News Focus: FREE TRADE TO AFFECT RI'S INDUSTRIES, WORKERS By Andi Abdussalam

Jakarta, Jan 10 (ANTARA) - Certain industrial sectors of the Indonesian economy that are not yet ready for the ASEAN Free Trade Area (AFTA) and ASEAN-China Free Trade Area (ACFTA) effective January 1,2010 may be forced to reduce or stop entirely their operations and thus cause the laying off of perhaps millions of workers.

"Free trade will affect local companies' performance but it can not be avoided because the ASEAN-China Free Trade Area (ACFTA) was agreed on a long time ago so that we have to abide by it," Operations Director of the Workers Insurance Company (Jamsostek), Ahmad Ansyori said on Saturday.

He said that many studies had been made on the impact of the free trade area on domestic industries in Indonesia. Most of the studies showed that its impact would be a reason for concern as it would affect workers.

A number of studies predicted that with the free trade area, about 2.5 million workers could face lay-offs due to the declining performance of industries in the country. The most affected industries would be leather processing, garment, textiles and steel industries. The impact would be felt by hundreds of labor-intensive and small companies.

"Based on the studies, about 2.5 million workers could face layoffs. However, I think the number of workers facing layoffs would not reach 2.5 millions but about 1.8 million," Ansyori said.

He said that it would take place gradually, namely about eight months after the beginning of the free trade area. "I am sure the government will take mitigation measures if the free trade area massively weakens local industries. Probably the government would provide incentives and fiscal facilities as well as expansion of infrastructure projects and agribusiness development," he said.

University of Indonesia (UI)'s economic analyst Ninaspati Triaswasti said meanwhile the ASEAN-China Free Trade Area which began to be implemented as of January 2010 would affect certain industrial sectors in Indonesia.

"Certain industrial sectors such as garments and footwear industries could be affected by the free trade area," she said in a discussion on the fate of local industries after the imposition of the ACFTA scheme on Saturday.

She said that over the past five years based on the available data, industrial product exports had continued to decline so that the imposition of the ACFTA would be a further cause for concern of industries and workers.

After all, garment and footwear industries were labor-intensive and provided employment for a large numbers of workers, meaning that the predicted layyoffs would also affect the people's welfare.

With the ACFTA, Chinese products which were cheaper would flood Indonesian market. "The influx of Chinese products could threaten local industries whose products are more expensive," she said.

She said the government could take protection steps such as delaying the implementation of the free trade for certain industrial products which were not yet ready to compete.

The economic analyst said that the Indonesian government had signed the ACFTA agreement in 2002 but the government did not prepare domestic industries to face it.

She said that over the past eight years, Indonesia actually had had the chance to prepare industries at home. Now, the government had to do its best to lower production costs as a result of the many barriers in the production process.

"The government should have strong willingness to reduce production barriers of national industries so that their products can compete in the local market with those coming from China," she said.

She said that infrastructure such as roads, electricity and illegal levies were among the barriers that raised production costs that should be reduced to face the free trade area. The UI economic analyst said that production barriers of national industries should have been reduced since long following the signing by the government of the ASEAN-China Free Trade Area in 2002.

"Over the past eight years, the government should have accelerated the development of infrastructure and other facilities such as electricity," she said.

In the meantime, the government in the face of the free trade area is trying its best to renegotiate the rates of certain tariff lines.

According to Coordinating Minister for Economic Affairs Hatta Rajasa, Indonesia is seeking to re-negotiate the rates of at least 455 tariff lines which, it thinks, have the potential to weaken its domestic industries.

Of the 455 tariff lines that need to be re-negotiated, 227 are under the Common, Effective Preferential Tariff (CEPT-AFTA) scheme involving Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand, and 228 other tariff lines are under the Asean-China Free Trade Agreement, or ACFTA.

Members of the Association of Southeast Asian Nations (Asean) agreed to implement a CEPT scheme through the AFTA in 1992 and in 2002 Asean and China made a comprehensive cooperation agreement which became the basis for the negotiations in 2004 for the establishment of the Asean-China Free Trade Agreement (ACFTA).

"Based on inputs from businesses a total of 227 tariff lines for the CEPT-AFTA need to be reviewed because they have potentials to weaken domestic industries," Hatta Rajasa.

With regard the Asean China FTA a total of 228 tariff lines need to be reviewed. "It is the inputs from businesses that have made the government send a notification for renegotiations in the framework of both of CEPT AFTA and Asean-China FTA," he said.