JAKARTA Economic observer from Andalas University, Syafruddin Karimi assessed that the Indonesia-European Union Comprehensive Economic Partnership Agreement (IEU-CEPA) trade agreement is more profitable for Indonesia in the long term.
According to him, this agreement encourages improving the quality of domestic products, opening up fairer market access, and creating equal partnerships between the two parties.
Meanwhile, the trade agreement with President Donald Trump was considered a form of unilateral trade pressure from the United States which actually harmed Indonesia.
In this agreement, he said, Indonesia was forced to open markets and buy large amounts of US products without equal returns.
"The trade agreement between Indonesia and the United States actually puts Indonesia in a unequal position. The United States has full access to the Indonesian domestic market without tariff barriers, while Indonesia's exports to the US remain subject to a tariff of 19 percent," he said in his statement, Wednesday, July 16.
Syafruddin said this inequality paved the way for imported products from the US, especially in the agricultural, automotive and energy sectors to flood local markets and reduce the competitiveness of domestic industries.
He added that cheaper US products due to tariff-free will make it difficult for local business actors and narrow the growth space for national industrialization.
The agreement is also burdened by large purchase commitments that tend to be unilateral.
"The US $ 15 billion commitment to purchasing energy from the US has the potential to replace domestic energy sources or alternatives from other partner countries, while imports of agricultural products of US $ 4.5 billion such as soybeans, corn, and meat can erode local farmers' income which has been surviving in the midst of limited subsidies," he said.
Syafruddin assessed that the purchase of 50 Boeing planes also raises the question of whether this step is really needed to modernize transportation, or it will burden the state budget and state-owned aviation, especially in the midst of people's purchasing power that has not yet recovered.
"This is not just a trade agreement, but a unilateral purchase package that weakens the foundations of national economic independence," he stressed.
He said that if Indonesia's exports to the US were still hampered by high tariffs, while imports from the US were sharply increased due to tariff-free and large purchase obligations, the risk of a bilateral trade deficit would be very high.
According to him, Indonesia can experience two-layer balance conditions, namely a surplus in global trade, but a deficit in trade relations with the US.
"This inequality reflects a pattern of non-equivalent trade relations that many developing countries experienced when they opened their markets to the US or IMF in the 1980s," he added.
Syafruddin said that when US products dominate the domestic market without obstacles, while Indonesia's exports are limited, Indonesia's bargaining position as trading partners will be weaker.
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This makes Indonesia look more like a passive consumptive market than an equal and sovereign trading partner.
Trade agreements that open large-scale import taps without strengthening export competitiveness actually pose a risk to national economic growth.
"In the framework of calculating GDP (Y = C + I + G + X M), if exports (X) are stagnant due to tariffs of 19 percent and imports (M) increase due to full access to US products and purchasing obligations, then the contribution of the external sector can become negative in suppressing the overall growth rate," he said.
He added that the flood of imported products will further weaken the domestic industrial sector, especially those that are not yet competitive so that it can trigger production reduction, layoffs, and early deindustrialization symptoms.
Syafruddin said that MSME groups, especially in the agricultural and food sectors, are the most vulnerable parties in this condition because they have to compete directly with tariff-free foreign products.
According to him, this situation can also suppress fiscal and monetary policies where the government may have to disburse additional subsidies to reduce socio-economic impacts, while market inequality can encourage rupiah weakening, import-based inflation, and food price spikes.
"All of this creates serious challenges for macroeconomic stability which are actually eroded by a trade scheme that is not balanced," he concluded.
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