Asean-China Fta and the Impact on Indonesian Manufacturing Industry

Abstract

In November 2002, ASEAN and China signed a Free Trade Area (FTA) agreement. Before 2002, there was an estimation that both regions would gain from FTA deals. However, the rapid growth of China since the early 1990s had caused trade and investment diversions to ASEAN. The strong competition between the regions in the international commodity market and productive foreign capital has produced a great deal of stress within ASEAN economies. The economic stress is largely attributed to the structure and similarity of production and exports of ASEAN and China. Theoretically only countries that have the lowest cost of production will gain in trading. Today, nearly 14 years after the agreement was signed, the picture of competitiveness in the commodity market should show a new trend of competitiveness. With respect to Indonesia, the Business Chamber of Commerce Indonesia (KADIN) and industrialists, had complained that the ACFTA actually caused losses to local manufacturers and businesses, in particular consumer goods products such as textile and clothing, and electrical and electronics sectors. This paper investigates the impacts of the ACFTA on the Indonesian manufacturing sector. For the investigation this paper employs various trade performances indices such as revealed comparative advantage, intra-industry trade, and the Hillman index.

RCA Analysis With Selected Product: Modified Approach Applied to Indonesian Export

“…The result has often been stated in various publications, which stated that Indonesian exports have comparative advantages in primary resource sector (agriculture and raw material) and labor-intensive manufacturing (DFAT-Australia, 2003;Nguyen, Pham & Vallee, 2017). In modern industries such as electronics, mechanical machinery, and vehicle (transportation) there are comparative disadvantages (Aslam, 2018). Conversely, World Bank (2012) with reference to export value assessed that Indonesia's automotive export was well, but the comparative advantages were not reflected in the RCA value.…”

“…However, since 2001, the electronics (HS code 85), machinery (HS code 84) and vehicle sectors (HS code 87) experienced anomaly. With the top 10 in terms of export value, these three sectors contributed to the exportation of revenues around 10-17% in 2001 -2017, but RCA for the electronics ranged 0.24 to 0.39, machinery, 0.67 to 1.17 (twelve years including RCA <1) and vehicle sectors 1.12 to 5.25 respectively (World Bank 2012;Riandi & Pratomo, 2017;Aslam, 2018;Tampubolon, 2019). This finding is counter intuitive with the theory stated above, where export value should be derived from commodities with RCA greater than 1, in addition to the fact that in some provinces manufacture sector had better influence on local economy (Kresnowati, Ananda & Khusaini, 2016).…”

Technological intensity in manufacturing trade between ASEAN and the EU: challenges and opportunities

“…Other research corroborates the importance in trade gains of having complementarity of trade patterns before FTA is accomplished. Thus, Aslam (2012) stated that in the wake of the China-ASEAN FTA signed in 2002, expectations about possible trade gains in the manufacturing sector were low mainly due to low degree of complementarity in their international trade patterns. On the other hand, the FTA signed between Australia, New Zealand, and ASEAN is more likely to generate trade creation than trade diversion due among other reasons to complementary in trade patterns (Bano et al 2013).…”

Import demand potential for Indonesian rubber products in ASEAN countries

“…Regulations for eliminating regional market barriers, such as the ASEAN-China Free Trade Area Agreement (ACFTA) have had a negative impact, namely the suppression of Indonesian rubber products in the regional markets of ASEAN countries. Aslam (2018) analyzed the impact of ACFTA on the Indonesian manufacturing sector. Indonesia-China trade is a primary commodity-finished product relationship; namely, Indonesia produces and exports primary commodities to China and imports manufactured goods from China.…”