Impacts of CAFTA on Indonesia Unemployment Rate - Essay Example

How the CHINA-ASEAN free trade agreement affects Indonesia negatively Impacts of CAFTA on Indonesia unemployment rate Introduction The Free TradeAgreement between China and its South East Asian neighboring countries creates controversy between the relation between China and Indonesia. The Indonesians feel that the manufacturing sector of their country is not at par with that of their Chinese counterpart. To this effect, the labor unions of Indonesia do not support the agreement between China and South East Asia and want to forfeit it. The labor unions observe that owing to the agreement signed between the countries many textile workers have turned out to be unemployed. (Padden, 2010) To this end, the paper endeavors to divulge on how the Indonesia is badly affected owing to the free trade agreement signed between China and South East Asia. The Free Trade Agreement and Fears Within China and the South East Asian countries signed the Free Trade Agreement on the midnight of 31st December 2009. The agreement has caused mixed apprehensions in the business circle. Some expect that owing to the agreement tariffs would decrease on diverse commodities ranging from rubber, textiles, and vegetable oil to steel. Some others are found to be quite tense to the aftermath of such agreements. Estimates made reveal that trade between the South East Asian countries and China increased from $59.6 billion in 2003 to $192.5 billion in 2008. Thus, the enactment of free trade policy between the nations would certainly help in augmenting the economy of the two countries for it focuses on removing tariffs on some items. In spite of such positive interfaces regarding the free trade agreement manufacturers of South East Asia are concerned with cheap Chinese commodities eating up their established market. (Gooch, 2009) The labor unions in Indonesia feel that many workers would be made unemployed owing to the enactment of the Free Trade Agreement. It is observed that the Indonesian workers lack needed expertise in regards to the Chinese workers. Thus, protection of workers right in the Indonesian industries constitutes high priority. Despite these reasons the exports between Indonesia and China is continually growing. In the light of the above fact, the shoe industry of Indonesia has recorded a growth of 10 percent in the first quarter of 2009. The main reason attributed to the above fact owes to the increase of exports to Indonesia. (Padden, 2010) The China ASEAN Free Trade Agreement (CAFTA) is expected to raise the level of unemployment. It is observed that the introduction of The China ASEAN Free Trade Agreement (CAFTA) would weaken the national manufacturing backbone of Indonesia making many jobless. Competition with Chinese products on the high would increase the level of poverty and unemployment in the country owing to increase layoffs and retrenchment practices. The trade unions observe that the above facts would prove detrimental to the nation leading to instability. (Introduction of CAFTA FPG: Poverty and Unemployment will Rise, 2010). It is however observed that Indonesia has a higher export potential in regards to China. Thus, it is held that Indonesia’s accepting of the free trade agreement would be fruitful to the country in competing with the cheap South East Asian products proliferating the Indonesian market. Indonesian economy is crippled with fear in regards to the passing of the China ASEAN Free Trade Agreement (CAFTA). However, the government of Indonesia can help preserve the fate of the indigenous markets through measures like preventing high amount of imports through the borders. Quarantine activities can be initiated by the government at the ports which stands to be the entry point of imported products to the country. Further stringent policies must be made to safeguard domestic innovations through effective implementation of Intellectual Property Rights and Indonesian National Standard legislations. Further, labeling them using Indonesian language can further safeguard the domestic innovations. The government of Indonesia needs to put more focus on the development of indigenous industries comprising of medium and large scale to compete with the foreign products coming through imports. Government of Indonesia should also lay focus on helping to increase the purchasing power of the country’s population. Promotional activities must be steadily encouraged in regards to the domestic goods and combined with increased purchasing power the people of Indonesia help augment the sale of such. To this end the government of Indonesia, also states that export commodities like leather, garments, steel products, food products like rice and sugarcane and other machinery products would get affected owing to the passing of the China ASEAN Free Trade Agreement (CAFTA). In citing a solution to the stated cause, the Government feels that the indigenous industries should also focus on producing export-oriented products. Indonesia’s farmers produce huge quantities of Cacao measuring about 550 thousand tons. However, the optimal processing of the Cacao to food products becomes difficult in Indonesia. On the contrary, exporting countries like Malaysia and Singapore are observed to produce only 100 to 300 tons of Cacaos all being processed into finished products. Hence, it is observed that exports of Cacao made from these South East Asian Nations would prove detrimental to the Indonesian farmers for demand will decline of the indigenous base. (Ready for CAFTA, Indonesias Export Potential to China is Higher, 2010) In the light of the impact of the agreement of free trade between China and South East Asian countries causing huge unemployment the government of Indonesia is taking stringent steps to deter the entry of foreign workers in the country. This would help in catering to the employment of the local people. (Expatriate workers restricted under CAFTA, 2010). Conclusion The passing of the Free Trade Agreement between China and the South East Asian countries aimed at reducing the tariff rates on several products both food and non-food to industrial products. This would certainly help in augmenting the export base of the countries. However, the agreement also spells suffering for a country like Indonesia. With a low work force and production base Indonesia gets badly affected owing to the trade legislation. Thus, time needs to be given to Indonesia to make itself ready to face the new competition. References Padden, B. (2010). Indonesian Trade With China Rises, Despite Fears of Tough Competition. Available at: http://www.voanews.com/english/news/Indonesian-Trade-With-China-Rises-Despite-Fears-of-Tough-Competition--93577834.html (accessed on October 20, 2010) Gooch, L. (2009). Asia Free-Trade Zone Raises Hopes, and Some Fears About China. Available at: http://www.nytimes.com/2010/01/01/business/global/01trade.html (accessed on October 20, 2010) “Introduction of CAFTA FPG: Poverty and Unemployment will Rise”, webodigy.com. (2010). Retrieved on October 19, 2010 from: http://webodigy.com/introduction-of-cafta-fpg-poverty-unemployment-will-rise.html “Ready for CAFTA, Indonesias Export Potential to China is Higher”, Universitas Gadjah Mada. (2010). Retrieved on October 19, 2010 from: http://www.ugm.ac.id/en/?q=news/ready-cafta-indonesias-export-potential-china-higher “Expatriate workers restricted under CAFTA”, Embassy of Indonesia. (2010). Retrieved on October 19, 2010 from: http://embassyofindonesia.eu/expatriate-workers-restricted-under-cafta/ Read More