THE IMPACT OF ASEAN-CHINA FREE TRADE AREA (ACFTA) AGREEMENT ON INDONESIA’S MAJOR PLANTATION EXPORT COMMODITIES

Erlambang Budi Darmanto,Rossanto Dwi Handoyo,Wisnu Wibowo

doi:10.3846/btp.2021.11012

Erlambang Budi Darmanto, Rossanto Dwi Handoyo + Show 1 more

Open Access

https://doi.org/10.3846/btp.2021.11012

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Abstract

This study aims to analyze the impact of ASEAN-China Free Trade Area (ACFTA) on the 4 major exports of plantation commodities (including the commodities of coffee, cocoa, rubber, and palm oil) in Indonesia. The trade impact is measured based on the occurrence of trade creation or trade diversion. The negative coefficient as the result of dummy FTA (Free Trade Area) measurement indicates the presence of trade diversion. Meanwhile, the positive coefficient indicates the presence of trade creation. This study examines the export of major plantation commodities of Indonesia to China and compared with the 10 major export destination countries worldwide. The findings show that trade creation exists within the commodities of coffee, rubber, and palm oil while the trade diversion exists in the commodity of cocoa.

Highlights

The concept of the free market begins with the initiatives of the interregional free trade agreement that has similarities, whether geographically or demographically, including ACFTA (ASEAN-China Free Trade Area)
The Dummy ACFTA has zero value if both countries are the member of ASEAN-China free trade area agreement and have the value of 1 if the trade partner is not a member of ASEAN-China free trade area agreement
The export data gained from the International Trade Center (ITC), GDP data, Exchange Rate, consumption, Logistics Performance Index (LPI), and price index of export goods obtained from the World Bank

Summary

Introduction

The concept of the free market begins with the initiatives of the interregional free trade agreement that has similarities, whether geographically or demographically, including ACFTA (ASEAN-China Free Trade Area). The free trade agreement constitutes an agreement to reduce government protection in forms of import tariffs and export tax for some commodities including plantation commodities. In 2010, AFTA had reduced about 90–95% of the tariffs between ASEAN countries into about only 0–5% (Okabe, 2014). It has been recognized that a prominent commodity, the era of an open economy through international trade, has made competition between countries increasingly tighter. Every country, including Indonesia, is trying to continue to increase the quantity and quality of its exports. Indonesia’s exports to international markets consist of various commodities. The export performance of Indonesian agricultural commodities has shown positive growth, in the plantation subsector

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