JAKARTA: The Trans Pacific Partnership (TPP) could increase Indonesian exports by at least US$2.9 billion an economic observer has claimed.
Indonesia might see swollen imports too, especially for capital goods like machinery, steel, sugar and plastic leading to a reduced trade surplus from $3.1 billion to $2.2 billion after joining the TPP.
However, total trade would significantly rise, said senior advisor for economic and public policy at the Australia Indonesia Partnership for Economic Governance ( AIPEG ) Ahmad Shauki.
“Indonesia can unlock access to the main TPP countries such as the US, Canada and Mexico as well as other Latin American countries, which will cut tariff barriers from between 2 and 5 percent to zero. Exporters will save $1.3 billion from the tariff cuts and it will create a $306 million trade diversion,” he said in Jakarta on Wednesday.
The sectors to benefit most would be footwear and textiles, which could increase by 22 and 18 percent respectively. Both sectors could contribute 70 percent of the potentially increased exports, he continued. Exports of commodities such as palm oil, wood and rubber would not significantly increase as their tariffs were already low amid decreased demand.
Meanwhile, Center of Reform of Economics ( Core ) Indonesia research director Mohammad Faisal warned that not joining the TPP would transfer this potential to Vietnam, which is already a member of the TPP.
“Vietnam is our toughest competitor because the product mixture is similar; footwear, textiles, electronics and machinery,” he said.
Indonesia’s exports to the US were stable in the last decade with 6 percent growth from 2001 to 2015. However, Vietnam’s exports to the US in the same period had spiked by 242 percent even before joining the TPP.
“Actually the tariffs imposed by the US on ASEAN countries, including Vietnam and Indonesia, are almost similar. But we’ve got problems such as high transportation costs, rising fuel prices and increasing labor costs without increased productivity,” Faisal said.
With regard to labor costs, Indonesia’s are lower than Thailand, China and Malaysia but higher than India, Vietnam and Cambodia, according to Faisal. However, unlike in Thailand, the wage disparity in Indonesia between rural and urban areas is very wide.
