Trade
AHKFTA marks new trade potential for Indonesia
Authors: Nopriyanto Hady Suhanda and M Ridho Mubaroq, Ministry of Finance, Indonesia
In the first week of July 2020, Indonesia and Hong Kong entered a new phase of economic cooperation. Indonesia finally joined other ASEAN member countries in ratifying the ASEAN–Hong Kong, China Free Trade Area (AHKFTA).
The agreement significantly reduces trade barriers between the two, boosting exchange in goods and services. Indonesia’s ratification follows seven other ASEAN member countries and comes three years after Indonesia signed the agreement in 2017.
By ratifying the deal, Indonesia has committed to eliminating customs duties on about 75 per cent of its tariff lines within 10 years and reducing customs duties on a further 10 per cent of its tariff lines within 14 years. The tariff reductions cover a range of Hong Kong commodities including jewellery, clothing and accessories, watches and clocks, and toys. Hong Kong will grant tariff-free access to all products originating from ASEAN member states, including Indonesia, once the free trade agreement (FTA) is effective. Indonesia’s trade ministry anticipates that the export of luxury items to Hong Kong, such as edible swiftlet nests and tobacco products, as well as communication and electronic equipment, will enjoy a strong kick.
The AHKFTA is the sixth FTA between the ASEAN block and external partners, after agreements with China, South Korea, Japan, India and Australia–New Zealand. Such arrangements have successfully boosted Indonesia’s total trade volume with those counterparts.
Indonesia’s imports from China and South Korea have increased significantly since 2010, after joining the ASEAN–China FTA and the ASEAN–Korea FTA. Indonesia’s exports have remained sluggish, however, especially to South Korea and Australia. Some might argue that this demonstrates the ineffectiveness of FTAs — but the overall picture is more nuanced than the ‘exports are good, imports are bad’ trope.
According to CSIS Indonesia, FTAs between Indonesia and its major partners have allowed participants to become more specialised and efficient producers. This is due to the economic shift these FTAs initiate towards a more natural pattern of trade that reflects comparative advantage. Such efficiency increases economic welfare among the participating countries.
This study also found that production networks in Southeast Asia are heavily reliant on parts and components being imported to manufacture export goods. This is another reason to move beyond the mercantilist trope.
The AHKFTA is expected to have Indonesia more involved in these global value chains (GVCs), magnifying the positive growth, employment and distributional impacts of standard trade through boosting domestic productivity, capacity and employment. The World Bank found that companies in developing countries involved in GVCs are twice as productive as those that aren’t. In addition, ‘a one per cent increase in GVC participation is estimated to boost per capita income by more than one per cent, or much more than the 0.2 per cent income gain from standard trade’, says the World Bank.
A clear integrated strategy by Indonesia in utilising the AHKFTA to boost trade and inclusion in GVCs is key. The government must work hand in hand with stakeholders, particularly the private sector, to deliver better information and assistance that helps companies export more of their products into newly opened markets.
Looking ahead, clearer regulations and simplified licensing will create a more conducive and enabling Indonesian business environment. Paying careful attention to improving the capacity of domestic industry in preparing for an increased involvement in GVCs — that key opportunity emphasised by this agreement— is also essential. Taking a longer-term view, a regular review of the trade agreement would ensure progress is tracked against goals.
Hong Kong’s economy is shrinking this year, mainly due to local unrest and the COVID-19 pandemic. Making matters worse, US President Donald Trump recently signed an executive order revoking preferential economic treatment for Hong Kong, nominally in response to China’s enactment of a new national security law. All this uncertainty will likely reduce the impact expected of the AHKFTA for Indonesia.
The adoption of this trade deal suggests that stronger trade and financial roles for Indonesian officials in Hong Kong would be especially useful. Representatives acting as market analysts and ‘trade intelligentsia’ to seek out opportunities to elevate trade will be…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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