Why Indonesia Joining the TPP Would Be a Good Thing

 
 

Given that Indonesia has long refrained from committing to the Trans-Pacific Partnership (TPP), President Joko “Jokowi” Widodo’s announcement in late October that “Indonesia intends to join the TPP” came as a surprise to most of the world. Jokowi’s statement directly followed his trip to Washington, D.C., where he met with Barack Obama to discuss the possibility of Indonesia joining the massive Pacific Rim trade agreement.

With regional neighbors Australia, Malaysia, Singapore, Vietnam and Brunei already signed on to TPP, Indonesia has come to recognize that it risks falling behind as a regional power if it does not join the 12-nation trade bloc. But a declaration of intent is only the first, and easiest, step: securing the backing of the Indonesian legislature, which is necessary in order to join TPP, will be much tougher.

Indonesia belongs to all of the right geoeconomic clubs. It is a G20 member with a trillion-dollar economy, and boasts memberships in both the U.S.-led World Bank and China’s Asian Infrastructure Investment Bank. It is also currently the chair of the Indian Ocean Rim Association for Regional Cooperation. But throughout 2015, Indonesia found itself in the headlines for a variety of unsavory reasons: strained relations with Australia, Brazil and the Netherlands due to the execution of Indonesian citizens by firing squads; haze pollution in its peatlands that led to over 500,000 cases of severe respiratory issues; and increasing investor frustration with the country’s outdated protectionist policies which bode poorly for its growth. Indonesia was starting to look less like the largest economy in Southeast Asia and third-largest democracy in the world, and more like a country unable to pull its own weight.

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With his endorsement of TPP, Jokowi has signaled that he is getting serious about attracting greater foreign investment to Indonesia’s shores and moving the country away from its nationalist economic policies. Through TPP, Indonesia’s small and medium sized enterprises (SMEs) will have greater access to markets from as geographically close as Australia to as far as Canada, allowing them to expand capacity and create more jobs at home. In addition, TPP will put Indonesia in a single market with countries that make up a fourth of the global trade market. Tariffs on various items and industries such as agricultural products, financial services, tourism, insurance and capital transfers will be completely dissolved between TPP members.

But Jokowi’s plan is not without its challenges. His decision to join TPP has been criticized by some of his presidential predecessors, including Megawati “Mega” Sukarnoputri, the chair of his own party, the Indonesian Democratic Party of Struggle. Jokowi has a rocky relationship with Megawati, who, some argue, is the real power behind the throne. Critics also include Prabowo Subianto, Jokowi’s opponent in the 2014 election and the chair of the leading opposition party.

Domestically, there is inherent skepticism among citizens of foreign investment and of policies perceived as neoliberal – a skepticism exacerbated by well-entrenched interest groups and local political candidates seeking to prove their national loyalty. But part of Jokowi’s election mandate was to break away from the cronyism and dynastic politics that mar Indonesia’s past. Joining TPP will help him to do so by allowing the 12 other TPP members to bid on Indonesian infrastructure contracts – a departure from the usual priority given to state-owned enterprises with ties to powerful political families and bureaucrats.

There are persisting concerns about how long it will take Indonesia to get on board. Thomas Lembong, the country’s trade minister, said that it will take roughly two years to get TPP ratified by the People’s Consultative Assembly. Should this project prove true, however, it would actually put Indonesia on a timeline similar to that of current TPP members.

The U.S. Congress, for example, is unlikely to take up TPP until the lame-duck congressional session in late 2016, just before Obama’s successor takes office. And even then, one cannot be sure if TPP will receive presidential approval. When serving as secretary of state, Hillary Clinton called TPP the “gold standard;” now, as presidential contender, she is against it. There is no guarantee that she would pick up where Obama left off. Meanwhile, a Republican may be loath to prioritize a trade deal so closely associated with the outgoing president. In sum, TTP’s ratification by the very country leading the deal remains greatly uncertain.

But this is why Indonesia’s endorsement of the deal is critical. The support of Indonesia, along with that of 11 other interested prospective members, including the Philippines, could help reinforce to the next U.S. president that the deal is worth fighting for.

The sheer size and policy reach of the deal should be seen as an incentive for ratification in both the Indonesian legislature and the legislative bodies of existing TPP countries. The pact, initially hailed in the West as a check on China’s power in Asia, should be viewed as an opportunity to set a precedent on trade standards throughout all of Asia, ahead the finalization of the Free Trade Area of the Asia-Pacific (FTAAP).

Being part of the global trade game is important for Indonesia. Its own government admitted that the country requires nearly $400 billion over the next five years in order to meet infrastructure needs. Participating in a single market with the 12 TPP nations could help close this gap. Indonesia is already a member of other multilateral initiatives like the World Trade Organization’s Information Technology Agreement and the proposed Regional Comprehensive Economic Partnership (RCEP). Joining TPP would only enhance its access to global markets.

There are several things that Jokowi can do within the next two years to deliver on his October statement. First, he should sell the benefits of TPP to Indonesia’s SMEs, as TPP participation would provide them with a single set of trade rules and regulations when dealing with multiple countries, as opposed to multiple rules when dealing with a couple countries. Besides, many SMEs do not have the legal resources enjoyed by their larger multinational counterparts to keep up with the current model of tariffs and barriers.

Second, to expedite ratification, Jokowi should build pro-multilateral trade partnerships in the legislature with members of the opposition majority party and among the smaller parties inside his coalition.

Third, and more immediately, Jokowi should stand firm in his commitment to relax existing hiring quotas and mandatory language requirements for expatriates, often cited by foreign firms as a reason why doing business in Indonesia is a headache. This would smooth the transition to the “high standards” required by TPP, harmonizing Indonesia’s rules with those of existing members. It is not as though there exists no global interest in Indonesia. U.S. giants like Apple and Google are stumbling over each other to gain direct access to Indonesian tin, an essential component of the iPhone and other products. Additionally, Jokowi closed billions of dollars’ worth of oil and gas deals before leaving Washington, including investment commitments from U.S. stalwarts General Electric and Caterpillar.

For his part, Jokowi has begun to show that he takes his relations with the West seriously – and this is a positive development, regardless of whether it stems from political reasons or economic necessity. In November, after signing business-boosting contracts with President Sergio Mattarella, Jokowi appointed a special minister to work specifically on relations with Italy. In the same month, he reset Indonesia’s relations with Australia by hosting new Prime Minister Malcolm Turnbull following the fallout of the death of an Australian citizen by firing squad for drug-related offenses.

Indonesia’s window of opportunity to become a leader among its regional neighbors and a stronger global power will not stay open for long. By joining TPP, the nation would take a giant step forward in becoming both. Otherwise, it risks being left miles behind.

Todd Williamson is a Robert Bosch Fellow with the Global Public Policy Institute (GPPi) in Berlin.

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