Indonesia likely to be the loser in Japan agreement
Jakarta Post | 18 August 2007
Indonesia likely to be the loser’ in Japan agreement
Andi Haswidi, The Jakarta Post, Jakarta
Analysts here say an economic partnership agreement due to be signed next week between Indonesia and Japan will do more to benefit Japanese companies than domestic businesses.
Speaking at a discussion hosted by the Institute for Global Justice in Jakarta on Thursday, the analysts said Indonesia would derive few benefits from the deal, even with its focus on capacity building.
"The government is bragging about bringing Japanese investment and production materials to be developed here. This only means that Japan is maintaining its supporting industries back home while eating out on the Indonesian market," said Utama Kajo, chairman of the public policy committee at the Indonesian Chamber of Commerce and Industry.
"This is really a stupid thing to do. The main trade issue with Japan is not tariffs, but non-tariff barriers. Furthermore, we will likely become more dependent on Japan," he said.
The economic partnership agreement (EPA) is basically a modified free trade arrangement aimed at providing mutual benefits for partners of unequal economic standing, according to a government statement.
Unlike Japan’s arrangements with its other production bases in Southeast Asia, the deal with Indonesia not only touches on cooperation in investment but also in energy and capacity building.
Under the EPA, Indonesia will agree to cut tariffs to about 93 percent from the existing 11,163 tariff posts, and 58 percent of them will be eliminated totally immediately upon implementation of the agreement.
With the tariff cuts, according to the government, Japan will consider Indonesia equally competitive with other countries that have FTAs with Japan, hence bringing in more investment to Indonesia, which in turn will boost economic growth.
"It is naive to assume that any influx of Japanese investment that comes in under the EPA will automatically become the fuel for our economic recovery," Syamsul Hadi, a lecturer in the Department of International Relations at University of Indonesia, said.
This assumption, he said, is like the theory of "the flying geese" from the late 1980s, which described Japan as leading other Asian countries — especially those in Southeast Asia — to attain economic prosperity.
The 1997 financial crisis, he said, destroyed this theory and forced countries such as South Korea, Malaysia and Thailand to reevaluate their strategies, including the repositioning of their industrial development to the extent of seeing Japan as a competitor.
"There is nothing wrong with the FTA concept itself, I just don’t think that Indonesian industries are ready for it," Hadi said.
He also was skeptical of the capacity building promises contained in the agreement, fearing it would be just a change of name from Japan’s official development aid, or ODA.
"I once participated in a program funded by ODA. The program took us on a tour to Japan, visiting temples, leisure places and two factories. One was a razor blade factory and the other was roof tiles."
"Why would we want to learn that? We can make those things here. Well, at least my knowledge of Japanese temples improved from that program," he said.
Also speaking at the discussion was Bob Widyahartono, a lecturer at the School of Economics at Tarumanagara University, who agreed that Indonesia may not be ready for the EPA.
He said most bureaucrats here did not fully comprehend the mechanisms of the EPA.
