FTAs in Asia - The Indonesian perspective

Indonesia's Trade Minister, Dr Marie Pangestu, spoke to our department yesterday on the impact of proliferating FTAs in Asia. As a former trade economics academic (undergrad at ANU) she was impressively across her brief.

Points of interest follow:

- Distinct contrast between her views of FTAs as an academic (the product of "bureaucratic entrepreneurs") and as a practitioner (a necessary step in the absence of multilateral movement). RTAs are here to stay and will continue to proliferate. Indonesia late to the game but negotiating bilateally and with ASEAN with China, Korea, Japan, India, Aust/NZ, Europe. No likelihood of EFTA negotiations except as a "practice FTA" - resources too stretched already.
- But concerned at the 'spagetti bowl' effect of proliferating trade agreements in Asia (trade diverting and distorting). Keen to focus ASEAN on common negotiations and harmonisation of tariffs across FTAs.
- Need to focus on FTAs that facilitate market forces not increase business cost. Prefer FTAs that include multiple members - sliding scale of usefulness from multilateral through regional/ plurilateral to bilateral.
- Keen on APEC guidelines on FTA best practise - perhaps the WTO should accept FTA reality an focus energies on ensuring they are not trade damaging.
- Prospect of an APEC FTA limited. US keen, Australia "largely supportive", Asia less interested. Too many different economies to easily harmonise. Prospect of an APEC FTA not likely to be effective as a tool to encourage EU to give more in the Doha round (apparently the threat of APEC pushed the EU to the line in the Uruguay round....)
- Strongly pushing ASEAN's 2015 Blueprint for liberalisation in flows of trade, capital, investment, services and labour.
- ASEAN insisting on capacity building clauses in all new FTAs (Indonesia particularly seeking assistance on SPS issues - EU rule changes on shrimps challenging). Negotiating capacity of DCs stretched by concurrent FTAs. Also in some agreements seeking undertakings on increased investment as well as lower tariffs (Japan).
- Rules of origin have been an issue in some FTA negotiations (India) but not others (China).
- On the shape of regional integration, likely to begin with ASEAN, and ASEAN + 1 as a priority, then ASEAN + 3 and ASEAN + 6.
- No sensible talk of common regional currency - would require macro-coordination. Need to follow sequence of trade>macro-economic>monetary integration. In the meantime financial market coordination is important.
- On Indonesia specifically, noted the presence of reformist and non-reformist strands in parliament and public. Decentralisation of power a challenge to the implementation of common fees etc - direct election of governors will help. Anti-corruption drive making some gains but needs to filter down from islands of best practise - people need to 'own the issue'. Investment Law was more contested within parliament than public (contrary to expectations). Biggest challenge in reform is selling the message to the public - need subsidies to ease pain of adjustment. Some sectors must be protected (rice).
- On movement in the Doha Round she said she's moved from "suspended pessimism to cautious optimism" after Davos.
- Initiatives on south-south trade unlikely to extend beyond Asia, although Africa a prospect after discussions with South Africa - will not be PTAs - they don't work.
- Keen for academic research into design of 'good' FTAs.