Russia, Indonesia and $5 Billion in Trade

25 February 2016 Russia’s membership brings fresh air to Geneva and to WTO member states like Indonesia. Russia is one of Indonesia’s major trading partners. The trade volume between the two countries in 2011 reached $1.8 billion in the year’s first nine months, an increase of 50 percent from the same period in 2010. 

While Indonesia experiences a trade balance deficit with Russia, with oil comprising 20 percent of its imports from the country, we have long exported agricultural products and manufactured goods to Russia, including crude palm oil, rubber, coffee, tea, pepper, textiles, shoes and tires. This suggests that there is considerable trading potential between the two countries that is waiting to be explored. Last October, Moscow and Jakarta confidently set a $5 billion trade volume target to be reached by 2015. With Russia’s WTO membership, such a target may not be too optimistic, as trade barriers between the countries are set to decrease under the WTO’s multilateral trading system. 

For example, with Russia on board, coffee from Indonesia will be subject to a mere 2 percent duty customs, compared with 5 percent previously. Similarly, some steel products from Indonesia will enter Russia with 10 percent less duty compared with the pre-membership period. But the most important benefit for Indonesia is that Russia will be able to impose far fewer non-tariff barriers to trade. For example, varying, complicated procedures at each customs checkpoint often hinder trade. To gain accession to the WTO, Russia has agreed to implement a uniform customs procedure at all of its checkpoints. 

Russia’s accession to the WTO holds challenges and opportunities for both countries, especially in light of the gloomy global economic outlook. US and European demand could well decrease. 

Russia’s WTO membership presents a challenge for Indonesia because it breaks down barriers to the market here, leaving less protection for domestic producers. Not only will Russian products enjoy lower customs duties, Indonesia may no longer treat Russian products differently from domestic products or other foreign products. Still, Russia’s exports to Indonesia are mainly steel products, paper and fertilizer, and it should be noted that Indonesia also has quite a remarkable domestic industry producing just these. 

As a country with the fourth-largest population in the world, Indonesia is an attractive market for the world’s exporters. As such, more Russian products are likely to enter Indonesia, so in order to stay competitive, local products must continue to improve in terms of quality and price. 

On the other hand, Russia’s accession to the WTO can also be a golden opportunity for Indonesian exporters to gain better access to one of the world’s largest markets. Again, the opening comes with the challenge for exporters to improve the competitiveness of their products. 

To address a common misconception, domestic industries in either country do not need to be afraid of a surge in imports. The WTO provides various trade instruments for governments to address situations where imports cause problems for the country of destination. 

When there is evidence that exported products are being traded unfairly upon entering a market, for instance, when they are being dumped or subsidized and cause material injury to domestic industries, the government can put in place antidumping or countervailing duties on top of the applied import duty for those products. 

Or when the exported products are being traded fairly but enter the domestic market in such increased quantities that they seriously harm domestic industries, the government can impose quantitative restrictions or safeguard duty to give local manufacturers time to adjust. Additionally, a government can impose non-tariff trade instruments in the form of technical or sanitary standards, licensing or pre-shipment inspection to address particular issues with imported products. One example of such a move was provided by Indonesian Trade Minister Gita Wirjawan in early December when he expressed the need to introduce technical standards on more products available here. 

More recently, the government has proposed limiting the entry ports for agricultural produce from 14 to just four to be able to better monitor imports in order to protect domestic consumers from bad quality and harmful products. 

In turn, this port restriction policy may also affect imports, as it will protect the domestic industry against cheaper imported products that might not have the same quality as domestic products. 

A crucial challenge for WTO member states like Indonesia is that they should spot problems early and use the correct trade instruments to address them. If Indonesia and Russia are able to do so, they stand to gain considerably from the latter’s WTO membership. 

Despite what detractors of the Geneva Ministerial Conference might believe, Russia’s accession is certainly a notable achievement. It opens up markets for nations around the world. Now, it is for countries like Indonesia to respond to the opportunity.