TPP Trade Deal a Long Way Off for Indonesia

Although Indonesian President Joko Widodo on Oct. 26 told US President Barack Obama that Indonesia plans to join the omnibus Trans-Pacific Partnership that the US has forged with 12 Pacific Rim nations, qualifying for the deal and overcoming domestic political opposition will both be major hurdles.

Already, former President Susilo Bambang Yudhoyono and the opposition Great Indonesia Movement Party (Gerindra), chaired by Prabowo Subianto, Jokowi’s rival in last year’s presidential election, have criticized the president’s decision to go ahead with the TPP, as the trade pact is known.

The initial impact of Jokowi's surprise pledge, however, is to set a tone of wanting a more open economy, which in itself is seen by observers as a positive step in the face of years of economic nationalism. Joining the next round of talks on the TPP will be at least two years away, officials say.

“If they start now, I would imagine it is going to take two to three years of hard work to unwind some of the protectionism enough to make a serious bid to join the TPP,” Lin Neumann, the managing director of the American Chamber of Commerce in Indonesia, told the Center for Strategic and International Studies in a recent interview.

Part of that work will be political and Jokowi has made some progress against a once-fearsome opposition coalition in the legislature engineered by Gerindra after the July 2014 election. The Golkar Party, the largest member of that coalition, this week announced its support for the administration.

As Jokowi’s presidency has worn on, he has steadily peeled off other parties and continued to accrue power. He has faced down some of the moves by his troublesome patron, Megawati Sukarnoputri, the head of his Indonesian Democratic Party of Struggle (PDI-P), but he doesn’t dominate the party structure by any means.

Trade deal

Although the planning for the TPP began under the administration of George W. Bush, Obama has made the pact a central goal of his presidency, which ends in late 2016. The administration hopes for a vote on the deal before Obama leaves office, which may be tough.

Hillary Clinton, the leading Democratic candidate to take over, has withdrawn her support for it. A loose amalgam of opponents including organized labor, environmentalists and various advocacy groups have protested against the treaty, partly because of the huge scope, clauses on patents and other issues that appear to protect vested interests and the secrecy under which it was drafted.

The agreement, which must be ratified by the legislatures of the 12 member states, faces tough sailing in many of them because it not only does away with tariffs but it contains other provisions that threaten the way many governments do business including steering government contracts to favored interests. The 12 countries are Brunei, Chile, New Zealand, Singapore, Australia, Canada, Japan, Vietnam, Malaysia, Mexico, Peru and the United States.

Chapter 15 of the document, according to an analysis by the office of the United States Special Trade Representative, says that “TPP parties share an interest in accessing each other’s large government procurement markets through transparent, predictable, and non-discriminatory rules.”

Individual governments must make project specifications public in a timely manner to allow sufficient time for suppliers to obtain tender documents and to submit bids. That gives governments all the way around the Pacific Rim the opportunity to bid on each other’s infrastructure and other government contracts.

In Indonesia, insider deals that favor powerful state-owned enterprises and crony conglomerates are just one of many obstacles to meeting the pact's provisions. For that reason among others, the Washington announcement was a closely guarded secret until it was made.

Virtually since he was elected, Jokowi has been facing serious headwinds from vested interests that have both economic and philosophical ties to the doctrine of economic nationalism, believing the country should protect favored local industries including banking, mining, telecommunications and other sectors.

Hold the world at bay

Yudhoyono and his economic advisers were at the forefront of that move, implementing a range of policies that inhibited trade and threatened the economy, including new regulations on horticultural imports, imports of finished goods and exports of mining commodities. The measures continued under Jokowi, resulting in a sinking rupiah and a slowing economy.

Jokowi in the past three months has started to assert himself, firing protectionist members of his cabinet and replacing them with export-oriented ones like free-market disciple Thomas Lembong in the trade minister's post.

Jokowi also personally negotiated a deal with the Freeport McMoRan mining company to extend the contract for its gigantic Grasberg mine, the biggest producer of copper in the world and the second biggest producer of gold. Key officials in his own government opposed the deal supposedly on nationalist grounds but also seemingly to seek a piece of the Freeport pie for themselves.

As president, Jokowi initially showed little interest in joining the TPP. Under Lembong's urging, he changed course but he will have to get the country to follow him.

Last week, in a series of tweets sent after the announcement in Washington, Yudhoyono warned that “If Indonesia is not ready and is forced to enter the TPP, then our nation will suffer. Such is the ‘law of globalization.’” He added that Indonesia’s market could be “flooded with goods and services from other countries, while our exports will fail to be competitive abroad.”

Competition looms

Three of the Asean countries that signed up to the TPP – Malaysia, Singapore and Vietnam – are export oriented, while Indonesia is not, he said, depending instead on its large domestic market – a market that would be more open under the TPP. Lembong, for his part, argues that Indonesia has to compete or lose out to its neighbors especially fast-growing Vietnam. He tells audiences that protectionism will guarantee mediocrity for the country.

There have been additional concerns from Indonesia’s cozy business community and political establishment. The Democratic Party, which Yudhoyono founded, has warned that the country isn’t ready to face international competition, citing inadequate infrastructure and other issues. .

“Are Indonesians and the national economy really ready for this?” asked Edhie Baskoro Yudhoyono, the former president’s politician son. “How about our domestic infrastructure? Has the government asked for the public’s opinion, especially those involved in the national economy, about the possible impact of the TPP on Indonesia in the future?”

Fadli Zon, deputy chairman of Gerindra and deputy speaker of the House of Representatives, said the TPP would only benefit Indonesia “if we had competitive businesses.”

Jokowi's government has made improving infrastructure and education key priorities but the country needs foreign investment to fund the drive, officials say.

Economist Lana Soelistianingsih of the University of Indonesia told the Jakarta Globe last week, "Countries with manufacturing-based exports will be able to perform better in this partnership.”

Against those concerns, some economists say the pact would open markets in South America and other regions to Indonesia’s exports, which are dominated by coal, palm oil and natural gas.

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