Name : Qurrotul Aini

Student Number : 18312088

Class :G

Benefits of AFTA for Indonesia

Asean Free Trade Area (AFTA) is an organization consisting of ten

countries in South East Asia which are in agreement to create free trade area in
the region. AFTA was established in 1992, but just realized after ten years of
work in 2002. To embody the free trade area scheme, which is the main
background of AFTA, a few policies have been made, such as reduction of
goods tariff to 0-5% and abolishment of Non-Tariff Barriers and Quantitative
Restrictions (Ministry of Trade of the Republic Indonesia [Ministry of Trade],
2002). These policies will provide easier access for the members of AFTA to
enter and compete their products to the ASEAN regional market level. By joining
AFTA, Indonesia and the other state members will correspond to each other and
result in a stronger bond of relationship. From here we can say that AFTA is
benefical for Indonesia not only in economic sector but also in non-economic
sector.
First, We are going to discuss the benefit of AFTA in economic sector. AFTA
provide Indonesia and the other state members a considerably cheap trade fare.
According to The Ministry of Trade (2002), the basic policy that undelines the
activity of AFTA is called Common Effective Preferential Tariff (CEPT). CEPT is
an approved effective tariff applied to goods that meet the criteria of 40%
ASEAN content requirement. The goods tariff will lessen to 0-5% from the
normal tariff. This policy was agreed and signed in 1992 but only been
implemented in 2002 with a few “flexibility”. This flexibility means if the state
members of AFTA are not ready yet to implement the policy, they can postpone
the implementation until 2003 (Ministry of Trade, 2002). With the implementation
of CEPT policy, Indonesian traders will be tempted to export more goods
because of the “cheap” goods tariff. This will lead to an increase in Indonesia’s
export activity. In 2002, the export of goods and services in Indonesia was
recorded 595.514 trillion (current LCU). In 2004, the export of goods and
services in Indonesia had increased to 739.639 trillion, and in 2017 the number
had reached 2.743 quadrillion (The World Bank, n.d.). As we can see, from the
first year of the policy implementation to the next two years, there was a
significant increase and it keeps on gradually increasing until it reaches 2.743
quadrillion in 2017.
The increase of export activity also triggers the increase of Gross Domesctic
Product (GDP). According to Mankiw (2000), GDP is the market value of all
finished goods and services produced in a country. GDP is used as an indicator
to determine whether the economic state of a country is going well or not
(Mankiw, 2000). if the export activity increases, the GDP will also increase
because when we do more export, that means we also produce more goods and
services to be exported. If there are more goods and services produced, that
means there will be an increase in GDP. According to The World Bank (n.d.) In
2002, The GDP of Indonesia was 1.822 trillion and in 2005 the GDP had grown
to 2.014 trillion (The World Bank, n.d.). This means the GDP of Indonesia had
increased 192 trillion in a span of three years. The increase of GDP also means
the economic state of Indonesia was getting better from the last few the years.
The last benefit in economic sector is AFTA provides Indonesia a wider
market. AFTA consist of ten south east asia countries, these countries are
Indonesia, Thailand, Singapore, Vietnam, Lao, Myanmar, Philippines, Brunei
Darussalam, Malaysia, and lastly Cambodia (Assosiation of Southeast Asian
Nations [ASEAN], n.d.). This means Indonesia will get the chance to distribute or
export our goods to these ten countries. AFTA also abolished Non-Tariff Barier
and Quantitative Restriction policy (Ministry of Trade, 2002). The abolition is
conducted with a purpose to make the goods transmission flow become easier
without much restriction. With this much of access, Indonesia will be able to push
plentiful of various goods to ASEAN’s market.
AFTA is also beneficial for Indonesia in non-economic sector. Joining AFTA
means foreign goods and foreign workers will enter Indonesia’s market. In order
to prevent our local goods and worker to be overpowered by the foreign one, we
will be challenged to increase the quallity of our product so it will have at least
the same quality or maybe a higher quallity. In 2018, The Governor of Bandung,
Mr. H. Dadang M. Naser S.H. S.I.P. M.I.P., set up a foreign language training for
Indonesian people that is going to work aboard as a foreign worker. The aim of
this program is to train the language skill of the people that is going to work
aboard to upgrade the quality of human resources of Indonesia (Ferdiana, 2018).
We can conclude that AFTA pushes Indonesia to upgrade the quality of human
resources. Not only human resources, AFTA also boost the creativity of
indonesian peolpe. To compete with the products from other countries,
Indonesian people must think on how to make their products have some
competitive advantages from other products. This creativity will result in more
variety of goods being produced that will make indonesia a country with many
variety.
The last benefit is AFTA will strengthen the realtionship bond between the
member state of AFTA. AFTA was founded in 1992, from 1992 Indonesia had
been continuously in contact to other state member of AFTA and this contact
can be in a form of making policy, dicussing the future plan of the organization or
maybe overcoming obstacles (The Ministry of Trade, 2002). This means
Indonesia and the other state members frequently correspond to each other and
will result in a stronger bond of relationship bbetween these countries.
From all of the benefits above, we can conclude that the benefit of AFTA for
Indonesia can be divided in two sectors wich are economic and non-economic.
In economic sector, AFTA can increase export activity that will stimulate the
increase of the Gross Domestic Product. AFTA also provide Indonesia a wider
market to distribute our products to. In non-economical sector, AFTA triggers
Indonesia to upgrade the quality of human resources and boosts the creativity of
Indonesian people. AFTA also strengthen the relationship between Indonesia
and other state member of AFTA.

Reference List

Assosiation of Southeast Asian Nations (ASEAN). (n.d.). Estabilishment.

Retrieved from https://asean.org/asean/about-asean/overview/ accessed
on April 28, 2019.
Ferdiana, S. (2018, April 19). Facing AFTA, The Government of Bandung
Boosts The Human Resource Quality. Republika. Retrived from
https://www.republika.co.id/berita/nasional/pemprov-jabar/18/04/19/p7frrp
371-hadapi-afta-pemkab-bandung-dongkrak-kualitas-sdm

Mankiw, N. Greorgy. (2000). Teori Makor Ekonomi. Jakarta : Erlangga

Ministry of Trade of the Republic Indonesia. (2002). Asean Free Trade Area
(AFTA). Retrieved from
http://www.kemendag.go.id/files/regulasi/2002/01/AFTA.htm

The World Bank. (n.d.). Exports of Goods and Services (Current LCU).
Retrieved from
https://data.worldbank.org/indicator/NE.EXP.GNFS.CN?locations=ID
accessed on April 28, 2019.