Edition 15: DPR Ratifies RCEP Free Trade Mega-Pact
DPR Ratifies RCEP Free Trade Mega-Pact
Source: Wikimedia Commons
On Tuesday, 30 August, Indonesia’s parliament (DPR) approved the country’s membership in the Regional Comprehensive Economic Partnership (RCEP) trade pact, becoming the latest country to ratify the agreement. RCEP is seen as the world's largest free trade agreement bloc.
First conceived at the 2011 ASEAN Summit in Bali, fifteen countries (10 ASEAN members along with Australia, New Zealand, China, South Korea, and Japan) signed the agreement. With Indonesia’s entry, the number of countries ratifying the agreement jumps to 13. It will take into effect 60 days after the ratification.
When all 15 countries ratify the agreement, the trade bloc will account for 30% of both the world’s population and global Gross Domestic Product (GDP). It is set to eliminate 92% of tariffs on goods and unify the rules of origin of goods, increasing efficiency in trade and supply chains within the bloc.
Coordinating Minister for Economic Affairs Airlangga Hartarto said that the pact is projected to increase Indonesia’s GDP by 0.07 percentage points by 2040, increase exports by US$5 billion, and grow our trade surplus by 2.5 times.
This can be seen as a result of the pact eliminating many of Indonesia's protectionist policies that have in the past made it difficult for foreign investments to flow in.
The pact’s ratification, initially planned for the first quarter of 2022, was delayed due to concerns by several members of the DPR over the possibility of influx of imported goods and how it would impact local businesses.
Of concern, especially, was the trade pact’s impact on micro small medium enterprises (UMKM) which represent over 61% of Indonesia’s GDP. Suggestions were also made to bolster the development of domestic industries once the agreement is ratified.
These concerns were voiced to the Trade Ministry by DPR members from a wide range of different fractions, including the National Awakening Party (PKB), United Development Party (PPP), and even bigger parties like Indonesian Democratic Party for Struggle (PDI-P) and Golkar.
The Lead Advisor on Southeast Asia Region for the Economic Research Institute for ASEAN and East Asia (ERIA) Dr Lily Yan Ing emphasized the need for further efforts beyond this agreement to optimize the benefits of joining the RCEP.
This includes the harmonization of domestic policies and regulations in line with RCEP and improving procedures for exports, imports, and investment.
This trade agreement is unique in that it excludes the United States and is perceived by some as extending China’s economic influence in the region.
Concerns about China's increasing role within negotiations have caused India to withdraw at the last moment in 2019, fearing that Chinese influence will sap their economy.
According to Hoang Thi Ha, Senior Fellow at the ISEAS-Yusof Ishak Institute, Chinese media has also covered the RCEP story to portray China as a champion of multilateralism, free trade, and globalization.
However, she also mentioned that seven ASEAN countries are still participating in the newly announced Indo-Pacific Economic Framework (IPEF) spearheaded by the United States, suggesting that RCEP is merely an effort in diversifying their economic relations and not a sign of loyalty to China over the United States.
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PenPal
Q: Hi team! Loved your coverage on the fuel subsidy cuts that the govt are considering. I’m such an economics n00b tho. It seems so important to understand but i have no knowledge of it whatsoever. Any resources u could share that could help me learn a bit more? 🥺
Hi OP! Thanks for your message! We understand the frustration and many people have said similar things so you’re not alone! You’re in luck because WIUI just provided a beginner-friendly introduction to inflation and the different economic functions of Bank Indonesia and the Ministry of Finance. So highly recommend that you check out our post in the first instance! If you want to learn more, I’d highly recommend CrashCourse Economics on YouTube! Hope this helps!
~ Editor-in-Chief Hirzi
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