T

here has been a wave of discussions about Indonesia joining the Trans-Pacific Partnership (TPP) after President Joko '€œJokowi'€ Widodo notified US President Barack Obama during his visit to the US in October that Indonesia intended to join the trade pact.

The TPP is a free-trade agreement comprising 12 nations in the Pacific Rim, namely the US, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. In principle, the agreement removes all tariffs and barriers for manufacturing products sold among member countries.

Under president Susilo Bambang Yudhoyono, Indonesia implemented more inward-looking trade strategies. Meanwhile, President Jokowi is in favor of applying more outward-looking policies and the TPP is in line with export-oriented strategies.

Some believe that the TPP is good for the nation and will encourage Indonesia to reform itself. A more efficient internal performance is likely to be achieved, for instance in bureaucracy. Moreover, competitiveness of textile products will be accelerated as no trade barriers will hamper this sector.
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The TPP may be the first step for Indonesia to fully implement structural transformation.

However, competing globally is challenging. Others believe that Indonesia is not ready to join the TPP. An export-oriented manufacturing sector in Indonesia is considered less competitive and stagnant after the 1998 Asian Crisis. The primary sector (commodities) has been a major contributor to the economy.

Before joining the TPP (or any other free-trade agreement), it is essential to improve the manufacturing sector to be able to compete and survive in the global market. Indonesia may learn from other countries that have successfully improved their manufacturing sector.

History has recorded that Japan experienced a miracle of high economic growth. After the atomic bombs were dropped in 1945, Japan recovered and developed very rapidly in the 1960s, successfully transforming its economy from the primary sector to manufacturing industries. The manufacturing sector was the engine of economic growth over the high-growth period. Japanese products sold worldwide.

There are three lessons we can learn from Japan'€™s experiences in developing its manufacturing sector that are relevant for Indonesia.

First is promoting small and medium-sized enterprises (SMEs). The Japanese government sees SMEs as one way to achieve specialization in making certain products. For example, manufacturing an automobile product is conducted by several enterprises '€” one enterprise specializing in making tires, another enterprise in making doors, and so on. As a whole, cost efficiency is achievable.

Indonesia has an SME sector with great potential. According to the Central Statistics Agency (BPS), more than 90 percent of enterprises are classified as SMEs. Promoting SMEs is relevant to the current condition.

Second is zoning special regions for industrial development in coastal areas. In the early 1960s, the Japanese government set up a number of industrial cities in coastal areas. It is a relevant policy for export-oriented industries, particularly for minimizing distribution costs.

Indonesia is the world'€™s largest archipelago, with a long coastline. In other words, the country has been gifted geographically. Developing special industrial regions is suitable in Indonesia. Cheaper cost of distribution would accelerate export products'€™ competitiveness. Speeding up the implementation of the government'€™s special economic zone plan is essential for the nation.

Third is enhancing the quality of human resources. Japan has long invested in human resource capacity. Japan has high quality of tertiary education and a high-skilled workforce..

Indonesia has the world'€™s fourth-largest population. Moreover, Indonesia is entering the phase of demographic dividend '€” a group of young and productive people dominate the population. In other words, Indonesia has the advantage of an abundant workforce. In the early stage of development, labor-intensive industries may grow more rapidly. An educated workforce is one of the key ingredients for development process. However, an uneducated workforce is a burden on an economy. In short, investing in human capital is critical.

Losing the competition within the TPP may lead to job losses in the manufacturing sector, turning Indonesia into a consumer nation. However, the TPP may be the first step for Indonesia to fully implement structural transformation.

It is time to shift activities from the primary sector to manufacturing industries. It is important to boost the manufacturing sector'€™s competitiveness, particularly for industries making export-oriented products, before joining the TPP.
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The writer is a student at the National Graduate Institute of Policy Studies (GRIPS) in Tokyo. The views expressed are her own.