APEC 2020 & INDONESIA IN THE MIDST OF GLOBAL PANDEMIC
https://www.apec.org/

Hendra Manurung, is currently a doctoral candidate of International Relations, Padjadjaran University, Bandung; Teuku Rezasyah is an Associate Professor of International Relations at the same university

Malaysia was assigned to host the APEC meeting in 2020, and hope the commitment of APEC leaders’ countries to the multilateral trading system. This commitment is important in order to maintain global market and financial stability so that global trade and foreign investment guarantees continue to flow in times of crisis and global economic recession.

The APEC 2020 event theme is ‘ Reimagined: Priorities in the Aftermath of COVID-19’. Indonesia, through its ministry of trade, highlights APEC contribution in the midst of a global pandemic outbreak being relevant to overcome global uncertainty in the current economy and trade outlook.

In fact, for two years in 2018 and 2019, the APEC leaders’ forum failed to reach a final agreement at the APEC leader level to overcome various global challenges.

As the host, Malaysia faces considerable challenges, namely the achievement of the Bogor Goals target which is still not as expected, it is not easy to formulate a new post-2020 APEC vision that can accommodate the interests of the entire APEC economy, and high hopes for a joint declaration at the APEC leadership level.

However, apart from the need to ensure the growth of the digital economy, it also needs a sustainable inclusive economy and the optimal use of digital platforms in financial transactions. Furthermore, it is necessary to ensure and simplify cooperation between the government and the private sector in the Asia Pacific countries region.

Indonesia, China, together with a number of leaders of APEC member countries in the APEC annual meeting in Kuala Lumpur, Malaysia were held virtually to encourage a more open, transparent trade, and strengthen multilateral cooperation. It is hoped that these norms, principles, and steps will greatly support the performance of the global economy which is being severely affected by the COVID-19 pandemic.

President Joko Widodo has prioritized the importance of developing a favorable climate for foreign investment in Indonesia and the Asia Pacific region. It is possible that the Omnibus Law will improve the business climate and support national economic growth, along with regulatory and bureaucratic reforms. This is important considering the flexibility of regulations and the dexterity of the Indonesian bureaucracy in dealing with the current difficult times so that it is ready to open the widest possible door for businessmen and investors through the application of new methods.

The Omnibus Law which massively simplifies various regulations is said to aim to create a quality business and investment climate for business actors, including micro, small and medium enterprises. Although, this decision has sparked resistance, protests, and controversy in the country, however, it is expected that this regulation will be able to reduce overlapping regulations and complicated and complex procedures. The cumbersome licensing bureaucracy was also reduced. Illegal fees that have hindered business and investment entry are eradicated.

This rule also makes it easier for MSME business actors, where they do not need to apply for a permit but simply register the type of business. The entire licensing process is integrated into an electronic system through an online single submission.

Business activities and investing are made easier and less difficult. The formation of a limited liability company is made simpler and there is no longer a minimum capital limitation. Patents and brands are also being processed accelerated. Land acquisition and optimization of land utilization for public interest and investment will be much easier.

The APEC economy is expected to become a pillar of world economic stability by focusing on equitable economic cooperation so that all levels of society can participate and enjoy economic prosperity equally. APEC’s contribution can be achieved by boosting human resources potentials. It is very important to support sustainable economic growth in member countries including Indonesia which is also in line with the vision of the central government.

Suppose Indonesia will play a proactive role as Southeast Asia leading economy in supporting the implementation of the APEC blueprint related to strengthening the global value chain for the 2020 to 2025 periods.

Indonesia’s active role is in accordance with President Joko Widodo’s direction in RPJMN 2020 to 2024 in supporting Indonesia’s economic transformation, from dependence on natural resources shifting to an economy based on manufacturing competitiveness and the provision of high-value-added modern services.

It is certain that Indonesia will cooperate closer with other pioneer countries in the world economy, such as China and the US, in designing a capacity-building program for the APEC economy to gain more benefits from the global supply chain.

It is most likely that Donald Trump will represent the US at APEC 2020 Summit. Trump’s presence will be his second participation after 2017. Trump has been criticized for being less involved in the East Asia Summit in early November as part of the 2020 ASEAN Summit activities held virtually in Hanoi, Vietnam.

Chinese President Xi Jinping promised to open up his domestic market more widely, actively cooperating with all countries, regions, and companies.

Xi Jinping stressed that China’s gross domestic product has reached 10,000 US dollars per year. The number of Chinese middle-class citizens currently reaches more than 400 million people. Various international agencies are projecting that the Chinese retail market in 2020 will penetrate the US $ 6 trillion.

Thus, it is certain that there will be greater demand for quality products, the use of information technology, and the standardization of service quality from around the world.

It is expected that through the signing of a regional economic comprehensive partnership (RCEP) will have an important meaning in global trade and sustainable multilateral cooperation for economic integration in the Asia and Pacific region.

Moreover, with the election of Joe Biden as the 46th US president in early November 2020, it is hoped that the US government will be more constructive and emphasize goodwill in dealing with other countries in the region without conflicting with other economic powers.

RCEP for developing countries can reduce trade barriers to agricultural products, manufactured goods, and components that make up the majority of their exported commodities.

However, the RCEP partnership is considered to have little to do with trade in services and the availability of access for various companies to operate in their respective economies, something the US and other developed countries want.

Also, it is necessary to gradually reduce tariffs and institutional costs, develop a number of import trade promotion innovation demonstration zones, and expand product imports and strengthen high-quality services in all member countries.

Most APEC countries face unprecedented times, demanding bold responses along with the world’s greatest health and economic crisis of a hundred years. For sure, these challenges demand sustaining cooperation, coordination, and collaboration actively without any left behind through market integration, creative innovation, and regional inclusion.

The crisis response remains a pressing concern in many economies, and requires an ongoing focus on ensuring access to essential medical supplies and services, including vaccine availability; keeping supply chains functioning, and avoiding fragmented policy approaches, including in the digital economy and the safe resumption of travel. These would serve to revive all business activities and market demand that would accelerate global economic recovery.

Free and open trade and investment have indeed resulted in greater prosperity within the Asia Pacific along with underscoring the fact that benefits accruing from trade and investment have not permeated across all segments of all society.

Even today, there is much room for us to improve the narrative of trade and investment with a view to bring tangible benefits to all people fairly.

To conclude, APEC’s success key is openness, cooperation, and transparency amongst member-countries to look for Asia Pacific economic recovery sooner or later.

ASEAN+5 RCEP BENEFITS FOR INDONESIA
President Joko Widodo and Minister of Trade Agus Suparmanto at the signing of the Regional Comprehensive Economic Partnership agreement of the ASEAN Summit from the Bogor Palace, SETNEG/Biro Pers Setpres

Writer: Hendra Manurung (Hendra Manurung is currently pursuing a doctoral degree in international relations at Padjadjaran University, Bandung)

On 15 November 2020, the Regional Comprehensive of Economic Cooperation known as RCEP signed by Indonesia President Joko Widodo. It will cover ASEAN member-countries with its five partner countries, such as Australia, China, Japan, South Korea, and New Zealand. But it is rejected by India. It is expected that ASEAN RCEP will benefit Indonesia’s various export products.

In fact, these various benefits ranging from the increased gross domestic product (GDP), boosting exports, and attracting foreign investments coming to Indonesia and more.

The negotiations, which initially started with 16 countries, ended up being signed by 15 countries, involving 10 ASEAN countries and 5 partner countries, namely China, South Korea, Japan, Australia, and New Zealand. As is known, India withdrew from negotiations in 2019.

RCEP is still open to India, if India is interested in re-joining, as RCEP will remain open to India when it is ready to rejoin as the original negotiating party.

This also strengthens the declaration put forward by the RCEP trade ministers when holding the RCEP Summit Preparation previously on 11 November 2020.

RCEP is still considered as a mega-regional free trade agreement covering Southeast Asia, East Asia, and Oceania.

All countries of RCEP understand the domestic economic challenges India is facing when it withdraws from the RCEP negotiation process last year.

Further, based on Indonesian Fiscal Policy Agency study in 2019, stated that Indonesia could increase GDP by 0.05% during the 2021-2032 period if it participated in RCEP.

However, if Indonesia does not participate in RCEP, then the national GDP might experience a decline of 0.07% during the same period, from 2021 to 2032.

RCEP will also provide welfare gain for Indonesia around US$ 1.52 billion.

Table 1 Indonesia Balance of Trade, Oct. 2019-Oct 2020 (in millions US$)

Period Result Progress
October 2019 US$ 122,4 surplus
November 2019 US$ – 1.396 deficit
December 2019 US$ -78 deficit
January 2020 US$ -636,7 deficit
February 2020 US$ 2.512,8 surplus
March 2020 US$ 715,7 surplus
April 2020 US$ -372,1 deficit
May 2020 US$ 2.015,7 surplus
June 2020 US$ 1.249 surplus
July 2020 US$ 3.238,4 surplus
August 2020 US$ 2.353,4 surplus
September 2020 US$ 2.390,4 surplus
October 2020 (temporarily) US$ 3.606,8 surplus

Source: Badan Pusat Statistik

Table 2 Indonesia’s export and import of non-oil and gas (in millions US$)

Countries Export Import
China US$ 2.860,3 US$ 2.798,1
The United States US$ 1.638,1 US$ 609
Japan US$ 1.064,3 US$ 731,3
India US$ 874,4
EU-27 16 billion Euro 10.2 billion Euro
Singapore US$ 706,5

Source: Badan Pusat Statistik

When compared to free trade agreements initiated by other countries, such as the Trans-Pacific Partnership (TPP), North America Free Trade Agreement (NAFTA), to the EU-27, the incorporation of 15 countries in RCEP is quite significant.

However, RCEP remains a global dynamic in world trade. RCEP without India represents cumulatively 29% of world GDP, 27.1% of world trade, 29.3% of world FDI and 29.6% of the world’s population.

The existence of RCEP should be able to be the best opportunity and opportunity for Indonesian export products to boost exports, attract investment, and increasing the competitiveness of national economic products in the region.

Suppose, this welfare gain can be defined as the surplus that consumers and producers get from a transaction. If from the consumer perspective, welfare gin is obtained when the price that consumers can pay is greater than the factual price in the market, while from the perspective of producers, welfare is obtained if the price they are able to offer to the market is lower than the factual price in the market.

Indonesia has the potential to avoid the trade balance deficit by US$ 491.46 million. Even so, this potential deficit might be balanced by maximizing the surplus and global supply chain needs through the backward linkage and forward linkage aspects.

Moreover, in order to attract foreign investment to Indonesia, Indonesia needs to do lots of homework regarding to national reforming policies and reforming the domestic bureaucracy.

The business and investment climate in Indonesia has the same attractiveness and can even be higher than in other countries.

Apart from the foreign investment side, to get benefits from the trade gain, Indonesia should be aware and more careful in utilizing RCEP as a benchmark for efforts to develop and to improve the national domestic supply chain and increase national productivity.

It is necessary to explore which potential sectors which still need to be facilitated in terms of increasing productivity and trade competitiveness in penetrating international markets in these areas.

There must be serious efforts by the Indonesian government together with all stakeholders so that the domestic business climate in this sector can be improved more efficient and more attractive so that investment from RCEP can be directed to that sector. In fact, Indonesia must also identify carefully which export products are more competitive for trading in the region.

Indonesia should be able to prepare the advantages of export products with high-quality standards and affordable competitive prices that can compete with other countries mostly in accessing the international market continuously.

Those countries that are most ready to implement RCEP, such as China, for example, are countries that already have and implement more trade agreements previously than Indonesia. This is because these countries may have carried out internal reforms first.

Indonesia should anticipate intense competition between countries over the implementation of a regional partnership agreement so that Indonesia is not merely a potential market for various products export partner countries.

In Southeast Asia, Thailand, Vietnam, and Malaysia perhaps are still better prepared than Indonesia. This is because the country has more complex trade agreements and has been implemented effectively to date.

Indonesia is still lagging behind because of the ease of doing business reform. Even though there is now a Job Creation Law, it must be ensured that its implementation is beneficial for all domestic stakeholders before RCEP can be effective after it has been ratified by all countries.

Apart from the need to work hard to realize increased exports, attract investment, and increase economic competitiveness in the region, RCEP is also expected to be able to create higher certainty of business activities in the region to normalize trade and investment flows, especially in the midst of the COVID-19 pandemic.

In the next 50 years, Indonesia needs to prepare a bumper to protect the sustainability of the domestic industry from the negative impact of free trade which is likely to be unfair.

The translation of the RCEP agreement text is targeted for completion within two months before ratification. Previously, it was necessary to carry out a comprehensive impact analysis by the government and the DPR.

A comprehensive agreement such as the RCEP should have consequences for the content of rules that must be adopted in the regulatory framework of the national economy. Obviously, this will have an impact on the narrowing of the government policy space and state sovereignty to protect the interests of the Indonesian people.

All domestic stakeholders must be involved in the decision-making process for the ratification of the RCEP agreement, including small and medium scale entrepreneurs.

Without any clear preparation and blueprint, the resilience of the domestic industry will in fact be battered, while competing with various cheaper imported products.

The bumper is in the form of a non-tariff policy where this effort is common in other countries in the midst of free competition. However, Indonesia needs to be careful and limited in implementing it so as not to lead to trade disputes with other countries.

Another bumper is related to the precautionary principle and the need for stages in ratifying the RCEP. Not all points of the agreement need to be ratified if they are deemed to be detrimental to the domestic industry. Thus, the ratification process must involve many related parties and be discussed openly.

Trade expansion between countries can only be done if a country has its export products that are ready to be marketed. Currently, around 72% of exports in the global market are manufactured products, while Indonesian exports still rely on commodities such as palm oil and coal.

If Indonesia has not been able to shift to the manufacturing sector, it is certain that Indonesia will only be flooded with imported products or simply become a producer of raw material sources and not shift from traditional markets.

The challenges are even more difficult amid the global pandemic which has hit various domestic industrial sectors, especially manufacturing.

To conclude, the advantage obtained through joining RCEP is how Indonesian export products are able to drive themselves to be more productive and competitive. The government and all business actors need to be more aggressive and quick to make structural adjustments in optimally utilizing RCEP opportunities.