I. Introduction As a result of the January 1992 ASEAN IV Summit in Singapore, ASEAN Free Trade Area (AFTA) was created to be institutionalized within 15 years or 2007. At the September 1994 AEMM (ASEAN Economic Ministerial Meeting), the timetable for the implementation of AFTA was to be speeded up to 10 years or 2003. In the last meeting in Chiang Mai, Thailand, it was agreed to implement AFTA scheme starting 2002. The idea of free trade zone for regional economy arrangements in countries of Southeast Asia has long been discussed since ASEAN Summit in Bali in 1976. One factor that pushed the formation of AFTA was to compete with growing phenomena of other economic regionalism such as EC (European Community) and NAFTA (North America Free Trade Arrangement). EC has long history since April 1948 when 17 Western European countries agreed to form OEEC (the Organization for European Economic Cooperation). Although OEEC later split into EEC (European Economic Community) in 1957 and EFTA (European Free Trade Association) in 1960, after the fall of communism in the late 1980s, in 1991 EEC and EFTA agreed to reintegrate into a special economic relationship and form EEA (European Economic Area). EC has now not only known as a free trade zone that imposes common tariffs or without tariffs among their country members but also has moved forward into economic and monetary integration. NAFTA, on the other hand, has been approved into effects in 1993 after long discussion among its country members: United States, Canada and Mexico. Goods are freely traded among its members but NAFTA still allows the members to impose some different tariff schemes for goods imported from other countries. II. Free Trade or Trade Restrictions? Interestingly, the growing economic regionalism in the late 1980s and the early 1990s has come along with internationalism or globalism. The 8th Round of Multinational Trade Negotiations which started in 1986 in Punta del Este, Uruguay, which is then known as the Uruguay Round, come to an end in December 1993. By April 1994, in Marakesh-Marocco, 117 country members of GATT (General Agreement on Tariff and Trade) agreed to sign the Final Act of Uruguay Round to replace GATT with WTO (World Trade Organization) in January 1995. GATT was established in 1947 and had greatly contributed to international free trade. WTO is viewed as the same legal and organizational standing as the IMF (International Monetary Fund) and the World Bank. As with the GATT, WTO is to further carry out the GATT principles for a more liberalized international trade.
However, it is still a great deal of controversy whether economic regionalim will be “the stumbling block” or “milestones” for international free trade. The first view argues that regionalism will distort efficient alllocation of international economic resources since it contains some sort of protectionistic rules against other non-member countries, while the second one believes that since regionalism is based on similar charaters of economic entities of its members, it is necessarily needed to form regional economic integration to further increase its members’ competitiveness as a step to gain more on regional trade before international competition. Therefore, to the second opinion, regionalism is a necessary policy not only to benefit its country members but also to increase trade competitiveness among all players in international economy.
The rise and decline of trade restrictions, whether in a country, regional or international context, are generally the result of ploicy debates toward either end: free trade or protectionism. Unilateral, bilateral or multilateral policy can pursue to the one of the other end. Most trade policy come from the demand from a country’ econonomic condition or social needs such as reducing high unemployment, increasing economic growth, protecting infant industries or pursuing other development objectives. Interesting enough, the demand for restrictive policies have been redefined as a policy of fair trade. The term of “fairness” is generally defined in favor of domestic interests of a country against unfair or unbalance trade practices from foreign partners. For many economists, free trade is the best policy available. It helps a national economy as well as international development. It is believed to benefit more people, allocate scarce resources more efficiently, and in the long run, lead to optimal outcomes with greater competition and greater productivity of the world. Trade treaties are unlikely to provide national gains or to enhance the optimal pursuit of national interests. Many advocates of free trade believe that the gains from trade lie in the price difference of trading partners, regardless of whatever economic forces contribute to the formation of those prices.
III. AFTA, Regional and International Competition If regionalism such as AFTA, NAFTA or EC is considered a step further for free trade era in international competition, the result of such regional economic integration should be for increasing gains for all country members or all trading partners. One question remains such from the principles of GATT’s safeguard mechanism (Article XIX of GATT which was also adopted into WTO) which allows a country to exercise trade policy in case of what so called of “market disruption.” This market disruption is describes as: (1) a sharp and substantial increase or potential increase of imports of particular products from particular siurces; (2) these products are offered at prices which are substantially below tose prevailing for similar goods of comparable quality in the market of importing countries; (3) there is a serious damage to domestic producers or threat thereof; (4) those price differentials do not arise from governmental intervention in fixing or formation of prices or from dumping practices.
Although WTO adopts GATT rules of most-favored nation and of nondisciminatory, which should be also adopted by AFTA or AFTA’s country members, the practices of making price differentials could still come from other sources rather than tariff differentials. At the day of implementation and after, AFTA has agreed to have common tariffs of zero to five percents on imported goods among their members, which are called CEPT (Common Effective Prefential Tarrifs) for products that have minimal 40 percent of local content. Indonesia currently has an average of about 30 percent tariff schemes compared to Singapore which has about 5 percent. These existing tariff differentials make some Indonesian businessmen to worry about possibility of heavy structural adjustment on industrial sectors in Indonesia. As announced by Indonesian Chambers of Commerce (KADIN) in February 2001, they need another adjutment period for AFTA implementation until 2005. Commission V of House of Representatives (DPR) has also supported the position of KADIN. Interentingly, Malaysia is also need another adjustment for their automotive industry while Thailand for its agricultural sector.
Some other arguments that have been announced to postpone AFTA implementation such as: (1) Indonesia is a slow start for economic recovery after 4 long years of multidimensional crisis while other ASEAN countries have started to recover since 1999; (2) Industrial restructring process is also affected by the crisis; (3) Rupiah has been very volitile in foreign exhange markets and only gain some sort of strength after new government elected in Juli 2001; (4) Labor parctices that might increase rate of unemployment in Indonsia that is already too high. Interestingly, although there is some anxiety feeling regarding the impact of AFTA implementation, ASEAN intra-trade using AFTA-CEPT schemes, according to trade data of 2000, is still only 2.21 percent of total intra-trade among ASEAN countries. Where imports in intra-trade of ASEAN was US$22.413 billion but those using CEPT only account for US$ 495 million, which was 2.21 percent. Of all those imported goods, 90 percent had been in inclusion list of the CEPT schemes.
Whether the Government of Indonesia will follow this argument to delay the implementation of AFTA or part of it, the process of economic liberalization seem to be unavoidable for Indonesia. Free trade has gained its own pace over trade restrictions. Each industrial sector has no choice to start thinking and make some fast adjustment on their own track. Oil and gas industry is also not excluded. To stay competitive in domestic, regional or international competition, industrial sectors in Indonesia have to be more efficient such as using cost leadership strategy or more differentiated in product development to seek new opportunity in a more free market mechamnism.
IV. AFTA and Petroleum Industry Petroleum industry has been playing a significant role in Indonesia economy. Revenue from this industry has contributed significantly to the development of Indonesia. Some products or activities from this industry will be affected by AFTA for some reasons: (1) Imported goods which included in inclusion list will be cheaper when come from other ASEAN countries, however imported goods from other than ASEAN countries will face the same cost structure as before; (2) It remains a question especially in the era of decentralization in Indonesia, some petroleum industries that located in a certain region of Indonesia might be also affected by local law; (3) the industry might also affected by internationally environmental activists that might also proliferate into local or national movement; (4) to the global schemes, petroleum industry will also affected by standardized labor practices that gain more supporters internationally.
Finally, as with other industry, petroleum industry will also be subject to national interests. It will be very clear that the government of Indonesia will pursue the policy that produce more benefit to the development of Indonesia. Although the role of the industry is still significant in Indonesian economy, the increase in contribution of other sectors to the national income will have further effects of changing policy on the industry in the future.
PhD in International Economics from Oklahoma State University, OK, USA and Director Institute for Transformation Studies (Intrans), Jakarta.
