Trans-Pacific Partnership & Indonesia: Unclear Future

The Trans-Pacific Partnership (TPP) is a free trade that was signed in October 2015 after five tough years of negotiations. Currently, the TPP consists of 12 nations, including the USA and Japan, which together are estimated to cover 40 percent of world trade. By lowering tariffs for a wide variety of products (hence liberalizing trade to a high degree) global trade is expected to get a boost through this free trade deal. Other side effects would be rising job creation and innovation, productivity and competitiveness, while poverty reduces, and transparency as well as good governance is promoted. It is also believed the TPP was designed to form a counterbalance to the large economic influence of China.

Indonesia did not join (yet) as policy makers are divided about the impact on the Indonesian economy. Supporters say joining the deal would make the Indonesian economy more efficient (as Indonesia will need to improve measures to combat bureaucracy, improve the business climate as well as the standard of products), while Indonesian exports become more competitive due to the scrapping of various tariffs between member nations.

Critics, however, fear Indonesia merely becomes a lucrative export destination for the more competitive economies, particularly because Indonesia (with a population that numbers over 255 million consumers and includes a rapidly growing middle class segment) has a big consumer force. For example, after the ASEAN-China Free Trade Agreement (ACFTA) came into effect in early 2010, Indonesia's trade deficit with China had doubled within one year. The main problems are that Indonesia's manufacturing sector lacks competitiveness, logistics costs are high across the nation (because of weak infrastructure development), while the country remains heavily dependent on commodity exports.

Airlangga Hartanto, the Indonesian Minister of Industry, is a supporter of Indonesia joining the TPP. He believes direct investment into Indonesia will grow as the country becomes an attractive production hub for exporters due to the zero export tariffs to member nations. For example, Japanese manufacturers will be interested to develop production facilities in Indonesia as they will be able to enjoy cheap gas prices (hence lower production costs compared to costs in the home country) and then can export the output at attractive rates to TPP member nations.

He added that by not having joined the TPP Indonesia's competitiveness in fact weakened. For example, Vietnam (one of the TPP members) can export products at attractive rates to the USA, while Indonesian exporters are plagued by import tariffs, hence Indonesian products are about 10 percent more expensive on the US market compared to Vietnamese counterparts.

"We will wait and see whether Trump will have the USA leave the TPP deal. Usually there is a difference between speech during campaigning and action after being elected. Therefore we will simply have to wait," Hartanto said.

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