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AEC SPECIAL REPORT - INDONESIA: Handicaps to overcome
Publication Date : 30-12-2013
Unless Indonesia gets its act together soon, it will not be fully ready for the Asean Economic Community (AEC) in 2015. If so, it is likely that we will see a repetition of what happened when the China-Asean Free Trade Agreement (Caftan) came into force in 2010 with the Indonesian Chamber of Commerce and Industry calling for a postponement of implementation.
Fearing huge domestic losses, then Industry Minister Fahmi Idris announced his intentions to ask President Susilo Bambang Yudhoyono to consider delaying the implementation of the free trade agreement (FTA).
Fahmi insisted that the FTA— which was expected to open up various sectors in both markets (China and Asean) through the gradual reduction of import duty tariffs—would bring Indonesia more harm than good, given China’s superiority over Indonesia in terms of competitiveness.
With regards to the AEC, Indonesia has already succeeded in getting it launched at the end of 2015, instead of at the beginning of the year. But looking at Indonesia’s progress, it is likely that another postponement will be called for.
Indonesia, with its huge market of 250 million makes it the largest economy in the region. However, local sentiments are such that it is also the least able to compete, judging from the state of its own manufacturing sector, and therefore will have the most to lose under the AEC. Even its most lucrative sectors, i.e. textiles, garments, electronics and automotive, will face fierce competition from other Asian states because of the number of jobs these sectors generate.
It does not help that xenophobia will grow as Indonesia will soon enter an election year. We are already seeing this trend among foreign companies. We have not seen any election candidates exploiting AEC as a threat to the Indonesian economy, but the issue will soon be too tempting for them to ignore.
Poor preparation for the AEC is a reflection of the lack of political leadership by the government. Yudhoyono has repeatedly reiterated the need for the country to prepare for AEC. But his words have not been translated into action, and in Indonesia, the AEC remains an alien concept while time is running out.
The media, which should know better, is lukewarm at best in its efforts to promote the idea. This is unfortunate, because the media is a key player in helping prepare the country for the AEC.
Eventually the nation will no longer be able to ignore the issue. But when the time comes, can an unprepared Indonesia open up its economy to be a part of AEC?
A long way to go before the removal of non-tariff barriers
Local businessmen fear that other Asean markets will edge their businesses out, while analysts are pessimistic about a full launch of AEC.
An ill-prepared Indonesia, they say, will likely drag the entire regional community down once AEC is implemented. These are some of the factors showing that Indonesia has much work to do before it can be considered prepared for AEC:
— Indonesian businesses still bear the highest logistics costs and credit interest rates in the region, and this has weakened its competitiveness against other member states.
— The most that can be said about Indonesia’s preparedness for AEC are “low-hanging fruit” such as tariff reduction. Bigger building blocks—non-tariff barriers like quality standards and customs clearance procedures—are still “under construction”. A single market and production platform like AEC would demand more than just the removal of import tariffs.
The removal of non-tariff barriers like technical and safety standards, different customs-clearance procedures, transit transport system, rules of origin and conformity assessment practices, is undoubtedly challenging and complex. They require institutional capacity building in each country.
Another example of how ill-prepared Indonesia is can be seen in the time it takes for in-bound containers to get clearance at the Tanjung Priok port in Jakarta which handles two-thirds of the country’s external trade: despite the introduction of a “single window” to simplify the processing of all shipping documents and import-export clearances, it still takes the containers about 10 days.
A simplified procedure for exporters to obtain a Certificate of Origin (CO) for their products is needed for businesses to enjoy the zero-tariff facility already implemented under the FTA. However, in Indonesia, bureaucracy often stands in the way as issuing of the CO is still under the jurisdiction of the trade ministry, leaving the zero-tariff facility underutilised. Recent data showed that only 30 per cent of Indonesia’s exports to other Asean members have made use of the zero-tariff.
Benefits such as zero-tariff barriers would be pointless if technical and assessment standards, customs procedures, and rules for product registration and labelling are not streamlined. Rather, they may even incur higher distribution costs.
Another challenge to AEC is creating a level playing field in the region to ensure customer protection, quality of goods, alignment of local standards to international standards, so that there is mutual recognition of the arrangements made between states.
Education, language and enforcement
Some of the areas found wanting in Indonesia, especially in the context of AEC, are education, language-skills and enforcement.
While AEC is expected to open up more opportunities, and see more rapid movement of professionals between member states, many Indonesians may find themselves unqualified to join the flow.
National statistics show that out of the 121 million-strong workforce, over 7 million, or 5.8 per cent are unemployed. Many of those without jobs are unskilled and uneducated, but some of them are degree holders.
The Asean University Network, which was started in 1995, saw student exchanges, scholarships and credit transfers offered between universities in the region. Indonesia’s public tertiary institutions of higher learning, such as the University of Indonesia, Gadjah Mada University in Yogyakarta, Airlangga University in Surabaya, and the Bandung Institute of Technology are still lagging behind the top 50 universities in Asia and therefore not attracting many foreign students.
That said, the Bali government seems to be the only one actively engaging in preparations for the AEC—at least in the area of hospitality. Its governor Made Mangku Pastika has already notified locals to be ready to compete with various nationalities for jobs (on the island province).
“The (provincial) government cannot, and will not, stop the inflow of professionals from other Asean countries into Bali,” Pastika told university students.
As Bali depends heavily on tourism, the Udayana University requires its graduates to have a score of at least 400 in their Test of English as a Foreign Language (Toefl), while all tour guides are encouraged to be certified.
Febbylia Danita who works in a fashion retail outlet in Denpasar, Bali, says that in terms of skill, Indonesians are as competitive as their counterparts in the region. But their main handicap, says the 30-year-old, is their lack of confidence.
Senior nurse Siti Komariah says that poor command of English and inability to “think critically” lends to this low self-confidence.
Another obstacle, particularly in the nursing industry, says Siti, is the lack of specialist training platforms.
The number of nursing academies offering diploma programmes have increased with the number of hospitals in the country. With these diplomas, graduates are able to work as paramedics, if not as nurses.
However, she notes, they do not qualify regionally. Singapore and the Philippines require their nurses to have at least bachelor degrees. Furthermore, only the major universities in Indonesia offer courses for nursing specialties.
She hopes that the nursing law which has been drafted will be passed ahead of AEC 2015, as all agreements made between member countries on the facilitated entry of professionals will be based on the regulations of the individual host countries.
Nevertheless, of the informed, many are looking forward the open doors AEC will provide them.
Abdul Mukti Syaubari, formerly an Indonesian who now holds a Malaysian passport, says that he would like to start a business in his hometown in Sumatra. For now, being a Malaysian citizen makes it difficult for him to obtain a visa for a long stay in Indonesia, let alone start a business. But a borderless Asean community, he says, would enable him to fulfil his dream.
Asean as a people centred-community: too good to be true?
Thanks in part to the booming aviation industry, in particular low-cost carriers, millions of people in Southeast Asia can now afford to travel within the region.
The cities of Southeast Asia are connected to each by only a few hours by flight, a journey that was considered a luxury a few decades ago.
The Soekarno-Hatta airport in Jakarta clearly shows that the rapid movement of citizens across the region, and other Indonesian cities are quickly catching up.
Besides affordable air travel, technology has connected people like never before. This has opened up avenues for sharing ideas, building mutual trust and even enforced international solidarity for a common cause.
It is also worth noting that the region is also seeing a middle class that is growing at an unprecedented pace.
Much has been done to bring together the Asean nations. For example, regular forums like the Asean Ministerial Meeting on Youth, the Asean Committee on Women, the Asean Education Ministers Meeting, Asean Foundation programmes; or in the field of sports—the Southeast Asian (SEA) Games and Asean Football Federation Cup.
The SEA Games is perhaps the most prominent event. Hosted bi-annually by Asean member countries in alphabetical order, the joint sports event has motivated the organising of other smaller-scale sports events and competitions, particularly in football.
Nevertheless, Asean as a community needs more than just regular routine events. It has to find other common grounds that will make the grouping relevant. Non-governmental organisations and groups representing civil society play a leading role in the search for unifying causes.
Take for example the Asean Civil Society Conference, which usually gathers representatives of NGOs from across Asean member states ahead of the annual regional leaders meeting.
Having been held nine times, the conference is deemed a “genuine” forum where the concerns of the region’s civil society groups are brought to the attention of the relevant heads of state. During the conference participants take part in a series of plenary sessions and workshops to discuss various regional issues and draft a “People’s Statement” that they will address to Asean leaders.
But the conference has never been free from attempts by the host government to intervene. The eighth conference in Phnom Penh last year saw the host Cambodian government and other Asean governments support a rival event called the Asean People’s Forum, as proven in the transfer of 30 Laotian delegates to the breakaway event.
To make matters worse, the management of the hotel where the Asean Civil Society Conference was held threatened to cut the power if the conference organisers went ahead with their plan to hold a workshop on human rights issues in Myanmar.
The latest conference in Bandar Seri Begawan, Brunei, in April was also marred by an unfortunate incident. Indonesian representative Yuyun Wahyuningrum was banned from addressing delegates at the event on the Asean vision on human rights, because she had earlier publicly criticised the Brunei government.
What appalled Yuyun and her fellow human rights workers was the fact that the initiative came not from the Brunei government, but the organising committee, which was made up of local civil society organisations. This “self-censorship” should not come as a surprise given the different norms and values in each member state.
Incidents that tainted the last two Asean people’s conference have only showed that the grouping has much work to do, so that these issues will not become a hindrance in establishing a people-centred Asean community envisioned in the Declaration of Asean Concord (Bali Concord II) in 2003.
In a wider perspective, the regional group’s commitment to democratic norms and protection of human rights enshrined in the Asean Charter in 2008 remains a question that has not been adequately addressed.
Indeed Asean comprises nations that are diverse in how they view citizens’ freedom and human rights. However, it is safe to say that until all the member states can see eye-to-eye on this issue, among others, Asean will remain an elite-centred organisation where those in places of authority or advantage will feel free to impose their will on the people.