With the upcoming 15th round of negotiations of the Trans-Partnership Partnership Agreement (TPP) in New Zealand in December this year, the TPP and its potential impact on Indonesia’s economy has received little attention in Indonesia. The free trade agreement could put Indonesia
at a regional disadvantage if it does not participate in the agreement, or it could be detrimental to local businesses if it did. This puts Indonesia in the peculiar dilemma of choosing between seemingly two evils. At least that seemed to be the outcome of a video conference between experts in Indonesia and Singapore on the TPP organized by the Bakrie Center Foundation, Universitas Bakrie and S. Rajaratnam School of International Studies.
A trade pact initially signed by the four countries, Singapore, New Zeeland, Chile, and Brunei, has grown to 11 countries including the world’s largest economy, the USA, and four ASEAN countries. The TPP has been touted as “a 21st century" agreement that covers cross cutting issues not always found in free trade agreements. This includes not just trade in goods, services and investment, but also intellectual property rights, government procurement, labor, environment, regulations, and small and medium enterprises.
A look at the Indonesia’s top ten trade partners indicates that four out of the top ten are in the TPP while two other major trading partners, Japan and South Korea, have expressed interest in the TPP.Two additional ASEAN members, Thailand and Philippines, have also expressed interest in the TPP.Would this effect Indonesia’s economic position if several of its major trading partners and neighboring countries are part of the TPP while Indonesia is not? It would indeed pose a serious challenge to Indonesia’s economy, according to Deborah Elms from RSIS. She claimed that by not participating in the TPP, while its neighboring countries are, Indonesia would face the risk of trade diversion. Companies abroad looking to set up shop in South East Asia would prefer countries that are signatory to the TPP, and Indonesia not being part of the TPP would put its economy at a potential disadvantage.
So far Indonesia’s response to join the TPP has been one of reluctance. Rightfully so, according to Dr. Makarim Wibisono, the Executive Director of the ASEAN Foundation and a former senior Indonesian diplomat experienced in trade negotiations. He made it clear that the problem for Indonesia is not the lack of FTA initiatives, but the very opposite. There are simply too many of them, which is resulting in a “noodle soup of FTA Initiatives”. This very noodle soup requires careful assessment by the Indonesian government to seek an FTA agreement that is in the interest of Indonesia’s economic development. The current TPP negotiations exclude China, India, Russia and other major emerging economies. Indonesia sees this lack of emerging economies engagement in the TPP as a missed opportunity. Because of this lack of engagement, the TPP is also viewed as a rival to ASEAN-driven regional trade agreements in which Indonesia’s major trading partner China is included. Rodolfo Severino, Head of the ASEAN studies Center and former ASEAN Secretary General, added that the TPP may also cause an undesirable division within the ASEAN community currently attempting to fortify its regional bond. It would be more effective to negotiate free trade agreements from a common ASEAN interest, and include the major regional economies.
Nevertheless, the quantity of FTA initiatives launched in the Asia-Pacific region, some of which seem to be responding directly to the challenge of the TPP, clearly indicates a continuing strong appetite for FTAs.