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Indonesia in a Reforming World Economy: Effects on Agriculture, Trade and the Environment.

by | 20-11-2016 15:06 recommendations 0

Indonesia is facing commitments to international trade liberalisation  through the Uruguay Round, its participation in Asia Pacific Economic Cooperation (APEC), and its collaborative effort with other ASEAN economies to form an ASEAN Free Trade Area (AFTA). As part of the Uruguay Round commitment, Indonesia has been reducing its border tariffs, opening its markets, as well as reducing other domestic distortions especially in the agricultural sector.  As a member of APEC, Indonesia is determined to liberalise trade and investment in the Asia Pacific region. In the meeting in Bogor,  Indonesia, in 1994, APEC economies set the long-term goal of free  and open trade and investment in the Asia Pacific. The Bogor  Declaration hopes to realize the goal in 2010 for developed  economies and 2020 for developing economies. Furthermore, the Bogor meeting clarified the three pillars on which APEC would be based, namely, Trade and Investment Liberalisation and Facilitation (TILF) Economic and Technical Cooperation (ECOTECH) and Development Cooperation. Import tariffs have been cut unilaterally in APEC member economies, and further tariff cuts are expected so  as to implement the Bogor goal. While considerable industrial tariff reduction has been implemented in APEC, there has not been much discussion of agricultural hiberalisation. This is different from the Uruguay Round which explicitly specifies reductions of import tariffs, domestic subsidies, and export subsidies on agricultural commodities. In APEC, the tariff reduction measure is generally based on the average level of  tariff. This means that sectoral classifications become less relevant. It  was only more recently that the sectoral approach to tariff reduction, the so called Early Voluntary Sectoral Liberalisation (EVSL), was set  out in the Vancouver meeting in 1997. However, in the following year in Kuala Lumpur, there was a disagreement among APEC member economies on the liberalisation of some sensitive agricultural sectors. As a result, APEC had to submit its EVSL  problems to the WTO for resolution. Clearly agriculture remains a sensitive sector within APEC. As a member of Association of Southeast Asian Nations (ASEAN), Indonesia is also committed to form a free trade area in ASEAN (AFTA) in 2003. Different from the most-favoured-nation schemes in APEC and the Uruguay Round, AFTA is meant to create a discriminatory trading block in ASEAN. While in general the coverage of AFTA includes both the agricultural and non-agricultural sectors, the progress of agricultural trade liberalisation has been very slow. It remains to be seen whether AFTA can be fully implemented in 2003.  This chapter estimates the impacts of Uruguay Round, APEC and AFTA trade liberalisations on the economies in the Asia-Pacific region in general, as well as specifically on Indonesia, by using a quantitative economic model. The objective is to measure the potential gains or losses, and to predict the changing trade patterns and resource reallocation as a result of these liberalisation schemes. The focus is on Indonesia even though the model treats Indonesia as  part of an interdependent world economy. This study compares the impact of each scenario on welfare, output, and resource allocation in the Indonesian economy. It uses a global Computable General Equilibrium (CGE) model known as GTAP The results show that broader the country participation, the wider  the sectoral coverage, and the greater the tariff reductions, the larger  are the welfare benefits of trade liberalisation. The welfare gain for  Indonesia as a result of participating in the Uruguay Round is estimated at about US$3.3 billion per year. The aggregate gain for  the five large ASEAN countries is US$13.6 billion. AFTA does not contribute much to the welfare gains over and above what has been achieved by the Uruguay Round, even for the ASEAN member economies who get an additional welfare gain of just US$270 million on top of the gains from the Uruguay Round. Indonesia would get an additional benefit of US$50 million from the  implementation of AFTA in addition to the Uruguay Round. The inclusion of the agricultural reform in AFTA slightly reduces the welfare gain for all ASEAN members compared with the previous scenario that excludes agriculture: trade diversion is  outweighing trade creation. However, Indonesia is a gainer as it becomes a bigger agricultural exporter within ASEAN. The additional welfare gain for Indonesia as a result of including agriculture is about US$ 90 billion.  The additional benefit from implementing APEC in addition to the  Uruguay Round is much larger than that from AFTA. For Indonesia the APEC liberalisation excluding agriculture would boost welfare by $530 million per year over and above the Uruguay Round  benefits. If agriculture also is included in the APEC reform,  Indonesia is no better off even though most other APEC economies  are. The reason is that, unlike in the AFTA preferential scenario, Indonesia faces competition from other agricultural exporters within the APEC region when it involves MFN liberalisation.
 
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8 Comments

  • says :
    Thanks for sharing
    Posted 07-02-2018 20:06

  • says :
    good report
    Posted 07-02-2018 20:03

  • says :
    Thanks for spending time for this, Agung. But as Heonjun have said, we expected to read about Agung's personal opinion regarding the book you have recommended. Please keep this in mind at your next report : )
    Posted 28-11-2016 12:29

  • says :
    I agree with you .....Heonjun....
    Posted 25-11-2016 18:45

  • says :
    Hi Agung, thanks for putting effort for this site.
    But I found out this review was already written by someone else and is on a book review site. What I expected was a personal recommendation and thoughts on each book. Also, if you put a picture on your report, please make sure to write down the reference. cheers
    Posted 25-11-2016 16:09

  • says :
    Well established work Indonesia
    Posted 25-11-2016 03:59

  • Xilola Kayumova says :
    Great job Indonesia! Keep up the great work.
    Posted 23-11-2016 02:39

  • prayash pathak says :
    Good to know about the works done by Indonesia.
    Posted 20-11-2016 20:38

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