CONTENTS
Towards the WTO Bali Round?................................................................. 4
	
Syamsul Hadi, Ph...
Stop Dying
with WTO!

W

TO is paralyzed, even dying! It is not only because WTO has failed
to make its 159 member countri...
Unfortunately, Indonesian Government seems to be more loyal to WTO
regulations. The government has implemented import duty...
Syamsul Hadi, Ph.D
International Political Economics Lecturer
At International Relations Department
FISIP-University of In...
Ministers of Trade, who will attend the meeting in Bali, successfully agree on
this framework, thus WTO will have new spir...
crimination principle is applied, for example if two countries have trade agreement; the agreement will also be applied to...
WTO Doha Round negotiation since 2008. Stagnancy in WTO agreement was
triggered by continuous difference of point of views...
Several other countries use bailout instrument as protection. In England,
banking sector, which received bailout fund has ...
Director, Pascal Lamy, views:9

“...the threat of protectionism may be greater now
than any time since the start of the cr...
Towards WTO Bali Round?
Regarding Doha Development Round – which is in the state of “neither die
nor live” – global econom...
to give beneficial opportunities to development in developing countries, by setting a negotiation on agriculture sector – ...
Prof. Ahmad Erani Yustika
Professor of Economics and Business
Brawijaya University; Executive Director of Indef

WTO and A...
Liberalization and Economic Crisis
Over the 15 year period from 1998-2013, it can be considered the missing episode of Ind...
ment in Marrakech, Morocco. Indonesia has become a WTO member on the
first round; while China and Malaysia decided to not ...
debt payment – is negative. In 2008 primary balance was positive with IDR
84.3 trillion; in 2013 (State Budget 2013), as p...
heard that the Board provides facilitation to empower domestic investors in this
country. The Investment Board only cares ...
Indonesia has been getting praises and awards from developed countries
and international organizations because of its poli...
Prof. Anak Agung Banyu Perwita
Professor of International Relations
Head of The International Relation Program
President U...
gopolistic power that gives opportunity to the foreign corporations to control
and even to dominate all production, distri...
trade is non-binding, in practice, the trade mechanisms binds one another.
The 2013 APEC Summit in Bali, Indonesia, accord...
This issue has become more complicated as the national and local governments
do not seem to care about the problem many lo...
Teguh Boediyana M.Sc
Chairman Indonesia Cattle and Buffalo Farmers Association
ChairmanIndonesian National Dairy Board

Sm...
Lembang, Pengalengan, Garut, Kuningan, Boyolali, Salatiga, Pujon, Pasuruan,
and Probolinggo deserve rewards because they a...
We do not know who played with and allowed IMF to insert an agreement
that required Indonesia to remove the provision whic...
Table 1. Price comparison of imported milk and locally produced fresh milk
processing industry:

Year

Price
IDR
estimatio...
and cattle feed allowance, which are used to determine the price of milk, are
ridiculous. The price given by the milk proc...
duty to zero percent. Due to strong reaction from the National Dairy Board, the
Minister of Finance issued another regulat...
vive. They never know that their contribution to fulfill the national milk demand
has been stagnant for about a decade and...
Chart 1. Milk market compared to domestic fresh milk production
(x 1000 MT)
7,000
Milk market

6,000

Fresh milk

5,000
4,...
Dr. Rizal Ramli
Former Coordinating Minister for Economic Affairs
Chairman of Indonesian Chamber of commerce

Trust and
Cr...
for the 2014 elections. Consequently, this hurts Indonesian people.
The current condition is different than in 1998 when e...
eral suggestions to reduce food price, which are addressed to the Chairman of
Indonesia Bureau of Logistic and Minister of...
Special Edition - 2013

33
M.Riza Damanik
Executive Director of Indonesia for Global Justice

The Constitutionality
of WTO Negotiation

A

mid the lo...
WTO instruments have effectively worked to strengthen some of member
countries’ hegemony over other majority countries (re...
In Indonesia – according to Indonesia Investment Coordinating Board –
foreign investment has dominated several national st...
Chart 2.Various Facts on Equality of World Food Management

Chart 2. Varios Facts on Equality of World Food Management

So...
creased by 47%, compared to the value in 2010, which was US$11.7 billion. The
high import value has worsened Indonesia’s t...
Bali Package
The fact that developed countries – amid their slow economic growth –
have the interest for expanding and str...
Quota Free5, The LDCs Services waiver6, cotton, and TRIPS Waiver7. However,
the implementations are not as smooth and easy...
1945 Constitution, which is more operational, affirms, “The land, the waters and
the natural resources within shall be und...
Ir. Marwan Batubara M.Sc
Executive Director IRESS

Dr. Erwin Ramedhan, MA
Permanent Lecturer and Course Coordinator
S3 Eco...
Middle East and Africa. In Indonesia Aqua controls 80% share in gallon-drinking water market. It controls 50% share in the...
and quantity of water in surrounding area have drastically dropped. The people
have to pay dearly because of this decreasi...
per second in their well in Klaten (since Danone Aqua avoids to do environmental impact analysis), but they are able to pu...
Aqua Golden Mississippi seems to not want to report their business activities every year, especially considering that thei...
none Aqua officially claims that it only pumps less than 50 liters of water
per second. Therefore the operations are condu...
in Shanghai. Danone Aqua is never registered as PT. Tirta Investama’s share
holder. The share holders are companies in Sin...
including foreign intervention and bribery. Writer has reported this fraud to tax
office and Indonesia Anti Corruption Com...
Salamuddin Daeng
Researcher in Indonesia for Global Justice (IGJ)

Indonesia towards Bankruptcy

The Impact of Indonesia’s...
difference is that APEC does not bind because it is actually businessmen or corporate meetings, which are facilitated by t...
agreement, for Indonesia, has performed a coup by making Indonesian Government to obey WTO instead of Indonesian Constitut...
Over-Commitment
As we all know, since Doha Round in 2001, WTO negotiation regarding agricultural subsidy elimination has r...
ture and industry sector. Food import is increasing. About 70% of raw material for industry is imported. National economy ...
big trade deficit, (2) balance of payment deficit and (3) increasing fiscal deficit.
This country is dying because of its ...
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
Free trade watch (final)
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Free trade watch (final)

  1. 1. CONTENTS Towards the WTO Bali Round?................................................................. 4 Syamsul Hadi, Ph.D WTO and A Threat to the National Economy............................................ 12 Prof. Ahmad Erani Yustika The New Imperialism in the Third World Countries: Multinational Corporations and Intellectual Property Rights............................................................................... 18 Prof. Anak Agung Banyu Perwita Small Dairy Cattle Farmers : Victims of Liberalization............................22 Teguh Boediyana M.Sc Trust and Credibility Deficit.................................................................... 30 Dr. Rizal Ramli The Constitutionality of WTO Negotiation...............................................34 M. Riza Damanik Condemning Foreign Corporations’ Control over Water Resource through Privatization “Bottled-Drinking Water Commercialization Case”....................... 42 Ir. Marwan Batubara M.Sc - Dr. Erwin Ramedhan, MA Indonesia towards Bankruptcy The Impact of Indonesia’s Over Commitment to Trade Liberalization.......................................................................50 Salamuddin Daeng Ideology Bandung Spirit ; A Fondation for International Cooperations.........58 The Speech in The Asia-Africa Conference (1955) by President Sukarno Special Edition - 2013 1
  2. 2. Stop Dying with WTO! W TO is paralyzed, even dying! It is not only because WTO has failed to make its 159 member countries reach an agreement, but it has also failed in enforcing the previously established agreement. Developed countries like the United States and European Union countries are members that often halt the negotiation process, including those that often break the agreement. Since Doha Round negotiation in 2001, followed by Cancun in 2003, Hongkong in 2005, and Geneva in 2009 and 2011, WTO failed to reach agreement according to the planned schedule. WTO plays the splitting bamboo politics – as it is called in Indonesian term. Poor countries are being crushed; rich countries are cherished. Farmers and labors are placed under feet, while multinational corporations are held up high. All WTO agreements will always benefit multinational corporations, industrialized and rich countries. Therefore, it is reasonable that in every WTO negotiation labor, farmer, fishermen, and women organizations in all over the world always fight against it. Industrialized countries generally do not need high tariff to protect their national economy. Their industry structure is strong and efficient. Therefore, trade tariff removal agreement will only harm poor countries, whose national industries are considered “infants”. All industrialized countries have implemented various non-tariff policies to protect their national economy from import goods. Many requirements such as product standardization, sanitary and phytosanitary, are effective trade barriers implemented by developed countries. On the contrary, they cannot be implemented in developing and least developed countries because these countries are limited by transfer of technology and enforcement of intellectual property rights. 2 Free Trade Watch
  3. 3. Unfortunately, Indonesian Government seems to be more loyal to WTO regulations. The government has implemented import duty reduction, nontariff barriers removal, subsidy reduction, intellectual property rights enforcement, which makes Indonesia looks overly committed. Most recently Indonesian Government even intends to revitalize WTO by agreeing to be the host of WTO IX Ministerial Conference in Bali. WTO negotiation that will be held on December 3rd to 6th, 2013 will be convened amid chronic crisis faced by Indonesia as the consequence of trade liberalization, whether it be WTO, FTA, EPA and other free trade agreements. Crisis that hit Indonesia since 2012 is deeper than one in 1998. It is even worse than one in 2008. This crisis included first, balance of payment deficit as a result of imports on food, oil and gas and 70% of raw material for industries. Second, balance of payment deficit due to high rate of imports on goods and services, debt interest payment, and government and private debt payment. Third, fiscal deficit due to government’s foreign and domestic debt and interest payment as well as increasing energy sector financing. And lastly, increasing poverty rate, unemployment rate, and socio-political turmoil triggered by economic crisis. After observing all WTO agenda in Bali, the negotiation materials seem to be dominated by corporations’ interest. The result of Asia Pacific Economic Cooperation meeting in October 2013 in Bali will even be fully adopted by WTO. As we all know that APEC is actually an all-corporations meeting. Therefore, the success of WTO meeting in December 2013 will be a disaster for labors, farmers, and the poor all over the world, especially in poor and developing countries. It will always be a paradox, if Indonesian Government actively participates in leading the people (read: the people of Indonesia and the world) to die with WTO. Editor Special Edition - 2013 3
  4. 4. Syamsul Hadi, Ph.D International Political Economics Lecturer At International Relations Department FISIP-University of Indonesia Towards the WTO Bali Round? A PEC economic leaders meeting last October resulted in a consensus to succeed World Trade Organization’s free trade negotiation, which has been stagnant since the year of 2008. In the APEC forum, one of important agreements, which was successfully sponsored by Indonesia, was 21 APEC member countries’ willingness to agree on new framework in free trade in a form of products that contributes to rural development and poverty alleviation. Based on this framework each member can propose a list of powerful products to support poverty alleviation in their country so they get more access to market. According to Minister of Trade, Gita Wirjawan, this framework is potential to preliminarily reopen WTO negotiation that failed in 2008. This is a result of each country’s poverty problem and their interest to protect their people so they do not get poorer because of free trade. Rural development and poverty alleviation frameworks will be discussed in WTO Ministry of Trade Meeting in Bali, in December of this year. If 158 4 Free Trade Watch
  5. 5. Ministers of Trade, who will attend the meeting in Bali, successfully agree on this framework, thus WTO will have new spirit after 5 years of dormant. Doha Round, which is WTO’s forerunner, will be replaced by Bali Round, which will be more accommodative to developing countries’ interest. Indonesian Government’s desire to immediately replace the name of Doha Round to Bali Round is actually not far from President Yudhoyono’s administration’s tendency to build image at the national and international level. The question is, will the fantastic plan achieve its goal during WTO Ministerial Conference in Bali? What are the structural challenges that might prevent the big ambition to bring back the failed WTO negotiation alive? Doha Round Stagnancy Realism perspective in International Relations sees WTO (and its predecessor such as the General Agreement on Tariffs and Trade) as an organization that was established as an implementation of the United States’ hegemonic vision post World War II. WTO and the other two institutions, International Monetary Fund and World Bank – used to be known as International Bank for Reconstruction and Development – are part of Bretton Woods institutions, which aim to create free and open world. Liberal world order like this is the US’ interpretation on world model that ought to be established following the end of the war, which happened because of the tendency towards protectionism and fascism that were the mainstream ideology at that time.1 WTO establishment post the GATT Uruguay Round in the period of 19861994 increasingly emphasized this liberal vision. WTO is a world trade organization that aims to realize free trade principles and reduce tariffs in developed and developing countries. As an institution, WTO is in line with the United States’ ideology about global economic order. Through the principle of most favored nations, WTO emphasizes the importance of multiculturalism, where non-dis1 Eric Helleiner, “The Evolution of the Internatonal Monetary and Financial System”, in John Ravenhill (ed.), Global Political Economy, Third Edition (New York: Oxford University Press, 2011), page 221 Special Edition - 2013 5
  6. 6. crimination principle is applied, for example if two countries have trade agreement; the agreement will also be applied to all members. WTO, as an institution, is very strong because its decisions are legally binding and impose sanctions to countries, who violate. Moreover, WTO also has trade dispute settlement mechanism, where the disputing parties have to conform to the independent panels’ decision.2 Having organizational platforms like these, it is not surprising that WTO establishment is in line with the era of globalization and neo-liberalism (market fundamentalism) that has been thriving since the 1990s. The problem is, although this organization is considered to be a successful global agreement, the contents do not reflect economic justice between developed and developing countries. WTO seems to take side with developed countries, especially European Union and Japan, who do not include agriculture sector – developing countries’ main comparative advantage – in tariff liberalization. On the other hand developing countries have to fully liberalize all sectors as demanded by the developed countries such as services sector and intellectual property rights. This debate finally made Doha Development Round, which started in 2001, meet deadlock until now. This round was expected to be global trade follow-up negotiation to discuss about this gap. However, the two parties’ persistence in fact has made it failed.3 Global Crisis and WTO Although normatively there are many countries, who are sounding the importance of avoiding protectionism and stating that market openness principle will provide more advantages, yet in reality each country is now becoming more careful towards the risks of global economic and financial order, which is often unstable. The issue of how far developed countries would sacrifice their domestic interest arose in agriculture negotiation in WTO, which caused deadlock for 2 Gillbert R. Winham, “The Evolution of Global Trade Regime”, in Ravenhill, Ibid., page 144 3 Joseph. E. Stiglitz and Andrew Charlton, Fair Trade for All: How Trade can Promote Development (New York: Oxford University Press, 2005), page 3-4 6 Free Trade Watch
  7. 7. WTO Doha Round negotiation since 2008. Stagnancy in WTO agreement was triggered by continuous difference of point of views about how and how far government of developed or developing countries ought to reduce their support in agriculture sectors to protect their farmers. When global crisis hit in 2008, WTO seemed to lose its moral authority. At that time until today, there have been many indications that countries in the world apply protectionism. There are 17 out of 20 G20 member countries on records, who have done this action. Baldwin and Evenett describe this action as murky protectionism,4 where trade barrier is not applied as an open challenge towards WTO principles, but more as an attempt to disguise it so it will be in accordance with product protection standards allowed by WTO. Developed countries would rather use subsidy instrument, while developing countries would use various different instruments, from tariffs barrier to non-tariff. The United States uses “green” policy as one of their murky protectionism, where the government provides subsidy to advanced batteries and components productions for factories in the country. The US Government also seems to follow socialism by applying “Buy American Product” policy, in addition to 20% tax credit for every American multinational corporation, who reinvest in the country.5 On the other hand, Russia increases tariff in used automobiles sector and Ecuador increase tariff on more than 900 types of goods. Argentina applies nontariff barrier, such as licensing requirement for automotive components, textile, television, toys, shoes, and leather-made goods, while Indonesia requires imports of five types of product such as garment, footwear, toys, electronics, and food and beverages, to go through five main ports. Other countries increase standards for imported goods, for example India improves standards for toy products from China; and China increases standards for imported pork meat by Irland, chocolate by Belgium, brandy by Italy, eggs by the Netherland, and farm products by Spain. 4 Richard Baldwin and Simon J. Evenett, “Introduction and Recommendation for the G20”, in Richard Baldwin dan Simon J. Evenett (eds.), The Collapse of Global Trade, Murky Protectionism, and the Crisis: Recommendations for the G20 (London: Center for Economic Policy Research, 2009), page. 4-5 5 “Protectionism: Is It on the Way Back?”, on September 17, 2012, accessed from www.bbc. co.uk Special Edition - 2013 7
  8. 8. Several other countries use bailout instrument as protection. In England, banking sector, which received bailout fund has to provide loans or credit in the country. The similar action has been done by France, who requires banks to provide loan to airlines that would terminate their purchase contract with Air Bus. These protectionism actions are described by French President Nicholas Sarkozy as follows:6 “...the situation in Europe means that you cannot accuse any country of being protectionist when the Americans put up to $30 billion to support their automotive industry...” Regarding this protectionism actions, Global Trade Alert report records that7 trade discriminative actions seem accumulatively increasing since the current global financial crisis. Between November 2008 and July 2011, 1,055 protectionism actions at the global level have been recorded; 932 of which were discriminative actions and the other 123 had the potential to hurt foreign economic actors. During this period, 359 liberalization actions were recorded to be applied, while 318 protectionism actions were issued. China was the main target regarding these protectionism actions. While Argentina, China, Germany, India and Russia were the most offensive countries, who implemented protectionism actions. WTO stated that the longer global economic crisis last, the more protectionism threat to the global trade will emerge. In 2012, when global economy seemed to be declining, global trade growth was only 2%, yet in 2011 global trade grew up to 5.2%.8 In 2013, amid gloomy global economic prospects, WTO adjusted their target of global trade growth from 4.5% to 3.3%. WTO General 6 Ibid. 7 Mohammad Farhad, “The Global Economic Crisis, Contemporary Protectionism, and Least Developed Countries”, accessed from http://www.unescap.org/tid/publication/tipub2625chap3.pdf 8 “WTO Warns Against Protectionism as It Cuts 2013 Global Trade Forecast to 3.3%”, on April 10, 2013, accessed from www.guardian.co.uk 8 Free Trade Watch
  9. 9. Director, Pascal Lamy, views:9 “...the threat of protectionism may be greater now than any time since the start of the crisis, since other policies to restore growth have been tried and found wanting...” Amid increasing numbers of attempts of protectionism by countries in the world, WTO’s Trade Dispute Settlement Body does not get many complaints. It is different from the pre-crisis period, where protectionism actions always ended up on WTO table. It is due to several factors. Firstly, protectionism actions, which are applied, are typically murky protectionism, which basically do not violate WTO legal regulations. When a country increase trade tariff, the adjusted tariff will still be under maximum bound tariff level allowed by the organization. Secondly, regarding subsidy cases, there is no complaint addressed to WTO because almost all members apply or are thinking of applying the same policy. Stimulus package that the US Government provides to its automotive sector is also being applied in other countries, like European Union. Thirdly, submission to WTO table is seen as complicated process because it has to involve legal evidences gathering, thus it takes a long time.10 During the crisis, WTO performs its monitoring and supervision function more.11 WTO regularly issues reports on protectionism actions that are developing globally. However, WTO highly depends on available data supplied by member countries, especially from Ministry of Economics, Trade, and Industry of Japan because its secretariat has limited capacity. WTO also seems to restrict itself from criticizing its member countries’ actions because it is not WTO’s mandate. 9 Ibid 10 Claude Barfield, “Protectionism and the Global Economic Crisis”, tertanggal 1 Oktober 2009, accessed from American Enterprise Institute (AEI), http://www.aei.org/article/economics/ fiscal-policy/protectionism-and-the-global-economic-crisis/ 11 Tsuyoshi Kawase, “Protectionism and the WTO after the Global Financial Crisis: Role, Effectiveness, and Challenges of Governance under Multilateral Trade Agreements”, accessed from Research Institute of Economics, Trade, and Industry (RIETI), http://www. rieti.go.jp/jp/events/09071601/pdf/1-3_E_Kawase.pdf Special Edition - 2013 9
  10. 10. Towards WTO Bali Round? Regarding Doha Development Round – which is in the state of “neither die nor live” – global economic crisis exacerbates the direction of trade negotiation in WTO. The crisis has made negotiation prospects go dark because almost all countries try to save themselves in order to solve ongoing economic recession. Furthermore, there has been global commitment to press protectionism, for example in G20 Forum and APEC, yet in reality this commitment only exists on paper without any concrete implementations. Therefore, in the future Doha Development Round negotiation will get tougher and exacerbate the gap between developed and developing countries.12 Developed countries, under the pretext of global crisis that followed by Euro Zone crisis, will be more reluctant to remove subsidy in their agriculture sector, while developing countries will loudly refuse to further liberalize their economy. In this case, what Vinod K Aggrawal and Cedric Dupont stated – based on their game theory calculations analysis to see countries’ tendencies in international economic cooperation and coordination today13 - is interesting. One of the analysis states that in unstable global economy situation, a country, who partakes in an international cooperation, will face profit and cost uncertainty, in addition to the uncertainty about direction other countries will go to. In uncertain monetary and financial situation since 2008, where burden sharing is needed between countries to enforce a better global monetary and financial system, yet big powers like US and European Union are reluctant to commit to one economic international cooperation because they are not sure if the other actors (countries) are willing to commit and sacrifice as much as they would. The analysis by Aggraval and Dupont is not good news for Indonesian Government. It should be kept in mind that WTO Doha Round spirit is actually not far different than rural development and poverty alleviation framework that is promoted to start Bali Round WTO. Doha Round was also developed from ideas 12 Yue, Op. Cit., page. 3 13 Look Vinod K Aggarwal and Cedric Dupon, “Collaboration and Coordination in the Global Political Economy”, in John Ravenhill (ed), Global Political Economy (third edition), Oxford: Oxford University Press, 2011, page. 61 and so on. 10 Free Trade Watch
  11. 11. to give beneficial opportunities to development in developing countries, by setting a negotiation on agriculture sector – the comparative advantage of most developing countries – as the main agenda. APEC Forum that induces a non-binding (voluntary) agreement is different than WTO, which results in a binding agreement and involves bigger number of member countries. This could mean that Yudhoyono’s administration successfully achieves its image building goal, by changing the name Doha Round to Bali Round. However, there is big possibility the future of Bali Round will not be much different than Doha Round, which is now only a nameplate. In the global economic situation full of uncertainty, each country’s national interest will become the main consideration of countries’ minister of trade, who will negotiate in WTO, whether or not they will commit to free trade agreement in the near future. For Indonesia, who is experiencing continuously growing trade deficit, national interest to protect domestic economic actors and improve its national economy competitiveness is supposed to be the main focus, instead of its desire to keep building image in international level, which reflects foppishness of a “leader with guitar”, who would rather show off his singing skill in international forum than to sincerely fight for his people’s interest. *** Special Edition - 2013 11
  12. 12. Prof. Ahmad Erani Yustika Professor of Economics and Business Brawijaya University; Executive Director of Indef WTO and A Threat to the National Economy S ince New Order Era Indonesian Government has decided to allow market ideology to run the economy. There are at least three arguments on which it is based: the economy’s openness to foreign investment, foreign debt to cover the cost of development, and the increasing role of private sectors in the national economy. Indonesia’s market had been slowly opened and reached its peak in 1998, when the country was hit by bad economic crisis. At this moment Indonesia invited IMF and World Bank to help rehabilitating national economy, surely with tough requirements. IMF presented grant with various policies, which had to be adopted by Indonesia, at the country’s cost. These policies are also known as structural adjustment policies. The policies – formulated by the IMF – have become the foundation of how Indonesian Government directs national economy, which stresses on economic liberalization, until today. 12 Free Trade Watch
  13. 13. Liberalization and Economic Crisis Over the 15 year period from 1998-2013, it can be considered the missing episode of Indonesia’s economy. Indonesia was busy solving several economic crises that happened one after another instead of enjoying its prosperity. In 2005 food and energy price increase hit the country; in 2008 subprime mortgage crisis in the United States affected the national economy; and in 2010 developed countries’ fiscal crisis also affected the economy. The three crises almost did not give Indonesian Government opportunity to peacefully direct the economy. In this period, the bitter reality that had to be accepted was that while developed countries through IMF told developing countries how to direct the economy, they were directing economic system badly. Economic liberalization has made borders between countries slightly disappear; consequently crisis that happens in a country with a bad economic system will easily affect others even though they have directed their economy cautiously. The economic crisis is surely not an unusual event because it has frequently happened since the 2000s. It is also not a coincidence that numerous crises happen during the era of liberalization. On one hand, liberalization allows close international interactions to happen, which makes accumulating economic activities possible. This is the basis of the idea that economic prosperity can be easily achieved when countries do not apply market protectionism. On the other hand, liberalization makes it hard for a country to avoid being affected by a crisis that happens in another country. This is because the increasingly intense international relations, whether in financial, trade, investment, and other sectors. At this point, economic liberalization fails to achieve its goal, thus the urge to evaluate and leave this concept is getting stronger each day, even in developed countries. Indonesia’s commitment to partake and direct the economy to liberalization can be traced back to long before the 1997-1998 economic crises. In 1983 and 1988, Indonesia has massively opened its banking sector to foreign economic actors. In 1989 Indonesia was one of Asia-Pacific Economic Cooperation founders and the host for APEC Summit in Bogor, which resulted in Bogor Goals. In the same year, Indonesia ratified World Trade Organization establish- Special Edition - 2013 13
  14. 14. ment in Marrakech, Morocco. Indonesia has become a WTO member on the first round; while China and Malaysia decided to not involve in the organization because they figured it would disadvantage their national interest. Afterwards, Indonesia partook in various trade liberalization forums such as AFTA, AFTAJapan, AFTA-China, AFTA-South Korean, and AFTA Australia – New Zealand. In addition, Indonesia’s domestic policies have been liberalization oriented post WTO. In energy sector, the government issued Oil and Gas Act No. 22/2001, which was against the 1945 constitutions, especially article 33. In investment sector, Indonesia issued Investment Act No. 25/2007 that allowed foreign investment to participate in every economic sector, including the strategic ones, with the same rights as domestic economic actors. This act was the extension of President Decision No. 96/2000, which reduced the number of business sectors, which were close for foreign investment, from 9 to 8 sectors. Moreover, in food sector, the privatization of Bureau of Logistics has been undergone since the Government Regulation No. 7/2003 issued, food policies, which offer very low tariffs for rice, soybean, maize, and others imports and allow genetically modified seeds imports. Financial sector has also been opened as the government issued permit up to 99% foreign ownership of domestic banks through the Government Regulations No. 29/1999. The implication of Liberalization Rising economic growth, controlled inflation, measurable fiscal deficit, and well-managed debt are considered Indonesian Government’s achievements post 1998 economic reformation. However, they are somewhat illusions because they cannot show the real condition and power of national economy. Economic growth is mostly supported by foreign investment, heavy foreign capital flow – rewarded by government or central bank – and mostly targeting non-tradable sector. In general, inflation can be pushed down to lower than 10%, but if the price of imported food commodities highly increases to the point it crushes low income group – whose most income is used for food. Fiscal deficit is indeed under 3% and debt-to-GDP ratio is way under 60%, as international consensus, but primary balance – government’s income subtracted by its spending outside 14 Free Trade Watch
  15. 15. debt payment – is negative. In 2008 primary balance was positive with IDR 84.3 trillion; in 2013 (State Budget 2013), as predicted, it will be negative with IDR 111.7 trillion deficit. Furthermore, there are many other fundamental problems that indicate the decline of national economy post the implementation of economic liberalization. First of all, many studies show insignificant positive impact of trade liberalization towards the economy. A study – done by Amaliah and Octaviani in 2010 – shows that AFTA impacts on GDP: 0.09% in government spending, 1.24% in investment, 1.11% in exports, -0.28% in trade balance, and 0.09% in real wage. Particularly on real wage, another study shows that Indonesia’s real wage of 0.90% is the lowest compare to the other countries in the context of ASEAN – China Free Trade. On the contrary, several countries experience increase in real wage, for example 4.9% in Malaysia; 1.15% in the Philippines; 1.95% in Singapore; 3.35% in Thailand; and 6.80% in Vietnam (Kitwiwattanachai et al, 2010). This data is also consistent for skilled labors. It is pretty clear that trade liberalization is not beneficial for Indonesian labors. Secondly, since the trade and investment liberalization, Indonesia’s economy is now declining. For the first time after 40 years, national trade balance was negative in 2012 as the annual export growth was always lower than the annual import growth. This reality justified the study that was done by Amaliah and Octaviani. In the context of ASEAN – China Free Trade Area, Indonesia’s trade balance deficit has been increasing since 2010. In 2012 the deficit was more than US$8 billion; in 2013 it will reach US$10 billion. If the country’s market is opened wider as planned in ASEAN Economic Community, which will be in effect in 2015, we can imagine the future of Indonesia’s trade balance. Thirdly, contribution from foreign investment to the national investment is approximately 70%. This means that domestic investment only contributes 30% to national investment. Indonesia Investment Coordinating Board, who is expected to promote domestic investment to local businessmen in order to fill in the space available, issues policies and undergoes activities, which serve mostly foreign investors’ interest. Various policies and activities have been continuously executed by the Board to serve foreign investors’ wish. It is almost never Special Edition - 2013 15
  16. 16. heard that the Board provides facilitation to empower domestic investors in this country. The Investment Board only cares about increasing investment without thinking of who enjoy and own the investments. Foreign investment does not only minimize economic space for domestic investors, but it also hurts Indonesia because of the large amount of the capital repatriation. In 2012 for example, foreign investment repatriation reached US$17 billion. This was not only a large amount but it also contributed to the increased current transaction deficit. Fourthly, there is increasing income gap once economic liberalization is being implemented. Although economic liberalization opens more job opportunities, it is only beneficial to economic actors, who have access, capital, and skill. The problem is, to date, 67% of Indonesian labor force only graduated middle school; many of them did not even graduate elementary school. Economic sector that experiences speedy growth is non-tradable sector, which is populated by small number of high-skilled labors, who are mostly foreigners. On the contrary, real sector labors such as those, who work in agriculture and manufacture, experience difficulty to grow because of limited capital, education, and support from government (lack of protections). Investors only want to come to Java Island that has established infrastructure and market. At this point, national economy is filled with three types of disparities: intercommunity, intersectoral, and interregional. Moreover, Indonesia’s economic sovereignty is declining as a consequence of its increasing dependence on foreign economy, whether in finance, food, energy or other sectors. Financial sector is getting more integrated into international economy; consequently every time economy in other country, especially developed country, crashes, it will immediately affect domestic economy, for example the US government’s plan to reduce bond sales a while back that caused Rupiah exchange rate against US Dollar dropped. Indonesia is now facing a difficult problem related to energy supply because most of oil and gas exploration companies are foreign investors. In agriculture sector, pesticides and seeds as well as trade sector are controlled by foreign economic actors. Government experiences difficulty in maintaining energy and food price stability because the foreign corporations – instead of the government – do not control the two sectors. 16 Free Trade Watch
  17. 17. Indonesia has been getting praises and awards from developed countries and international organizations because of its policies that spoil the foreign corporations. On the contrary, the government is scorned by its people because the life in Indonesia is getting tougher; prosperity rate dropped; and the future becomes uncertain. In this situation, there is no other way than reformulating Indonesia’s economic policies based on the constitutions. Economic liberalization obviously is contradicted with the constitution and proven to crash the economy so that it is far from economic sovereignty like what the constitutions aspires. We do not have much time, thus the decision to restore economic system and policies needs to be immediately taken. If not, the collapse of national economic is inevitable. *** Special Edition - 2013 17
  18. 18. Prof. Anak Agung Banyu Perwita Professor of International Relations Head of The International Relation Program President University, Jababeka, Cikarang, Bekasi The New Imperialism in the Third World Countries: Multinational Corporations and Intellectual Property Rights I n the context of third world countries’ economic and political relations with multinational corporations, they tend to have difficulties in controlling its access to economic and political sovereignty. The difficulties include its inability to control domestic market, natural resources, and investments as well as to protect its rich traditional culture from foreign/multinational corporations’ patent grip. In many cases, foreign/multinational corporations even become the new owner of all natural and non-natural resources, which are belonged to third world countries. The economic power concentration then presents them oli- 18 Free Trade Watch
  19. 19. gopolistic power that gives opportunity to the foreign corporations to control and even to dominate all production, distribution and price mechanism that are used to belong to the third world countries. The above, in fact, decreases third world countries’ bargaining position against foreign/ multinational corporations. The decreasing bargaining position forces the third world countries to succumb into global integration. The third world countries’ position in the global integration is basically an attempt by various foreign corporations to make these countries more dependent on them. The global integration, according to Shah M. Tarzi (2000), includes various complicated production, marketing and distribution and pricing processes. Third world countries’ limited capacity in technologies, investments, and marketing and distribution networks has become foreign corporations’ “pseudo savior” of economic development in almost all countries. This position ultimately makes third world countries the dependent actors in the field of global political economy and causes the pattern of relations between these countries more asymmetrical. In addition, the third world countries are not only dependent on countries with bigger economic interest, but they also experience worse condition when their economy highly depends on capitalists or foreign corporations. At this point, the foreign corporations will become new hegemonic power in international relations. On the other hand, the weaker third world countries’ economic sovereignty is, the worse global economic crisis will be. Asymmetrical treatment in economic cooperation and world trade and third world countries’ weak bargaining power at the same time will and have strengthened foreign corporations’ domination towards the countries at production, distribution and marketing and pricing level. In the context of Asia and the Pacific regional trade, APEC as the main regional trade mechanism has not yet given significant contribution to fair trade. Cooperation mechanisms in APEC, which stress on three main aspects: economic liberalization, trade facilities and economic and technical cooperation, are considered unable to create a more fair trade mechanism. Although the nature of Special Edition - 2013 19
  20. 20. trade is non-binding, in practice, the trade mechanisms binds one another. The 2013 APEC Summit in Bali, Indonesia, according to Ministry of Foreign Affairs, Marty Natalegawa, will convene under the theme “Resilient AsiaPacific, the Engine of Economic Growth” with three main focuses: achieving the Bogor Goals, supporting sustainable growth, and improving connectivity. Although many observers state that the above priorities are relevant, they mainly require a consistently improving institutional mechanism at the national, regional, and global level. Now, the question is, can we ultimately achieve those priorities to increase income of small economic community? It has apparently become Indonesia’s and other third world countries’ difficult task to work on, when they are still restrained by their alignment with poor community, whose livelihood are mainly in agriculture and/or creative or traditional industries. It further strengthens the argument that a more fair trade will never happen in many developing countries; on the contrary rich countries and foreign corporations’ domination will further shrink developing countries’ space of action. It will ultimately strengthen big countries and foreign corporations’ bargaining power over third world countries. Therefore, regional mechanism like APEC and an initiative to strengthen WTO will only be exploitative trade policy instruments by developed countries and foreign corporations over third world countries’ and small economic communities’ existence. There are many existing examples that can prove the above argument. Foreign corporations’ domination in pharmaceutical and automotive industries is one example how third world countries increasingly depend on foreign corporations. This also has happened in other industries in third world countries, including creative industry. This type of industry basically relies on artistic creativity and cultural imagination that are attached to one’s everyday life. For example, handicraft industry in Bali – a form of cultural creativity, which has been passed on from generation to generation in Balinese communities – has now been controlled by and threatened by patents that are owned by capitalists/ foreign corporations. This will strongly disadvantage Balinese craftsmen because they will not be able to create such crafts without a permit from the patent owner. 20 Free Trade Watch
  21. 21. This issue has become more complicated as the national and local governments do not seem to care about the problem many local craftsmen are facing. Amid increasing ownership claims of traditional design that is belonged to the local community from generation to generation, many craftsmen communities now demand the government to care and to pay attention to the future of their livelihood. Ironically, the government does not give maximum attention to the widespread problem in the country. These craftsmen like ones in several national handicraft centers in Bali are anxious about copyrights legal sanctions. Worse condition is actually happening right now, where capitalists always try to exploit craftsmen’s creativity and artistic ability solely for copyrights. With the reason to open business and to create greater job opportunities, the capitalists have made them create various unique designs only for foreign investors’ interest. Therefore, claim that free trade could benefit and make local community’s life prosperous is a myth only because foreign investors are the ones, who will gain the biggest profit. With the copyrights certificate on intellectual property or patent, the foreign capitalists now make craftsmen in many areas in Indonesia their sub-ordinates. This condition will create new international hierarchy, which tends to be very exploitative between foreign investors and Indonesian artists. It will also make intellectual property rights, which are based on local genius, are not only based on innovation and artistic creativity but based also on orders from foreign investors. The question now raised is, what is the future of the Pancasila Economy that glorifies economic populism initiated by the founders of this nation? Will the intellectual property rights create a new economic imperialism – as part of neoliberal economic regimes – which exploits third world countries? Apparently, we can conclude that the answers to the above questions show negative tendencies in the future of Indonesia’s economy and national trade, especially for the small economic communities. *** Special Edition - 2013 21
  22. 22. Teguh Boediyana M.Sc Chairman Indonesia Cattle and Buffalo Farmers Association ChairmanIndonesian National Dairy Board Small Dairy Cattle Farmers : Victims of Liberalization W hen elites in the government claim the success of economic growth, decline in poverty rate, and other success, at the same time there are more than three hundred thousand dairy cattle farmers and their family who might not aware of this hot issue. They are too busy to survive with their dairy cattle. Although the farmers only have two to four cows, but they mean a lot to the life of the farmers and their family. Before the sun rises they have to feed and milk the cow. Afterwards they go to get some grass for their cows which need 30 kg of grass each. They do not buy the grass because the profit they get from their business cannot cover the cost, thus they pick the grass in their neighborhood. The farmers and their wives do not even care about their safety doing down steep hill carrying fresh grass for their cows. They never calculate the value of their labor when they work to take care of their cows. They only know how much money they get from selling the milk and how much they use to buy feedstuff and other needs for the cows. The rest is considered as a profit. Small dairy cattle farms that are spread over pockets of production such as 22 Free Trade Watch
  23. 23. Lembang, Pengalengan, Garut, Kuningan, Boyolali, Salatiga, Pujon, Pasuruan, and Probolinggo deserve rewards because they are not burden to the government. They do not ask government to open job opportunities and ask for minimum wage because they create their own job. Nevertheless, they have rights that need an attention of various parties particularly the government. Indonesian farmers have the right to be jealous with their fellow dairy cattle farmers in New Zealand, Australia, United States, and Europe, who have thousands of cattle with very large grassland and they do not have to cut the grass themselves like the farmers in Indonesia. These farmers have the rights and ought to be jealous with their fellow farmers in those countries because farm gate price is more than $0.66 or about IDR 6,000 per liter in New Zealand; about IDR 10,000 per liter in Japan; and over IDR 6,000 in Europe per liter in addition to various subsidies from the respective government. Meanwhile dairy cattle farmers in Java Island only get between IDR 3,800 to IDR 4,800 per liter. That price is already a raise paid by milk processing industry after the farmers went on strike under the coordination of National Milk Board on April 24, 2013 to demand price increase for the fresh milk they produce. The milk processing industry claims that the quality of the milk they produce is low. But the farmers are not stupid. If they get the right price they would be able to meet the standard quality. They cannot produce high quality milk if they do not get price that can cover cost of production. Victims of Disproportionate Liberalization The condition of dairy cattle farms that has been going on for one and half decades is clearly the effect of excessive economic liberalization implementation. It was started with monetary crisis at the end of the year 1997 when the President Soeharto’s administration tried to solve the crisis through a partnership with International Monetary Fund ( IMF). At the end of October 1997, the Indonesian Government signed a Letter of Intent ( LOI) with IMF which consisted of fifty points of agreement. Special Edition - 2013 23
  24. 24. We do not know who played with and allowed IMF to insert an agreement that required Indonesia to remove the provision which oblige dairy products importers to absorb fresh milk produced by domestic dairy farmers in a specific ratio through existing dairy cooperatives . The President Instruction No. 2/1985 about National Dairy Development stipulated that any business, who intended to import dairy product either as raw material or finished product was required to buy fresh milk produced by local farms on a certain ratio. This policy guaranteed that local farms’ fresh milk – considering this is perishable commodity – have captive and assured market. In addition, the policy made it possible for government to mediate the price of fresh milk. As the consequence of the LOI, the President Instruction No. 2/1985 was revoked through the President Instruction No. 4/1998. Since then, the farmers have had to go head-to-head with the Milk Processing Industry ( IPS), some of which are multinational companies. These dairy cattle farmers are the first victims of free market and liberalization. The parties, who inserted requirements to remove the small dairy cattle farmers protection, are corrupt and immoral. Considering the nominal, the dairy cattle farm is a relatively small business. Until today, fresh milk production by small dairy cattle farms per year does not pass IDR 2 trillion, compared to the value of imported milk either as raw material or as finished product, which range from US$700-800 million per year. The result of eliminating the protection for small dairy cattle farmers is clearly described on the following table. The dairy cattle farmers, who are mostly poor, clearly have to struggle in life and take bitter pill of excessive liberalization. The table shows that the farmers are actually the ones, who give subsidy to consumers or the big domestic or foreign companies that use fresh milk as their raw material. 24 Free Trade Watch
  25. 25. Table 1. Price comparison of imported milk and locally produced fresh milk processing industry: Year Price IDR estimation Fresh milk Skim Milk Anhydrous Exchange imported buying Powder Price Milk Fat Price Rate against milk Equal to price /liter (US$/Ton) (US$/Ton) US Dollar 1 lt of Fresh (in IDR) milk 2001 2002 2003 2004 2005 2006 2007 2008 2050 1300 1700 2100 2200 2600 4200 3660 2250 1500 1900 2300 2400 2800 4400 3300 9420 10.28 8864 8440 9575 9395 9115 9300 2600 1780 2040 2435 2835 3220 5060 3880 1370 1370 1370 1370 1800 1925 1925 * 3400 Notes : 1. SMP: Skim Milk Powder. 2. AMF: Anhydrous Milk Fat 3. The average value of US$ in a year. Data is taken from Bank of Indonesia. 4. International milk price taken from weekly data of Understanding Dairy Market : Brian Gould, Agricultural and Applied Economics, UW.Madison. 5. Average international milk price in respective year. 6. Fresh milk price with quality rate of 11.3 % total solid. 7. SSDN : domestic fresh milk * The price of fresh milk paid by milk processing industry has been raised to IDR 2,800 per liter since November 2007. The terms used are competitiveness enhancement incentive, transportation subsidy, etc. This increase was due to sharp world milk price increase. The farmers and their cooperative’ position is weak in the context of determining milk price. The terms basic price, loyalty incentive, transport incentive Special Edition - 2013 25
  26. 26. and cattle feed allowance, which are used to determine the price of milk, are ridiculous. The price given by the milk processing industry, which is the main market for the milk produce by these small farms, is not standard. The price is supposed to be determined by quality. However, as a consequence of low bargaining position, the farmers and their cooperative have to dance with the drum played by the big companies. Another loss that the farmers have to face is that the quality of the fresh milk they produce is determined by the milk processor as buyer, and there is a relation between the price of milk and its quality. Low bargaining position and no protection from the government make the farmers have to take the bitter pill of liberalization. Government Contribution Indonesian government contributes to the condition of dairy cattle farmers being in slump. Their mistakes and misunderstanding about liberalization are further continued by allowing the farmers to fight the giant milk processing industry. The companies’ guarantee to keep buying fresh milk from farmers is considered sufficient without acknowledging the fact that the farmers are suffered, especially regarding the price of fresh milk price. Having revoked the President Instruction No. 2/1985, which imposed related government agencies to effectively coordinate, there is no significant attention paid by any government agencies to farmers. Since the LOI with IMF signing in October 1997, there has only been one inter-agencies coordination meeting at top official level in October 2008, which happened after getting pressure from the Indonesian National Dairy Board to discuss about Milk Processing Industry Association’s intention to reduce the price of fresh milk produced by the small farms. Lobbying power of the milk processing companies is also very remarkable and powerful. As a result, the Ministry of Finance provides the facility of milk import duty borne by the government – which takes a big portion of state budget – to milk processing industry. Ministry of Finance also issued Minister of Finance Regulation No. 19/PMK.011/2009 in February 2009 to drop milk import 26 Free Trade Watch
  27. 27. duty to zero percent. Due to strong reaction from the National Dairy Board, the Minister of Finance issued another regulation No. 101/PMK.011/2009 on May 28, 2009 to reinforce 5% milk import duty. Dairy cattle farmers ought to be impressed by the power of lobby that can lure the Minister of Finance to reduce the milk import duty, despite the world milk price in 2009 was lower than the price of year 2007 – 2008. After LOI with IMF signing at the end of 1997, the non-tariff policy which could protect domestic milk production, was removed and thus impacted the farmers. The government seems to not care about the farmers. Government elites seem to be possessed by the spirit of liberalization, thus they allow the small farms fight against milk processing industry, which is the main market for fresh milk they produced. With weak bargaining position and no protection, farmers have to accept that the fresh milk they produce is priced lower than imported fresh milk by the milk processing industry. They are powerless when the milk industry unilaterally defines the quality of the fresh milk, which will affect the price. The farmers have the right to be upset because there is no added value to the fresh milk they produce. The fresh milk can be sold at two to three time higher price to consumers after processed into milk products such as liquid ultra high temperature processing milk, powder milk, sweetened condensed milk, and pasteurized liquid milk. The farmers cannot demand anything from the sales because they only sell fresh milk as raw material and they do not have any share in the industry for them to be able to enjoy the added value. There was a short time where dairy farmers felt happy and were grateful to God the Almighty. In 2007 when the world dairy product price rose drastically, the Milk Processing Industry vying in obtaining fresh milk from farmers and raise the purchase price significantly. Although it only lasted for a year, it had been a blessing that farmers got better price yet still lower than imported raw milk. There are more that dairy cattle farmers could be jealous of and upset about but they are not weak. With the limitation that they have, they struggle to sur- Special Edition - 2013 27
  28. 28. vive. They never know that their contribution to fulfill the national milk demand has been stagnant for about a decade and will be declining over the increasing demand from Indonesian consumer in the future. The future of dairy farmers Recently, the fresh milk production which is mostly produced my small farms, only contributes to approximately 20% of total national demand, which in per capita is lower than that of other developing countries. In 1990s, the national production met 50% of demand. In the same year, there were a total of 230 dairy cattle cooperatives. Today there are only 95 existing dairy cooperatives. As a consequence of liberalization and government mistakes in responding to liberalization, the domestic milk market opportunity ultimately utilized by other countries. Moreover, the dairy farmers’ condition is also getting worse. The graph below shows projection of fresh milk production by small farms and domestic milk consumption. In year 2020 fresh milk production by small farmers could only contribute 10% to national milk demand if there is no serious action to improve fresh milk production. It means Indonesia will only be a net importer and will be further away from the food sovereignty, especially in milk commodity. 28 Free Trade Watch
  29. 29. Chart 1. Milk market compared to domestic fresh milk production (x 1000 MT) 7,000 Milk market 6,000 Fresh milk 5,000 4,000 3,000 2,000 1,000 - 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Milk Processing Industry Association. Small dairy farmers issues are real and concrete example of the implication of liberalization that is not be filtered and slavishly adopted by the country’s decision makers. The slow pace of domestic fresh milk production as well as the loss of a golden opportunity to empower natural and human resources to meet the national milk demand, is clearly our fault for dancing with other people’s drums. In order to anticipate this worsening condition, there is no other way other than that government shall have political courage to correct the errors that had been done. Fresh milk and dairy farm business is not just a means and livelihood for the farmers, but it is actually also an instrument to overcome and prevent a lost generation due to lack of protein consumption. *** Special Edition - 2013 29
  30. 30. Dr. Rizal Ramli Former Coordinating Minister for Economic Affairs Chairman of Indonesian Chamber of commerce Trust and Credibility Deficit I ndonesian Government’s main task – by the end of December – is to reduce current quattro-deficit. The deficit is continuously depressing Indonesian Rupiah exchange rate against US dollar – IDR the exchange rate dropped to 12,002 per US$1 – and causing the economy to be on “yellow light” status. (MetroTV, 5/9) If not immediately be solved, It is not impossible that the economy will fall into “red light” status like during the monetary crisis that happened in 1998. The current transaction deficit has to be halved, for example if now it reaches negative US$9.8 billion, at the end of the year it has to drop to about negative US$19.5 billion. If the government could reduce the quattro-deficit, public would be able to trust government’s credibility. However, it has been proven that the government cannot focus. The four deficits did not happen in one night; they have been increasing for the last two years. There was neither anticipation, nor alternative policy to face the crisis. The government seems to be surprised after this had happened. The president and his ministers have been busy with image building 30 Free Trade Watch
  31. 31. for the 2014 elections. Consequently, this hurts Indonesian people. The current condition is different than in 1998 when economic crisis hit America. At that time, all Indonesian fundamental macro-economic indicators were positive. Moreover, Indonesia’s export ratio/Gross Domestic Product was 25%, so 2008 crisis did not significantly affect national economy. Today, almost all fundamental economic indicators are negative (deficit); and on top of that, commodity booming cycle and liquidity expansion reduction in America have been terminated. These internal and external factors will cause Indonesian Rupiah exchange rate to fall to IDR 13,000-IDR 14,000 per US$, unless current transaction account deficit could be halved by the end of December 2013. Economic stimulus that was just recently issued – which cannot solve current situation – shows government inability to focus. There is nothing significant happens. In result, economic actors give negative response to the government initiatives. The quattro-deficits include Trade Balance deficit of US$6 billion, Transaction Account Deficit of US$9.8 billion, Balance of Payment deficit of US$6.6 billion, and state budget deficit and debt of IDR 1,200 trillion. This is very dangerous for the nation and its people. For the last three months, Indonesia’s foreign exchange reserves have gone down US$14.6 billion. It dropped US$20 billion more compare to the amount of reserves of last year same quarter. Indonesia’s reserve was US$92.7 billion by July 13, 2013; whereas it reached US$124.6 billion at the end of August 2011. The question is, where has the government been? How could they allow these indicators worsening? Is it because President Yudhoyono and his ministers are busy in politics? It certainly because the government do not think fast; its people become victims. Imagine! After first round price increase – gasoline and other basic needs price increase during Ramadan – hurt, second round of 10%-15% price increase – Rupiah’s exchange rate against US Dollar fell – hurt people once again. Sev- Special Edition - 2013 31
  32. 32. eral suggestions to reduce food price, which are addressed to the Chairman of Indonesia Bureau of Logistic and Minister of Trade through public media, have been ignored. The decrease in Rupiah exchange rate against dollar was caused by worsening macroeconomic indicators. Moreover, the total US$ 27 billion in government and private sector debt, which will due shortly, causes Rupiah exchange rate to be depressed. In addition, initiative of Bank of Indonesia, which continuously undertakes intervention by selling dollars, will be useless. This initiative is just like adding salt to the sea, which will make national foreign exchange reserve decreasing. The problem that Indonesia is facing is very difficult because there are trust and credibility deficits over government’s seriousness and ability to solve problems on top of the quattro-deficits. It should be noted that in 1998, trust deficit amid decreasing macroeconomic and external turmoil led to political changes, which was the fall of government. *** 32 Free Trade Watch
  33. 33. Special Edition - 2013 33
  34. 34. M.Riza Damanik Executive Director of Indonesia for Global Justice The Constitutionality of WTO Negotiation A mid the low confidence of people worldwide in the multilateral trade system, President Susilo Bambang Yudhoyono’s administration is determined to succeed World Trade Organization IX Ministerial Conference. The conference, which will be held on December 3rd – 6th, 2013, aims to fight against any kind of protectionism and increase the involvement of multinational corporations in various sectors that affect the life of people. The meeting will discuss three issues: trade facilitation, least developed countries’ development package, and agriculture. The topics are referred to as Bali Package. This paper is going to describe the position of Bali Package amid the economic crisis, which happens in countries in the world as well as its relevance to Indonesia’s 1945 Constitution. The Role of WTO Historically, WTO was proposed to increase the quality of development (read: justice and prosperity) by regulating multilateral free trade system. What happens is actually the opposite. 34 Free Trade Watch
  35. 35. WTO instruments have effectively worked to strengthen some of member countries’ hegemony over other majority countries (read: members and nonmembers) through free trade policies. They have been implemented by reducing and removing trade barriers such as tariff and non-tariff, including encouraging members to remove their subsidy for strategic sectors. On the other hand, WTO has successfully expanded the role and influence of transnational corporations in managing sectors that affect the life of people. WTO, therefore, strengthened its trade instruments by establishing Dispute Settlement Body. Crisis then started and it has been getting worse. Firstly, economic crisis has eventually weakened purchasing power and economic growth in some regions. It has also slowed down the export to developed countries and to boost foreign investment to developing and least developed countries (See Chart 1 and Table 1). Chart 1. Percentage of Average Economic Growth and Trade in Developed and Developing Countries 18,2 18 15,3 14 13,1 10,7 10 EXPORT 6 5,1 5,4 5,1 2 4,6 IMPORT 3,3 1,5 0 4,7 3,1 2,7 0 GDP 8 7,3 1,2 1 0 -0,1 -2 Developed Countries YEARS Developing Countries 2010 Developed Countries Developing Countries 2011 Developed Countries Developing Countries 2012 Source: IGJ Knowledge Management Center (2013) taken from World Trade Report (WTO, 2013) Special Edition - 2013 35
  36. 36. In Indonesia – according to Indonesia Investment Coordinating Board – foreign investment has dominated several national strategic sectors. For example, foreign investment in plantation, animal husbandry, agriculture, fishery, and mining sectors has reached 90% of total investment. Table 1. The value of Foreign and Domestic Investment 2012-2013 (in million US$) 2012 Sectors Foreign Investment 2013 Domestic Investment Foreign Investment Domestic Investment Plantation 1,601.90 1.04 314.3 0.14 Animal husbandry 19.8 0.01 1.7 0 Forestry 26.9 0.02 1.4 - Fishery 29 0 1.2 - Mining 4,255.40 1.13 1,376.30 0.64 Source: Indonesia Investment Coordinating Board, 2013 Secondly, trade and food management crisis. Although 48% of cereal production and over 40% meat production are from Asia (FAO, 2012), the reality is that 6 out of 10 people in the world, who live in hunger, are in Asia. 36 Free Trade Watch
  37. 37. Chart 2.Various Facts on Equality of World Food Management Chart 2. Varios Facts on Equality of World Food Management Source: IGJ Knowledge Management Center (2013) taken from FAOStat (2012); National Geographic (Nov, 2009); The State of World Fishery 2008 (FAO, 2009) The same problem happens in fishery management. Although over 70% fish production is from developing countries, in reality average fish consumption in developing countries is only 16 kg/ capita/ year. This number is way below average consumption in developed countries, which is 29 kg/capita/year (FAO, 2009). The problem gets more complicated following continuous protest against agriculture and fishery subsidy in developing countries. However, developed countries like European Union give subsidy to its agriculture sector through Common Agriculture Policy (CAP) without any restriction. The United States have publicly stated to refuse removing subsidy for their agriculture sector. In Indonesia, government’s minimum support to small agriculture and fishery sectors has worsened Indonesia’s dependency on imported food products. In 2012, the country’s food import value reached US17.2 billion or in- Special Edition - 2013 37
  38. 38. creased by 47%, compared to the value in 2010, which was US$11.7 billion. The high import value has worsened Indonesia’s trade deficit in agriculture sector, including fishery and animal husbandry. By the third quarter of 2012, the trade balance deficit was over US$6.5 billion or equal to 11.4 tons of food products. Thirdly, climate crisis. In reality the world has failed to prevent the global temperature increase by 2 degrees Celsius. The ineffectiveness of regional and international initiatives to cut the volume of carbon emission as the consequence of economic growth race under WTO free trade regime has been the biggest obstacle. It was recorded that 4 out of 21 APEC member countries – the United States, China, Russia, and Japan – are the biggest carbon emitters in the world. Unfortunately, APEC prefers to wipe out its responsibility by providing grants to Green Climate Fund.1 Graph 3. APEC Countries’ Carbon Emission Volume 2010-2011. CO2 Emissions Data million metric ton 2010 - 2011 10.000 9.000 8.000 7.000 6.000 5.000 4.000 2010 3.000 2011 2.000 1.000 Ru sia al am Fil ip in a Si ng ap ur Th a ai la nd Pa Vi pu et na aN m ew Gu in ea Re p. Ch in Ho a ng Ko ng Ta iw an ru Br un ei Da M ss ia al ay sia u Pe r ne s do In o Ch ili at M ek sik a er ik na d aS Ka ik er Am ru Ba tra Au s la ta n ia Se nd la Se Ko re a lia 0 Source: IGJ Knowledge Management Center (2013), taken from US Energy Information Administration (2011) 1 Complete information on APEC’s supports on Green Climate Fund can be accessed on APEC Treasury Minister Agreement documents, September 20, 2013 in Bali, Indonesia. 38 Free Trade Watch
  39. 39. Bali Package The fact that developed countries – amid their slow economic growth – have the interest for expanding and strengthening trade liberalization by making sure that market is still open is unavoidable. Therefore, WTO IX Ministerial Conference in Bali, which was initiated by G-20 Meeting in Saint Petersburg, Russia and APEC Meeting in Bali, aims to solve Doha Round2 negotiation by agreeing upon several unresolved key agreements in previous negotiations. Bali Package consists of three agreements: trade facilitation, development package for least developed countries, and agriculture. Substantially, trade facilitation aims to ease access to export-import market through trade facilitation, which is equipped with standardized customs procedures and binds. Trade facilitation will only benefit developed countries as it facilitates imports instead of exports. It will cause the increase in imports and crush local product competitiveness. Although in implementing trade facilitation, Special and Differential Treatment3 - in forms of technical assistance and capacity building – is provided, it will not benefit developing and least developed countries. In multilateral trade practice, funding provision by developed countries will seize and even weaken developing and least developed countries’ bargaining power. The nature of the funding is voluntary. Funding mechanism will even be taken over by International Monetary Fund and World Bank through loan scheme. Moreover, least developed countries’ development package. The least developed countries are trying to get special treatment and exception in multilateral trade, in form of Duty free-quota free,4 Rules of Origin under Duty Free 2 Doha Round is a WTO negotiation round that failed to be agreed upon since 2001, especially the agreement related to agriculture agreement, implementation of special and differential treatment for developing and least developed countries as well as the fact that Singapore successfully included Trade Facilitation Agreement into WTO negotiation. 3 Special and Differential Treatment is a set of provision that exempts developing and least developed countries from the same strict trade rules in an agreement, normally in a form of commitment waiver. 4 Duty free-Quota free an initiative to remove all import duty and quota for leaset developed countries’ products exported to developed countries. Special Edition - 2013 39
  40. 40. Quota Free5, The LDCs Services waiver6, cotton, and TRIPS Waiver7. However, the implementations are not as smooth and easy as expected. The countries have to fight for these special treatments because there is no developed country, especially the United States, who would voluntarily give market access facilities to them, The last one is agriculture, especially related to export subsidy, dumping practice and food aid utilization, which is often used by industrialized countries and transnational corporations to expand their business in other countries. In this WTO Conference, G338 shows up with suggestion that developing countries ought to be given exception and special treatment to provide domestic support9 in purchasing food supply. This proposal aims to support low-income and poor producers, land reform program, rural development, and rural livelihood security through Agreement on Agriculture amendment. The United States and European Union offer a counter proposal against G33 proposal by putting forward a temporary waiver mechanism of AoA. WTO Constitutionality? Indonesia is a country with a constitution that clearly and authentically states that the purpose of the independence is: to protect the people and the land, improve public welfare, to educate the life of the people and to participate toward the establishment of world peace. The 33rd Article 3rd Paragraph of the 5 Rules of Origin under duty free quota free is a regulation, which exempts provision of the origin of products from least developed countries under duty free, quota free regulations. 6 LDCs services waiver is an initiative that exempts least developed countries from their obligation to follow the regulations of services agreement during the agreed period. 7 LDCs TRIPs Waiver is an initiative that exempts least developed countries from their obligation to follow the regulations within TRIPS agreement during the agreed period. 8 G33 is a group of 33 developing countries, who have big interest in agriculture sectors by fully refusing developed countries’ proposal related to reduction and removal of agriculture subsidy and liberalization. 9 Domestic support is a subsidy that is given to domestic agricultural activities by the government within certain limitations. 40 Free Trade Watch
  41. 41. 1945 Constitution, which is more operational, affirms, “The land, the waters and the natural resources within shall be under the powers of the State and shall be used to the greatest benefit of the people.” Therefore, we need to question the constitutionality of the Law No. 7 of 1994 regarding the Ratification of the Agreement Establishing the World Trade Organization. As explained above, Indonesia’s 18 years of involvement in WTO has even limited and reduced the role of government in protecting its people and sovereignty from the threat of foreign products and investment. The state, thus, fails in educating and improving its people’s welfare. In regional and international dimensions, Indonesia’s participation in strengthening WTO’s instruments even worsens the level of hunger and poverty, even causes chaos (read: agrarian conflict), instead of peace. Therefore, WTO IX Ministerial Conference in Bali should be optimized as consolidative media to build alternative ideas. Argumentatively, farmers, fishermen, labors, women, environment, human rights and other social movements in Indonesia or the world have to speak about the following three things. First, WTO is not constitutional. In reality, it contradicts the constitution as well as abuses legal mechanism to limit state’s sovereignty and rights to develop national policies that aim to improve the people’s welfare. Second, we need to urge the government to undergo full evaluation and repeal free trade agreement that is proven to disadvantage the interest of its people. We also need to urge the government to not sign another new free trade agreement. Third, it is the time for civil society in Indonesia to take initiative to formulate alternative model of international trade that is based on solidarity, complementary, and sustainability. In today’s situation where everything is minimal, civil society does not only have the responsibility to refuse various WTO regulations, but it also needs to consolidate and promote people’s ideas and initiatives because only in such context, the position and constitutionality of Bali Meeting is then important to be responded. *** Special Edition - 2013 41
  42. 42. Ir. Marwan Batubara M.Sc Executive Director IRESS Dr. Erwin Ramedhan, MA Permanent Lecturer and Course Coordinator S3 Ecole Des Hautes Etudes En Sciences Sociales Perancis Condemning Foreign Corporations’ Control over Water Resource through Privatization “Bottled-Drinking Water Commercialization Case” I n addition to Regional Drinking Water Company or PDAM privatization, which involves foreign companies, the bottled-drinking water production also causes the state and people loss. Out of 4.2 billion liters bottled-drinking water production by a total of 246 companies operating in Indonesia, 65% is supplied by two foreign companies – Danone Aqua and Coca-Cola Company. The other 35% is produced by 244 local companies. Aqua is a pioneer in bottled-drinking water business and the biggest producer in Indonesia, whose market includes Singapore, Malaysia, Fiji, Australia, 42 Free Trade Watch
  43. 43. Middle East and Africa. In Indonesia Aqua controls 80% share in gallon-drinking water market. It controls 50% share in the bottled-drinking water market. Aqua has a total of 14 plants in Java, Sumatra, Bali and Sulawesi. PT. Golden Mississippi – then they changed the name to PT. Aqua Golden Mississippi – that produces Aqua bottled-drinking water was founded by Tirto Utomo (1930-1994) on February 23, 1974. PT. Aqua Golden Mississippi is a subsidiary company of PT. Tirta Investama. Their first plant was in Bekasi. Since then, Indonesians started to consume bottled-drinking water. Danone, a multinational corporation from France, has the ambition to lead global market through its three main businesses: dairy products, bottled-drinking water and biscuits. Danone is now the world’s largest dairy company, which controls 15% of market share. Danone also claims to be the top rank company in the world for bottled-drinking water through its products: Evian, Volvic, and Badoit. As the world number one bottled-water producer, Danone has to struggle to restrain Coca-Cola and Nestle’s products invasion. Danone continues to increase its power by penetrating Asian market and taking over two bottleddrinking water companies in China. In Indonesia, Danone bought Aqua’s shares on September 4th, 1998. Aqua officially announced their merger. In 2000 Aqua launched a product with Danone Aqua brand, and in 2001, Danone increased its shares in PT. Tirta Investama from 40% to 74%, which made Danone the majority share holder. In doing business, Danone Aqua often violates good corporate governance principles and harms people. One example is water exploitation case in Kubang Jaya, Babakan Pari, Sukabumi District. The spring in Kubang has been exploited since 1993. Kubang used to be farms, which has been turned into forest-like area that cannot be cultivated. Danone Aqua has built concrete wall surrounding the area and has it heavily guarded. No one can enter the area without permit from the leaders in the Danone Aqua Group headquarter in Jakarta. Initially, they only exploited surface water. However since 1994, they started to exploit ground water by using high-pressure drill. Since then, the quality Special Edition - 2013 43
  44. 44. and quantity of water in surrounding area have drastically dropped. The people have to pay dearly because of this decreasing water availability. Water in most people’s well is only a span or 15 cm deep. Some wells are actually dry. The water used to be one to two meters deep. Prior to the exploitation, people of Kubang Jaya only dug their well eight to ten meters deep for clean water. Now they have to dig fifteen to seventeen meters, or buy water pumps to get water. Lacking water to irrigate farms is also a problem in Kubang Jaya. Farmers in almost all kampongs in Babakan Pari village have been suffering from this. They fight over water because the water supply for their farm is not sufficient. Some farms do not get ground water and have to rely merely on rain water. Consequently, many farms suffer from drought during dry season and farmers suffer from economic problems. The same happens in Polanharjo, Klaten District, Central Java. Danone Aqua has undergone large-scale water exploitation in the area since 2002. The majority of people work in agriculture. As water discharge is getting drastically low since Danone Aqua’s operation, farmers have to rent water pump to get water to irrigate their fields. It is getting worse because farmers have to buy clean water for daily needs at expensive price. This happens because their wells are dry as a consequence of Danone Aqua’s operation. Ironically, Klaten is a district with 150 springs. It has triggered reactions from farmer community and the local government in 2004. The fields, which were well irrigated, are now dry and cause problem for the farmers in Kwarasan, Juwiring Sub-district, Klaten District, Central Java. Therefore, the local government threatened to revoke the company’s business license. However, Danone Aqua’s exploitation in Klaten keeps going. The water in Klaten district that has been exploited by Danone Aqua is estimated to reach 40 million liters per month (Mining and Energy Management Agency). If the estimate sale price is IDR 80 billion per month, thus the total of water exploitation worths IDR 960 billion per year. However, the Danone Aqua/PT. Tirta Investama only paid IDR 1.2 billion in retribution and IDR 3 to 4 million in tax for their exploitation in Klaten (Article 5, Central Java Province Governor Decree 2003). Danone Aqua was only allowed to get 20 liters of water 44 Free Trade Watch
  45. 45. per second in their well in Klaten (since Danone Aqua avoids to do environmental impact analysis), but they are able to pump 64 liters of water per second. Danone Aqua’s Fraudulent Business Practices Danone Aqua has 14 water plants and 10 springs in various areas in Indonesia: Berastagi in North Sumatra, Jabung and Umbul Cancau in Lampung, Mekarsari, Sukabumi, Subang and Cipondoh in West Java, Wonosobo, Mangli, Pandaan, and Kebon Candi in East Java, Klaten and Sigedang in Central Java, Mambal in Bali, and Manado and Airmadidi in North Sulawesi. Two biggest wells that supply more than 70% of water for Danone Aqua brand are in Klaten and Sukabumi. In Indonesia Stock Exchange, Danone Aqua is registered as Aqua Golden Mississippi. Public owns 6% shares of AGM. Table1. Danone Aqua Production and Revenue Table Year 2001 2002 2003 2004 2005 2006 2007 2008 Production (in billion liter) 2.30 3.00 3.10 3.18 4.28 4.59 5.71 5.71 Gross Profit (in Billion Rupiah) 99.01 124.05 107.28 141.95 71.02 89.27 95.63 Aqua Golden Mississippi’s share price has significantly increased since the first time the company offered its share to public. The share price when they first went public was only few thousands rupiah (let say it’s IDR 10,000) per share, then in 2008 it climbed up to IDR 130,000. Now (September 2013) the share price reached IDR 240,000 per share. AGM has been trying to delist from Indonesian stock market for the last few years since 2004. Although their share price is increasing, they wish to delist their company’s share; it is questionable or even suspicious. Special Edition - 2013 45
  46. 46. Aqua Golden Mississippi seems to not want to report their business activities every year, especially considering that their business practice is far from good corporate governance. It looks like AGM wants to continue their corrupt practice such as uncontrolled water pumping, hiding production and revenue data, including tax fraud that previously happened, as explained in the following. Danone Aqua’s productions in all operating plants have been increasing over the years (see table 1). However, the gross profit is stagnant or tends to go down. Between 2001 and 2008, bottled-drinking water production increased from 2.8 billion liters to 5.71 billion liters, or by 250%. However, the company’s gross profit fell from IDR 99.01 billion in 2001 to IDR 95.63 billion in 2008. The fall does not seem plausible and ought to be further investigated. In addition to manipulating water production and gross profit information, Danone Aqua has done various practices that are not in accordance with good corporate governance principles, including not providing clear information about the share holders. In general, AGM’s various suspected fraudulent activities are as follows: • Danone Aqua always labels their brand as mountain natural spring water. In reality, the product is a result of ground water pumping in various areas using modern equipments. Danone Aqua claims to own 74% shares of PT. Tirta Investama. However on 2002 state’s gazette, Danone Aqua was not listed as a share holder of PT. Tirta Investama. The share holders are individuals or private companies, who reside in Singapore. Indonesian Government has to investigate Danone’s relations with these individuals and private companies. • Danone Aqua operates the water production in various areas with only a memorandum of understanding with local government in each area. It clearly does not have legal basis. In this case, the company has to follow the regulation from Ministry of Energy and Mineral Resources, including signing a contract with the central government, not only an MoU. • A company is required to do environment impact analysis if it pumps more than 50 liters of water per second. However, to avoid this requirement, Da- 46 Free Trade Watch
  47. 47. none Aqua officially claims that it only pumps less than 50 liters of water per second. Therefore the operations are conducted without any environment impact analysis. Although in reality Danone Aqua pumps more than 50 liters of water per second. • In addition to violation regarding environment impact analysis, Danone Aqua is not transparent with how much water the company pumps in each location. In general, there are differences between the volume of water pumped (and number of wells used) and volume (and number of well) that are officially reported. For example, in Klaten Danone Aqua is only allowed to pump 20 liters of water per second, but in reality the company take 64 liters of water per second. • Danone Aqua avoids paying retribution to the local government as much as they are required to by lowering the number of volume of water they have pumped on the report. • Danone Aqua also avoids paying income tax for their expatriate employees as much as it is required to to the government by lowering the amount of salary the company offers on the report. For example, a former employee named Bui Khoi Hung Gilbert (according to evidence that writer received from the person in question), was paid about €7,600 or US$10,600 per month or US$127,680 per year. However, Danone Aqua reported that Gilbert was only paid US$2000 per month or US$24,000 per year. If the income tax required is 35%, thus Danone Aqua has embezzled 35% x US$(127,680-24,000) = US$36,288 or about IDR 362 million per year. The company hires about 15 to 20 expatriates. Therefore, the state loses IDR5.43 billion to IDR 7.24 billion in tax per year. • In order to reduce their operational cost, Danone Aqua changes some of their local employees’ work status, by firing them and rehiring them as outsourcing. PT. Tirta Investama’s legal status as the parent company of Danone Aqua is not clear. In various occasion, PT. Tirta Investama is claimed to be Danone Aqua’s subsidiary. However it is not clear about which Danone it refers to, Danone in Paris, Danone Asia Pte Ltd. in Singapore, or Danone Asia Pacific Special Edition - 2013 47
  48. 48. in Shanghai. Danone Aqua is never registered as PT. Tirta Investama’s share holder. The share holders are companies in Singapore like Feddian and Sondon. Moreover, Danone Aqua claims to be the share holder of Aqua Golden Mississippi, which was sold to PT. Tirta Investama. Having been named with various terms like subsidiary, strategic alliance, co-branding, partnership, etc, makes PT. Tirta Investama’s status become unclear Many people suspect that it is Danone Aqua’s strategy to remove corporate transparency to allow free flow of capital, leadership holders, financial decision makers, and even money laundering. As featured in Kompas on April 2009, Danone Aqua Group initiated € 100 million or IDR 1.5 trillion to fund social and development oriented programs in several countries. They prioritized Indonesia to receive the most funds. We should thank the company for the grants, especially if the fund can be accounted for and the company asks nothing in return. However, we should question how Danone Aqua could provide funds at the peak of global crisis. We should be worried about why it was given prior to election. All parties should be transparent. Danone Aqua should declare the amount of the grant and to whom or which organizations they awarded the grant. We also demand the government agencies, who receive the grant to publish the report to public. We request the State Audit Agency to audit the grant and its implementation and President Susilo Bambang Yudhoyono to order clarification over this grant. The above described fraudulent business practices by Danone Aqua are proofs how a multinational company runs their water business in Indonesia, which among other thing legitimized by Act No. 7 of 2004. Danone Aqua seems to not run their business in accordance with good corporate governance principles, violating ethics and law. Related agencies such as Ministry of Energy and Mineral Resources, Ministry of Treasury, Ministry of Environment, Ministry of Domestic Affairs, tax office, police department, etc should conduct integrated investigate on this case. All technical requirements, operational procedures, and regulations should be enforced. We as nation have to hold our sovereignty up and prioritize people’s interest, as well as to protect our nation’s dignity from any kind of moral hazard, 48 Free Trade Watch
  49. 49. including foreign intervention and bribery. Writer has reported this fraud to tax office and Indonesia Anti Corruption Commission in November – December of 2008 without any result.   Demands to the Government Privatization has cost the people their rights to water and violated human rights, causing people’s access to water to be limited and expensive. It also damages the environment, causes water crisis, and disrupts water supply for agriculture and people’s daily need. Regional water company privatization and bottled-water business by multinational companies have brought various negative impacts, which should be the basis for the government to do correctional actions. Water management should not be given to profit oriented private companies. International syndicate, including World Bank, Asia Development Bank, International Monetary Fund, and World Trade Organization, will always promote privatization by supporting MNC. This cooperation has made the government to willingly give in its power and water resources as well as other national resources. In order to achieve this, the agencies made the government to issue Act No. 7 of 2004; it is related to government’s fear of foreign power, corrupt government elites, and MNCs’, including Danone Aqua, desire to control. Government has to substantially change its attitude in water resource management. Ensuring the security over the rights to water for people is government’s responsibility. Government needs to refer to the constitutional mandate that water resources management ought to be implemented to get maximum benefit for the welfare of the people. Privatization, that is being implemented now, should be corrected or even ended. All frauds and violations, including by multinational companies like Danone Aqua, should be resolved and sanctioned according to the law. Law enforcement towards Danone Aqua is one of our demands to the government. The government has to do this if it still wants to be considered as a law-based state and has dignity and sovereignty. *** Special Edition - 2013 49
  50. 50. Salamuddin Daeng Researcher in Indonesia for Global Justice (IGJ) Indonesia towards Bankruptcy The Impact of Indonesia’s Over Commitment to Trade Liberalization Background A mid national economic collapse as a consequence of trade liberalization, Indonesian Government is in fact an initiator in succeeding economic liberalization agenda at global level. Indonesia will become the host of World Trade Organization meeting. The meeting that will be held on December 3rd-6th, 2013 in Bali aims to resume trade liberalization negotiation that has been delayed for over 12 years since Doha Round negotiation in 2001. Prior to the meeting, President Susilo Bambang Yudhoyono has successfully become the event organizer for Asia Pacific Economic Cooperation in the beginning of October 2013. APEC is a trade organization of Asia and the Pacific countries that has similar goals as ones of WTO that is trade liberalization. The 50 Free Trade Watch
  51. 51. difference is that APEC does not bind because it is actually businessmen or corporate meetings, which are facilitated by the state. Yet, WTO produces legally binding agreements. Indonesia is also a pioneer in free trade negotiation in ASEAN with its Free Trade Agreement. Free trade negotiation between ASEAN countries is bound by joint constitution named ASEAN Charter that was ratified by all members. ASEAN Charter makes the nature of FTA ASEAN binding. Indonesia and other ASEAN countries as well as several non-ASEAN countries such as China, South Korea, Japan, India, Australia and New Zealand, through ASEAN, agree to FTA. Indonesia’s aggressive behavior in succeeding trade liberalization happens amid the country’s economic condition that is worsening as the result of free trade agreement. Indonesia is flooded with imported products such as agriculture, food, horticulture, as well as manufacture products. As the consequence, Indonesia experienced increasing trade and current account deficits in the period of 2012 to July 2013. WTO General Agenda World Trade Agenda is the largest international trade organization with 159 member countries and convenes regular negotiation to achieve trade liberalization. WTO’s regulations are binding for the members. There are at least about 50 trade liberalization issues that are discussed in WTO meetings. These issues will be divided into several main sectors: (1) trade of good, (2) rules of origin, (3) service agreement, (4) dispute settlement, (5) trade capacity building, and (6) other topics such as government procurement, investment, regional trade agreements, and preferential trade arrangements and trade finance. Therefore, almost all economic issues, trade, investment and finance are established under WTO agreements. It is reasonable for experts to conclude that WTO agreements cover all aspect of social political and cultural life. WTO Special Edition - 2013 51
  52. 52. agreement, for Indonesia, has performed a coup by making Indonesian Government to obey WTO instead of Indonesian Constitution. In general WTO main agendas are: (1) eliminating domestic subsidy, including agriculture, energy, and other subsidies; (2) promoting import through elimination of tariff barrier and all kinds of non-tariff barriers; (3) service sector liberalization, including finance, education, and health; (4) implementation of intellectual property rights and patent enforcement. However, WTO negotiation on the overall liberalization is delayed and not as scheduled. Since the previous negotiations – Doha Round in 2001, Cancun in 2003, Hongkong in 2005, and Geneva in 2009 and 2011 – there is no significant progress in the negotiation yet. WTO fails to achieve the targeted liberalization as planned in Doha Round. One of the main topics of discussion was agricultural subsidy. Developed countries such as the United States and European Union do not want to eliminate their subsidy in agriculture. The US’ total subsidy in domestic agriculture increased from US$61 billion in 1995 to US$130 billion in 2010. Organization for Economic and Development Cooperation’s estimation shows that developed countries’ agricultural subsidy increased from US$350 billion in 1996 to US$406 billion in 2011.1 European Union established Common Agricultural Policy (CSP) to protect their agriculture sector. This makes the US and EU never depend on food import despite of economic crisis they are facing. These countries have accumulated surplus from national industrial progress and industrial product exports. Moreover, these countries enjoy big profit from food export to developing and poor countries, including Indonesia. 1 http://www.ipsnews.net/2013/10/wto-stingy-with-the-poor-generous-with-the-rich/ 52 Free Trade Watch
  53. 53. Over-Commitment As we all know, since Doha Round in 2001, WTO negotiation regarding agricultural subsidy elimination has reached deadlock due to developed countries objection. This agenda did not achieve its goal in the next negotiations in the Ministerial Conferences in Cancun, Mexico in September 2003, in Hongkong in December 2005, and Geneva in 2009 and 2011. Therefore, the Ministerial Conference in Bali in December 2013 is expected to reach the goal of trade liberalization agenda. Then what is going to be achieved in Bali Ministerial Conference in December 2013? On WTO’s official website, it is said that WTO Bali Meeting will also discuss trade issues like trade facilitation, development, small and mediumsized enterprises, e-commerce, food security, and Doha Round’s future challenges. These issues have also been discussed in APEC meetings held in Bali in October 2013.2 According to Minister of Trade, Gita Wirjawan, the host will at least propose two agendas in the IX Ministerial Conference in Bali, which are: (1) trade facilities and (2) least developed countries package. This will be a stepping stone in resolving pending issues under WTO agenda, including resolving Doha Round. Wirjawan also stated that the world focuses on the importance of a strong multilateral trade system, which can boost economy and create employment. “The problem is that there is a tendency for countries to implement trade protectionism. This has to be prevented, of course, in keeping with fair trade principle.”3 Wirjawan’s point of view is corresponding with WTO’s wish to succeed trade liberalization and eliminate all trade barriers. The minister’s wish is of course a high commitment amid deteriorating national agriculture and industry sectors due to imported goods invasion. Indonesia’s over commitment to WTO has been proven to have negative impacts, for example (1) anti subsidy policy has deteriorated national agricul2 http://www.wto.org/english/news_e/news13_e/pfor_14aug13_e.htm 3 http://bisniskeuangan.kompas.com/read/2013/01/28/16504535/RI.Usung.Dua.Agenda. dalam.Pertemuan.WTO.di.Bali Special Edition - 2013 53
  54. 54. ture and industry sector. Food import is increasing. About 70% of raw material for industry is imported. National economy is fragile. (2) Import duty and trade barriers elimination causes the country flooded with food and industrial product import. As consequence, trade deficit is increasing; national reserve is crushed; state budget deficit is increasing; and the country depends on debt. (3) Finance and service liberalization allows banking institution to be controlled by private and foreign corporations; education and healthcare is commercialized and becomes very expensive; the cost of basic needs is increasing. (4) Intellectual property rights implementation has allowed foreign companies control national economic foundation with their patent. Farmers cannot produce seeds because the patent is owned by foreign companies. Small and medium-sized companies cannot operate because of product standardization that is getting more burdensome. Towards Bankruptcy Indonesia has been directly and negatively affected by free trade agreement signed by the government – FTA, APEC, G20 or WTO. The most real negative impact is the increase of imports of various basic needs such as food, agriculture, and horticulture that deteriorates national agriculture sector. National industrial sector and small and medium-sized companies have also been affected by the imports. Indonesia’s deteriorating economy is a result of various free trade agreements. Pressure from G20 and APEC to make Indonesia eliminate its energy subsidy has caused small and medium-sized companies go bankrupt. Moreover, goods trade liberalization, includes agricultural and food product, and subsidy reduction in agriculture sector has caused Indonesia’s agriculture sector collapsed. Towards WTO 2013 meetings, Indonesia, as the host, is facing a worsening crisis. In 2008 national economy deteriorated as a result of global financial crisis that the US and EU were facing. However, the 2012-2013 crisis is caused by internal factors. National economy suffers from three deficits, which are (1) 54 Free Trade Watch
  55. 55. big trade deficit, (2) balance of payment deficit and (3) increasing fiscal deficit. This country is dying because of its government’s over commitment to various multilateral trade agreements. Data from National Statistic Center shows thousands of national industries went bankrupt in the period of 2007-2010 as Indonesia’s commitment to trade liberalization increasing. As many as 1470 industries closed in 2007; about 2304 companies closed in 2008; 1226 were destroyed in 2009; and 1123 closed in 2010. The total number of companies closed in this period is 6123. Indonesia has been suffering from the worst macro economy since 2012. In the first quarter of 2013 World Bank published “Indonesia Economic Quarterly: Pressure Mounting”, which states that the current account deficit reached 3.6% of GDP in the fourth quarter of 2012, which made the total 2012 deficit to be US$24.2 billion or 2.7% of GDP (it reached surplus of 0.2% in 2011). In 2012 most of deficits came from non-oil and gas trade balance, which was followed by increasing oil deficit in the last months that reached the highest point of US$23 billion in 2012.4 Indonesia’s trade deficit continued in 2013. National Statistic Agency announced third quarter deficit of US$2.9 billion or IDR 3.1 trillion (with the exchange rate of IDR 11,000/ US$1). In the second quarter, the deficit hit US$3.1 billion. The deficit will continue to increase if there is no significant action to save the economy. The increasing trade deficit over a year (with the exception of August when Indonesia enjoyed a little bit of surplus) has caused the current account deficit larger. In a press conference, Bank of Indonesia stated that it can only hope that current account deficit gets lower than the first and second quarter of 2013. The first quarter deficit was US$5.8 billion or IDR 66.7 trillion; it increased in the second quarter to US$9.8 billion or IDR 112.7 trillion. Poor government performance will cause the current account deficit to get bigger. It will further affect Indonesian Rupiah exchange rate against US$ and increase the national foreign debt. 4 http://www.worldbank.org/content/dam/Worldbank/document/EAP/Indonesia/IEQMARCH-2013-EXSUM--IDN.pdf Special Edition - 2013 55

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