Wednesday, 21 October 2015

Trans-Pacific Partnership: Indonesia's lost opportunity?

The Jakarta Post
Published: October 20, 2015 08:11 PM

On September 5, negotiators from 12 countries in the Pacific Rim agreed to a trade agreement known as the Trans-Pacific Partnership (TPP). Although a free trade agreement, it also covers a wide range of issues beyond trade, such as investment, government procurement and intellectual property rights.

The agreement can be influential to world trade, as the economy of its 12 member countries accounts for around 11 per cent of the world population and 37 per cent of the global economy.

These 12 countries are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States.

The pact promises to usher in closer economic relations between members and become a benchmark for future trade deals.

Although Indonesia has at times expressed interest, it has never been a part of the negotiations. And unlike Japan, neither did it join at later negotiating stages. Indonesia is paying a price for excluding itself from the TPP.

First is the lost chance to shape the agreement. The TPP is an open-accession agreement; countries can join it later on. Given its benefits, Indonesia has expressed interest in joining the TPP on separate occasions. But countries that do will not be able to shape the agreed provisions.

By not being a member since the TPP's inception, Indonesia deprived itself of the ability to mold the provisions according to its national interests. For example, there are reports that some countries were pushing for provisions that afford 12 years of data exclusivity for pharmaceutical patent holders.

As a developing country, Indonesia has an interest to lower this data exclusivity period in order to produce cheaper generic drugs for its populace. Indonesia lost the opportunity to influence this provision by not becoming a TPP negotiating member.

Second is the potential trade diversion from the agreement. A free trade agreement tends to increase trade between members, called trade creation. Conversely, it tends to decrease trade between members and non-members, called trade diversion.

The threat of trade diversion looms especially large between countries of similar profile in their export products. Indonesia, Malaysia and Vietnam are exporters of manufactured goods, such as textiles, automotive parts, tires and electronics.

With Vietnam and Malaysia being members of TPP, producers of such manufactured goods there will gain preferential tariffs and better access to markets in the US and Japan. Better access translates to more orders and production.

Such a threat to textile exports is especially alarming, as the US textile market is the largest for Indonesian exporters, accounting for 36 per cent in 2014, according to data from the Indonesian Textile Association.

By being excluded from the TPP, Indonesia's manufacturing exports might stagnate and lose out to its peers in Vietnam and Malaysia. This also runs contrary to the goal of President Joko "Jokowi" Widodo to reorient Indonesia's exports from commodities to manufactured goods.

Considering the price Indonesia is paying, one might wonder why the government was not a TPP negotiating member. The perception that Indonesia 'is not ready' is often cited as the reason. TPP will require high standards in areas such as trade in services, intellectual property rights, government procurement and investor-state dispute settlement.

Yet this argument can be easily reversed. The TPP can be used as an impetus for furthering Indonesia's domestic reforms. It can be used as an opportunity to accelerate Indonesia's service liberalization, strengthen its intellectual property rights regime, ensure efficiency and transparency in government procurement and spur much-needed foreign investment.

The recent announcement by Trade Minister Thomas Trikasih Lembong that the country could join the pact in the next two years is welcome news.

However, as explained in the first point above, Indonesia has lost the opportunity to shape the agreement. This calls for the government to pay attention to the timing of entering a pact and its negotiations.

Yet, on the second point, the government can still prevent Vietnam and Malaysia from grabbing Indonesia's market share in the US by joining the agreement. Indonesia could still reap the benefits from the TPP. — The Jakarta Post

* The writer is a researcher at the Centre for Strategic and International Studies in Jakarta.

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