Indonesia and the
TPP
To Join or Not to Join?
Fred and Owen
The Trans-Pacific Partnership has the ambition to extend well beyond the limits of trade and
trade policy. Negotiators are addressing new issues such as competition policy, regulatory
coherence, and standards for labor and environment. Indonesia’s response to the TPP has
been apprehensive, and thus far the country has avoided joining negotiations. The TPP could
open up the Indonesian market to other free and developed markets with limited political
tension, but is Indonesia ready to make commitments such as restructuring the areas of
intellectual property, environmental protection and labor reforms?
Indonesian Trade Minister Gita Wirjawan
has hinted that Indonesia may join the
negotiations after considerable progress
was made on Indonesia’s trade agreement
in the Regional Comprehensive Economic
Partnership.
Gita Wirjawan, Indonesian Prime
MInister
The RCEP is a regional trade agreement
between the Association of Southeast
Asian Nations, Australia, China, India,
Japan, South Korea and New Zealand.
The existing trade barriers among RCEP
nations are very high, and lifting those
barriers would result in immediate gains,
Member Nations of the RCEP
while TPP member countries are already
relatively open economies. The RCEP has
a major problem that it has many strained
political relationships, including those
between such China, India, and Japan.
4 other ASEAN (Association of Southeast
Asian Nations) countries; Malaysia,
Vietnam, Singapore, and Brunei, have
joined the TPP, which could give Indonesia
a disadvantage within the region. Vietnam
shares 40% of Indonesia's export market, so
Vietnam could take away some of
Indonesia's market.
Joining the TPP would potentially bring
advantages for Indonesia’s market
expansion and position. It opens access
to the markets of the US and other
developed countries. US-based Peterson
Institute predicts a possible output of 4%
above the baseline by 2025, a 20% rise in
exports and a rise in growth by 1.7%.
Mukul Raheja, a researcher at the firm
Strategic Asia, reports that it would help
Indonesia to diversify its trade
dependency from China.
Indonesia is less active in forming regional
trade deals than other Southeast Asian
countries, despite being the largest
economy in Southeast Asia. They tend to
prefer unilateralism, not trade liberalism.
Policy makers think that Indonesia should
address problems within the country with
infrastructure and costs to increase
competitiveness before opening up trade.
While Indonesia may not be ready for
opening up trade and could possibly reap
more short-term benefits from RCEP,
advancements from joining the TPP would
be an overhaul of the structure of its
economy and in the long run would make
Indonesia more competitive. It should
view the TPP and RCEP as separate
agreements, and drop the notion that the
TPP should only be pursued if RCEP goes
through.
Send any questions, comments or suggestions to fricket@arps.org
Responses
6/14/15
Owen and Fred: Very nice introduction to the issues facing Indonesia,
and the pros and cons. By nicely setting up the positions on both sides,
your conclusion had more force. It really felt like you appreciated the
issues facing Indonesia.
6/15/15
You have a good point about policy makers thinking Indonesia
should address the problems within its own country within the
infrastructure, but wouldn't joining the TPP increase trade and
prosperity and essentially paying for the problems in the
infrastructure too? What else would the RECP, do besides
lowering trade barriers? And clarify what you mean my saying
"Trade Barriers are high, why? I also enjoyed your point about
Indonesia needing to view TPP and RECP as two different Trade
Agreements. Because countries in the TPP typically have more
power, and money on a global scale, while countries that are in
the RECP, typically have less money and more instability.
6/15/15
I appreciated how your blog was split up into different sections,
making it easy to follow your argument, while also hearing from
opposing sides of the argument. In one of the sections you
mentioned that Indonesia prefers unilateral trade rather than
liberal, but I am not clear on why that is. Also, if Indonesia joins
the TPP would that have an effect on the labor force in
Indonesia? A large portion of workers in Indonesia are working for
small, private stores and if the country decides to join the TPP,
larger companies could over-run those small stores. Is there a
possibility that those small business workers will be placed at a
disadvantage?
Maya
6/15/15
Nice introduction of the RCEP negotiations. You're doing a
good job elaborating the Indonesian perspective. You write
"They tend to prefer unilateralism, not trade liberalism. Policy
makers think that Indonesia should address problems within the
country with infrastructure and costs to increase
competitiveness before opening up trade" and I wonder where
that preference comes from. What historical experiences have
contributed to the Indonesia preference for unilaterialism.
Perhaps some lingering suspicion of from imperial or Cold War
era experiences?
6/16/15
"While Indonesia may not be ready for opening up trade and
could possibly reap more short-term benefits from RCEP,
advancements from joining the TPP would be an overhaul of
the structure of its economy and in the long run would make
Indonesia more competitive. It should view the TPP and
RCEP as separate agreements, and drop the notion that the
TPP should only be pursued if RCEP goes through."
You may want to explain more about why dropping the RCEP
would benefit Indonesia. In this source:
http://www.eastasiaforum.org/2014/03/03/why-indonesia-needsto-lead-in-economic-integration/ , I found that Indonesia's lack of
infrastructure, high dependency on natural resources, and ridged
labor market would be worked on being fixed by the RCEP. It
seems that the RCEP would help the country in more specific
ways than the TPP. I may be wrong, but I think it would be helpful
for the reader if you explain more about the difference between
RCEP and TPP. Wouldn't it be better if the RCEP was in effect in
order to strengthen Indonesia's infrastructure to make them more
competitive with other nations in the TPP before they themselves
join?
"The RCEP has a major problem that it has many strained
political relationships, including those between such China,
India, and Japan."
How would these strained political relationships be any different
with the TPP?
Overall I like how you presented both sides to the argument, good
job!!
Jemma
6/17/15 Bloggers Respond:
Several people asked about why Indonesia is not very tradeliberal. We looked for some historical factors, and we had trouble
finding political factors but did see that the country has responded
to economic factors substantially. We found that Indonesia has
become a more open regime in the last 35 years. In the early 80s
it became an export-oriented economy after the oil bust in the
mid-80s. The 1986 collapse of oil prices halted protectionist
tendencies and prompted trade reforms. The 1997 Asian
financial crisis led to substantial trade liberalization reforms as
part of meeting IMF conditions.
Jemma,
You asked “how would these strained political relationships
be any different with the TPP?” referring to China, India and
Japan. China and India are not currently in the TPP, and neither
is South Korea, another RCEP country that we didn’t mention but
also has some bilateral tension with RCEP countries. The RCEP
has the possibility of great short-term benefits for Indonesia as
you pointed out, but it is so stagnant for several reasons,
including political relations, at the moment that the TPP should
also be considered. We did not mean to insinuate that we think
the RCEP should be dropped; it should not. Rather, Indonesia
should recognize that it is not a one or the other case, and both
agreements can be beneficial for the country.
-Owen
Indonesia is approaching the problems with infrastructure by
encouraging private companies to invest in fixing infrastructure.
This requires a lot of workers and companies focusing on
Indonesia and not other countries. Although some companies
could make more money with more free trade, that money would
not go directly to improving infrastructure. And in order to
effectively trade, infrastructure should be strong already, since it
is needed for manufacturing. Better infrastructure will also
encourage more companies to invest in factories in
Indonesia.This is why policy makers want to improve their
infrastructure before opening up the economy to free trade.
http://www.ifc.org/wps/wcm/connect/region__ext_content/regions/
east+asia+and+the+pacific/news/indonesia+infrastructure+invest
ments
-
Fred