Improve Negotiation and Investment

Global trade is growing slowly, filled with competition and protectionism. Indonesia must strengthen its negotiation strategy and high value-added export-based investments.

KOMPAS/NINA SUSILO

A technician assembles truck parts at the Isuzu Karawang Plant in the Suryacipta Industrial Estate, East Karawang, West Java, Thursday (12/12/2019). Isuzu started exporting Isuzu Traga medium-sized trucks to the Philippines and in three years is expected to target 20 other countries.

JAKARTA, KOMPAS – A global economic slowdown is having a greater effect on Indonesia’s trade slowdown. Among the indicators is the Rp 4.34 trillion (US$3.105 billion) deficit in Indonesia’s trade balances.

This trade slowdown is caused, among others, by lower commodity prices and several countries’ trade protectionism efforts to balance their trade balances. To face this, Indonesia needs to strengthen its negotiation strategy and high-value added export-oriented investments.

Statistics Indonesia (BPS) data shows that Indonesia’s trade balances suffered a deficit of $1.33 billion in November. It was the second worst deficit in the January-November period, after a deficit of $2.29 billion in April. The deficit in November widened the January-November trade deficit to $3.105 billion.

The commodity price drop affected the total export value, contributing 14.5 percent to the national export value.

In November, exports in almost all sectors dropped quite sharply, except for agriculture, which increased 4.42 percent year-on-year. Oil and gas exports went down by 15.81 percent, the processing industry went down by 1.66 percent and mining and others decreased by 19.09 percent.

BPS head Suhariyanto said in Jakarta on Monday that a majority of global commodity prices had dropped. The average aggregate price of most of Indonesia’s export goods were lower in November this year compared to November last year, such as crude oil (down by 3.12 percent), gas (6.85 percent) and oil product processing industry (28.1 percent). The value of mineral fuel exports in January-November dropped by 9.67 percent from the same period in 2018.

“The commodity price drop affected the total export value, contributing 14.5 percent to the national export value,” he said.

KOMPAS/ANGGER PUTRANTO

Salaman, 60, a worker for state plantation company PT Perkebunan Nusantara XII, checks the condition of coffee seedlings at the company’s nursery in Malangsari, Banyuwangi, East Java, on Friday (13/12/2019). PTPN XII Kebun Malangsari exports 1,304 tons of Robusta coffee beans to a number of countries, including Italy, Britain and Germany. The coffee beans are produced by both PT Perkebunan Nusantara XII in Malangsari and on farms belonging to surrounding coffee farmers.

Barriers in trade

However, the drop in export value was not only caused by low global commodity prices. Trade obstacles have also begun to affect Indonesia’s export performance. India, for instance, increased its import fees for crude palm oil (CPO) and its derivatives.

“The European Union has categorized crude palm oil as a high-risk crop for land conversion in its Renewable Energy Directive [RED] II. This categorization hinders our CPO exports as biofuel in the EU,” said Trade Ministry director of trade security Pradnyawati.

Consequently, CPO-based biofuel is not included in the EU’s 2020-2030 renewable energy use policy. BPS data shows that Indonesia’s non-oil and gas export to the EU dropped by 16.95 percent in November.

Previously, the World Trade Organization (WTO) in its “Trade Barriers” report released on Dec. 12 said the trade values of WTO member countries affected by import barrier policies had dropped. From

The European Union has categorized crude palm oil as a high-risk crop for land conversion in its Renewable Energy Directive [RED] II.

October 2018 to October 2019, trade value affected by import barrier policies reached $747 billion. This was an increase from the $588 billion recorded from October 2017 to October 2018.

The report also shows 102 new trade barrier policies implemented by WTO countries. The import barrier policies affected global total imports by 7.5 percent.

In late 2018, global import value affected by the policies reached $1.5 trillion, of the total global import value of $19.5 trillion. In mid-October, the impact on global trade was estimated to increase to $1.7 trillion. This prompted the WTO to reduce its global trade growth forecast to 1.2 percent in 2019 and 2.7 percent in 2020.

According to Pradnyawati, the government will strengthen its trade protection strategy. Bilateral and multilateral negotiations will be continuously strengthened to face trade barriers. The Trade Ministry has filed a lawsuit against the EU over its alleged CPO discrimination to the WTO.

Kompas/Priyombodo

Aerial photo of Tanjung Priok Port in North Jakarta managed by PT Pelindo II, as seen on Monday (16/12/2019). According to Statistics Indonesia (BPS), the value of Indonesia\'s exports in November 2019 was US$14.01 billion, down 6.17 percent from exports in October 2019. If compared to November 2018 the exports dropped 5.67 percent.

Transformation

President Joko “Jokowi” Widodo requested that economic transformation be launched. Ceasing exports of raw materials and pushing for the export of intermediate and finished goods are the strategy that must be consistently pursued to resolve the trade deficit.

The deficit occurs as a result of imports growing bigger than exports. Imports are primarily in energy products, capital goods and raw materials. Imports of capital goods and raw materials are not too problematic if the finished goods can be exported again. However, Indonesia’s oil and gas imports are growing more and more.

“Currently, oil imports comprise 700 to 800 barrels per day. Besides, there are still imports of gas and petrochemical derivatives. This has been unresolved for years and burdens the economy and leads to deficits,” the President said.

We need to increase the quantity and quality of products to enjoy optimum benefits from the RCEP.

PT Bank Permata Tbk economist Joshua Pardede said that in the short term, the government should continue to push the creation of added value from industries with huge export potentials, such as furniture, rubber and plastics, base metals and metal goods. At the same time, import substitutions must also be realized, especially in the chemical and pharmaceutical, machinery and transportation industries.

The government conceded that a majority of Indonesia’s exported goods were produced by industries with low-level technology. Based on data of Indonesia’s export patterns to country members of the Regional Comprehensive Economic Partnership (RCEP), for instance, products of industries with low-level technology dominates with a value of around $25 million. Exports of products of industries with mid-and high-level technologies are worth $10 million to $15 million and $5 million, respectively.

“We need to increase the quantity and quality of products to enjoy optimum benefits from the RCEP,” said Trade Ministry international trade negotiations director general Iman Pambagyo.