This week the Jakarta Post reported that after finally
implementing the ASEAN-Australia-New Zealand (AANZFTA), Indonesian
agricultural interests fear the worst from increased competition from Australia
and New Zealand. The Post
quoted Indonesian Agriculture Minister Suswono as saying ““We’ll still protect
our products so that they will remain competitive in the local market . . . . Our
codex standards, halal labeling, and sanitary and phytosanitary standards [SPS]
are still feasible as instruments for protection, especially for food items
that will enter Indonesia.”
If this sounds familiar, it’s because it is. Two years ago I wrote in the
late OpinionAsia website about the fear and trepidation among ASEAN industries
facing the implementation of the ASEAN-China FTA (ACFTA), and it is reposted
below. Substitute “China” with “Australia and New Zealand” and the analysis
would be mostly applicable to Indonesia’s predicament as well.
The positive lesson of 2010 was that the ASEAN members largely avoided
using trade remedies and other protection measures as a result of the ACFTA. Indonesia proposed delays to the ACFTA, which
were acknowledged and then rejected by China and the other ASEAN members. Proposals
to impose blanket tariffs on Chinese goods also were non-starters.
Will these lessons be applied in the Indonesian agricultural sector? Hopefully,
but agriculture is always sui generis.
Although the AANZFTA contains provisions against using SPS and other measures
as non-tariff barriers, Minister Suswono can point to the restrictive SPS
measures imposed by Australia on citrus and tropical fruit as the inspiration
for his comments. Plus, last year Indonesia faced a
ban on cattle exports from Australia, which was later followed by an Indonesian
ban on cattle imports from Australia.
SPS-based non-tariff measures may be the last refuge of protectionists,
but they remain alive and well in today’s world. If Australia is indeed worried
that Indonesia will implement such measures to protect its agricultural
industry, then the first place it should start is at home, by reforming its own
SPS measures.
Finally, the other ASEAN trading partner that should take note of this
dispute is the EU. A few years ago, I worked on a feasibility study on the
proposed ASEAN-EU FTA that indicated that EU
processed agricultural exports would benefit tremendously from the FTA. This
potential row shows that fear of increased competition from those exports will
be a major issue as the EU negotiates its bilateral FTAs with the ASEAN
countries.
Anyway, here is the original post on “Do FTAs Mean Free Trade Agreements or Fear and Trepidation in ASEAN”, posted on January 10, 2010:
The start of 2010 was celebrated by some, but many Association of Southeast Asian
Nations (ASEAN) industrial interests viewed the new year with great apprehension. For
them, January 1 marked
the
full implementation of the ASEAN Free Trade Area (AFTA)
agreement and ASEAN China Free Trade Agreement (ACFTA). The resulting greater
market access for goods
traded within ASEAN
and
between ASEAN and China has generated an outcry throughout the regional grouping among those who fear increased competition. How ASEAN copes with this growing mini-crisis of confidence will affect both regional development within ASEAN and the evolution of ASEAN institutions.
Under AFTA and ACFTA, import duties on most goods have now been set to zero
percent in the
founding ASEAN members
of Brunei, Indonesia, Malaysia,
the Philippines, Singapore and Thailand (similar reductions will take effect in 2015 for the other ASEAN members). The lists of items subject to trade liberalization, the revised rates and the implementation dates were agreed upon within ASEAN and between
ASEAN and China years ago.
The industrial sectors in Indonesia and the Philippines, and to a lesser extent, Malaysia, vehemently object to greater market access and greater competition - not when the
agreements were being negotiated but during
the
waning days of 2009. The Indonesian government
reacted to
industry pressure
by proposing last week
to renegotiate the
ACFTA
and may seek
delays
in implementing
AFTA
provisions. Other
ASEAN members may be tempted to use this opportunity to follow suit.
That Indonesia and the Philippines, with active business lobbies and media, reacted so
strongly
was somewhat predictable.
Nevertheless, that business interests in
those
countries and elsewhere in ASEAN waited until the last minute, months and years after
the
negotiation, ratification and implementation of the FTAs, reflects fundamental
deficiencies within the region’s operating system. Clearly ASEAN governments and
institutions such as the ASEAN Secretariat did not adequately prepare the business sector
for
trade liberalization. The corporate sector should
have been more involved
in
the process from the earliest stages.
Not that the ASEAN business sector is without blame. Some companies in ASEAN
benefited from protection at the national level through tariff and non-tariff barriers yet
took
no action when threatened with their impending
phase-out. Despite having advance
warning, both the private and public sectors in many
ASEAN countries failed to prepare themselves for the impending trade liberalization.
This unease with the FTAs could even threaten ASEAN
institutions. The ASEAN
Economic Community,
which the FTAs and other agreements on trade and investment underpin, is supposed to be the most developed of the three pillars of ASEAN
– with the
political-security and socio-cultural communities being the others. A breakdown over the FTAs would thus undermine the credibility of the ASEAN integration process.
Fortunately, the ASEAN Charter appears to be influencing the controversy
in
a positive manner. The ASEAN Charter provides the foundation for a rules-based operating
system
for
the regional grouping. Thus, despite domestic calls for individual ASEAN members
to abrogate their FTA commitments
unilaterally, none have done so. Although Indonesia has called for a renegotiation of the ACFTA, it has respected the structures and practices of ASEAN by making its request through the ASEAN Economic Community Council, a new body established by the ASEAN Charter. Thus it will be up to ASEAN as whole to
determine how to address Indonesia’s
concerns, and how to deal with China should the
grouping decide to act accordingly.
It must be remembered
that
the FTAs
will benefit many
ASEAN industries with
increased market access in China, as well as in India, Australia,
Korea and Japan - which
have also signed FTAs with ASEAN. The
FTAs also mean increased investment in
ASEAN by these trading partners. The ASEAN Secretariat and national governments
need to explain these benefits both to the business elite and to the masses.
The aforementioned
FTAs provide ASEAN members with remedies to protect their industries from unfair and/or increased competition in the form of antidumping
and safeguard laws. These laws take time to invoke and administer, but trade and investment policies based on the rule of law will benefit all sectors of ASEAN society in the long run.
The current acrimony over
the FTAs
represents a failure
of government-business outreach that needs to be avoided in the future if ASEAN economic integration is to
succeed. If ASEAN institutions and member states can also continue to adhere to the
rules-based
approach
set
forth by
the ASEAN Charter, then indeed
the ASEAN Economic Community will succeed as well.
