by Lynn Lee
The Straits Times, January 9, 2010
JAKARTA: A free trade area (FTA) set to boost the flow of goods and investment between Asean and China has triggered calls from Indonesia's businesses for protection from their Chinese competitors, even as consumers cheer its potential to offer more choices and lower prices.
Some businesses in Malaysia, Thailand and the Philippines have also expressed reservations about wide-ranging tariff cuts on Chinese imports under the FTA.
Under pressure from the business community, the Indonesian government is seeking to re-negotiate the deal, which was signed in 2002 and kicked in last Friday.
Under the FTA, China and the six founding Asean countries - Indonesia, Singapore, Thailand, the Philippines, Malaysia and Brunei - must cut tariffs on 90 per cent of imported goods across 7,000 product categories. The group's newest members - Cambodia, Laos, Vietnam and Myanmar - will gradually reduce tariffs and must eliminate them entirely by 2015.
China is now Asean's third-largest commercial partner after Japan and the European Union, with a trade volume of US$230 billion (S$320 billion) in 2008.
In the run-up to Jan 1, Indonesian trade associations - particularly those in the steel and textile businesses - had voiced concern that the FTA would lead to a surge of cheap China imports and put them out of business.
Last month, the Indonesian Association of Iron and Steel Industries pointed out that they were already being overtaken by Chinese steel imports, even though these products were slapped with a 5 per cent import tax. Chinese steel imports have surged to 1.3 million tonnes a year in 2008 from 500,000 tonnes in 2004, said the group.
Last week, Indonesia's customs and excise unit said state coffers would shrink by 15 trillion rupiah (S$2.25 billion) this year with the removal of import tariffs.
Some observers say Indonesian businessmen had been complacent about the deal, despite earlier warnings from experts that the country's domestic production could take a hit.
In recent years, Chinese products have made considerable inroads into the Indonesian market. Indonesia, which used to enjoy a trade surplus with China, registered a trade deficit of US$3.6 billion with Beijing in 2008.
Acting on the concerns of businesses, Indonesia said it had notified the Asean council of its plan to ask for tariff cuts on 228 product categories - such as steel, textiles and petrochemicals - to be delayed.
In return, Jakarta would cut tariffs for 153 product categories - such as toys and footwear - sooner than planned.
But Trade Minister Mari Elka Pangestu stressed yesterday that Indonesia is still committed to implementing the FTA. The government has set up a team to look into ways to help local industries, she said.
Some observers say the government should focus on removing obstacles for businesses - such as improving infrastructure - so they can be leaner and more competitive.
'If the basic problems are not fixed, delaying the tariff cuts will just delay the pain,' Bahana Securities analyst Andry Asmoro told The Straits Times.
ORANGES grown in Medan in North Sumatra and Pontianak in West Kalimantan are sweet and juicy.
But they cost more in Jakarta supermarkets than the poorer-quality imported oranges from China.
This is due to a host of costs, including transportation and taxes, that different districts can levy on goods that pass through their area. Thus in Jakarta supermarkets, Chinese oranges could sell for 10,000 rupiah (S$1.50) a kg, while Medan oranges will go for between 14,000 rupiah and 16,000 rupiah.
A clothing wholesaler told the PosKota newspaper last week that even when he sold a dozen pairs of children's jeans for a low price of 460,000 rupiah a dozen, he was undercut by China-made jeans.
China printed batik cost between 10,000 rupiah and 100,000 rupiah per piece, about half the price of hand-made local batik, the Jakarta Post said.
Trade groups in Malaysia and Thailand - which have smaller trade deficits with China - have also called for a delay in tariff cuts, even as policymakers hail the FTA as a vehicle for helping Asean countries to increase exports to resource-hungry China.
Tan Sri William Cheng, president of the Associated Chinese Chambers of Commerce and Industry of Malaysia, told the local media: 'Apart from the automotive industry, which is protected by the government, industries find it difficult to compete with products imported from China under the zero import tariffs policy.'
In the Philippines, prominent economist Walden Bello said: 'Asean has not yet managed to consolidate itself as an economic bloc yet here we are launching a free trade area with China that will mean eventually bringing our tariffs down to zero.
'Asean is already non-competitive with China across a whole range of manufactured goods and agricultural products.'
Despite the doom and gloom predictions, consumers like Indonesian retiree Angkola Harahap, 67, say they welcome more cheap Chinese products.
Mr Angkola, who regularly buys China-made toys for his four grandchildren, said he would avoid items like China- made plastic plates, citing concerns over their quality.
'But toys, staplers, hair clips and even sejadah (Muslim prayer mats) are okay,' he said.
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