ASEAN-China free trade pact is not all bad

http://www.upiasia.com/Economics/2010/03/29/asean-china_free_trade_pact_is_not_all_bad/2619/

By Harjo Winoto
Guest Commentary



Jakarta, Indonesia — How do we generally picture free trade or trade liberalization? We think of dreaded competition and lost jobs and livelihoods. To make matters worse, free traders and economists such as Paul Krugman claim that free trade is not concerned about “phony jobs” created or lost.

To the ears of common folks, this sounds pompous, nonchalant and merciless. Personally, I would call it an idea lost in translation. This is misquoted and largely misunderstood.

In Indonesia, there are two typical claims against free trade in general. First, usually cited in the context of trade with China, is the claim that we will import more than we export. In other words, we will spend more than we earn.

Second is the concept that free trade generates a larger economic “pie,” but it is not distributed proportionally to every segment of society. Hence, sacrificing jobs of the paupers for the benefit of the rich is not worthwhile. Even if free trade makes for a more efficient economy, most people prefer less efficiency if it helps the poor. In other words, it is better to have less money used for the needy rather than more money amassed in the pockets of the rich.

Actually, in the context of the ASEAN-China Free Trade Agreement, these two claims are not as bad as they sound. First, opposition to the ACFTA generally revolves around the fact that China’s manufacturing base is currently the largest in the world. Moreover, it is a fact that China can produce almost any goods or products. A Chinese saying suggests, “We can duplicate and produce anything except your mother.” Hence, by liberalizing trade, we will import more than we export.

What do we get when we import? Goods of all kinds – shoes, clothes, washing machines that are produced in China using resources from China or other countries. What do the Chinese get in return? Money – many pieces of paper – which they will use to buy oil or raw materials for the next wave of products. Of course, if we keep buying products from China, our money supplies will diminish, so we will need to print more money. This will erode the purchasing power of our currency.

Still, the question is how much do we lose compared to what we gain? We get all the goods we need for our daily lives and they in return receive astronomical quantities of money.

Will China use any of this money to purchase oil and raw materials for their manufacturing industry from Indonesia? Under ACFTA, will the money China receives from our consumers be used to purchase goods and services from us? If China buys oil or raw materials from other countries, the stored value is used against other countries.

In fact, we will not trade any of our goods with China. On the contrary, we will receive goods and give them pieces of money which will be used to purchase goods, such as oil and raw materials, from other countries.

Opponents of ACFTA and trade liberalization argue that many jobs will be lost because domestic industries, which should be producing goods for our own consumption, will go out of business.

But there are two negative implications to protecting noncompetitive jobs. First, it prevents increased productivity, and second, it penalizes the rest of the people, who must pay more than they should for goods they need. There is a double penalty for protecting jobs that produce basic goods and necessities such as food and clothes; both the economy and the people are penalized. Productivity suffers as there is no incentive for efficient production. Efficiently produced goods cannot compete with subsidized goods because their prices remain expensive relative to subsidized goods, thanks to tariffs.

I would argue that it is much better for the government to support the people who are losing their jobs domestically than to damage the economy and force them to pay more for basic goods and necessities.

A core question is what do jobs mean? Are they to generate money or to provide the people with dignity, pride and status – or both? If both, what is the priority? Would we still work at jobs for the purpose of dignity if they did not generate money?

In the government’s mind, jobs are meant to increase the people’s welfare and protect their livelihoods. Under this premise, wouldn’t it be better for farmers to lose their jobs if their children can go to school, and if when they are sick they have access to government-funded healthcare? Or better, farmers can look for alternative and more satisfying jobs through education or training.

We need to see clearly through the heavily fogged glass on the ACFTA issue. It is not all bad – in fact, it is not bad at all. Politics and vested interests should be set aside if we want this to work. In any case, Indonesia has already ratified the agreement and there is no way back. Therefore we should clear up the fog and take a clear look at what lies ahead.

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(Harjo Winoto is a final-year law student at the University of Indonesia and a paralegal in a top Jakarta law firm. He writes on various legal and social issues. He can be contacted at harjo_winoto@hotmail.com. ©Copyright Harjo Winoto.)