Indonesia backtracks on Asean-China free trade agreement

JAKARTA: Indonesia has asked to rewrite a new regional trade pact with China, citing fears of job losses because of a flood of cheap Chinese imports across various sectors, officials said Wednesday. The government has sought to maintain 228 tariff lines for another two years rather than cut them as required under the Asean-China Free Trade Area (ACFTA), which Jakarta first signed in 2002 and took full effect on January 1.

“The letter of notification on negotiations to discuss modifications to the 228 tariff items was submitted on December 31,” Trade Ministry official Gusmardi Bustami said.

No comment

Trade Minister Mari Pangestu has refused to comment on the pact and would not confirm that a formal request for further protection had been sent to the Association of Southeast Asian Nations (Asean).

“I won’t comment on the notification letter. I’ve informally discussed the 228 tariff items with Asean,” she told reporters in response to repeated requests for clarification of Indonesia’s position.

She had previously said only that Indonesia would honor its commitments under the free trade pact.

Industry ministry spokesman Muhdori said a two-year reprieve from zero tariffs was required in sectors including electronics, machinery, furniture, steel, textiles and chemicals.

Asean officials have said that it would be strange for Indonesia, which has the biggest economy in Southeast Asia, to try to back out of its commitments at such a late date.

Any such request for a delay in tariff reductions would go against Asean’s long-standing drive toward more open regional markets and would require the agreement of the nine other Asean members, which is unlikely.

Largest FTA area

The Asean-China Free Trade Area comprises a market of 1.9 billion people, making it the largest trade pact in the world in terms of population size.

It has a combined gross domestic (GDP) product of some $6 trillion and a total trade volume of $4.3 trillion, according to Asean figures. GDP is the total value of all goods and services produced in a country in a year.

Indonesian industry bodies have complained that the government has failed to prepare domestic producers to compete with Chinese goods, a failure acknowledged by the Industry ministry spokesman.

“The reason for the delay is because we want local industries to be ready for competition with imported goods,” Muhdori said.

Executive Director Tanangga Karim of the Indonesian Furniture Producers Association welcomed the government’s request for a delay amid fears that hundreds of thousands of Indonesian workers could lose their jobs.

“A local computer desk made from particle wood sells for about 600,000 rupiah [$65.4]. A Chinese computer desk made from similar materials can sell for about 400,000 here,” Karim said.

“The free trade agreement between Asean and China will spell huge job losses at the big furniture makers here. Tens of thousands of employees could be laid off soon.”

Bad for Indonesia

Indonesian Employers Association Chairman Sofyan Wanandi said that while some sectors would benefit from cheaper Chinese inputs and access to Chinese markets, on the whole the free-trade agreement was bad for Indonesia.

“Our products can’t compete with cheap Chinese products and as a result many factories will close down and there will be unemployment,” he said.

Asean officials have said Southeast Asian consumers stand to benefit from cheaper goods such as Chinese-made mobile phones, while regional manufacturers would be better placed to piggyback on China’s industrial development. –AFP