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NEWS UPDATES Asean Affairs        27  April 2011

Indonesia Shouldn’t Renegotiate China FTA

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Indonesia should focus on increasing its competitiveness rather than try to renegotiate the Asean-China Free Trade Agreement, economists and business executives said.

The ACFTA came into force on Jan. 1, 2010, and it did not take long for local businesses to feel its effects. Indonesia registered a $4.7 billion trade deficit with China last year, having imported $20.42 billion and exported just $15.7 billion.

Indonesian economists, including Anggito Abimanyu of Gajah Mada University and Agustinus Prasetyantoko of Atmajaya University in Jakarta, said renegotiation was unnecessary in dealing with the deficit. Instead, they said the government should strengthen local industries.

“Although the deficit with China is the largest, the trade deficit did not only happen with China,” Agustinus said on Tuesday. He said Indonesia also had trade deficits with Japan ($400 million) and Singapore ($5 million).

He said Indonesia had a trade deficit with China because of a lack of competitiveness and the worsening exchange rate between the rupiah and the yuan. Local industries fail to compete because of poor connectivity and high logistical costs, he said.

A World Bank report on logistic performance showed Indonesia was ranked 75th out of 155 countries while China was 27th and Malaysia was 29th.

Franky Sibarani, deputy secretary general of the Indonesian Employers Association (Apindo), shared the economists’ view. He said the problem did not exist with the agreement but with internal factors in Indonesia, especially poor infrastructure. A lack of power plants and road infrastructure have made local industry less competitive, he said.

Anggito and Agustinus said the government should utilize trade protection instruments, such as anti-dumping tariffs and national standards, to safeguard local markets in the short term.

“If the government has proof of unfair trade, it had better communicate it bilaterally with China first, because the problem is with China, not the Asean countries,” Anggito said. He added that renegotiation would only cost more money and time, even if all parties agreed to sit down again.

He doubted other countries wanted to renegotiate, especially as Thailand, Malaysia and the Philippines have trade surpluses with China. If Indonesia wants to proceed with renegotiations, he continued, it should notify Asean first as the notification itself can wait months for a response.

Chinese Prime Minister Wen Jiabao will visit Indonesia on Friday after two days in Malaysia.

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