Enhancing Market Openness in Indonesia Molly Lesher, OECD Trade and Agriculture Directorate OECD Regulatory Reform Review of Indonesia, First Working Group Meeting 9 February 2011
Outline of Presentation What is regulatory reform and market openness? OECD Efficient Regulation Principles for Market Openness Why bother applying the principles to Indonesia? Next steps for working together to improve market openness in Indonesia OECD Trade & Agriculture 2
What is Market Openness? Market Openness refers to the minimisation or elimination of distorting border and behind-the-border barriers to trade and investment. Market openness policies: Aim to help countries to reap benefits of globalisation and international competition by minimising distortions from border and behind-the-border measures; and Influence opportunities open to foreign suppliers of goods and services to compete with domestic suppliers in national market (e.g. through trade and investment). OECD Trade & Agriculture 3
How are domestic regulations important for international market openness? Domestic regulations can facilitate or restrict the free flow of goods and services and of investment. Efficient regulations bring benefits for domestic and foreign enterprises by: creating conditions for easy access to new markets; helping to maintain profitable economic activities ; and by keeping regulatory costs low and providing a secure and efficient business environment. OECD Trade & Agriculture 4
Regulatory Reform: Government Tool to Enhance Market Openness Governments can improve existing regulations and create new regulations that are non-discriminatory and efficient by Improving regulatory institutions and methods that are used to produce, review, and implement regulations; Reducing burdens on enterprises including their trading activities, contributing to better economic performance and an increase in trade and investment flows; Making trade no more restrictive than necessary; and Achieving regulatory objectives while minimising the barriers to trade and investment. OECD Trade & Agriculture 5
The OECD Efficient Regulation Principles for Market Openness 1. Transparency and openness of decision making 2. Non-discrimination 3. Avoid unnecessary trade restrictiveness 4. Use of internationally harmonised measures 5. Streamlining conformity assessment procedures 6. Application of competition principles OECD Trade & Agriculture 6
Transparency and openness of decision-making The transparency and openness of regulatory decision-making is a fundamental factor facilitating participation in a market. There are three aspects: Access to information about regulations and procedures; The openness of the rule-making process to stakeholders through public consultations; and Effective access to appeals procedures. OECD Trade & Agriculture 7
Non-discrimination Regulations that are nondiscriminatory provide for better competitive opportunities between like products and services irrespective of their origin, and therefore increase market access. The principle of non-discrimination involves: National treatment (i.e. equivalent treatment to national as well as foreign suppliers); and Most-favoured-nation (MFN) treatment (i.e. no difference in treatment among foreign producers). In most countries commitment to these principles flows from WTO membership, so that respect for both is broadly ensured through adherence to international trade obligations. OECD Trade & Agriculture 8
Avoidance of unnecessary trade restrictiveness Market openness can be achieved if regulatory measures are more restrictive for trade and investment than is necessary. Unnecessary restrictions on trade may be reduced if regulators examine the trade effects of proposed and existing regulations. Governments most commonly employ the following tools and mechanisms to ensure that regulations effectively avoid unnecessary trade restrictiveness: Use of performance based regulations and consideration of regulatory alternatives; Regulatory impact analyses; Administrative simplification; and Trade facilitation. OECD Trade & Agriculture 9
Use of internationally harmonised measures Domestic regulatory frameworks reflect individual national characteristics and policy objectives that often result in different regulatory arrangements. Unnecessary costs from regulatory diversity can appear when regulatory solutions do not serve any clear public interest, or when they are designed in order to fit the strengths and peculiarities of the domestic industry. Unnecessary costs associated with regulatory diversity can be reduced by favouring the use of internationally harmonized measures. OECD Trade & Agriculture 10
Streamlining conformity assessment procedures Conformity assessment procedures may facilitate trade or create a technical barrier to trade. Procedures can cause duplicative costs for firms when different markets require the repetition of essentially identical tests against the same or equivalent standards. Recognising the equivalence of the results of an assessment performed elsewhere can greatly contribute to reducing trade costs. Conformity assessment that is streamlined and well implemented can save time and money, support larger scale production and economies of scale, and simplify purchasing, thus reducing costs for companies. OECD Trade & Agriculture 11
Application of competition principles Anticompetitive practices of private firms can present difficulties for the efficient functioning of international markets. These activities can restrict market access by seriously undermining the efforts of firms to enter new markets. For this reason, a commitment to sound competition principles is crucial in providing the appropriate conditions for genuine market openness. OECD Trade & Agriculture 12
Why bother applying the six market openness principles to Indonesia? GDP growth (percent change from previous period) 1990-1996 1997-2003 2004 2005 2006 2007 2008 2009 Indonesia 8.0 1.5 5.0 5.7 5.5 6.3 6.0 4.5 Southeast Asia 6.6 4.7 7.3 7.0 7.6 7.2 4.8 2.1 Exports of goods and services (share of GDP) 1990-1996 1997-2003 2004 2005 2006 2007 2008 Indonesia 30.7 43.3 32.2 34.1 31.0 29.4 29.8 Southeast Asia 42.1 61.3 58.4 59.6 60.3 58.2 56.9 FDI flows (as a share of GFCF) FDI stocks (as a share of GDP) 1995-2005 2007 2008 2009 1995 2007 2008 2009 Indonesia 3.1 6.4 6.6 2.9 9.3 18.5 13.3 13.5 Southeast Asia 16.2 23.9 12.5 9.4 22.6 50.6 43.3 46.3 OECD Trade & Agriculture 13
Can past experiences with trade and investment reform improve market openness in Indonesia? How do regional and multilateral efforts contribute to (or hinder) market openness in Indonesia? Did the experience with the harmonisation of customs procedures in ASEAN (1997) lead to additional knock-on regulatory changes in Indonesia? Did the experience aligning domestic standards with relevant international standards within APEC (2005) prompt new regulatory changes or changes to the way in which regulations are created in Indonesia? What steps are being taken to implement the proposed ASEAN Economic Community (AEC) by 2015? OECD Trade & Agriculture 14
The Business Environment, 2010 Ease of Doing Business Rank Starting a Business Dealing with Construction Permits Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Closing a Business A Singapore 1 4 2 15 6 2 4 1 13 2 Thailand 19 95 12 19 72 12 91 12 25 46 Malaysia 21 113 108 60 1 4 23 37 59 55 Vietnam 78 100 62 43 15 173 124 63 31 124 ASEAN average 91 113 82 89 77 83 77 62 90 103 Brunei Darussalam 112 133 74 183 116 120 22 52 159 42 Indonesia 121 155 60 98 116 44 130 47 154 142 Cambodia 147 170 146 117 89 74 57 118 142 183 Philippines 148 156 156 102 128 132 124 61 118 153 Laos 171 93 115 163 152 182 116 170 110 183 Myanmar n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Korea 16 60 22 74 15 74 49 8 5 13 Japan 18 98 44 59 15 16 112 24 19 1 China 79 151 181 38 65 93 114 50 15 68 ASEAN+3 average 78 111 82 81 66 77 81 54 71 84 OECD Trade & Agriculture 15
How to improve the business environment in Indonesia? What do you see as the most important improvements that could be made to the business environment? How has the investment policy package introduced in 2007 affected investment in Indonesia? What steps have been taken since then to improve the investment environment? Has the experience with one-stop-shops for business licensing been successful and extended to all subregions? Has simplification of the licensing structure also taken place? OECD Trade & Agriculture 16
Global Competitiveness Index, 2010 Overall Index Infrastructure component Brunei Darussalam 28 52 Cambodia 109 114 Indonesia 44 82 Laos n/a n/a Malaysia 26 30 Myanmar n/a n/a Philippines 85 104 Singapore 3 5 Thailand 38 35 Vietnam 59 83 China 27 50 OECD Trade & Agriculture 17
How can market openness principles help improve competitiveness in infrastructure? In your view, what are the major infrastructurerelated obstacles to market openness in Indonesia? Has the single window initiative been successful in rationalising port costs and congestion? Do interregional transport barriers represent a significant impediment to market openness? How are levies monitored, particularly in remote areas? OECD Trade & Agriculture 18
Working together to improve market openness in Indonesia The OECD wants to work with you to help improve market openness in Indonesia. At the same time, OECD Members will be able to learn from Indonesia s experiences reforming trade and investment policy regimes. OECD Trade & Agriculture 19
OECD Trade and Agriculture Terima kasih! www.oecd.org/trade Contact Molly.Lesher@oecd.org OECD Trade & Agriculture 20