DOES ACFTA HELP INDONESIA’S ECONOMIC DEVELOPMENT?

A presentation prepared byNur Fajarwati Zuchrifah

08-11910-3

DEFINITION OF ACFTA

ASEAN-China Free Trade Area Motives of signing ACFTA Objectives of ACFTA The Agreement on Trade in Goods (TIG)

TARIFF ELIMINATION AND REDUCTION OF GOODS’ TRADING Early Harvest Programme (EHP)

reduction of custom tax for specific EHP products to 0%, which was progressively implemented, started effectively from January 1st, 2004 through to January 1st, 2006.

Normal Track Programme reduction of custom tax has started on July 20th, 2005, down to 0% in 2010 with flexibility for certain products to reach 0% in 2012.

Sensitive and Highly Sensitive For Sensitive products, tariff reduction will be

implemented in 2012, scheduled that the maximum 20% of tariffs down to 0-5% by 2018. For Highly Sensitive products, tariffs reduced to 0-5% by 2020.

POSITIVE IMPACT ON THE IMPLEMENTATION OF ACFTA IN INDONESIA

ACFTA creates growth potential ACFTA has given opportunities for business to drive more economic growth. Improvement both in economic and physical infrastructure by Indonesian government. The rise of Indonesia’s gross domestic product. The increase of inflation rate from 5.5% to 5.7% ACFTA presents an excellent opportunity for both China and Indonesia to further their economic growth ambitions.

More favorable access to Chinese market for ASEAN exporters.

Export expansion opportunities.

ACFTA attracts investors to invest in Indonesia.

Increase the intensity of Indonesian trade volume.

Lower raw material cost for government-owned enterprises.

More diversified market with competitive products.

NEGATIVE IMPACT ON THE IMPLEMENTATION OF ACFTA IN INDONESIA

Since 2005 trade balance of the non oil and gas products has always been deficit for Indonesia.

The increase in import demand arising from lower tariff barriers could more than offset the increase in export activity. This table shows Indonesian export to China, 2004-2008 (Million US$)

Source: Central Agency of Statistics, Indonesia

No Hs 2004 2005 2006 2007 2008 Trend

1 15 588.3 673.1 1,043.2 1,520.6 2,119.1 40.18

2 40 252.1 340.9 689.4 762.1 901.2 39.82

3 47 262.8 380.5 553 510.9 742.3 26.76

4 26 67.1 165.1 304.1 613.1 649.2 79.55

5 29 564.2 569.8 557.2 549.9 335.1 -10.21

6 74 117.4 229.5 352.7 330.2 315.5 26.37

7 85 190.9 145.7 180.9 217.9 279.1 12.31

8 84 126.7 154.2 202.8 276.6 255.7 22.01

9 48 200 173.7 200.4 194.9 195.1 0.65

10 44 332.7 279.2 254.1 194.7 157.9 -16.90

The table below shows Import from China to Indonesia, 2004-2008 (Million US$)

Source: Central Agency of Statistics, Indonesia

No HS 2004 2005 2006 2007 2008 Trend

1 84 549.6 903.7 1,002.3

1,503.8

3,394.2

51.4

2 85 425.6 518 619.9 1,255 3,281 64.4

3 72 340.8 573.9 559.2 858.2 1,026.2

29.8

4 73 85.6 284.3 229.1 366.3 872.9 63.2

5 29 182.4 218.6 266.2 371.6 511.5 29.6

6 28 154.7 221.8 222.6 269.8 466.6 27.2

7 39 89 100.8 134.9 182.5 335.2 38.3

8 31 58.3 80.8 114.9 106.5 323.2 44.8

9 52 72.2 76 84.5 86.4 299.6 34.6

10 08 85.2 98.9 161.4 225.4 248 34.5

INDONESIA’S EXPORT ON MIGAS (OIL AND NATURAL GAS) AND NONMIGAS (NON-OIL AND NATURAL GAS)

INDONESIA’S IMPORT ON MIGAS (OIL AND NATURAL GAS) AND NONMIGAS (NON-OIL AND NATURAL GAS)

Textiles and apparel manufacturing undergo a period of sometimes painful adjustment due to ACFTA.

Production sector will be shifted to importing sector.

Indonesia could continue running a trade deficit with the other ten signatories of ACFTA.

Higher dependency on other countries.

Destruction of small and micro businesses in Indonesia, such as batik industry.

TEXTILE INDUSTRY HAMPERED BY ACFTA

Batik is the most affected industry due to ACFTA.

Decline in revenue (up to 40%) per month. SME products’ competitiveness is very low,

only 7% has high competitiveness and 93% has low competitiveness.

It is due to the lack of information about export market and export quality.

It has created unemployment and social unrest.

Strengthen the brand name of Batik as Indonesia’s heritage.

This article shows that 40,000 labors are threatened to lose their jobs due to ACFTA.

The next article illustrates that Chinese imported goods are pouring Indonesian market.

POLICIES AND ACTIONS TAKEN BY INDONESIAN GOVERNMENT The government will impose tariffs

temporarily on two products — concrete wire and aluminum foil.

The government will boost competitiveness via improvements to infrastructure and by cutting tax rates.

The government made a team to protect the domestic market from smuggled goods; supervise the issuance of import documents; expand export markets; help to improve the domestic market; and promote local products.

CONCLUSION ACFTA benefits both Indonesia and China but

there are some industries which struggle due to the high competition of Chinese lower-price products.

In the long-run, Indonesia can effectively benefit from the implementation of ACFTA by getting cheaper raw material cost from China.

RECOMMENDATION Small and medium enterprises should be more

encouraged and protected to produce local products, such as batik.

The government should consistently use local raw materials for different infrastructure sectors.

The government should allow local enterprises to develop.