Gats –Liberalization of Life

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GATS –Liberalization of Life


Lutfiyah Hanim, The Institute for Global Justice1

Yanuar Nugroho, The Business Watch Indonesia2

Supported by the field researchers:

Dominika Oktavira Arumdati

Tima Santita Ngesti Rahayu

Jakarta, September 2003


Prologue: A story of Indonesian Shipping – A leaky ship sailing in the free market ocean

1. About GATS (General Agreements on Trade in Services)

    1. GATS: The result of agreement ?

    2. GATS – One rule for all nations

      1. The scope of GATS

      2. General Obligations in GATS

      3. Liberalization in Stages

      4. Specific Commitment

      5. An exception of general obligations

  1. GATS and Indonesia

    1. Trade in Services in Indonesia

    2. An overview of five sectors in Indonesian Schedule of Specific Commitment

      1. Services in Telecommunication

      2. Services in Maritime Transportation

      3. Services in Finance

      4. Services in Tourism

      5. Services in Industries

  2. The Implications of GATS for Indonesia

    1. In Telecommunication Sector

    2. In Maritime Transportation Sector

    3. In Financial Services Sector

      1. Banking Sector

      2. Taxation Sector

    4. In Tourism Sector

4. GATS and developing countries

Behind GATS

Epilogue: What Indonesia should do?


Appendix: Case Study on GATS and Indonesia: Divestment of PT Indosat Tbk – Privatization of Telecommunication Services in Indonesia

Prologue: A Story of Indonesian Maritime – A Leaky Ship sailing in the Ocean of Free Market
The success of traditional ships ‘Phinisi’ and ‘ Borobudur’ sailing around the world were quite old stories. Indonesia with the thousands islands and as a maritime country, does not have a strong maritime any longer. Now, to transport goods from one island to other islands in Indonesia by the sea, local ships can only transport less than 50 percent of 170 millions tons of goods, oil, and others per year,3while the others are transported by foreign shipping companies. For Export – Import, the condition of Indonesian maritime looks really bad as well. Indonesian ships can only transport 3.5 percent to 4 percent out of 360 millions tons of goods, while the other 96 percent is transported, again, by foreign shipping companies.

Source: interview with Barens Saragih

Barens TH Saragih, the head of INSA (Indonesian National Shipowners Association) said that the number of national shipping companies is still limited. Even to export the Pertamina oil, it is only a small part that has been performed by the national shipping. Indonesian ships which sail abroad, only go as far as ASEAN countries, East Asia and Australia.
The maritime transport is really important for Indonesia to support the export and import sectors. The data of the Central Bank of Indonesia has shown that every year Indonesia must pay a lot of money. In 1997, the transportation fee was 4.6 billion dollars, the following year it was 3 billion dollars.
The government is forced to use tankers owned by foreign companies for exporting as well as importing oil. As the result, the national tankers can only gain some 10 percent of the total order from the total expense for oil shipment service worth 10 trillion rupiah2.

The lacking number of fleet owned by Indonesian maritime service companies makes exporters depend on foreign maritime fleet –even over these past two years, both Indonesian exporters and importers have been inflicted in loss by international maritime service companies imposing Terminal Handling Cost (THC). The THC, which is totally about 676 million US dollars or 6.08 trillion rupiah is imposed on the exporters and importers which are to send goods through the agents of foreign maritime service companies. But strangely, it is only the shipment of goods from and to Indonesia, which is imposed of the cost, while from and to China and Vietnam such practice is not found. The imposition has been of detriments for exporters because the price of goods becomes higher. Even the export of furniture and handicraft product is forced to be delayed due to the higher freight cost and THC than the price of goods3.
As a maritime country, profession in the maritime field is actually not a brand new thing. But, why is not this sector flourishing considering that there is market potency and opportunity for export-import is still widely open?
It seems to us that the maritime transportation sector in Indonesia is facing several serious obstacles. First, due to the funding for business. Banks in Indonesia are still reluctant to give a loan to finance the ship manufacturing. In case loan is available, the entrepreneur has to pay the money for collateral around as much as 150 percent of the price of ship. This is impossible to do because the collateral may not be provided, even when manufacturing the ship, the loan has still to be looked for. That is why the growth in number of ship in Indonesia is still low. In point of fact, according to Barens, Indonesia can and has a right to apply a principle of sabotage, which means that the domestic shipment of goods is only allowed to be organized by ships from origin country. However, the principle is still hard to do because the number of ship cannot accommodate that principle.
Second, the problem in taxation. Decree of Director General of Taxation number 370/PJ/2002 establishes that the freight cost of domestic shipment and maritime, exclusive of containers, is imposed of 10 percent tax including for, among others, the service of ship maintenance, port service, and ship purchasing. The tax imposition will burden entrepreneurs of domestic maritime service because such imposition is not given to foreign maritime service companies running the same kind of business in Indonesia. Besides, the amount of money that the government will receive will not be sufficiently much because the number of Indonesian ships is less than one owned by foreign companies.
Meanwhile, the impacts which will come up will inhibit the competitive power of national maritime field. International agreement on tax relief (Tax Treaty), which eliminates certain tax when a ship enters a territorial waters of another country, is regarded as unhelpful to make the condition better4.

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