as the absence of stable law and order in regulating trade and
investment regimes, ma*es this country inca$able of committing itself to this ty$e of
agreement.
The recommendations and $olicy $ro$osals $rovided in this $a$er are based on the
concerns e@$ressed by the ma/ority of the (ndonesian domestic constituents interviewed.
,irstly, the (ndonesian government should ma*e sure that any decisions to conduct BTAs
with the country+s ma/or trading $artners should not merely be an imitation of the $olicy
$ursued by (ndonesia+s neighbouring countries, such as Singa$ore, Thailand, the
&hili$$ines, and Malaysia. "lose geogra$hical sense does not necessarily mean that
(ndonesia has the same needs and $roblems as its neighbouring countries. The
(ndonesian government must as* itself whether such trade agreements would really
generate fruitful results to the overall (ndonesian economy.
;.
Secondly, even if bilateral free trade $olicy is $ursued, the (ndonesian government
must carefully select the right trade $artner. Amongst some of the $ro$osed BTAs that
(ndonesia might be involved in, those with "hina and the )S would be the most
dangerous. The flood of goods from "hina is already on the rise even in the absence of a
BTA between "hina and (ndonesia. The "hinese government has always insisted that
(ndonesia has been e@$eriencing a trade sur$lus in its trade with "hina since the
normalisation of the relationshi$ between the two countries in the early !66.s. The
$ro$osed BTA between the two countries is ho$ed to increase (ndonesia+s e@$orts to
"hina or to create a balance in the bilateral trade between the two countries. :ogically
s$ea*ing, however, given the already e@cessive number of (ndonesian e@$orts to the
"hinese mar*et, it does not ma*e any real sense to $ursue a BTA with "hina. After all,
with or without a BTA, "hina will continue to reGuire assistance from (ndonesia to meet
its industrial needs. ,urthermore, bilateral trade liberalisation with the )S would also
undermine the $osition of the (ndonesian government in the >T1, $articularly on issues
related to the environment and intellectual $ro$erty rights. (t seems li*ely that the )S
would want to include issues that have been omitted at the multilateral level in future
BTA tal*s with (ndonesia. The same also a$$lies to other $ro$osed bilateral trade
agreements with #a$an and South %orea. (ndonesia has been e@$eriencing a trade sur$lus
and has no immediate need to accelerate trade liberalisation with these two countries.
Thirdly, it is also im$ortant to stress that an e@cessive em$hasis on BTA $olicy will
undermine (ndonesia+s overall ,E&. (n general, the $riorities within (ndonesia+s foreign
$olicy are the other member countries of ASEA, the non'aligned movement (AM),
and the >est (Smith -...). (ndonesia is already committed to regional economic
integration with other Southeast Asian countries under the aus$ices of A,TA. The
(ndonesian government has $romised that this regional trade liberalisation will be a
learning $rocess for (ndonesia $rior to committing further to other forms of trade
liberalisation. Although A,TA has already $rogressed towards its final stage, this trade
liberalisation scheme is not yet fully o$erational ((ndonesia, as one of the original
member countries, is scheduled to enter the final stage of A,TA by -..A). (t would be a
much wiser ste$ if the (ndonesian government waited until A,TA is fully finalised and
has $roduced more concrete results before ma*ing further bilateral trade commitments.
,ourthly, (ndonesian domestic industrial and agricultural sectors are still behind in
terms of com$etitiveness and efficiency, and lac* the necessary infrastructure to su$$ort
the $ro$osed BTAs its ma/or trading $artners. There are numerous $roblems that the
(ndonesian government has to deal with before ma*ing further commitments at the
international level. (t is very unli*ely that (ndonesia will achieve a sustainable level of
com$etitiveness and efficiency in the absence of stable laws and regulations. The
government must e@amine ways in which it could $romote the com$etitiveness and
efficiency of small agricultural farmers in the face of severe $overty, high unem$loyment,
and hunger. (n the event that the (ndonesian government remains committed to the
conduct of this ty$e of $olicy, incentives are needed to increase the level of efficiency
and com$etitiveness of the domestic industrial and agricultural sectors. Such incentives,
for e@am$le, can be made in the ta@ system as well as in the reform of e@isting labour
laws and $rovincial regulations. (n the absence of such domestic reforms, BTA $olicy is
;!
unli*ely to contribute to the develo$ment of the (ndonesian industrial and agricultural
sectors.
,ifthly, an insistence on $ursuing a BTA $olicy would also create more confusion for
custom officials wor*ing at the border areas. (ndonesian custom officials are confused
enough with (ndonesia+s overla$$ing commitments in A,TA, A&E", and the >T1.
Moreover, in contrast to the $rediction that free trade will sto$ smuggling, the confusion
generated by such overla$$ing membershi$s will actually maintain or increase the level
of illegal smuggling at the border areas. This is also one *ey issue that needs to be
addressed if the government insists on $ursuing this ty$e of trade $olicy. 1ne can
imagine how com$licated it would be if (ndonesia conducted a BTA with, lets say, every
country in the Asia'&acific region.
(t might be that the best $ath of all for the (ndonesian government to follow would be
to re/ect BTAs. Such free trade deals are hidden tools that are used to secure the
$rivileges and the wealth of large multinational cor$orations and to advance the interests
of $owerful governments. After all, one needs to e@amine the ways in which such free
trade deals serve the actual needs and interests of the (ndonesian $ublic. To date, the
(ndonesian government has $roved unable to identify clearly the actual needs and
interests of its domestic constituents. (f the government wishes to continue to $ursue this
ty$e of trade $olicy, it is im$erative that containment measures based on the issues
addressed above should be introduced.
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