00074918.2015.1061917

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THE ASEAN–CHINA FREE TRADE AGREEMENT:

POLITICAL ECONOMY IN INDONESIA

Stephen V. Marks

To cite this article: Stephen V. Marks (2015) THE ASEAN–CHINA FREE TRADE AGREEMENT: POLITICAL ECONOMY IN INDONESIA, Bulletin of Indonesian Economic Studies, 51:2, 287-306, DOI: 10.1080/00074918.2015.1061917

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Bulletin of Indonesian Economic Studies, Vol. 51, No. 2, 2015: 287–306

* This article is a revision of a previous study (Marks 2012a), which was produced under the auspices of the Support for Economic Analysis Development in Indonesia (SEADI) Pro-ject, United States Agency for International Development and Ministry of Trade, Republic of Indonesia. The author is grateful to Moekti P. Soejachmoen of the SEADI Project for as -sistance in obtaining the trade and tariff data, and to the two anonymous referees for their helpful comments. The views in this article are those of the author alone.

THE ASEAN–CHINA FREE TRADE AGREEMENT:

POLITICAL ECONOMY IN INDONESIA

Stephen V. Marks* Pomona College

The ASEAN–China Free Trade Agreement has been the most consequential trade agreement for ASEAN in the past decade. In this article, I use partial equilibrium modelling to estimate the direct impacts of the agreement on Indonesia and China, and from these estimates draw political economy implications for Indonesia. Although the agreement has contributed to a modest trade surplus for Indonesia overall, it has led to a larger bilateral deicit with China. In addition, the shifts to surplus for Indonesia have mostly been in resource-based sectors, while the shifts to deicit have occurred in many manufacturing sectors that the government would like to see grow. I argue that pushback against the agreement has contributed to a resurgence of non-tariff trade barriers in the country, although other political econ -omy forces also have been at work. The agreement ultimately provides a cautionary tale: cutting regional import tariffs can lead to pressures for more complex and less transparent trade policies.

Keywords: ASEAN, China, free-trade agreements, political economy JEL classiication: F13, F15

INTRODUCTION

Recent years have witnessed dramatic change in trade relations in East Asia; China’s accession to the WTO in late 2001 was a watershed. For Southeast Asia, the ASEAN–China Free Trade Agreement (ACFTA), under which tariff reduc-tions were initiated in 2005, rivals the earlier ASEAN Free Trade Agreement as the most economically signiicant regional trade agreement of recent decades. This article examines the political economy of the ACFTA in Indonesia, where contro-versies related to the agreement have contributed to a major change of direction in trade policy.

Under the ACFTA, China and the original ASEAN-6 (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand) were to reduce tariffs for

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normal-track items to zero by 2010. Tariffs on sensitive products were to be reduced to at most 20% by 2012 and then to at most 5% by 2018. Tariffs on highly sensitive products were to be reduced to at most 50% by 2015, but then no further reductions were required. Vietnam, Cambodia, Laos, and Myanmar were required to complete these tariff reductions on a slower schedule—by 2015 for items on the normal and highly sensitive lists, and by 2020 for those on the sensitive list. All countries were also allowed to exclude lists of items from the agreement on the grounds of morals or national security.

This article estimates the effects of the ACFTA through a simple partial equi-librium simulation methodology, based on minimal structure and assumptions about parameter values. The approach is similar to the SMART model maintained by the United Nations Conference on Trade and Development and the World Bank.1_{I use trade data from 2010, and evaluate the effects of the agreement on the}

basis of the inal import-tariff rates that will apply in each country by 2020, when the agreement will be fully implemented.

Partial equilibrium analysis of this sort can be used to obtain ex-ante predic-tions of the effects of a free-trade agreement. It is by no means a perfect approach— particularly in evaluating the effects of comprehensive trade-liberalisation measures—given that resource constraints, the endogeneity of national income, competition with other countries in global markets, and other factors could be better taken into account with a general equilibrium approach. On the other hand, the implications of general equilibrium models can be greatly altered by the model-closure rules applied; one commonly used rule is that the current account balance with the rest of the world is not affected by a policy change. In reality, such an equilibrium may take a long time to work itself out, while important political economy developments could arise in the interim. In any case, the quan-titative indings presented in this article should be treated as illustrative rather than deinitive.

An alternative to a simulation approach is to use a gravity model, in which trade data are examined econometrically ex post, in an effort to determine how an agreement affected subsequent trade lows. In a gravity model, exports from one country to another are posited to be functions of the GDP of each country, their distance from each other, and other factors. The ACFTA has yet to be fully imple-mented, however, so the trade data do not relect the full impact of the agreement, and thus the lines between ex ante and ex post are blurred. The partial equilib-rium framework offers a particularly simple way to correct for the ACFTA’s being only partially implemented by the 2010 base year. The framework also allows examination of the impact of policies at a detailed commodity level, which can be relevant in political economy terms, though in this article I mostly aggregate the indings into broad sectoral categories.

I irst outline the ideological background for views on the ACFTA within Indonesia. I then discuss the methodology and data in detail, and present the ind-ings of the quantitative analysis—speciically the effects of the ACFTA on import duty rates in Indonesia and China, on trade lows of Indonesia, and on customs

1. The SMART model was originally developed by Laird and Yates (1986). Jammes and Olarreaga (2005) offer a useful presentation of the algebra of the SMART model. Full de -tails of the implementation used in this article are available from the author upon request.

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The ASEAN–China Free Trade Agreement: Political Economy in Indonesia 289

revenues and net economic welfare of Indonesia and China. I interpret these effects from different ideological perspectives, and then look at recent Indonesian history to characterise the political economy context in which Indonesia entered into the ACFTA and to relate the effects of import-tariff reductions mandated under the agreement to subsequent developments in trade policy.

ECONOMIC NATIONALISTS AND TECHNOCRATS

In debates over trade and other economic policies in Indonesia since the Soeharto era, two basic camps can be identiied. On one side, economic nationalists have prioritised industrial and technological development. Bresnan (1993) observes that Indonesian economic nationalism has long had a measure of racism. Basri and Hill (2002) similarly note that mistrust of foreign and sometimes non-indigenous actors as well as of market forces has characterised the nationalists, and that eco-nomic nationalism and rent-seeking have often gone hand in hand. On the other side have been the technocrats, policymakers with advanced training in econom-ics who have had more faith in markets and thus have been less inclined to advo-cate policy interventions strongly contrary to market forces.

On trade per se, many politicians and policymakers, particularly those with a strongly nationalist bent, have taken mercantilist positions—favouring the expan-sion of exports and the contraction of imports. I will offer interpretations of the effects of the ACFTA in both mercantilist and economic terms, and will exam-ine the roles played by technocratic and nationalist actors in the negotiation and aftermath of the agreement.

METHODOLOGY

Preferential tariff cuts within a bloc of countries result in both trade creation and trade diversion. Trade creation occurs when lower-cost imports from within the bloc displace higher-cost production and allow for expanded consumption within a member country. It enhances the economic welfare of that country and results in allocative eficiency gains in production and consumption. Trade diversion occurs when higher-cost imports from within the bloc displace lower-cost imports from outside the bloc. It leads to a welfare loss for the importing country because its terms of trade deteriorate as its imports shift to higher-cost source countries. On balance, preferential tariff cuts may or may not provide welfare gains to the country.

Partial equilibrium trade-policy models like the SMART model are closely tied to this basic theory. The analysis in this article is conducted at a detailed level, based on six-digit Harmonized System (HS) commodity classiications. For a given commodity, the key behavioural parameter for trade creation is the own-price elasticity of import demand. I assume that a change in the own-price of one com-modity does not affect the demand for imports of other commodities. I apply the Armington (1969) assumption that there is imperfect substitution among imports of a particular commodity from the various source countries; the elasticity of substitution between these imports is the key behavioural parameter for trade diversion. To close the model, net trade diversion is set equal to zero: increases in imports from bloc members are offset by decreases in imports from other coun-tries. Trade diversion is assigned to individual countries on the basis of their initial

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shares of trade among these two groups. Finally, I assume that importers actually claim the tariff preferences allowed under the agreement. In practice, complying with rules of origin can be costly, and importers may not bother to claim the pref-erential rate if it is not much different from the most-favoured-nation (MFN) rate applied by the country.

This analysis does not allow tariff-rate changes to cause import changes for commodities for which imports were previously zero: trade creation and trade diversion can occur only for products for which there was initially a positive level of imports from the country being granted trade preferences.2_{It also assumes that}

export supply elasticities for all products are ininite: each country as an importer faces constant external prices for all commodities. This assumption oversimpliies circumstances in some sectors in larger importing countries, but in the absence of reliable estimates of export supply elasticities it provides a workable approach.

The analysis accounts for the effects of trade liberalisation in China in favour of ASEAN countries and in Indonesia and all other ASEAN countries in favour of China. In Indonesia, imports from China increase because of Indonesian tariff cuts in favour of China, but imports from other countries decrease owing to sub-stitution towards China as an import source country. Indonesian exports to China increase because of the tariff cuts there on Indonesian products, but decrease because of the same tariff cuts on products from other ASEAN countries. Tariff cuts in other ASEAN countries in favour of imports from China reduce Indonesian exports to those countries as well. Given the partial equilibrium nature of the analysis, these effects are examined one at a time and combined additively for each country.

This analysis also provides a basis for estimating changes in customs revenue. For a given commodity, a weighted-average tariff rate can be calculated by using the share of the value of imports from the various trading partners to aggregate their respective tariff rates. Using data from before and after the preferential arrangement is put into effect, this weighted-average tariff rate is multiplied by the total value of imports of a given commodity from all countries, and the prod-uct of these amounts is then summed across all tariff lines to estimate the change in customs revenue. The net effect on national economic welfare can be estimated by adding to this revenue effect the net change in domestic consumer surplus and producer surplus.3

DATA AND COMPLICATIONS

This article uses trade data for all countries from the UN Comtrade database and draws on import-tariff data from the oficial commitments by each coun-try under the ACFTA. Because these data are in some cases taken from different

2. This makes sense, in the absence of information on how much lower the prices of im -ports of the various products would have to be before im-ports started being demanded in positive quantities. In principle, such a problem would also arise in a general equilibrium (GE) model. With the broader commodity aggregates of a GE model there may not be zero imports, but then the problem would be the greater extent of aggregation bias than in a more disaggregated model. Zero imports also create dilemmas for gravity models. 3. This net change is calculated relative to the import demand curve. Part of the customs revenue lost to the tariff cuts is in effect transferred to domestic consumers.

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HS classiications, I established a concordance between the tariff data and trade data for China and for each ASEAN country. The tariff data are given at a highly detailed level: HS eight or ten digits. For each six-digit commodity classiica-tion, I calculated simple averages of the more detailed tariff rates within that classiication.

I account for both ad valorem and speciic tariffs but not for policies not cov-ered by the ACFTA, such as non-tariff trade restrictions, export taxes, and trade facilitation. A comprehensive, reliable database on non-tariff measures (NTMs) in China or the ASEAN countries is not available at present.4 _{Moreover, some}

prod-ucts subject to powerful NTMs were included on the highly sensitive list or general exclusion list for countries that were party to the agreement, and thus these prod-ucts were not necessarily subject to tariff cuts anyway. This is true, for example, of rice, sugar, and irearm imports for Indonesia. In some cases, however, import tariffs may have been cut under the ACFTA in sectors in which non-tariff barriers could alter the elasticity of import demand; the estimated effects of the ACFTA tariff cuts on trade lows would then be in error, and typically overstated, even if the underlying model and assumed demand elasticities were correct. Indeed, there have been concerns that non-tariff barriers in China would limit the export growth that ASEAN might otherwise expect because of the ACFTA (Tongzon 2005); there is recent evidence of such effects (Devadason and Chenayah 2014).

For Brunei, the most recent trade data are from 2004. Also, oficial trade data are not available for Laos. I therefore used adjusted estimates of Lao imports in 2006 based on exports to Laos reported by its partner countries. I then rescaled the data on the basis of the ratio of total import values reported in 2010 versus 2004 (for Brunei) and 2006 (for Laos) in the International Financial Statistics database of the IMF to obtain rough estimates of imports by commodity in 2010.

I assign elasticities of import demand from Stern, Francis, and Schumacher’s (1976) survey to the various commodity classiications, rather than use the new default elasticities used by the SMART model. The default values are based on the estimates of Kee, Nicita, and Olarreaga (2008), who use an econometric approach based on the assumption of national-income maximisation. While the earlier elas-ticity data are no doubt dated for many commodity classiications, many of the estimates of Kee, Nicita, and Olarreaga seem implausible. Moreover, the imple-mentation of the approach in the SMART model, which must interpolate in some fashion to assign elasticities to sectors for which estimates are missing, seems rather arbitrary in some cases.

The SMART model assumes by default that the elasticity of substitution between imports from various source countries equals 1.5 for all commodities and countries. However, a study by Broda, Greenield, and Weinstein (2006) estimates elasticities of substitution within three-digit HS sectors for a number of countries, including China, Indonesia, Malaysia, and Thailand. I apply these estimates to all of the six-digit product categories within the various three-digit HS sectors for these countries, and by inference for the other ASEAN members. This approach

4. One effort to produce a global NTM database is by Kee, Nicita, and Olarreaga (2009). Their estimates of the tariff-rate equivalents of non-tariff import restraints on sugar and rice in Indonesia, at only 0% and 1% respectively, are highly questionable: Marks and Rahardja (2012) offer much higher estimates, in a study of Indonesia alone.

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is imperfect, for a variety of reasons.5_{Given these concerns, I have conducted a}

simple sensitivity analysis (see footnote 9).

The analysis is complicated by the use of 2010 trade data, which should relect the effects of the ACFTA tariff reductions to that point. I handle this by irst sub-tracting from the actual 2010 import values the estimated trade creation and trade diversion caused by the 2010 ACFTA tariff rates—to get a baseline scenario for 2010 as if the ACFTA tariff cuts had not yet been enacted. Solving for this baseline requires using constrained non-linear optimisation: the trade creation and trade diversion being calculated in this case are themselves functions of the baseline import levels being solved for, and import levels must be non-negative.6

Once these baseline import levels for 2010 have been obtained, it is straight-forward to apply the inal ACFTA commitments to baseline imports of each prod-uct, calculating the trade creation and trade diversion implied, still subject to the constraint that imports be non-negative.7

QUANTITATIVE FINDINGS

The implications of the ACFTA tariff cuts for Indonesia can be summarised in a number of ways. I present the indings for 17 broad commodity categories, along with totals for all tradable-goods sectors.

Effects on Average Duty Rates

Table 1 indicates the impact of the ACFTA import-tariff cuts on overall weighted-average import duty rates in Indonesia and China, based on the rates that would have been in effect in 2010 with ACFTA preferences excluded, and then with the inal ACFTA rates being applied.8_{For Indonesia, the average import duty rate is}

5. Hillberry and Hummels (2013) critique the approach on which Broda, Greenield, and Weinstein’s analysis and its precursors are based.

6. Subtracting trade creation and trade diversion from the actual level of imports from the country being granted preferential status could cause its baseline imports to become nega -tive. For other source countries, removing trade diversion caused by the 2010 ACFTA pref -erences would make the level of baseline imports higher than the actual level of imports, and so the non-negativity constraint would not bind.

7. In this case, trade diversion is set as the smaller of that calculated in the model and the initial level of imports from a particular source country, to avoid imports becoming nega -tive, as shown in equation (13) of Jammes and Olarreaga (2005). This is the only algebraic difference between my analysis and the SMART model, which instead modiies the func -tional form for trade diversion in order to prevent imports from being negative, as shown in equation (14) of Jammes and Olarreaga. The authors note that this modiication causes a downward bias in the calculation of trade diversion.

8. In forming these weighted-average tariff rates as of 2010, and in estimating customs-revenue impacts for Indonesia and China, I accounted for the following preferential trade agreements as well as the MFN tariff schedules. For Indonesia: the ASEAN, ASEAN– Korea, ASEAN–Australia and New Zealand, and ASEAN–India free-trade agreements, as well as the Indonesia–Japan Economic Partnership Agreement. No other agreements were as yet in effect for Indonesia. In some cases, oficial preferential tariffs, including those under the ACFTA, have been higher than MFN rates, but in these cases Indonesia applies the lower of the two rates, according to Ministry of Finance oficials, and this is the rate

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estimated to fall from 2.5% without the ACFTA to 1.9% with the ACFTA fully in effect. For China, it falls from 4.4% to 4.1%.

Table 2 similarly shows the weighted-average import duty rates that Indonesia and China would have imposed on each other in 2010, without the ACFTA and with the ultimate ACFTA import tariffs in effect. Here the effects of the agreement seem remarkably similar for the two countries: Indonesia’s average duty rate on imports from China is estimated to fall from 5.2% to 0.8%, while China’s average duty rate on imports from Indonesia falls from 5.1% to 1.1%.

Tables 1 and 2 weight import duties by the dollar value of imports. This inevi-tably introduces aggregation bias in that the value of imports will be higher for products for which the duty rate is lower, all else equal. For example, China imposes no duty on its imports of ASEAN coal, which contributed more than 26% of the total value of its imports from Indonesia.

that I use. For China: the free-trade agreements with Bangladesh (under the Asia-Paciic Trade Agreement), Chile, Hong Kong, Macau, New Zealand, and Pakistan that are includ -ed in the TRAINS trade-policy database from the Unit-ed Nations Conference on Trade and Development. I omitted certain regional agreements with minor trading partners and narrower commodity coverage.

TABLE 1 Overall Import Duty Rates in Indonesia and China, without and with the ACFTA, Based on 2010 Trade Data (%)

In Indonesia In China

Without ACFTA

With ACFTA

Without ACFTA

With ACFTA

Food crops 4.6 3.1 20.1 13.8

Estate & other crops 2.5 2.1 10.0 7.3

Livestock & their products 3.6 3.6 8.6 8.4

Forestry 1.5 0.9 5.6 3.5

Fisheries 3.0 1.2 9.9 9.2

Oil & gas extraction 0.4 0.4 1.0 0.7

Other mining 1.1 0.9 0.9 0.6

Food, beverages, & tobacco 8.4 8.0 6.3 5.2 Textiles, apparel, & leather 4.7 2.3 14.6 14.0

Wood products 0.3 0.1 0.2 0.1

Paper products 2.7 2.4 2.9 2.9

Chemicals 2.8 2.3 6.4 5.8

Oil reining & liqueied natural gas 0.9 0.5 6.8 5.3

Non-metal products 4.7 3.3 10.2 7.2

Metals & metal products 3.6 2.7 3.5 3.3 Machinery & transport equipment 2.0 1.4 4.3 4.1

Other manufacturing 2.4 1.4 6.3 6.2

Total 2.5 1.9 4.4 4.1

Note: ACFTA = ASEAN–China Free Trade Agreement

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Table 2 shows that both countries offered sharply lower preferential tariffs for agriculture, forestry, and isheries under the ACFTA. Indonesia maintained rela-tively high tariffs against China on food, beverages, and tobacco. Both countries maintained relatively high tariffs against each other on non-metal products, which include plastic, rubber, ceramics, and glass. China also maintained relatively high tariffs against Indonesia on paper products.

The general impression from table 1 is that average import tariffs remain more protective in China overall, particularly in textiles, apparel, and leather. Agriculture and isheries in China remain relatively heavily protected by tariffs on a global basis, as are food, beverages, and tobacco in Indonesia.

Impact on Imports, Exports, and the Trade Balance

Table 3 shows the estimated impact of the ACFTA on Indonesia’s imports, exports, and trade balance. These are initial impacts based on the partial equilibrium the-ory. Equilibrating adjustments in exchange rates, prices, and incomes would be expected to reduce these impacts over time. Economists would also downplay the importance of bilateral trade imbalances or an increase in imports from a particu-lar country. Such phenomena may elicit considerable concern among politicians, however, for whom the relevant time horizon may be much closer, particularly if the other country is perceived to be an especially powerful rival.

TABLE 2 Bilateral Import Duty Rates in Indonesia and China, without and with the ACFTA, Based on 2010 Trade Data (%)

In Indonesia In China

Without ACFTA

With ACFTA

Without ACFTA

With ACFTA

Food crops 7.7 0.5 11.4 0.0

Estate & other crops 5.0 0.0 13.5 2.0

Livestock & their products 5.0 0.0 11.3 0.0

Forestry 4.4 0.0 10.0 0.0

Fisheries 5.3 0.0 9.0 0.0

Oil & gas extraction 0.8 1.3 2.1 0.4

Other mining 2.4 0.0 2.8 0.0

Food, beverages, & tobacco 12.8 8.4 9.4 3.6 Textiles, apparel, & leather 10.5 0.4 8.0 0.2

Wood products 4.4 0.0 0.2 0.2

Paper products 4.9 0.0 5.3 5.0

Chemicals 4.9 0.5 5.3 0.3

Oil reining & liqueied natural gas 4.0 0.0 3.2 0.0

Non-metal products 10.6 2.9 18.8 4.4

Metals & metal products 7.8 0.9 3.5 0.0 Machinery & transport equipment 3.3 0.3 2.3 0.1

Other manufacturing 8.0 0.5 9.2 0.0

Total 5.2 0.8 5.1 1.1

Note: ACFTA = ASEAN–China Free Trade Agreement

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TABLE 3 Effects of the ASEAN–China Free Trade Agreement on Indonesia’s Trade Flows ($ million)

Food crops 1.7 17.8 –32.0 –12.5 –4.8 –17.3 23.6 9.2 32.8 –41.0 –45.3

Estate & other crops 1.4 1.7 –0.5 2.5 –3.1 –0.5 0.3 0.6 0.9 –0.9 1.6

Livestock & their products 0.5 1.3 –0.5 1.3 0.0 1.2 0.8 8.9 9.6 0.5 –8.4

Forestry 1.1 1.1 –0.6 1.5 –0.5 1.1 0.0 0.1 0.1 1.1 1.5

Fisheries 4.4 16.1 –2.8 17.6 –2.5 15.2 4.2 5.2 9.4 11.0 8.3

Oil & gas extraction 34.3 89.2 –29.5 94.0 –0.1 93.9 0.0 0.0 0.0 93.9 94.0

Other mining 250.5 309.9 –15.9 544.4 –0.5 543.9 3.4 4.2 7.6 540.5 536.8

Food, beverages, & tobacco 138.2 375.6 –299.4 214.5 –6.7 207.8 20.8 29.6 50.4 187.0 164.1

Textiles, apparel, & leather 61.2 95.0 –17.1 139.1 –42.4 96.7 271.0 372.9 643.9 –174.3 –504.8

Wood products 1.0 1.7 –1.2 1.5 –7.4 –5.9 4.7 3.4 8.1 –10.6 –6.7

Paper products 0.8 3.7 –0.2 4.3 –11.4 –7.2 6.9 10.7 17.5 –14.0 –13.3

Chemicals 106.9 181.2 –57.9 230.2 –26.2 204.0 129.1 123.4 252.5 74.9 –22.3

Oil reining & liqueied natural gas 1.3 2.3 –0.0 3.6 –0.0 3.5 2.2 3.0 5.2 1.3 –1.7

Non-metal products 172.3 795.1 –777.6 189.7 –24.2 165.5 142.7 86.0 228.7 22.8 –38.9

Metals & metal products 20.6 107.0 –10.5 117.1 –36.4 80.6 157.4 231.8 389.2 –76.8 –272.2

Machinery & transport equipment 56.0 362.9 –54.8 364.1 –113.0 251.2 468.1 885.8 1,353.9 –217.0 –989.8

Other manufacturing 15.4 19.3 –1.3 33.4 –8.4 25.0 131.9 72.8 204.7 –107.0 –171.3

Total 867.4 2,380.9 –1,301.9 1,946.3 –287.7 1,658.7 1,367.2 1,847.5 3,214.7 291.5 –1,268.3

Note: Discrepancies are due to rounding; –0.0 denotes a negative value rounded to zero.

a_{Due to trade diversion in favour of China.}

b_{Net increase in Indonesia’s total imports.}

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The irst set of columns in table 3 shows the impact on Indonesia’s exports to China. The irst column indicates trade creation in China in favour of Indonesian exports, as a consequence of tariff cuts in China on imports from Indonesia. The second shows Indonesia’s gain from trade diversion away from exports of other countries to the China market, owing to these same cuts. For a number of prod-uct aggregates, the export gains for Indonesia owing to trade diversion in China considerably exceed those owing to trade creation; in total, the effects of trade creation are less than half those of trade diversion.9

The third column shows Indonesia’s loss in exports to China related to trade diversion to other ASEAN countries caused by China’s tariff cuts on imports from these countries under the ACFTA. For most product categories, these losses in favour of other ASEAN countries are considerably smaller than the gains to Indonesia from trade diversion in China from all other countries. The fourth col-umn shows that the estimated net impact on Indonesia’s exports to China is posi-tive for all product categories except food crops. The negaposi-tive sign in that case is driven by trade diversion away from Indonesia for two commodities—cassa-vas and mangosteens—to Vietnam and especially Thailand, which had relatively large shares of the market in China. For both commodities, trade creation in China is estimated to be relatively small. The overall net gain in exports to China is esti-mated at $1.9 billion, or 10.4% of Indonesia’s baseline exports to China. The gains are most pronounced in non–oil and gas mining; machinery and transport equip-ment; chemicals; and food, beverages, and tobacco.

The ifth column in table 3 shows Indonesia’s loss in exports to other ASEAN countries owing to trade diversion in favour of China in those markets, given their tariff reductions for imports from China. This amount in total is dwarfed by the changes in exports to China in most sectors. The sixth column shows the estimated net effect of the ACFTA on Indonesia’s exports. Overall, exports are estimated to increase by $1.7 billion, 1.1% above the baseline level. The sectors with the largest export gains to China also enjoy the largest overall net export gains when other trade diversion effects are taken into account. For food and estate crops, wood products, and paper products there are estimated to be small decreases in exports.

The next set of columns in table 3 shows the effects of the ACFTA on imports to Indonesia. The irst of these columns shows trade creation caused by the tariff cuts for China, $1.4 billion in total. Given that trade diversion has a zero net impact on imports, this trade creation equals Indonesia’s net increase in imports overall and amounts to 1.0% of baseline imports. The sectors with the biggest increases

9. In a simple sensitivity analysis, if one assumes an elasticity of substitution among import source countries of 2.5 for all products (more than the default value of 1.5 in the SMART model), the effects on trade lows are generally smaller, particularly for trade diversion. For example, for China the substitution elasticity estimates of Broda, Greenield, and Weinstein (2006) range from 1.3 to 108.2, and an elasticity of 2.5 is typically on the low side. This will have a direct effect on trade diversion. It also affects trade creation and trade diversion indirectly, however, because the baseline import estimates are affected by the magnitude of the trade diversion that is initially removed from the actual 2010 import values. The size of these baseline values then affects subsequent trade creation and diversion as the inal ACFTA tariffs are applied. Full details of the calculations using the alternative elasticity of substitution are available upon request.

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are machinery and transport equipment as well as textiles, apparel, and leather. Metals and metal products, non-metal products, chemicals, and other manufac-turing also indicate substantial increases in imports.

The second column in the second set indicates additional increases in imports from China owing to trade diversion from other source countries. For machinery and transport equipment, as well as textiles, apparel, and leather, this trade diver-sion is substantial. Overall, it exceeds trade creation. The third column in this set sums the irst two columns and shows the total increase in imports from China to be $3.2 billion, or 18.1% of baseline imports from China.

Among the Indonesian sectors with the largest net increases in imports in per-centage terms are textiles, apparel, and leather (3.6% overall, but with a 44.5% increase in imports from China), other manufacturing (2.8% overall, 33.7% from China), and non-metal products (1.3% overall, 13.4% from China). For all tradable-products sectors , the increase was 0.9% overall and 15.3% from China.

The last two columns of table 3 indicate the estimated effect of the ACFTA on Indonesia’s balance of trade in goods. The irst of these shows the net change in the overall trade balance, the second the net change in Indonesia’s trade balance with China. Indonesia’s overall trade balance is estimated to have increased by $0.3 billion on account of the ACFTA, but its trade balance with China is esti-mated to have decreased by $1.3 billion. By sector, the decrease in the trade bal-ance is most pronounced in machinery and transport equipment (especially from China); textiles, apparel, and leather; other manufacturing; and metal products. The increase in the trade balance is most pronounced in non–oil and gas mining but is also substantial in food, beverages, and tobacco. Other resource-based sec-tors show increases as well.

In political economy terms, deterioration of the trade balances in all manufac-turing sectors other than food, beverages, and tobacco would be perceived as a liability of the agreement by economic nationalists in Indonesia who privilege the development of value added in manufacturing. The larger deterioration in the bilateral balance with China would also be problematic, as an indicator of visible market penetration by a powerful rival.

Some Mercantilist Comparisons

If we are keeping score in mercantilist terms, how do the totals in table 3 for Indonesia compare with those for China? China’s exports overall are estimated to increase by $16.7 billion, or 1.1% of the baseline level. This net increase in exports is all directed to ASEAN, given the logic of the model in this article. Imports to China increase by $5.6 billion, or by 0.4% of the baseline level, equal to its trade creation with the ASEAN countries. It would seem, then, that the net increase in imports to China overall, in percentage terms, is quite a bit less than the 1.0% increase in imports noted above for Indonesia. Additional trade diversion towards ASEAN and away from suppliers of imports to China in the rest of the world means that the increase in exports from ASEAN countries to China totals $15.0 billion, or 15.0% of the baseline amount. Given the total increase in imports to China noted above, trade diversion from the rest of the world to ASEAN in the China market equals $9.4 billion.

In ASEAN, imports overall increase by $7.9 billion. Given the increase of imports from China of $16.7 billion noted above, and given a decrease of imports to ASEAN countries from other ASEAN countries of $2.2 billion, this implies that

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$6.6 billion worth of imports to ASEAN from the rest of the world is diverted to China.

China enjoys an increase in its trade balance of $1.7 billion with ASEAN (nearly $1.3 billion of that from Indonesia, from table 3), of $9.4 billion with countries outside ASEAN (equal to the trade diversion noted above), and thus of $11.1 bil-lion overall (as could also be inferred from the above igures on the changes in its exports and imports). Indonesia ekes out a narrow increase of $0.3 billion in its trade balance, while ASEAN gains $4.9 billion.

Impact on Customs Revenue and Net National Welfare

Indonesia is estimated to incur a loss of $0.8 billion in customs revenue owing to the ACFTA. Not only are import duties lower, and in many cases zero, on imports from China, but trade diversion to China from other countries subject to positive import duties lowers customs revenue further. However, offsetting gains to the private sector yield a modest net economic welfare gain for Indonesia of $0.6 bil-lion. One gets similar results for China on a larger scale: China is estimated to lose $5.1 billion in customs revenue owing to the ACFTA, but enjoys a net welfare gain of $0.3 billion.

For Indonesia and China, then, the ACFTA appears to be mutually beneicial overall in economic terms. However, the predictions of the partial equilibrium framework that there would be a surge of imports—particularly of many man-ufactured products—from China to Indonesia is consistent with China’s being perceived by Indonesians as more of a threat in general and especially in certain sectors.

RECENT TRADE-POLICY DEVELOPMENTS WITHIN INDONESIA

Trade-policy developments in Indonesia within the last four years have been marked by a reversal of much of the earlier momentum towards economic reform.10_{There is much circumstantial and some direct evidence that the}

enact-ment of the ACFTA has contributed to this trend, and speciically to the imposi-tion of non-tariff restraints on imports.

Reservations about the ACFTA

Table 4 shows the ratio of Indonesia’s inlation-adjusted import and export values for 2013 relative to 2000.11_{Indonesia’s trade with China, in particular, grew}

rap-idly, especially on the import side. The merchandise trade balance (not adjusted for inlation) swung from a surplus of $39.7 billion in 2006 to a deicit of $4.1 bil-lion in 2013. Indonesia had a bilateral trade surplus with China of $0.7 bilbil-lion in 2000 but began to run deicits in 2008, and these had drifted upwards to $7.2 bil-lion by 2013. A major reason for the swing towards deicit was undoubtedly the welcome resumption of higher rates of economic growth in Indonesia in recent

10. Marks and Rahardja (2012) characterise trade and related policies in Indonesia as of early 2008, and quantify their impacts.

11. The inlation adjustment is done using the US producer price index, from the IMF’s International Financial Statistics database. The trade data are from the UN Comtrade database.

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years, as will be discussed below. Nevertheless, these trade developments, cou-pled with the perception that regional trade liberalisation initiatives were contrib-uting to the trade imbalance, led to political stresses within the country. For some time there have been concerns within Indonesia that the country perhaps did not get the best of the ACFTA negotiations. For example, under the Early Harvest Programme of initial tariff reductions under the ACFTA, a sore spot was that Indonesia paid higher import duties on processed cocoa products in China than did Malaysia or Singapore, because of the failure of the Indonesian government to request these tariff cuts (Kompas, 9 May 2005). Moreover, in an analysis of regional trading agreements in which Indonesia has participated, Graef and Anas (2012, 6) argue that, in the ACFTA, ‘China’s exclusion and sensitive list reads like a list of Indonesia’s top non-oil exports’. They point out, however, that many of the prod-ucts on these lists are also major exports for Malaysia, Thailand, and Vietnam.

The evidence presented in this article is mixed on the question of which country might have got an advantage in mercantilist terms. The impact of the import-tariff cuts in Indonesia and China (table 2) indicates that weighted-average bilateral tariff rates in the two countries moved in parallel on account of the ACFTA, with duties in Indonesia ending up only slightly lower than those in China after the implementation of the agreement. The weighted-average global tariff rates of the two countries (table 1) indicate a slightly greater decrease in the average duty in Indonesia than in China. The evidence on changes in trade lows points to a greater discrepancy: Indonesia is estimated to enjoy a small increase of $0.3 billion in its global trade balance but a decrease of $1.3 billion in its bilateral balance with China, while China is estimated to gain $11.2 billion in its global trade balance. As noted earlier, we would not expect these to be the ultimate changes in the respec-tive trade balances, given the equilibrating forces at work, but the difference is suggestive.

To the extent that there was any bias in the outcome of the negotiations, Indonesia could be excused for not having as strategic an approach as it might have done, given some issues of timing but also of ideology. The irst presidential term of Susilo Bambang Yudhoyono, which began in October 2004, represented the zenith of post-Soeharto institutionalised economic reform in Indonesia, with several prominent technocrats joining his government. This did not happen all at once, however, nor did it last.

Aswicahyono and Hill (2004) observe that Yudhoyono enjoyed a strong man-date from the electorate, and that it was imperative to restore business conidence through predictable policies oriented towards economic growth. Both foreign and domestic investment had been weak. Foreign direct investment in particular had not recovered from the 1997–98 Asian inancial crisis or the lingering threat of ter-rorism and had been negative, on balance, into the irst half of 2004. Aswicahyono TABLE 4 Ratio of Indonesia’s Inlation-Adjusted Trade Values in 2013 Relative to 2000

Exports Imports

China 5.3 9.6

Other 1.8 3.2

World 1.9 3.6

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and Hill note, however, that incoming vice-president Jusuf Kalla had a reputa-tion as an economic nareputa-tionalist who had long been a recipient of government patronage aimed at indigenous Indonesian businesses. Soesastro and Atje (2005) similarly saw the Yudhoyono economic team in the October 2004 cabinet as rather a disappointment—notably with the appointment of the wealthy, well-connected businessman Aburizal Bakrie as coordinating minister for economic affairs.

One bright spot in technocratic terms was the new minister of trade, Mari Elka Pangestu, a respected Indonesian economist with impeccable reformist creden-tials who had been trained at The Australian National University and had a PhD from the University of California, Davis. Within six weeks of taking ofice she had become one of the signatories in Vientiane, Laos, of the ACFTA Agreement on Trade in Goods. This agreement committed the signatory countries to their normal, sensitive, highly sensitive, and exclusion lists for all tradable commodi-ties. In these negotiations, Minister Pangestu laboured under some disadvan-tages: McLeod (2005) notes that she did not even have her top staff appointments approved until ive months into her term.

Sri Mulyani Indrawati, also a respected and reform-oriented economist, had a PhD from the University of Illinois and had spent two years as the director of the IMF Regional Ofice for Asia and the Paciic. She joined the initial Yudhoyono cabinet as minister of national development planning, a relatively less powerful position, but in a December 2005 cabinet reshufle became minister of inance, clearly a critically important role in economic policy-making.

In the same cabinet reshufle, Aburizal Bakrie was replaced as coordinating minister for economic affairs by a respected economist noted for his integrity, Boediono, who had a PhD from the Wharton School and had served as minister of inance from 2001 to 2004 and in other senior positions in government.

Given the mandate of the electorate in 2004 and the urgency of policy reform for the promotion of investment, it was understandable both that the president would appoint senior oficials steeped in Western economic analysis and ideol-ogy and that Indonesia would move resolutely towards trade liberalisation. By April 2010, however, in the second ive-year term of President Yudhoyono—with normal-track tariff elimination under the ACFTA completed and the deteriora-tion of the bilateral trade balance with China underway—there was much talk in Jakarta about whether the ACFTA might be renegotiated on behalf of Indonesia by adjusting 228 tariff lines for industrial products—mostly within the iron and steel, textiles and apparel, and footwear sectors—or in even more comprehen-sive ways. It was concluded that Indonesia would not be able to alter the basic agreement with China, since it was locked into its ACFTA commitments with its ASEAN partners. A meeting between Mari Pangestu and the Chinese trade min-ister led to an announcement in early April 2010 of an agreement that included promises of Chinese infrastructure investments in Indonesia and of steps by the surplus country to boost its imports and provide other support to its ACFTA partners.12_{The announcement of the agreement revealed an unusually public rift}

in the Indonesian government, as the minister of industry, Mohamad Suleman

12. In a 2013 visit to Indonesia, Chinese President Xi Jinping proposed the establishment of an infrastructure investment bank that would help fund development projects in Southeast

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Hidayat, complained that he had not been consulted by Mari Pangestu until after the agreement had been reached (DetikFinance, 6 Apr. 2010). The minister of trade was in a position of some vulnerability politically, as one of only a handful of eth-nic Chinese Indonesians ever to hold a cabinet post in the country.13

As resistance to economic reform in Indonesia hardened, and with criticisms in the air over a controversial bank bailout, Sri Mulyani resigned from her post as minister of inance in May 2010. In June of the following year, the portion of Minister of Trade Regulation 39/2010 that authorised the importation of inished goods by producers was annulled in an unusual intervention by the Indonesian Supreme Court in response to a lawsuit by an apparel manufacturer. The threat of import competition, notably from China, owing in part to lower interest rates in that country, was mentioned by the court in its decision. It also cited a survey from the Ministry of Industry that showed the harmful effects of the ACFTA on producers of goods included in the 228 tariff lines mentioned above.

Mari Pangestu moved to a restructured cabinet position as the minister of tour-ism and creative economy in a reshufle in October 2011.14_{Boediono had left the}

cabinet in 2008 to become governor of Bank Indonesia, the central bank, but in October 2009 was elected vice-president for the second Yudhoyono term. Their successors in the Yudhoyono cabinet were not oriented towards economic reform along technocratic lines.15_{Indeed, economic nationalism has enjoyed a resurgence}

in Indonesia, and within the past several years a variety of new trade barriers have been imposed by the government.

The Resurgence of Non-tariff Barriers to Trade

A compilation by the Australia Indonesia Partnership for Economic Governance (reported in Marks 2014) shows that the number of tariff lines in Indonesia subject to NTMs on the import side grew from 3,714 in 2009 to 4,861 in 2014. Many of these tariff lines were subject to multiple requirements, as the number of NTMs grew from 6,537 to 11,719. On the export side, similarly, the number of tariff lines subject to NTMs grew from 386 in 2009 to 954 in 2014, while the number of NTMs grew from 485 to 1,782. Most of these new regulations have been issued by the Ministry of Trade, but the Ministry of Agriculture, the Ministry of Energy and Mineral Resources, the Ministry of Industry, and the Food and Drug Agency have also been involved. The new policies have often pushed the limits of the rules of

Asia. The progeny of this proposal, the China-directed Asian Infrastructure Investment Bank, is expected to begin operations by the end of 2015.

13. For instance, in a later public forum, a member of the national legislature from the Golkar political party stated that the minister had ‘prioritized the interests of her ancestors’ in an aircraft purchase from China in 2011 (Jakarta Post, 21 May 2011).

14. Sri Mulyani became a managing director of the World Bank Group in June 2010, and Mari Pangestu was nominated by the Indonesian government in December 2012 to suc -ceed Pascal Lamy as director-general of the World Trade Organization, but was not among the inalists for the position.

15. In May 2013, however, President Yudhoyono appointed Muhammad Chatib Basri, a well-regarded younger economist with a PhD from The Australian National University, as minister of inance, after Basri’s predecessor became governor of Bank Indonesia.

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multilateral and regional trade agreements, and have come in the form of new non-tariff barriers to a wide range of imports as well non-tariff export barriers and export taxes for natural resources—the latter policies, in particular, not being subject to much discipline under regional agreements or the WTO.

The shift in tone between Minister of Trade Regulation 39/2010, annulled by the Supreme Court, and Minister of Trade Regulation 27/2012, introduced by the new minister, businessman Gita Wirjawan, was striking. The earlier regulation had been intended to lower barriers to importation by producers, whereas the later regulation marked a signiicant extension of regulatory authority. General importers would be allowed to import goods within only one category of imports, the categories being speciied in the regulation. Thus, importers of diverse goods could be forced to form new companies in order to maintain their international business relationships. Moreover, producers who were also importers faced a host of new requirements and conditions when importing goods for their own use, and in general were not allowed to import inished or other goods other than for their own use. The bottom line was that importers would have to deal with costly new red tape.

A comprehensive system of mandatory import licences and port restrictions for horticultural products was put in place at around the same time by regulations of the minister of agriculture and the minister of trade. These regulations were outgrowths of mandates in Law 13/2010 on Horticulture. On the basis of six-digit trade data, mandarin oranges, apples, and pears are among the products for which imports were predicted to surge the most because of the ACFTA. Imports of these three products from China have indeed surged in recent years, and imports of potatoes (mainly from China) have exploded since 2010. Mandarin orange pro-duction and potato propro-duction are beset by pest problems in Indonesia, and it is not clear that those activities should be pursued in its tropical climate. However, both products were in the ACFTA normal track for Indonesia, and thus not subject to import duties as of 2010, even though both are subject to MFN import tariff rates of 20% currently, and of 25% as recently as 2008. Indonesia imposed similar restrictions on beef and cattle imports in late 2011, though assuredly these were a function more of its relations with Australia than with China.

In any case, the new horticultural import regulations were cumbersome, inef-icient, and opaque (Marks 2012b). In 2013 the United States and New Zealand, joined by a number of other countries, iled complaints with the WTO against these horticultural policies as well as Indonesia’s import regulations on animals and animal products. In response to these concerns and to criticism in the local media over higher prices, the Indonesian government eased some of its horticul-ture policies (Nehru 2013), though the WTO cases have not been closed.

At the end of 2012, Minister of Trade Regulation 83/2012 made a wide range of imports—mostly consumer goods—subject to elaborate procedural require-ments, including pre-shipment inspections at the port of origin (to be arranged or conducted by one of two Indonesian surveyor companies), as well as port restrictions in Indonesia. Among the items to which these procedures applied were numerous food and beverage, apparel and linen, footwear, and electrical and electronics products. Apparel, footwear, and electronics are among the cat-egories of imports to Indonesia predicted in this article to grow the most because of the ACFTA.

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Other Forces behind the New Protectionism

The political economy determinants of economic policies are complex, and cer-tainly one cannot attribute all of the recent changes in Indonesian trade policies to repercussions of the ACFTA. For example, mandatory cement import licensing was added in 2013. Although this policy was preceded by a surge of imports from China, and Vietnam, the MFN import tariff on cement had been zero, and so the ACFTA per se was not responsible. Similarly, temporary wheat-lour import quo-tas were added in early 2014, but imports from China were negligible.

For horticulture and beef, labour and land costs have ratcheted upwards in Indonesia, as a natural consequence of the country’s continued industrial devel-opment. This has intensiied protectionist pressures in agriculture in general. Widespread rural poverty has provided a further rationale for agricultural pro-tection, though there is evidence that the poor may not gain on balance from such policies (Warr 2005).

The efforts of economic nationalists to develop downstream value added for resource-based industries go back decades in Indonesia, and the most dramatic changes to export policy in the last six years have been enacted for the mining sec-tors. Law 4/2009 on Mineral and Coal Mining stated that within ive years of its enactment exports of unprocessed minerals and coal would no longer be permit-ted. The government envisioned that mining companies would invest in smelters and other downstream processing facilities in response to the 2014 export ban. Regulations issued in 2012 required mining companies to submit comprehensive proposals to develop such operations in order to be allowed to export unprocessed mineral products in the interim; high export taxes on certain semi-processed min-erals have also been imposed. Pushback against these controversial policies has led to their relaxation in some cases.

Also on the export side, after years of political pressure from the cocoa-process-ing industry to tax cocoa-bean exports, Minister of Finance Regulation 67/2010 set a graduated schedule of export-tax rates from 0% to 15%, depending on an international reference price. One reason that the imposition of a tax had been resisted so long was that most cocoa production in Indonesia comes from small landholders, who are harmed by the tax.

Not only have the economic nationalists sought to reduce the costs of raw mate-rials for manufacturers through export restraints; they have also aimed non-tariff import barriers almost exclusively at consumer products rather than intermediate inputs (wheat lour and cement being two exceptions). The focus on consumer products is consistent with an intentional strategy not to drive up intermediate input costs for producers and with the recognition that there would be less organ-ised resistance to raising consumer prices.

Economic nationalism was also spurred by the run-up to the 2014 general and presidential elections. In Indonesia’s fragmented, coalition-based political sys-tem, particularistic protectionist pressures have been strong and different political parties, each with its own inancial imperatives, have dominated different min-istries. Moreover, compared with the Soeharto era, the executive branch of gov-ernment has less authority in economic policy relative to the national legislature and regional governments, which are more attuned to protectionist pressures. As noted above, even the judiciary has played a hand in articulating protectionist interests.

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Basri and Hill (2002) attribute to the late economic minister Mohammad Sadli a famous adage—that bad times make for good policies (in a technocratic sense), and that good times can sometimes make for bad policies. Although Basri and Hill’s analysis applies to the Soeharto era, this dynamic seems to have persisted since then. In contrast to the economic imperatives for reform in 2004, macroeco-nomic conditions in 2010–13 made it more dificult for advocates of technocratic policies to gain traction.16_{Times were good: growth of real GDP was as high as}

6.5% in 2011, before edging down to 5.7% by 2013. Foreign direct investment was robust again, having inally recovered from the 1997–98 Asian inancial crisis. However, the current account had eroded from a surplus of $10.6 billion in 2009 to a deicit of $29.1 billion by 2013, mirroring the merchandise trade trends noted above and putting pressure on policymakers concerned with economic growth and feeling political heat from threatened industries. The rupiah had depreciated considerably in nominal terms since before the inancial crisis, but an index of the real effective exchange rate peaked at 100.8 in 2011, not far from its level of 107.5 in 1996 and well above its bottom of 46.8 in 1998,17_{making it harder for tradable}

goods producers to compete internationally. Indeed, noting his mercantilist tone, Burke and Resosudarmo (2012, 308) quote Hatta Rajasa, the coordinating minister for economic affairs from 2009 to 2014, as saying, ‘In the medium term, govern-ment policy is directed to decreasing dependence on imports and continuing to encourage exports’.18_{Early indications are that the nationalist, mercantilist stance}

has continued into the Joko Widodo presidential administration (see, for example, Aswicahyono and Hill 2014).

CONCLUDING REMARKS

This article estimates that the ACFTA contributed minimally to a trade surplus for Indonesia overall but to a bilateral trade deicit for Indonesia with China. Moreover, the ACFTA contributed to a trade surplus in primary commodities such as minerals but to a deicit in most manufacturing sectors, both overall and particularly in relation to China.

The bilateral deicit was highly visible in political economy terms, particu-larly given the extensive penetration by manufactured imports from China. One might say that the ACFTA was a publicly visible fulcrum on which the direction of Indonesian trade policies abruptly pivoted over the last decade, with diverse forces within the government, and also the Supreme Court, eventually arrayed against it and free trade generally. For economic nationalists in Indonesia, the per-ceived threat to manufacturing was a major concern, and provided a rationale for

16. More complete data that support these characterisations are available from the author upon request.

17. The indices of the nominal and real effective exchange rates (2010 = 100) show the value of the rupiah against a basket of the euro, US dollar, Japanese yen, Chinese renminbi, Malaysian ringgit, and Thai baht, formed using geometric total trade weights. The real index uses consumer prices in the respective countries.

18. Quoted by Burke and Resosudarmo (2012) on the basis of a Bank Indonesia press re -lease on measures being taken to address the trade imbalance.

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facilitating rent-seeking during an intensely contested political season. However, other underlying forces were present. In particular, there is evidence over the last decade to support the hypothesis that bad times can make for good policies in technocratic terms, and likewise that good times can make for bad policies.

It may be that the pace of regional integration pursued by ASEAN in recent years—with free-trade agreements signed with China (2004), South Korea (2006), Japan (2008), Australia and New Zealand (2009), and India (2009)—has been more rapid than was politically sustainable for some member countries. Indonesia seems reluctant to ratify signiicant new preferential trade agreements—despite the proliferation of agreements that have been proposed or are under negotiation, with up to 16 in the pipeline in May 2015. Although it enacted the Indonesia–Japan Economic Partnership Agreement (2007), Indonesia has not signed the ASEAN– Japan agreement. ASEAN–India was a more limited agreement than its predeces-sors in general: Graef and Anas (2012) note that it covers 78.8% of tariff lines in India but only 48.7% in Indonesia, while the ACFTA covers 94.1% in China and 92.3% in Indonesia. The only regional agreement that Indonesia has signed since 2009 is the Pakistan–Indonesia Free Trade Agreement (2012), but for Indonesia it applies to only 2.3% of tariff lines.

The greater irony is that relatively simple and transparent tariff policies have been supplanted by non-tariff measures that are complex and opaque, and in many cases not readily subject to international disciplines. This may constitute the ultimate and unforeseen cost of the broad regional integration efforts in which Indonesia has participated over the past two decades.

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