Global free trade: Zero-sum game?
Calvin Sidjaya, A RESEARCHER FROM HD ASIA ADVISORY
Sumber : JAKARTA POST, 23 Desember 2011
The clash in the South Korean parliament in November taught Indonesia an important lesson: even among developed economies, there is prejudice that free trade is a zero-sum game that only benefits large export-based corporations and weakens local small businesses.
Indonesia is also facing a similar issue with the Chinese-ASEAN Free Trade Area (CAFTA). Several countries, such as Singapore, Malaysia and Thailand, have benefited greatly from the free trade agreement due to their preparedness.
The free-trade pact is a double-edged sword for Indonesia. Free-trade pacts have contributed to the surge of trade between ASEAN members and China. The free trade pact created the China-ASEAN market, one of the largest markets that is isolated from Europe and the United States, which are threatened by sovereign debt defaults and long term recession.
The relationship between China and Indonesia is vertical and emulates the old relationship between developed and developing countries.
It was common practice for developed countries to import natural resources from resource-rich developing countries, process them and export finished products back to the developing countries that provided the primary natural resources.
The most visible example are electronic goods, as most electronic goods distributed in Indonesia come from China. The boom in the Chinese manufacturing sector has increased e-commerce portals which ease the importing process from China.
The integration of web-based technology and the export boom have helped China to become one of the world’s largest exporters and enable everyone to become an importer only by using a credit card and internet connection.
Due to its undervalued currency, China has quickly become a major world manufacturing center due to its low production costs.
The trade deficit between China and Indonesia has widened as Indonesia imported more Chinese goods.
In October, exports to Indonesia reached US$2.241 billion, slightly exceeding imports, which reached $2.213 billion.
Free trade was initially done in good faith on the hopes that it would give mutual benefits to both parties. However, the CAFTA shows us that Indonesia is nearly powerless to defend its market from Chinese products. The relationship quickly became one-sided and there was little room to negotiate once the law is ratified.
However, there is still room to defend the market. Non-tariff barriers, such as compulsory regulations, including national standards, longer quarantine and anti-dumping measures are several instruments that can be used by the Trade Ministry to protect the domestic market.
However, these short-term solutions are not enough to defend the market. With its strong consumer base, Indonesia will become the target of more free-trade pacts in the future.
The implementation of the ASEAN-Australia-New-Zealand free-trade pact will be done next year. Even though Indonesia still enjoys a $1.3 billion surplus with Australia, that could be reversed quickly.
Prior to the implementation of CAFTA, Indonesia enjoyed surplus with China. However, the surplus quickly turned into trade deficit, and eventually led to de-industrialization, because it is much cheaper to import from China instead of producing goods.
In the long term, non-trade barriers will be useless as long as the local economy cannot raise its competitiveness. Depreciating currency as a tool to cheapen prices comes with a great price, as Indonesians still consume subsidized fuel to reduce economic pressure and rising commodity prices. A weak rupiah will burden the state budget and increase deficits further.
Small enterprises are most likely to be the most vulnerable sector as they cannot compete in a free market. Bottlenecked infrastructure is again the main problem in boosting local economy as it causes high economic costs.
The collapse of Kutai Kartanegara bridge should be reminder of disorder that has been long rooted in the country and has become the main factor corroding Indonesian competitiveness.
It is imperative for Indonesia and the rest of ASEAN to establish a trade dispute settlement mechanism to ensure there is room to negotiate within free trade pacts. With the recession in Europe, US, and Japan, Indonesia is a hidden paradise and an economic haven. ASEAN should increase its power to ensure it can protect itself from unfair trade practices.
A strong consumer base is what makes Indonesia appealing to the rest of the world and it is what makes other countries seek to create free trade pact with Indonesia. Therefore, it is necessary for the government to ensure the future free trade pacts will not end as a non-zero-sum game. ●
Indonesia is also facing a similar issue with the Chinese-ASEAN Free Trade Area (CAFTA). Several countries, such as Singapore, Malaysia and Thailand, have benefited greatly from the free trade agreement due to their preparedness.
The free-trade pact is a double-edged sword for Indonesia. Free-trade pacts have contributed to the surge of trade between ASEAN members and China. The free trade pact created the China-ASEAN market, one of the largest markets that is isolated from Europe and the United States, which are threatened by sovereign debt defaults and long term recession.
The relationship between China and Indonesia is vertical and emulates the old relationship between developed and developing countries.
It was common practice for developed countries to import natural resources from resource-rich developing countries, process them and export finished products back to the developing countries that provided the primary natural resources.
The most visible example are electronic goods, as most electronic goods distributed in Indonesia come from China. The boom in the Chinese manufacturing sector has increased e-commerce portals which ease the importing process from China.
The integration of web-based technology and the export boom have helped China to become one of the world’s largest exporters and enable everyone to become an importer only by using a credit card and internet connection.
Due to its undervalued currency, China has quickly become a major world manufacturing center due to its low production costs.
The trade deficit between China and Indonesia has widened as Indonesia imported more Chinese goods.
In October, exports to Indonesia reached US$2.241 billion, slightly exceeding imports, which reached $2.213 billion.
Free trade was initially done in good faith on the hopes that it would give mutual benefits to both parties. However, the CAFTA shows us that Indonesia is nearly powerless to defend its market from Chinese products. The relationship quickly became one-sided and there was little room to negotiate once the law is ratified.
However, there is still room to defend the market. Non-tariff barriers, such as compulsory regulations, including national standards, longer quarantine and anti-dumping measures are several instruments that can be used by the Trade Ministry to protect the domestic market.
However, these short-term solutions are not enough to defend the market. With its strong consumer base, Indonesia will become the target of more free-trade pacts in the future.
The implementation of the ASEAN-Australia-New-Zealand free-trade pact will be done next year. Even though Indonesia still enjoys a $1.3 billion surplus with Australia, that could be reversed quickly.
Prior to the implementation of CAFTA, Indonesia enjoyed surplus with China. However, the surplus quickly turned into trade deficit, and eventually led to de-industrialization, because it is much cheaper to import from China instead of producing goods.
In the long term, non-trade barriers will be useless as long as the local economy cannot raise its competitiveness. Depreciating currency as a tool to cheapen prices comes with a great price, as Indonesians still consume subsidized fuel to reduce economic pressure and rising commodity prices. A weak rupiah will burden the state budget and increase deficits further.
Small enterprises are most likely to be the most vulnerable sector as they cannot compete in a free market. Bottlenecked infrastructure is again the main problem in boosting local economy as it causes high economic costs.
The collapse of Kutai Kartanegara bridge should be reminder of disorder that has been long rooted in the country and has become the main factor corroding Indonesian competitiveness.
It is imperative for Indonesia and the rest of ASEAN to establish a trade dispute settlement mechanism to ensure there is room to negotiate within free trade pacts. With the recession in Europe, US, and Japan, Indonesia is a hidden paradise and an economic haven. ASEAN should increase its power to ensure it can protect itself from unfair trade practices.
A strong consumer base is what makes Indonesia appealing to the rest of the world and it is what makes other countries seek to create free trade pact with Indonesia. Therefore, it is necessary for the government to ensure the future free trade pacts will not end as a non-zero-sum game. ●