Instead, China offers technical assistance in improving competitiveness of Indonesia’s SMEs in terms of machinery, logistics, and promotion (The Jakarta Post, April 13, 2010).

Without underestimating that effort, this article intends to discuss the already weak competitiveness of Indonesian products. The reason is straightforward: trade barriers imposed by local governments.

The weird phenomenon is that government liberalizes trade with other countries at the national level, yet the opposite happens at the regional level where trade barriers are still imposed to our local producers.

Although no regional governments deny the importance of trade and investment on employment generation and poverty reduction, very few would set aside the distraction of local revenue at the cost of the long-term business climate.

Coupled with the decentralized authority, most local government would end up exercising their power by issuing regional regulations (Perdas) to extract tax and levies. Trade barriers are applied to regulated (read: restricted) commodities, particularly agricultural and forestry products.

As an example, one truck of tamarind from Kabupaten (regency) Timor Tengah Utara (TTU) will have to complete the so-called certificate of origin that lasts only for 2 days.

The certificate charges certain prices to pay for each kilogram of tamarind exported out of the district.

Tamarind is assumed, either to be collected in government forest or be the harvest of government distributed seeds. Heaven knows who invented this logic!

To add to the complication, the certificate is issued only after verification by the Forestry Agency. With this transportation document in hand, a trader has to rush to reach Kupang Port before the certificate expires.

Else, they must complete the whole process again in TTU.

Meanwhile bad road condition delays the transportation time twice as much.

Worse, along the long and winding road, it has to pass 10 posts, each costs it not less than Rp 15.000 (US$1.6). Thus, even with the complete transportation document, the trader just cannot avoid the illegal fees.

Once arrives in Kupang, the certificate has to be replaced with the one issued by Agriculture Agency in Kupang.

Everything has to hasten to ensure the goods do not miss the ship to Java.

In theory, exchange of TTU certificate to Kupang’s cost zero, but in reality nothing seems to be a free lunch when one has to be proceeded hastily.

In general, this illustrates what happens to agricultural and forestry commodities in Indonesia: trade barriers — be it tariff and non-tariff barriers (which practically also cost money) or legal and illegal ones – which massively inflate the cost and time of transportation.

This is understandable if consumers in Java would choose cheaper imported agricultural products than local ones. If the local producers could not win the game in their own field, how could we expect them to compete in international market?

Historically, regional regulations on trade (and investment) barriers, the so-called problematic perdas, have been repressively eliminated through Law No. 18/1999 as the implementation of the Letter of Intent with the IMF in 1998. Its amendment (Law No. 34/2000), however, terminated the deregulation process allowing the problematic perdas to mushroom again.

The newly passed Law No. 28/2009 will be the only hope in putting the free internal trade back to track.

Theoretically, under the “close system”, the legalization of such perdas will be out of question.

There are two things that arise concerning this expectation. First, SMERU (2009) found that the anti-trade element might not be stipulated in the perdas, but in the lower bylaws, for example the decree of the governor, mayor or district head.

Second, under a 2009 law, the Home Ministry no longer has the power to cancel the problematic perdas. They can only be annulled by a Presidential Regulation, which will take ages, on the account of already piling up burdern of the president.

Meanwhile, the barrier to cancel perdas is rooted in the legal framework that divides the interpretation into two groups.

One group has the opinion that perda is part of national policy framework and therefore the central government has the authority to annul perdas that are against the higher laws.

The other group believes that perda is the product of autonomous regional parliament. Hence, it can only be invalidated by the regional court.

In both cancellation cases — be it through the presidential regulation or the local court — uncertainty increases and business climate deteriorates.

One breakthrough might be to consider inter-regional trade as one of the national affairs (Hadi Soesastro, 2001). He argued that this had been the case in many other countries where distribution of goods and services was kept free and becomes part of the national economic management.

Only then the gains from trade can be captured by both national and regional governments.

Back to the issue of the ACFTA implementation. The Chinese government promised technical assistance to improve our competitiveness. Yet, we cannot expect fruitful outcomes without fixing those problematic perdas.

The government has to do something, at least not let the local producers fight alone and struggle to survive against the red tape.

To end, many would consider the ACFTA a threat. The real threat, however, is the internal trade barrier as it violates the principle of Indonesia as one unity of the free economic zone (Hadi Susastro, 2001).

Trade barriers weaken our product competitiveness, but more dangerously it threatens our national integrity.
 
We cannot expect fruitful outcomes without fixing those problematic perdas.


The writer is a SMERU researcher. This article expresses her personal opinion.

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