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THE INFLUENCE OF ACFTA IMPLEMENTATION ON
INCREASING MARKET COMPETITIVENESS IN
INDONESIAN DOMESTIC MARKET
Written to meet the requirement of Paper Competition Economix
Faculty of Economics, Universitas Indonesia
Written By:
Dwi Andi Rohmatika (07/253455/EK/16738)
Williem (07/257030/EK/16767)
Faculty of Economics and Business
Universitas Gadjah Mada
Yogyakarta
2010
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ACKNOWLEDGEMENT
First of all, we would like to thank God, for giving us the health, strength,
and chance to finish this project. Not forgotten to our family for supporting, such
as funding and advices, and without those things, we wonder we could have this
project done in time.
We would like to thank our fellow discussion partner, Aulia Rahman, for
guiding us throughout the project. We had some diffficulties in doing this paper,
but he patiently was able to be a sharing partner until we understand the issue
arise.
In doing this project, we use internet, computer, books, and all that our
source to complete this project. All of those things really helped us in finishing
the paper. We often bothered our librarians at Faculty of Economics and Business.
Thus, we would like to say thank ou very much for accompanying us until late at
night.
We hope this paper could give any insight and advantages to the readers.
We hope it also is able to open the discussion about this issue. We realize that this
paper has not been perfectly made. Therefore, any critiques and advices are
welcome. Thank you.
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LIST OF CONTENTS
COVER .......................................................................................................... i
ACKNOWLEDGEMENT ............................................................................ ii
LIST OF TABLES AND FIGURES ............................................................. iii
CHAPTER I INTRODUCTION ................................................................... 1
1.1 Background ............................................................................................. 1
1.2 Problems ................................................................................................. 2
1.3 Objectives ................................................................................................. 3
CHAPTER II LITERATURE REVIEW ...................................................... 4
2.1 Description of ASEAN-China Free Trade Area (ACFTA) ....................... 4
2.2 Literature, Paper, and Supporting Theories .............................................. 5
CHAPTER III CONTENT ............................................................................ 8
3.1 The Importance of ACFTA to Economic Development
of ASEAN Countries and China ................................................................... 8
3.2 The Influence of ACFTA on Individual: The Study of International
Trading Between Indonesia and China ......................................................... 12
3. 3 Evaluation of Government Protection to Domestic Industries .............. 15
CHAPTER IV CONCLUSION ................................................................... 18
4.1 Conclusion .............................................................................................. 18
4.2 Recommendation .................................................................................... 19
BIBLIOGRAPHY ........................................................................................ 21
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LIST OF TABLES AND FIGURES
Figure 1. Heckscher-Ohlin Theorem .............................................................. 6
Figure 2. Partial Equilibrium’s Theorem ....................................................... 7
Table 1. ASEAN Export and Import to China, 1993-2003 ......................... 10
Table 2. Tariff Reduction Scheme of ACFTA ............................................... 11
Figure 3. Indonesia Export to China and Import from China ...................... 12
Table 3. Indonesia Export and Import to China 2008 .................................... 13
Table 4. Indonesia Export and Import to China 2009 .................................... 14
Table 5. Indonesia Export and Import to China 2010 .................................... 15
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CHAPTER I
INTRODUCTION
1. 1. Background
Association of South East Asian Nations (ASEAN), an association which consists
of 10 countries in its regional, has developed to not only concern in its political
driven, but also in economic cooperation as the declaration mentions about (1)
fastening the economic growth, social improvement, and culture development,
and (2) encouraging an active partnership and helping one another on the
problems related to regional interest in economy, social, culture, technology, and
knowledge. The economic growth of ASEAN is considered to be one of the
significant issues in the international trading proved by the volume of export and
import trading in international market. Many commodities sold by ASEAN
member states get high demand from international buyers, such as crude palm oil,
various natural resources, foods tobacco, textile garments, and many more.
Improving the trade efficiencies among countries of ASEAN, this association has
implemented some agreements towards market liberalization, starting from
ASEAN Preferential Trade Agreement (ASEAN PTA), ASEAN Free Trade Area
(AFTA), ASEAN Investment Area (AIA), ASEAN Industrial Cooperation
(AICO), ASEAN Framework Agreement on Services (AFAS), and Mutual
Recognition Arrangement (MRA).
Internationally, ASEAN as an organization has been seen to have a significant
role in world trading. Since the issue of ASEAN’s willingness to have a free trade
area within its internal members arise in 1992, many other countries expect the
same agreement could be placed upon their partnership with ASEAN. Hadi
Susastro said that the next step of the attempt on establishing a partnership is done
by China at ASEAN-China summit in 2001 in where China states its interest in
having a free trade area agreement. Following the summit, China and ASEAN are
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ready to sign a Framework Agreement on Comprehensive Economic Cooperation
(CEC), wherein there is also discussion of the Free Trade Agreement (FTA)
(Dewitari, et. al., 2009).
China tries to follow up the last agreement with ASEAN by proposing another
partnership called Early Harvest program, which focus on the trading of live
animals, diary produce, other animals products, live trees, vegetables, and edible
fruits and nuts. The tariffs should be decreased to zero in several years. Following
the agreement, China starts with introducing Free Trade Area Agreement to
ASEAN on 2004. This kind of agreement has been set up to not only for the tariff
reductions of export and import, but also for the investment policies. After
establishing the ACFTA agreement, another countries are attracted to join such an
agreement in international trading. One of them is a bilateral agreement of
Indonesia-Japan with Indonesia-Japan Economic Partnership Agreement (IJ-EPA)
which is established in 2006.
The history of billateral cooperation between Indonesia and China has shown a
fluctuative improvement ever since it is established. Thus, ACFTA is considered
to increase the number of goods imported from China in a massive amount and
threaten domestic enterprises in Indonesia.
1. 2. Problems
Based on the explanations above, some relevant problems are organized as
follows:
1. Why ACFTA was made between ASEAN and China? What are the
influences in the economy of Indonesia?
2. What are the implications of ACFTA implementation towards Indonesia’s
commodities in China’s and international market?
3. What commodities are threatened in a high level of competition in
Indonesia’s market?
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4. What concrete steps should be made by the government to help the
businessman minimize the negative impacts of China’s commodities
incoming?
1. 3. Objectives
This writing will raise some current issues regarding ACFTA implementations
and the implications of ACFTA on Indonesia’s markets, specifically the solutions
to local entrepreneurs of some commodities to minimize the market share
reductions done by China’s products in domestic market as well as international
market. The objectives of this writing are, firstly, understanding how ACFTA has
taken place in the international trading of ASEAN and China. Secondly, maping
the implications of ACFTA towards export trading of Indonesian commodities in
China’s market and international market. Thirdly, examining the Indonesia’s
commodities and the impacts of China’s commodities incoming in domestic
market. Fourthly, finding the proposed solutions on how the government and any
other parties could encourage the threatened industries in Indonesia compete with
China’s commodities using several ways and policies implemented.
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CHAPTER II
LITERATURE REVIEW
In this section of the writing, the concept of ACFTA along with its definition will
be discussed. To understand how this kind of agreement has a big influence either
to China as one side of a party and ASEAN as the other party, theories behind
bilateral and regional agreement between countries should be clarified. The
explanation stands as a mind map in constructing such a way of thinking in
discussing the issues stated which is related to ACFTA implementation.
2. 1. Description of ASEAN-China Free Trade Area (ACFTA)
Understanding ACFTA should be derived from the cooperative approaching done
by China using billateral agreement to some ASEAN countries. Basically,
ASEAN and China has developed and maintained a good relationship in trading
since China has joined ASEAN+3 (ASEAN 10 plus Korea, Japan, and China).
China’s involvement continues within any meeting held by ASEAN, beginning
from East Asian Summit (EAS), ASEAN Regional Forum (ARF), and later on
China’s proposal to create ASEAN China Free Trade Area (ACFTA) under the
Framework Agreement on Comprehensive Economic Cooperation (FACEC). This
agreement includes tariff reductions for most of commodities which begins in
2005 and it is scheduled to be finished in 2010 for 6 countries which consists of
Indonesia, Philippines, Thailand, Malaysia, Singapore, and Brunei. The rest of
ASEAN countries will finish this tariff reductions by 2015 (Chanborey, 2009).
ACFTA agreement has some implications on export and import done by China
and ASEAN. Free trade area means that there is not any tariff imposed on such
commodities entering any of those countries. Additionally, this agreement does
not only affects the economic cooperations of the countries, but also any other
policies involved. Investment policies, exort credit policies, and even opening
market access towards certain commodities are some examples of policies done as
the impact of ACFTA.
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2.2. Literature, Paper, and Supporting Theories
Implementation of ACFTA has some objectives to achieve. Based on the analysis
of international trading, this kind of free trade area agreement will benefit both
sides of the parties in terms of increasing market scale, doing market expansion,
and getting more production factor in lower price. Thus, this of agreement on
international trading has some advantages towards both countries.
Theory of comparative advantage from David Ricardo in his book “The Principles
of Political Economy and Taxation” states about each country which specialize
their commodities to trade to another. Seeing the economic development, the
theory is developed into The Heckscher-Ohlin Theorem of Factor-Proportions or
Factor-Endowment Theory. Heckscher-Ohlin Theorem states that: A nation will
export the commodity whose production requires the intensive use of the nation’s
relatively abundant and cheap factor and import the commodity whose production
requires the intensive use of the nation’s relatively scarce and expensive factor.
That theory explains more about the real conditions in each country using an
assumption that there are two countries, two kinds of goods, y1 and and y2, and
two production factors, L and K (Arifin, Rae, and Joseph, 2007).
This theory notifies that budget constraint in each country makes that country
produces one good in an efficient way. Finally, each country could specialize on
their own good, produce more than the demand existing in their own domestic
market, and trade it with the specific good from another country with higher
satisfaction. The H-O Theory does not require identical tastes (i.e. equal
indeference curves) in the two nations. It only requ ires that if tastes differ, they
do not differ sufficiently to neutralize the tendency of different factor endowments
and production possibility curves from leading to different relative commodity
prices and comparative advantage in the two nations (Salvatore,2004).
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Figure 1. Heckscher-Ohlin Theorem
This kind of theory will be applied in explaining the trading relationship happened
between Indonesia and China before and after ACFTA signed, on whether there
will be any change in domestic market after some commodities ae traded from
and to both countries in a different price as an impact of zero tariff imposed.
Furthermore, the theory wil be used to examine the new equilibrium which shows
new satisfaction within each countries made by that trading in a certain number
will inflence the domestic goods production or not.
Recognizing the trade happens between Indonesia and China as the main proof of
ACFTA implementations, some commodities have received the impacts greatly
on their frequencies and amount of trading. Seeing the Indonesian market through
an analitical study, we will find out only some commodities are affected
significantly in Indonesian market, such as textiles, machinery and computers, etc.
It shows the correlation with the Theory of Partial Equilibrium which certifies that
a trading of two different countries on a certain good in where each country has its
own supply and demand will affect the price and quantities of the good. The
theory strengthens onto its influence on making a new equilibrium point set by a
new price and quantities of the certain good in each country.
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Figure 2. Partial Equilibrium’s Theorem
Alhough ACFTA will benefit both parties, ASEAN and China, as general, there is
still be some concerns regarding the impact on each country. Therefore, this paper
chooses to observe the relationship between Indonesia and China before and after
ACFTA implemented. Furthermore, this paper will examine how the trading of
Indonesia and China influence greatly in the number of goods exported and
imported. The change in domestic market for certain commodities, especially in
its price and quantities, in Indonesia beyond the influence of ACFTA will be
discussed more. Some commodities which are produced by domestic entreprises
are believed to accept a great impact in the competition with imported goods.
Indonesian government has implemented some policies to overcome it. However,
the effectiveness of the policies should be observed also.
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CHAPTER III
CONTENT
3. 1. The Importance of ACFTA to Economic Development of ASEAN
Countries and China
Each country has their own demand for certain commodities. However, supplies
produced by the country itself could not meet the demand coming from the
society. Therefore, the country needs to buy some goods from outside, which will
be known as importing, while the country who selling of the commodities is
called exporting. Haberler (Salvatore, 2004) has strengthened some beneficial
effects of international trade on economic development:
1. Trade can lead to to the full utilization of otherwise underemployed domestic
resource.
2. By expanding the size of the market, trade makes possible division of labor and
economies of scale.
3. International trade is the vehicle for the transmission of new ideas, new
technology, and new managerial and other skills.
4. Trade also stimulates and facilitates the international flow of production factors
from developed to developing nations.
5. In several large developing nations, the importation of new manufactured
products has stimulated domestic demand until efficient domestic production
of these goods become feasible.
6. International trade is an excellent antimonopoly weapon because it stimulates
greater efficiency by domestic producers to meet foreign competition.
There are many forms of economic cooperation done by a country with its partner,
like international trade showed by export and import and creating a trade area like
what happened in European Union. The purpose to establish such a market
liberalization where the market itself has a power to determine its price with
minimum interfere from the government is what ASEAN seek as one of the big
regional organization in the world.
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Economic integration is seen to be one step closer to the market liberalization
which brings many benefits to the members. According to Baldwin and Venables,
economic integration has a favorable impact on economic growth (Tang and
Weiwei, 2006). While that kind of integration tries to eliminate any barriers in the
trading of the countries involved in an accordance with market liberalization
purpose, Arivind Panagariya suggested that sustained growth cannot be achieved
without rapid growth in trade, which requires either low or decline barriers to
trade (Tang and Weiwei, 2006).
Minimizing trade barriers could be done in several ways, one of the highest way is
known as setting up a free trade area. This free trade area has been seen as a form
of economic integration among countries. In the opinion of Kindleger and Linders
(1987) as citated by Koh and Toh in Esmara (Prabowo and Wardoyo, 2004:7)
about five forms of integration such as:
a. Free Trade Area is a form of economic integration in which quantitative
restriction and tariffs barriers among members are eliminated; and each country
still obliges their own tariffs towards the commodities coming from non-
members countries.
b. Custom Union is economic integration in which tariffs among members are
eliminated and “custom external tariffs” are obliged to non-members countries.
c. Common Market is an economic integration which has the characteristics of
Custom Union plus the elimination of trade barriers and the elimination of
productions capital trading between members.
d. Economic Union is a form of integration which has not only the characteristics
of Custom Union, but also the uniformity of economic and social policies.
e. Supranational Union is a form of economic integration in which the national
governments transfer their sovereignty in economic and social policy to the
supranational authority.
Arifin, Rae, and Joseph (2007) mention about various factors on why many
countries are willing to cooperate in regional trading:
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a. Building the secure condition economically and politically among the
geographical close countries,
b. Managing trade friction,
c. Increasing capacity bulding for development,
d. As a beginning step to form a multilateral liberalization
e. Policy for assuring trade diplomation,
f. The Copycat Syndrome, and
g. Competition to gain the foreign capital investment.
Since ASEAN and China has a good history record of in economic relationship
showed by table 1 below and any other cooperations, China finally propose an
agreement to tighten the relationship, specifically in economics trading through
tariffs reduction. Specifically, Southeast Asia is a region of vital importance to
China due to traditional security, geopolitical and strategic, and economic
concerns (Chanborey, 2009).
Table 1. ASEAN Export and Import to China, 1993-2003
Year Export Import
1993 4,528,694.7 4,336,364.2
1995 6,200,891.8 7,129,723.3
1997 9,167,889.0 13,482,883.2
1999 26,472,377.3 19,407,997.9
2001 31,552,091.2 23,833,075.1
2003 27,004,232.1 28,272,242.8
Notes: Value is in US$ 1000
Source: ASEAN Trade Database (Tang and Weiwei, 2006)
The good record of the trading between ASEAN and China opens the opportunity
to widen it onto the free trade area. For ASEAN itself, China has become the
fourth largest country for exporting their commodities in 2003, almost in the same
amount as United States. Moreover, the population of China with 1.7 billion
people could be considered as an opportunity for ASEAN to gain the scale to sell
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their products. China also stands as a developed country which boost its economy
drastically by looping on industrial basis. Therefore, it gives another advantages
in consuming many energies and resources from another countries, especially
ASEAN which could produce oil and gas resource in a massive amount.
Tariff reductions of ACFTA between countries involved will not be implemented
all at once, but year after year that kind of tariff is eliminated. The scheme of tariff
reductions on ACFTA will be shown in table below.
Table 2. Tariff Reductions Scheme of ACFTA
Source: Dewitari, et. al., 2009
Tariff reduction scheme has raised some fear of the economists that the income of
the country in that posts will decrease dramatically and therefore reduce the
countries’ income. Therefore the observation towards goods traded in export and
import should be done to understand the decreasing of tariff income from import
and the increasing of revenue from goods exported.
Inspection and Quarantine Bureau of ASEAN reports that in January 2010, goods
import and export value of $ 56,428,000 US positively that is up to 285.9%. On
the other hand, exports $ 35,505,000 US which is the same as up 145.5%
increasing with imports only $ 20.923 million US dollars which is up to 133.3%
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(www.fourpxarticles.com). This has showed the significant increasing which
gives the advantages to ASEAN after ACFTA implementation
3. 2. The Influence of ACFTA on Individual: The Study of International
Trading Between Indonesia and China
Indonesia and China have a long history of trading since 1960’s. Indonesia could
gain profit from the trading until 1990’s where the imported goods from China
exceeded the goods exported to China. However, several years later Indonesia
could make a positive trading in its export and import with China. However, the
fluctuative conditions still happened like the figure shows below.
Figure 3. Indonesia Export to China and Import from China
China stands for a very important country to trade with since it has a big role in
absorbing most of Indonesia’s export. Economist Riyadi Suparmo said that China
has become the third biggest export market for Indonesia in the year of 2009, with
non-oil exports to China reaching $8.9 billion after Japan ($11.98 billion) and
United States ($10.5 billion).
The data shows that Indonesia’s products are gained popularity and dominate the
market in China. Those products are for example handicrafts products from rattan
and bamboo, tin, cocoa, rubber, shoes, pulp, palm oil, and musical instruments.
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As a matter of fact, Indonesia’s products have competed with China’s products in
Indonesia since 1998 when the agreement of free trade under Word Trade
Organization (WTO) established and implemented step by step since then.
China’s products which enter Indonesia’s market in a big volume are cosmetics,
furniture, foods and beverages, textiles and textile products, hand phones, and
many more.
Table 2. Indonesia Export and Import to China 2008
No Commodity Export Import
1 Textile 175.116.118 1.039.892.763
2 Toy 6.836.788 89.571.912
3 Footwear 64.366.024 89.041.635
4 Electronic - -
5 Rubber 901.201.630 92.861.729
6 Copper 315.538.305 52.604.723
7 Cocoa 40.470.097 540.535
8 Wood 1.096.117.072 160.312.304
9 Mineral 5.235.347.974 522.438.503
Total 7.834.994.008 2.047.264.104
Notes: Value is in US$
Source: UN Comtrade
In 2008, Indonesia has some good commodities which are needed by China, such
as rubber, copper, cocoa, wood, and mineral. Most of Indonesia’s products which
indicate the positive equation between their export and import are dominated by
natural resources. While China surpass Indonesia on some products, like textile,
toy, footwear, and electronic, Indonesia could be better on other commodities.
The table above shows the application of H-O Theorem where each country
import goods to be consumed in their country itself (although it is the same kind
of goods, but it is considered different due to the characteristics of the goods
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itself, like target segmentation of the product). The amount of the similar
commoditities in export and import account then could influence the price.
Table 3. Indonesia Export and Import to China 2009
No Commodity Export Import
1 Textile 180.617.348 1.038.771.012
2 Toy 5.160.935 74.721.902
3 Footwear 39.637.651 71.114.571
4 Electronic - 417.000.000
5 Rubber 838.999.000 92.367.937
6 Copper 308.801.433 43.999.205
7 Cocoa 25.961.759 218.591
8 Wood 774.013.837 146.157.329
9 Mineral 5.371.344.637 597.970.341
Total 7.544.536.600 2.482.320.888
Notes: Value is in US$
Source: UN Comtrade
www.indonesia.go.id
In the year of 2009, the amount of goods exported is declining in almost all the
commodities exported. At the same time, the number of goods imported is
increasing from the previous year. Partial Equilibrium Theorem could be applied
to the condition that the lower price in international market resulted from the
production effectiveness in another country will attract the other to import it than
to produce the product on its own. Therefore, because of the lower price of
China’s products triggering Indonesia to import the goods in a certain amount.
The incoming of China’s products will affect the domestic market in Indonesia by
creating another competitive market to compete to domestic industries. However,
seeing the table above convincing that the domestic products have a demand in
international market based on consumer preferences, it is possibly value for
money and good quality of Indonesia’s products.
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Table 4. Indonesia Export and Import to China 2010
No Commodity Export Import
1 Textile - 70.000.000
2 Toy - 32.200.000
3 Footwear - 31.500.000
4 Electronic - 2.400.000.000
5 Rubber - -
6 Copper - -
7 Cocoa - -
8 Wood - -
9 Mineral - -
Notes: Value is in US$
Based on the six-monthly report of 2010 regarding export and import in published
by Ministry of Industrial Affairs, it could be inferred that some products have the
low import growth with high contribution towards non oil and mineral import.
Machines and electronics that are imported from all countries have only 3.1%
growth with the contribution of 32% to total import. On the contrary, Indonesia’s
non oil and gas main commodity which is showed by wood only grows for about
14.01% and contributes only to 10.5% of total ekspor from Indonesia to all over
the world.
3. 3. Evaluation of Government Proection to Domestic Industries
Indonesia faces the challenge from the incoming products from China, especially
in pricing. The situation in Indonesia recently does not support the domestic
entreprises to compete in an equal strength with China, especially for the products
produced by small and medium enterprises. The imported goods in certain
commodities; like iron and steel, machine and machinery, and machinery or
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electronical devices, have increased in a trend of more than 50% since 2004 to
2008 (Mutakin and Salam, 2009). It causes harm to domestic products even when
it has been imposed by such 5%-20% tariff. Thus, this kind of competitiveness of
China’s products is caused by the policies taken by China’s government to help its
domestic businesses, such as fast birocrational process, infrastucture development
business innovation, and labor efficiencies. The government even gives soft loan
to the starting business to grow.
The implementation of ACFTA has raised some problems concerning the
competition of imported goods and domestic goods in Indonesian market,
especially those goods produced by small and medium enterprises. Ministry of
Industrial Affairs stated 10 policies to overcome it as it is citated by Mutakin and
Salam (2009), such as:
1. Evaluating and revising all expired Indonesian National Standard (SNI in
Indonesian abbreviation), and implementing the SNI obligatorily with prior
notification to the WTO.
2. Implementing the function of Anti Dumping Committee effectively, handling
all dumping practice presumption, and providing a direct subsidy to the trading
partners.
3. Optimizing the role of Indonesian Trade Security Committee to overcome the
dramatic jump of imported products in domestic market.
4. Increasing the government’s lobby to secure Indonesian exports from threat of
dumping and subsidy of trading-partner countries.
5. Accelerating the implementation of President Instruction no. 5/2008 regarding
to the 2008-2009 Economic Focus.
6. Harmonizing the Custom Tariff of upstream and downstream products to speed
up the investment and increase the competitive advantage.
7. Implementing the role and function of Custom Office personnel, including
analyzing the probability of Red Line implementation for the highly-smuggled
products.
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8. Banning and limiting exports of raw materials to fulfill the energy requirement
of domestic industries in order to speed up the growth of downstream
manufacturing industry and strengthen the competitive advantage of local
industries.
9. Sharpening the policy of Income Tax of investment for specific businesses
and/or areas.
10. Continuing the implementation of Regulation of Trade Minister no. 56/2008
regarding to the restriction of docking for 5 specific products in example
footwear, electronic equipments, toys, garments, and prepared-food and
beverages.
The goverment has set several policies. Yet, the implementation of the policies
has not been done effectively. It could be derived from the weak supervision and
monitoring from the central government to regional government who deals with
export and import directly by supervising the incoming goods from abroad.
Moreover, the department under Ministry of Industrial Affairs has not been
cooperated with another department to inspect the product standard stated.
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CHAPTER IV
CONCLUSION
4. 1. Conclusion
ASEAN and China has made an agreement upon ACFTA to be fully implemented
in 2010. This agreement brings zero tariff in goods trading as a consequence.
However, seeing the analytical comparison using the export and import data, there
are some advantages gained either to China and ASEAN as a whole. Seeing the
history of China becoming a major country as an export destination for ASEAN
assuring some advantages for ASEAN development itself. The number of export
from ASEAN to China in general has an increasing trend in a massive amount.
Indonesia is included in one big country among ASEAN members. Therefore, the
study of ACFTA in Indonesia market will be discussed further. Since Indonesia
and China has cooperate in goods trading for a long time, the history of export and
import could be known. Some fluctuative trend has happenend in this trading, for
a surplus trading for Indonesia before 1990’s and declining years after. However,
the recent surplus is gained slowly.
Implementation of ACFTA brings some consequence to Indonesia. Studying the
number of export and import from Indonesia for the same product, as Heckscher-
Ohlin Theorem stated, classified some commodities which benefits Indonesia and
some commodities that is needed by Indonesian market in a big number. The
awareness arise on the inflow of some China’s products to Indonesian market
greatly with the lower price. Partial Equilibrium Theory states that there will be a
change of quantities needed in domestic market as a result of the incoming foods
with low price, like iron, steel, machinery, and electronics. Therefore, it harms the
domestic enterprises which produce the same products. China’s products, which
competes with domestic products, are supported with a good management of its
enterprises along with the condusive situation created by the government.
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Indonesian government has made some poliicies to overcome it and protect the
domestic industries. However, the implementation of the policies stated lack of
effectiveness and coordination efficiencies. Therefore, the government should ask
any parties to be involved in successing the policies implementation. Finally, the
government should be ready to receive many advices that could be done to
maximizing its effort in balancing domestic industries with foreign ones.
4. 2. Recommendation
Concerning the problems arising as an impact of ACFTA implementation towards
domestic market in Indonesia which harms many domestic enterprises, we
propose some recmmendations that could be done by the government. Those are:
1. Helping the enterprises gaining another foreign market in another countries
throughout online marketing done by the government in cooperation with
enterprises associations in the country. This could help the enterprises gaining
another consumers even if their market share in Indonesia become smaller
because of another products incoming. Moreover, it will benefit not only the
big enterprises, but also small and medium enterprises in Indonesia in ther
marketing and distribution of the products.
2. Maximizing the role of the department under Ministry of Industrial Affairs and
another departments to supervise the implementation of products
standadization test to all products made by domestic industries and incoming
products from abroad. This kind of standardization should be done to assure
that the incoming products from abroad, especially China whose price is much
lower, have the same quality as domestic products.
3. The need to increase the competitiveness of domesic enterprises with China’s
enterprises in producing goods efficiently. The labor effectiveness, technology
optimalization, and management knowledge should be applied in any
enterprises in Indonesia. There should be a cultural change to work hard and a
certification to show labor effectiveness or machine qualifications if needed.
4. The role of the government to enter and negotiate in international market in
purpose of promoting the domestic products and opening the possibility of
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exporting to another countries. Position of the government in international
trading should be strengthen more, especially in bargaining power of
negotiation between two countries.
5. Central government and regional government should coordinate to arrange the
optimalization of small and medium enterprise in Indonesia. These enterprises
have some limitation in producing goods, like the number of goods produced.
There should be a kind of regulation to synchronize the big enterprises and
small and medium enterprises, so that the small and medim enterprises will not
be harmed any further from the unfair competition with big enterprises and
incoming goods from forign countries. One of the way is the cooperation of
small and medium enterprises with big enterprises in providing raw materials,
for example.
6. The enterprises association and any other trading representatives in South East
Asia could gather to join and make some policies to distribute and market the
products from their own country, especially the small and medium enterprises
who needs help to enter and gain another market.
23
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