WTO Bali Round: Challenges and Opportunities

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

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.

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Free Trade Watch

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


3

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

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Free Trade Watch

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


5

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

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Free Trade Watch

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


7

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

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Free Trade Watch

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


9

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

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.
***


11

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

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-


13

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

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


15

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

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.
***


17

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

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


19

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

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.
***


21

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

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.


23

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

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


25

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

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-


27

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

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.
***


29

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

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-


31

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

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

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)


35

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

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-


37

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

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.


39

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

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.
***


41

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

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


43

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

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.


45

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

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


47

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

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.
***


49

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

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


51

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

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


53

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

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


55

WTO Bali Round: Challenges and Opportunities

WTO Bali Round: Challenges and Opportunities

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