Trade in services in Indonesia has tremendous potential and continues growing each year. Due to its complexity, trade in services began to be negotiated separately. Ninety-five per cent of Indonesia's Free Trade Agreements (FTAs) and Comprehensive Economic Partnership Agreements (CEPAs) has included trade in services agreements. With rapid growth witnessed in the country's middle class, the development of the services sector is expected to continue improving, leading both to enhanced services sector exports and increasing wealth.
Given this background, the Directorate of Trade in Services Negotiation (DPPJ in Indonesian acronyms) under the Directorate General of International Trade Negotiation (DGITN) at the Ministry of Trade organised the capacity-building programme to strengthen the analytical capacity of its trade analysts and negotiators to evaluate the impact of changes in policies in trade in services, with support from ARISE+ Indonesia Technical Assistance Team II.
We had the honour to discuss the development progress of trade in services in Indonesia with Ms Basaria Tiara Desika Lumban Gaol, the Director of Trade in Services Negotiation.
The following is the excerpt from our interview.
Q: Apart from trade in goods, trade in services is also an important part of free trade negotiations and other economic cooperation. Could you please tell us about current Indonesia's trade in services? What challenges does Indonesia face?
A: The services sector plays a very important role in Indonesia's national economy. Based on BPS data, in 2021, the services sector contributed up to 57% of the total national GDP. In terms of employment, from 2017 to 2021, the services sector absorbed an average of 71 million people each year, while the agriculture, fisheries, and forestry sectors absorbed 37 million people, and the industrial sector absorbed 18 million people.
Indonesia's services sector was greatly affected by the pandemic conditions, especially the tourism sector as one of the flagship sectors in Indonesia. It can be seen that before the pandemic, the largest contribution of Indonesia's services sector to national exports in 2019 was travel services (53.41%), other business services (20.82%), and transportation services (12.49%). This was changed during the pandemic. In 2021, the sectors that have the largest contribution to national exports were other business services (39.09%), transportation services (23.44%), and telecommunication, computer, and information services (12.54%). Nevertheless, the change is like a blessing in disguise amid the COVID-19 pandemic due to adaptation efforts to embrace digital technology. We hope that in the future, as the post-pandemic recovery keeps improving, the national services sectors, especially tourism, can burgeon again.
The main challenge in the services sector faced by Indonesia is the dynamics or changes in domestic policies/regulations. The development of the services sector requires a stable ecosystem. Legal certainty is vital to attract investment for business development in the services sector. Meanwhile, building synergy and cross-ministerial and institutional coordination to ensure policy consistency could pose another challenge. Optimal support from the private sector, which is the beneficiary of the trade in services agreement, is yet to be promoted.
Trade in services negotiation in Indonesia is still at an evolving stage. DPPJ was only formed in 2010. It is still relatively new compared to developed countries that have been able to describe their trade in services in a specific and detailed manner during negotiation. While our negotiation positions still refer to GATS, which is very general. In the past, the services sector was combined with trade in goods when negotiating trade agreements, but now it has been separated because the actual aspects of trade in services are very complex.
Trade in Services has great potential, so let's focus our efforts, be consistent, and develop the sector together in a sustainable manner, not just jargon. We at DPPJ continue to explore our 12 services sectors, understand, identify and elaborate so we can maximally utilise them in the future to improve the Indonesian economy for the welfare of the Indonesian people through trade agreements and other forms of international cooperation.
Q: Based on study results conducted by the Ministry of Trade supported by ARISE+ Indonesia, there are six potential service sectors that Indonesia has and should develop. Which sectors and what mode of trade will be prioritised among those sectors?
A: First of all, we at DPPJ would like to express our gratitude for the good cooperation of ARISE+ Indonesia as a facilitator and the teams that have conducted studies related to the six services sectors. The six services sectors are (i) higher educational services, (ii) professional services, (iii) maritime transport services, (iv) environmental services, (v) computer and related services, and (vi) games and animation services.
For us, all of those six services sectors are important. On the policy front, we want to open market access in trading partner countries so that Indonesian businesses have wider opportunities to expand their business to these partner countries. In the same context, we also want to open the domestic market that needs capital or services suppliers from trading partners. As a maritime country, of course, we are highly interested in maritime transport services, primarily to ensure Indonesian seafarers can have access or facilitation to provide services in partner countries. However, on the other hand, we are obligated to protect the domestic market with regard to the cabotage issue in maritime transportation. Please do not see this as a restriction but rather a precautionary stance by Indonesia, especially on matters that concern us, such as security issues. We also have a great interest in supplying Indonesian professionals to the EU, and we are trying to ensure that potential by negotiating the article of MRA as well as market access to professional services.
On a separate note, Indonesia's priorities in the higher educational services, environmental services, computer and related services, and games and animation services sectors are to attract foreign investment and increase the capacity of domestic businesses. This is one of the government's strategies to increase the competitiveness of Indonesian service providers in the international market. Foreign investment, knowledge and technology transfer is expected to minimise the capacity and quality gap between Indonesian services providers and developed countries.
While in the education sector, Indonesia needs a qualification regulatory framework that can be equalised with the qualification certification of partner countries.
Q: Does the government have policies or programs that can support the future development of these services sectors?
A: Nationally, the services sector is one of the priority sectors reflected in the RPJMN 2020-2024 that is encouraged to strengthen economic resilience for quality growth with the target of increasing added value, employment, investment, exports and economic competitiveness.
This is also reflected in the Ministry of Trade's Strategic Plan 2020-2024, which one of the targets is to increase market access for goods and services in international markets.
From the perspective of the Ministry of Trade, especially the DGITN, support for the development of these services sectors is by building economic cooperation with the main objective of increasing the value of exports and providing incentives for national economic actors.
Of the various trade agreements Indonesia currently has, the forums with the most potential to positively impact Indonesia are those with the broadest and deepest level of commitment given by trading partner countries. This will provide preferences to Indonesian services sector businesses when expanding services to the trading partner countries.
The DPPJ also continues to collaborate with relevant stakeholders, especially the private sector, in consulting and soliciting inputs and interests of businesses in the sector. The DPPJ also regularly collaborates with academics or cooperation programmes like ARISE+ Indonesia to continue producing studies aimed at improving the competitiveness of Indonesia's services sector to inform policymaking.
Q: I see that the DPPJ team consists of more women. Is that right, Ma'am? What are the advantages and challenges of being a woman negotiator?
A: Yes, my team is 70% women. It has been like this since a long time ago. I have to credit them for being strong and tough women, especially since their functional title is trade negotiator. With the bureaucratic reform to transform civil servants into a more specialised role, we cannot change positions. So if you choose to become a trade negotiator, you have to set your mind and heart from the beginning.
DPPJ Fun Fact: Four of six senior trade negotiators are women, including me.
I encourage the male in my team to accumulate points to get promoted to senior level soon.
In my opinion, being a negotiator is not determined by gender. I have not seen any discrimination in the diplomacy forum. Women can be as tough as men when it comes to negotiation.
My opinion may be biased, but I feel as a woman, we are more intuitive, which is a plus point. For example, a woman's intuition can inform the strategy of better timing when conveying something in the negotiation.
(Ms Tiara then pointed to Ms Ika Yulistyawati and asked for her opinion. Ms Ika is the Coordinator for Australia, European Union, Canada, and APEC Fora, and one of Ms Tiara's staff who accompanied her that afternoon. Ms Ika added that women's ability to multi-task is also a plus. Negotiation requires not only diplomatic skills but also managerial skills to prepare negotiation materials.)
Q: Indonesian private sector and individual professionals should be able to optimally utilise Trade in Services (TiS) covered in the FTAs/CEPAs. What do they need to prepare to gain maximum benefits from the TiS agreements?
A: The benefits of trade in services agreements are primarily aimed at all Indonesian service providers and consumers. In terms of private sector service providers, Indonesia's main interest is to encourage the movement of natural persons and professionals to supply services in partner countries.
To reap the benefits of FTAs/CEPAs, the private sector should understand the concept of trade in services commitments in FTAs/CEPAs and their benefits, understand the partner country's domestic regulations, strengthen language skills, and be willing to undertake training and certification.
There are many channels to obtain information on FTAs/CEPAs. For instance, the FTA Center in four cities managed by DJPPI, the Export Center, Indonesia's trade representative in trading partner countries, the website and social media managed by the Directorate General of National Export Development (DJPEN in Indonesian acronyms), and many more.
In addition, the private sector also needs to be open-minded, especially to knowledge and technology brought by foreign investment and advocating for the capacity improvement of the domestic private sector.
Coordination and consultation with the government are also important to inform the government of the obstacles, challenges, and potential for further support and cooperation.
Q: What do you think of ARISE+ Indonesia programme activities supporting the Directorate of Trade in Services Negotiation (DPPJ) to enhance Indonesia's future Trade in Services?
A: The cooperation programs between DPPJ and ARISE+ Indonesia are very beneficial in supporting the development of the Indonesian services sector, especially in strengthening the trade in services negotiations. We really appreciate that ARISE+ Indonesia accommodates our needs by facilitating tailored-made capacity-building. Therefore, the activities are indeed appropriate and right on target.
We hope that the training and study programs can be continued and even broadened the scope to achieve more comprehensive outcomes.