REPOSITIONING INDONESIA IN ASIA-PACIFIC LIBERALIZATION

The 24th Asia-Pacific Economic Cooperation (APEC) Economic Leaders’ Meeting in Lima, Peru, last week discussed several key issues related to the Asia-Pacific region, especially economic growth and human development, climate change, free trade and investment, as well as real and functional connectivity in the region.

Specifically, with respect to investment and free trade, there is one issue that needs special attention. This is the ambitious APEC plan to achieve a mega-regional free trade agreement, or the Free Trade Area of the Asia-Pacific (FTAAP).

It is astonishing that the FTAAP initiative has not captured sufficient Indonesian media coverage and government scrutiny. This article intends to reveal the main things that need to be carefully observed in the FTAAP plans, as well as to provide recommendations in regard to the continuation of the process in the context of APEC.

The exposure to FTAAP is expected not only to be significant to the government, as a forerunner in the process of negotiation, but also to all interested parties, largely business communities who will unswervingly feel the impact of FTAAP.

The FTAAP discourse basically started in 2006. Further emphasis has also been put in place with the issuance of a document entitled “Pathways to FTAAP” in 2010 by APEC Leaders. This document undoubtedly mandated APEC take immediate steps to comprehend the realization of FTAAP. However, since 2014, up to the current 24th APEC Economic Leaders’ Meeting, APEC has taken different approaches to pursuing FTAAP.

The APEC leaders are in agreement that FTAAP will only be comprehensive by relying on the outcomes of other free trade agreements that already exist or are in progress. In particular, the APEC leaders referred to the continuation of the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP).

Thus, it is currently clear that FTAAP will depend heavily on the development and conclusion of other mega-regional agreements, namely RCEP and TPP. APEC leaders have agreed that the process of forming FTAAP would be in parallel, outside the formal APEC process, to maintain the non-binding organizational commitment of the organization.

RCEP is well known, it is the proposed free trade agreement between ASEAN member states (AMS) and six countries with which ASEAN has existing free trade agreements (Australia, China, India, Japan, South Korea and New Zealand). Meanwhile, often seen as an alternative to RCEP, TPP is expected to be a megatrade agreement among twelve Pacific Rim countries, excluding China.

If we look at the current stance of APEC leaders toward FTAAP, namely relying on the outcome of other free trade agreements, perhaps one can jump to the conclusion that there should be nothing to worry about as it may just be a type of continuation. However, here lie the real hitches. There are major things that we need to look at more deeply. First, the political bias in FTAAP will depend on the stance of the United States in TPP, or China’s stance, along with other major East Asian countries, in RCEP. It is perhaps not a secret nowadays that the US is actively steering and leads TPP negotiations. Apart from the expected protectionism policy to be adopted by the US after Donald Trump’s victory in the US presidential election, currently the TPP is being coordinated by the US. The outcome of TPP negotiations will heavily depend on US leadership.

Meanwhile, China is the dominant state in RCEP. China has even explicitly reiterated its plan to make RCEP the main basis for the continuation of FTAAP. Indonesia, in turn, must take careful steps to provide its stance on RCEP and TPP, especially if the issues include providing wider market access to foreign goods. This is mainly because Indonesia’s stance on RCEP and TPP will then be carried forward as the basis for its commitment in FTAAP.

It will demonstrate Indonesia’s foreign policy tendencies, as well as its trade-bloc preferences in establishing economic integration with the rest of the world. It is also important to note the current circumstance that Indonesia has been officially involved in RCEP negotiations. Meanwhile, Indonesia is still undetermined and prefers to “wait and see” on the TPP continuation.

Second, by relying on the development and outcome of other free trade agreements, FTAAP is undoubtedly expecting to apply the principles of greater market access from pre-existing commitments, or previous commitments in other free trade agreements.

This means that whatever market access liberalization that Indonesia commits to in RCEP or TPP, it is almost certain that FTAAP will expect more liberalized access.

For instance, the restriction on foreign ownership in the banking industry is currently only 40 percent and, say, this was finally cemented in RCEP or TPP. Then, it is logical to expect FTAAP would put excessive pressure on Indonesia to give a greater commitment of more than 40 percent. This might be a very simple depiction of the real negotiation process that will take place in the future, taking into account that liberalization negotiations will be much more complex and involve sectors in aggregate. Nevertheless, rest assured that there will be sectors that will be harmed in negotiations.

APEC’s strategy in smoothing FTAAP by waiting for the formal development and outcomes of more liberalized negotiations is certainly an outstanding example. From the Indonesian standpoint, we need to look at this cautiously, as do business communities who have the biggest interest in transparent market access.

While FTAAP is currently still at an early stage and has not begun its formal process, all can virtually be negotiated from the outset. Given the active involvement of Indonesia in APEC and the improvements in Indonesia’s diplomacy in various international forums, such as ASEAN and the G20, we expect Indonesia will demonstrate its ability to lead the Asia-Pacific negotiation process for economic integration and liberalization.

 

The writer Chandra Kusuma has been a member of Indonesian delegations for a number of negotiations on trade liberalization agreement frameworks, and is currently a PhD candidate in political science and international Studies at the University of Queensland, Brisbane, Australia.