TPP can benefit Indonesian textile industry

Indonesia can unlock access to the main TPP countries such as the US, Canada and Mexico as well as other Latin American countries, which will cut tariff barriers from between 2 and 5 percent to zero. Exporters will save $1.3 billion from the tariff cuts and it will create a $306 million trade diversion, said the senior advisor for economic and public policy at the Australia Indonesia Partnership for Economic Governance ( AIPEG ) Ahmad Shauki in Jakarta on Wednesday.

As the Trans Pacific Partnership ( TPP ) can increase Indonesian exports by at least US$2.9 billion and the same time Indonesia might see swollen imports too, especially for capital goods like machinery, steel, sugar and plastic leading to a reduced trade surplus from $3.1 billion to $2.2 billion after joining the TPP. However, total trade would significantly rise.

The sectors to benefit most would be footwear and textiles, which could increase by 22 and 18 percent respectively. Both sectors could contribute 70 percent of the potentially increased exports.

Meanwhile, Center of Reform of Economics ( Core ) Indonesia research director Mohammad Faisal warned that not joining the TPP would transfer this potential to Vietnam, which is already a member of the TPP. Vietnam is their toughest competitor because the product mixture is similar.

According to Faisal, the tariffs imposed by the US on ASEAN countries, including Vietnam and Indonesia, are almost similar. But they have problems such as high transportation costs, rising fuel prices and increasing labor costs without increased productivity.

With regard to labor costs, Indonesia’s are lower than Thailand, China and Malaysia but higher than India, Vietnam and Cambodia. However, unlike in Thailand, the wage disparity in Indonesia between rural and urban areas is very wide.

However, Indonesia’s exports to the US are stable in the last decade with 6 percent growth from 2001 to 2015. While, Vietnam’s exports to the US in the same period has jumped by 242 percent even before joining the TPP.