If Indonesia joins Trans Pacific Partnership : between gain and loss

This article has previously been published on December, 3 2014 in the Malaysian Insider which aims to analyse Jokowi’s macro economy and foreign policy during his first year of presidency. However, this is also considerably a “lost” article as the Malaysian Insider, has just happened to shut down its website due to some controversial issues that yet to be settled. Hereby, I attached the article through Medium, simply to enshrine my memory that I have ever been the part of Malaysian Insider.

Last November that covered by two of the most prestigious high level summit — APEC and G20 — are considerably as the watershed of new century of Asia pivoted, which carving out political strain and foreign policy challenges in international relations at once has remarked the reputable position of Indonesia in international stage. Nonetheless, the well-turned performance of President Joko Widodo along with his ambitious maritime doctrine and infrastructure development was not fully the centerpiece at all.

In the sense of inherent weakness found among international institutions, bilateral, and regional become such ultimate alternative for free-trade oriented countries. In spite of the same world vision within a range of issues addressed initially by APEC members, the summit implicitly outlined the conflict of policy execution and compromising result between the existing power, United States and the new power, China — prompting the exclusiveness among APEC Summit attendants. While the Trans Pacific Partnership (TPP) initiated by US, excludes China on the negotiations, unbeaten China proposes the Free Trade Area of Asia Pacific as a response to US. The “retaliation” is likely to bring political tensions when China includes Russia and Iran, but exclude the US.

Both of them vividly would have profound implication for Indonesia’s sustainable prosperity, especially the most urgent, TPP, that predicted will enter into force within next year, whereas Indonesia is not the member of the free trade “alliance”. Hence, between the aspiration of Jokowi’s policy toward a productive economy and its reality, Indonesia precisely needs to determine its subtle position between the exclusiveness happening in this region and a strategy to deal with the largest economic piece of the Obama administration’s policy in Asia — the TPP.

Either within medium or long term, Indonesia must participate in TPP since it potentially would bring advantages for Indonesia’s market expansion and position in region. Firstly, TPP opens the access to the US market and those of other developed markets, comprising Canada, Australia, Japan, and New Zealand, while they are covering almost 40 percent of world GDP. Indeed, in 2015, North America is about to increase import levels up to six percent, particularly from Indonesia while TPP could be used as the basic framework to accommodate well, as it provides an improved legal and institutional framework for conducting trade and dispute settlement which sometimes could not be fulfilled mutually by international framework, for such World Trade Organization. The TPP also could be the complementary deal for Japan-Indonesia Economic Partnership Agreement (EPA) which signed in 2008 and US-Indonesia Comprehensive Partnership Agreement (CPA) launched by former President Yudhoyono and President Obama in 2010, with kind respect of Indonesia’s first and second largest trade partner.

Secondly, there are four other ASEAN member states, comprise Malaysia, Singapore, Vietnam, and Brunei, that are members of TPP and given them an opportunity of greater US market share. Two core points are precisely highlighted from this issue. First, Indonesia would inevitably be excluded in the regional games, while Vietnam’s gain largely might indicate Indonesia’s loss, considering how 40 percent of Indonesia’s premier export market is currently shared with Vietnam. Second, by joining of TPP, the four AMS are seemingly less enthusiastic with the upcoming establishment of ASEAN Economic Community (AEC). In doing so, Indonesia should indirectly involve in the progress of TPP, such as being the observer, in order to ensure the development of TPP would not be detrimental to the completion of effective AEC and Indonesia’s interest, at once observing the mutual benefits Indonesia could gain if joining TPP.

Thirdly, from the political view, the TPP underlines the long-term stability of partnership. Compared with the ongoing negotiation process of the Regional Comprehensive Economic Partnership (RCEP), consists of AMS, Australia, China, India, Japan, South Korea, and New Zealand, the effectiveness of TPP implementation is higher than RCEP, considering the historical context and political economy tensions among East Asia states — Japan, China, South Korea — would possibly impede the mutual partnership.

On the other hand, there are several points that must be alertly taken into account if Indonesia is likely to gain more advantages of joining TPP. First, each members of TPP are no doubt to bring their offensive interest on trade-off based on the competitive advantage they possess. Vietnam’s strongest interest is to get market expansion on textiles, apparel, and footwear in developed countries, while Japan has big intention to reduce its car import tariff in US, and Malaysia is ready to enlarge its automobile markets and eliminate the sensitive agricultural imports. In contrast, Indonesia is unlikely having the value-added competitive products yet, as well as neighbors have. During the 25th ASEAN Summit, Jokowi stressed out that he will not allow Indonesia itself to become merely a market. This statement is absolutely describing the undeniable state of Indonesia’s current consumer and indeed has to be quickly fixed out. As the world’s top ten largest economies, and the biggest market in Southeast Asia, supported with 70 million people raising as middle class consumer and 67 percent of GDP driven by consumption rate, Indonesia would hardly confront with free trade if it does simply act as recepient where inevitably would lead to an unproductive economy.

Second, TPP is seemingly associated with a “next generation” agreement while beside of tariff reduction, its scope includes intellectual property rights, services, and investments, state-owned enterprises reform, environmental protection, and labour reforms. These agendas are undoubtedly still perceived as hard challenges for emerging economies to deal with. For instead, pharmaceutical companies have emphasized that the TPP urges all countries to grant twelve years patents on prescription drugs with regard of their increment of profit by avoiding competition from cheaper generic versions. Moreover, tobacco companies are seeking to take control on largest exporters’ products and will use the TPP to prohibit developing countries, including Indonesia, one of largest cigarette exporters. Accordingly, it would danger Indonesia’s main trade commodities and domestic need on generic medicine.

The last but not least, Jokowi’s foreign policy of “No more thousand friends, zero enemy” is allowed to answer the recent situation but not always must be an obligatory. RCEP is still on negotiation process and AEC has not been strongly established, yet. Therefore, Indonesia’s soft approach in regional level is a necessity where it should remain as the main player in region to ensure the existing free-trade and upcoming ones meet Indonesia’s interest at large and regionally those agreements could be refining each other for the sake of better economic development.