VZCZCXRO3812
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJS #0007/01 0210917
ZNR UUUUU ZZH
R 210917Z JAN 10
FM AMCONSUL SURABAYA
TO RUEHJA/AMEMBASSY JAKARTA 0510
RUEHC/SECSTATE WASHDC 0521
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RHHMUNA/HQ USPACOM HONOLULU HI
RUEHBY/AMEMBASSY CANBERRA 0229
RUEHWL/AMEMBASSY WELLINGTON 0197
RUEHBJ/AMEMBASSY BEIJING 0014
RUEHHK/AMCONSUL HONG KONG 0005
RUEHJS/AMCONSUL SURABAYA 0534

UNCLAS SECTION 01 OF 02 SURABAYA 000007 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/MTS 
DEPT FOR EEB/CBA 
USTR KELHERS; BWEISEL 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAID PGOV SOCI KMCA MCC ID
SUBJECT: MIXED REACTIONS IN EASTERN INDONESIA TOWARD ASEAN/CHINA FTA 
 
SURABAYA 00000007  001.2 OF 002 
 
 
This message is Sensitive But Unclassified.  Please protect 
accordingly. 
 
¶1.  (SBU) SUMMARY:  Political and business leaders in Eastern 
Indonesia have mixed views of the impact that the recently 
implemented ASEAN/China FTA will have on local economies.  Some 
express concern that the FTA will allow cheap Chinese goods to 
flood local markets.  Others express optimism that the FTA will 
provide an opportunity for Indonesian businesses to expand their 
exports to China.  Economic observers expect the positive and 
negative impacts on the East Java economy to balance each other 
out.  END SUMMARY. 
 
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CONCERNS OF INCREASED CHINESE COMPETITION 
--------------------------------------------- -------- 
 
¶2. (SBU) Some business and political leaders in Eastern 
Indonesia are concerned that the ASEAN/China FTA which came into 
effect on January 15 will harm local businesses.  For example, 
the chairman of the Sidoarjo Chamber of Commerce, Imam Sugiri, 
said that the FTA would allow cheap Chinese goods to flood the 
market and undercut locally made products.  Imam, who is also an 
opposition candidate for the upcoming Regent elections in 
Sidoarjo, said that this increased competition would be 
especially harmful to small and medium sized businesses, which 
make up 90% of the 1,500 business in the regency.  He said that 
a combination of expensive raw materials and high corruption 
make it impossible for these SME's to compete with cheaper 
Chinese products 
 
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ANTICIPATION OF A BETTER EXPORT ENVIRONMENT 
--------------------------------------------- ---------- 
 
¶3. (SBU) However, other leaders are optimistic about the 
possibilities the FTA provides.  Sherlina Kawilarang, the 
chairwoman of the East Java Indonesian Textile Association 
(API), said that the FTA gives Indonesian businesses the 
opportunity to "pour textile products into Chinese markets." 
She pointed out that East Java alone exported nearly 125 
thousand tons of textiles worth $357 million to China in 2009. 
This represents 3.5% of East Java's estimated 2009 non-oil 
exports of $10 billion.  She said that the FTA would allow East 
Java textile businesses to export even more textiles to China in 
the coming years.  The East  Java API expects textile exports to 
China to increase to 133 thousand tons worth $375 million in 
2010, due to the FTA. 
 
¶4. (SBU) Yasin Limpo, the Governor of South Sulawesi, told press 
in Makassar that the FTA represents a good opportunity for South 
Sulawesi businesses to expand their exports to China, which is 
currently the province's 7th largest export destination.  In 
particular, he said that South Sulawesi will focus on expanding 
exports of five commodities to China: cacao, corn, seaweed, 
shrimp, and rice.  However, Yasin criticized the central 
government for not assisting local governments in efforts to 
market local products overseas.  He said that such support would 
be necessary for local Indonesian businesses to take full 
advantage of the new FTA. 
 
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SAME SIZED PIE; DIFFERENT SHAPED PIECES 
---------------------------------------- 
 
¶5. (SBU) Indra Fauzi, the director of Regional Economic 
Development Institute (REDI), an independent economic 
think-tank, argued that while the FTA will have both positive 
and negative effects on different aspects of East Java's 
economy, these effects will most likely balance each other out. 
Indra said that the manufacturing sector would feel most of the 
negative impact.  While East Java has a comparative advantage in 
certain specialized fields -- for example, batik textiles or 
teak furniture -- Indra expects that Chinese products will 
generally be cheaper than their locally produced counterparts. 
Indeed, he pointed out that in 2009 East Java's imports from 
China were twice the value of its exports to China.  While China 
is the fourth largest foreign market for East Java's exports, it 
is the largest source for the provinces' imports.  He expects 
that imbalance to grow as a result of the FTA. 
 
¶6. (SBU) On the other hand, Indra also emphasized that the vast 
 
SURABAYA 00000007  002.2 OF 002 
 
 
majority of the people living in East Java are employed in the 
agricultural sector, and that consumption accounts for almost 
two-thirds of the economy in the province.  In this broader 
economic context, he argued that the FTA would exert a downward 
pressure on the price of goods in the province, which would 
benefit the broader economy.  However, Indra said that he 
expected the positive impact of generally lower prices to be 
roughly equivalent to the negative impact on manufacturing.  He 
said that the FTA "won't alter the size of the pie; it will just 
adjust the relative size of some of the pieces." 
MCCLELLAND