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6 July 2020 (closed)
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The Centre for Strategic and International Studies (CSIS) believes that the economy of Indonesia will benefit if the government decides to participate in the Trans-Pacific Partnership (TPP) because this free trade deal would make the Indonesian economy more efficient and makes Indonesian exports more competitive. However, Philip Vermonte, Executive Director of CSIS, said a comprehensive study on the matter is yet to be carried out. Others remain concerned about a possible huge rise in imports into Indonesia if Southeast Asia's largest economy would join the TPP deal.
The TPP, spearheaded by the USA, is designed to enhance trade among the 12 members (USA, Japan, Malaysia, Vietnam, Brunei, Chile, New Zealand, Singapore, Australia, Canada, Mexico, and Peru) by lowering tariffs for a wide variety of products. Through the liberalization of trade (at least to a high degree), the TPP targets to boost economic growth, enhance job creation as well as innovation, productivity and competitiveness, reduce poverty, promote transparency and good governance, and enhance both labor and environmental protection in the member countries. The TPP is one of the world's most ambitious trade deals covering an area that accounts for about 40 percent of total international trade.
Vermonte says it would be positive for the Indonesian economy to join the TPP because this free trade deal will scrap tariffs for various items. As such, trade between the member nations becomes cheaper. Given that several key trading partners of Indonesia have joined the TPP, Indonesian exports will become more expensive (compared to exports of TPP members) and thus the competitiveness of Indonesian exports would decline. Vermonte expects a gradual yet continuous drop in exports in the years ahead if Indonesia will decide not to join the TPP.
The downside for Indonesia - when joining the TPP - is that it will require a major adjustment to the structure of Indonesian policies and the standard of Indonesian products. Contrary to other free trade deals, the TPP will have a much more profound impact as it also promotes transparency, good governance, and stricter regulations for patents. Moreover, Indonesia's state-owned sector may need to be reformed in order to allow for greater competition in procurement, while some restrictions on foreign ownership in certain industries will need to be removed. All these matters imply a shift from existing conditions or philosophy. Currently Indonesia is characterized by weak law enforcement, while state-owned companies play a dominant role in the economy, and the government has been seeking a more protectionist approach in recent years (particularly regarding the nation's natural resources). For the short-term it would imply a problem that Indonesia needs to undertake massive reforms. However, in the long run it will make the economy more efficient, while boosting export opportunities. It is estimated Indonesia needs 5 to 10 years before it is in a condition to join the TPP.
Although Indonesian President Joko Widodo seems to support participation in the TPP trade deal, there still exists plenty of resistance. Those that oppose Indonesia's participation in the TPP say that the nation would merely become a consumer of foreign products. Given that Indonesia has a huge domestic market while Indonesian products lack competitiveness (compared to products imported from abroad), it would see a huge inflow of (cheaper yet higher quality) foreign goods.
Earlier, Indonesian Trade Minister Thomas Lembong said TPP is a fact that needs to be faced by Indonesia, whether the country likes it or not. Considering several major trading partners are involved in this deal, Indonesia will definitely feel the impact. To assess whether the impact is mostly positive or negative a profound study is required that takes into consideration the following aspects: the impact on Indonesia's micro economy, long-term effects (particularly regarding economic and technological developments), and geopolitics.