Study sees modest gains for Indonesia after trade deal

The Jakarta Post

Indonesia, Southeast Asia's largest economy, can expect relatively modest gains from a free trade agreement (FTA) between the European Union and the Association of Southeast Asian Nations, an independent study shows.

In 2020, after liberalization of all sectors, including agriculture and services, in terms of gains in welfare, Indonesia ranks fourth -- after Malaysia, Thailand and Vietnam -- according to the scenario set up in the study.

The conclusion of the study -- titled Economic Impact of a Potential Free Trade Agreement Between the EU and ASEAN -- is that ASEAN members will enjoy an average welfare gain of 2.16 percent.

Financed by the EU, the study is a joint effort between Centre d'Information et de Recherche sur L'Economie Mondiale and Centre d'Etudes Prospectives et d'Informations Internationales. It is intended to benefit EU and ASEAN negotiators.

Malaysia is to profit most from the FTA -- with an expected 8.30 percent gain -- followed by Thailand with 2.63 percent, Vietnam 2.22 percent, Indonesia 1.81 percent, Philippines 1.12 percent, Singapore 0.41 percent, and the remaining ASEAN members combined with a 0.29 percent gain.

The study did not include a discussion of the reasons behind the modest gains for Indonesia.

As for Malaysia, liberalization in the services sector matters a lot -- accounting for 76 percent of the gains -- because the country begins with a high degree of protection in services.

According to the study, all ASEAN countries as well as the EU25 are expected to gain from the FTA. Since the EU is a more significant partner for ASEAN than the reverse, ASEAN would benefit more than the EU.

The study also shows the planned FTA would boost EU exports to ASEAN by 24.2 percent annually, while ASEAN would see its exports to the EU increase by 18.5 percent. The biggest gains for the EU would include business services to ASEAN, estimated to be worth around 7.9 billion euros annually.

Chairman of the Indonesian-Netherlands Association (INA) Ronald Pfeifer told The Jakarta Post the organization believed the gains for Indonesia would be higher than expected by many due to abundant natural resources.

"If we look at Indonesia, we will find abundant resources. They have oil, gas, mining, wood, fish, rubber and many more. These commodities will sell a lot in Europe. Believe me, the gains are more than what many have expected,"

A separate study by the University of Limerick, Ireland, and Institute Franais des Relations Internationales -- also commissioned by the EU -- indicates that the agreement is an opportunity for ASEAN to reach European markets.

The agreement will also provide a strong incentive to initiate or expand structural reforms aimed at bringing ASEAN-origin products up to the quality standards of the EU. This will eventually help enhance competitiveness as well as attractiveness of foreign-direct investment from EU companies.

Negotiations with the EU could also play a role in ASEAN strategy for competing with China in attracting investment.
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