Indonesian firms reel as trade barriers come down

06/03/2013 12:00 - 421 Views

As the only tinplate producer in Indonesia, Pelat Timah Nusantara (Latinusa) has supplied packaging material to an array of manufacturers, such as producers of condensed milk, biscuits, paint and batteries.

The firm's heyday has apparently passed, however, after the domestic market was opened to foreign competitors by free trade deals with nations such as China and South Korea.

Latinusa says sales have plummeted, claiming that it cannot compete with lower prices offered by foreign rivals. The company reported a net loss of 44.28 billion rupiah (Bt1.4 million) in the third quarter of last year, versus Rp13.2 billion in net profits in the same quarter of 2011.

"We have been significantly affected by the Asean-Korea Free Trade Agreement, put into effect in 2012," Ardhiman, the president director of Latinusa, said, citing a 23-per-cent rise in imports from South Korea to 37,112 tonnes in the third quarter.

Korean imports comprised 38 per cent of Indonesia's total imports last year.

Latinusa is one of many companies seriously hurt by the free trade agreements signed by Indonesia. Through Asean, Indonesia has signed FTAs with South Korea, China, Japan, Australia and New Zealand.

Indonesia is currently negotiating FTAs with several other nations and associations, such as the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland). It also has begun initial negotiations for a trade agreement with Chile and has been eyeing similar arrangements with Nigeria and Peru. The nation has also taken the lead in negotiations scheduled for May on a regional comprehensive economic partnership (RCEP) between Asean and its six FTA partners - Australia, China, India, Japan, South Korea and New Zealand.

The RCEP, which would encompass 30 per cent of the world's output, would further open Indonesian markets when compared to the trade pacts currently on the books for Asean.

Sofjan Wanandi, chairman of the Indonesian Employers' Association (Apindo), struck a cautionary note, saying that the government must seriously consider the benefits - and the risks - that more free trade pacts would pose to local businesses.

Economist Hendri Saparini was also cautious, saying that government should decide between facilitating trade and investment by signing free-trade deals, or strengthening local businesses.

"If the government wants to facilitate trade and investment, we can just open industrial estates, provide tax incentives and overseas firms will relocate their facilities here, which can also help the industry grow, boost exports and contribute to our economy," Saparini said.

"That's great, but never dream that we will one day have our own industries and enjoy the full added value on our own," she said.

March 5, 2013 1:00 AM

Source: The Jakarta Post