D

uring the Honolulu Asia Pacific Economic Cooperation (APEC) summit last month, US President Barack Obama and leaders of nine Asia-Pacific countries unleashed their ambitious goal to conclude a major regional trade agreement within the next 12 months.

The deal, negotiated by countries located across the Pacific rim under the Trans-Pacific Partnership (TPP) framework — Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, the US and Vietnam — is dubbed to be “beyond ordinary free-trade deals” and is set to serve as “the 21st-century’s trade accord”, covering areas normally excluded from any trade agreements, such as government procurement, which is related to a country’s domestic policy, and embracing labor, environmental and intellectual property standards.

Based on the Trans-Pacific Strategic Economic Partnership Agreement (P4) between Brunei Darussalam, Chile, New Zealand and Singapore, which came into force in 2006, the partnership is increasingly becoming controlled by the US, which has earmarked the deal as one of its current top priorities, as it sees enormous potential ahead in the fastest-growing region in the world. Beyond that, the TPP is also seen as the US’ attempt to contain China’s growing dominance through forging closer economic ties with other economies in the Asia-Pacific region.

However, as the negotiations intensify, one thing is becoming apparent: the absence of the two major emerging economies in Asia — China and Indonesia.

Chinese scholars and progressive media groups have expressed their support for entry into the TPP as they deem all the processes pertinent to their participation as being in line with China’s progress toward economic liberalization and policy reform in general.

Meanwhile, Indonesia, which chairs the Association of Southeast Asian Nations (ASEAN) this year, has expressed its reluctance to join, as it is committed to maintaining the region’s centrality, besides securing its own national interests.

“We’re not yet at a point of being able to ascertain whether this would be beneficial to Indonesia,” Trade Minister Gita Wirjawan said recently.

Nevertheless, apart from the government’s stance, local businesses see promising opportunities through Indonesia’s taking part in the ongoing negotiations.

Indonesian Textile Association (API) chairman Ade Sudrajat said the TPP was potentially beneficial for local exporters due to lower tariffs and expanded market access for certain manufactured products, especially textiles and garments.

“We see potential opportunities resulting from this partnership, as it links manufacturing countries, including Indonesia, and its export destinations, like the US and Japan,” Ade said, adding that unlike the
China-ASEAN free-trade agreement, in which local products compete head-to-head with Chinese goods, the TPP deal was far more complementary.

The China-ASEAN free-trade agreement, which came into effect in January last year, has provoked controversy at home as local producers feel threatened by China’s highly competitive, industrial goods.

Indonesian Electronics’ Association (Gabel) chairman Ali Subroto shared a similar optimistic outlook, saying that the TPP would provide better access for local electronic products to partner countries, although their market share might not significantly increase.

However, Ali warned, the question was whether all industrial sectors in the country would be ready to compete with imports from more free-trade partners.

The chairman of the Indonesian Employers’ Association (Apindo), Sofjan Wanandi, also questioned Indonesia’s preparedness, pointing out that despite the number of free-trade agreements already in effect, local businesses could not obtain the maximum benefit from the schemes because major, long-existing challenges persisted.

“We must first of all resolve our two big gaps: infrastructure and legal uncertainties. We need to implement the MP3EI [Master Plan for the Acceleration and Expansion of Indonesian Economic Growth]. The opportunities are there but we can take the benefits only if we are ready,” he said, adding that without significant improvement, Indonesia would become solely a market for overseas’ producers.

The Indonesian economy, home to more than 240 million people, has expanded by more than 6 percent during the past two years and is estimated to grow by a further 6.7 percent next year, although that may be affected by potential spillover from advanced economies.

Inadequate infrastructure has, according to economists, been one of the biggest hurdles hampering the expansion of Southeast Asia’s largest economy, despite its potential, and is cited as one of “the most glaring shortcomings” in the country according to a competitiveness report issued by the World Economic Forum (WEF) during the first half of this year.

Indonesia Chamber of Commerce and Industry’s (Kadin) vice chairman for trade, distribution and logistics, Natsir Mansyur, said that over the next five years, the government had to focus on “inward-reflection” and improving the country’s competitiveness by enhancing logistics systems and developing the downstream industries.

“In our current condition, we will not reap many economic gains if we join the TPP now. Our logistical costs are high, while the majority of our exports are still commodities, rather than added-value items,” he said.

As shown by data from the Central Statistics Agency (BPS), out of the total non-oil and gas exports of US$134.73 billion during January-October this year, $21.99 billion, or 16.33 percent, consisted of mineral fuel, mainly coal, and $17.31 billion, or 12.85 percent, comprised fat and oil, especially crude palm oil (CPO).

Indonesia’s logistical costs of between 25 percent and 30 percent of gross domestic product (GDP) are among the highest in ASEAN, according to the Indonesia Logistics Association (ALI), and this is confirmed by the World Bank’s 2010 Logistics Performance Index (LPI), which ranked Indonesia 75th out of the 155 countries surveyed: below Malaysia (29th), Thailand (35th), the Philippines (44th) and Vietnam (53rd).

University of Indonesia economist Faisal Basri said besides the potential higher influx of goods, the TPP deal might pose other risks for Indonesia on the service-industry side.

“We are not ready to face an invasion of services from other countries, which can come in the form of professional services, such as foreign doctors, accountants and lawyers,” he said, adding that the country must strengthen its own service sector first in order to better compete with its foreign rivals in the future.