Jakarta – With the World Trade Organization (WTO) negotiations on freer trade of non-agricultural products to be finalized in April, local industries must immediately make preparations to compete with future increases in imported products, business players have said.
A recent study by business associations reveals that the petrochemical, automotive, metal and machinery industries would be the most affected by the gradual decrease of import duties proposed in the WTO.
"With lower import duties of the products, more competitive goods from abroad would affect our manufacturing sector," Ministry of Industry director-general for automotive, information and communications technology Budi Darmadi said last week.
Late last year, a ministerial meeting on WTO non-agricultural market access in Hong Kong agreed that member countries would adopt a statistical scheme to gradually lower import duties that would lead to freer markets.
According to the scheme known as the Swiss formula, Indonesian petrochemical, automotive, metal and machinery products currently being protected from foreign competition with import duties of more than 20 percent would in the future have to compete with soaring imports as the duties would be cut by half.
Th non-governmental organization Third World Network has previously warned that the adoption of the Swiss formula could hurt developing countries' manufacturing sectors.
The automotive industry here, where current import duties on completely built up (CBU) products ranged between 35 percent to 70 percent, would see an increase in imports that might hurt locally producing companies.
Last year, Indonesia imported some 75,000 CBU cars from other South East Asean countries and another 15,000 from countries outside the region. Domestic automotive industries meanwhile produced 530,000 cars last year, of which most of the components were still imported.
Business players have previously stated their concern that lower import duties for CBU cars and higher component tariffs would lead to less domestic manufacturing – and less job opportunities – because it would be more economically beneficial to import.
"We have to quickly strengthen our automotive component industry if we do not want to lose the market," Budi said.
He said the country needed more engineers in order to support a solid component industry. "We are still far behind Taiwan and China." Meanwhile, for the petrochemical industry, the most important agenda is for the government to revise its import duty policy.
"Raw materials are supposed to have lower import duties so that the processing companies could develop well," Indonesian Plastic Producers Association (Inaplast) chairman Didik Suwondo said.
Didik said that the current trend showed that at least 15 percent of plastic producers were now switching to importing goods instead of manufacturing them in the country. This, once again, led to several companies shutting down operations and more workers losing their jobs.
In order to survive a freer trade environment after the full adoption of the WTO negotiation, the government must create a different pricing mechanism for products with high competitiveness, Didik said. "Business associations should think more about what strategies could be adopted," he said.
The Indonesian Chamber of Commerce and Industry (Kadin) will hold several meetings with associations as early as next week to discuss recommendations they will make to Indonesia's WTO negotiators.