Indonesia Trade Policy Harvard Case Solution & Analysis

Indonesia Trade Policy Case Study Solution

Indonesia is a part of South Asiancontinent, with its economic GDP 5.7% in 2015.The country is rich in oil, natural gas, textile, footwear, mining, plywood and rubber. It generates its maximum revenues by exporting Oil and natural gas and has been a member of OPEC.The country also has a rich tourist base and extensive plantation and wildlife.

Throughout the time, since 1967, the country has entered into different trade agreements to facilitates and boost its economy.In doing so, it concluded the agreement of AESEN in which Indonesia, Singapore, Thailand, Philippines, and Malaysia areactiveplayers.The agreement came into being like an action to restrict and control communism in south Asia region, while afterward, the aim shifted towards becominga joint group like EU, and serve each other benefits.

The member countries of ASEN offer each other the advantages and benefits of free trade, free investment, free capital movement, free labor force.It also maintains the economic position of each member country. Also, these member countries define the financial markets, and stock rates that control the investments and foreign direct investment Returns. These member countries collaborate under AESEN as one player and restrict and facilities the entry of any player in the market these members offers each other low-interest rates and while in return receives goods at alow price as compared to the outer world. For example, Indonesia produces oil and exports it to the member country at 0.5% profit margin, while it exports the same oil to another part of the world at ahigh rate.Alsothis membercontrol the entry of any external players into its region through monopolized mannerand set the business operatingcostcollaboratively. This member also set the entry barrier collectively to control thelocal markets.

Under the liberalization and Protectionismapproach. These members offer ease of practice of business activities, support each other through low government intervention and tariffs, which helps the weakcountries like Vietnam and Brue to establish its economy under severecompetition.It alsoprotects the economies of weakmembers by implementing high barriers to entry in theexternalcompetition.However, these practices also createan internal monopoly of the players that than hinders the trade by setting the price which best suits them and not the country. Also, under the protectionism theory, the government has immersed itself so much into the businesses that it has taken the ownership and authority of businesses in deciding the trading policies and tariffs.In such situation, businesses seek for government to control and decide its role as a trading contributor or as a business player.(Grant, 2014).

Due to these changing government policies and a shift from Protectionism to liberalism in AESEN region, the global trade is transformed. Since the region constitutes 7% of the world economy, it posits high pressure upon the global trade to set the barriers and government policies in accordance with AESENmembers. The countries in AESEN, gets the leverage of low tax obstacles and tariffs due to its strong collective impact on the world economy and Since Indonesia is a member of OPEC as well, the countrypositstwo-way pressure on international markets to set the trade policies accordingly. Keeping the above factors in light, the region will pose high pressure on international players –western side, to adopt its businesspolicies and since these areasinclude the major emerging markets, AESEN can control the international tradeon its terms. The competitive edge AESEN has the location, resources, and type of market which is merging and have great potential of trade exchanges and business. It may posit an advantage to other players like EU to join hands in doing the trade and might make a big free trade zone.

Within the area of AESEN region, the labor movement is free, which means any person from any of the relatedcountry can go and settle into another economy without any sanctions and restriction. The trend is real, as it offers a free smooth pathway to the individual to develop its career while on other handsoffersthe economy a strong edge of having the skilled labor. However, there is a negative impact of free migration and thelabor movement,which is, it creates the imbalance of skilled labor in particular economy.For instance of amajority of the labor will move to Singapore, a workforceimbalance will be set upinIndonesia, though the region would show an increase in growth, but as an individual entity, it will downgrade the economy ofa particular member.(taylor, 2002)


Indonesia Trade Policy Harvard Case Solution & Analysis



Furthermore, since refugees are not migrants, under the US Definition, they don’t play a part in international trade. Since migrant’s moves to another place to look for work, which benefits the economy,theycan play a vital role in international trade, by enhancing the economy through expertise and skills in particularindustry. However, refugees impact the economy, the other way round, these refugees consumes the resources and in turndoes not balance the benefits through taxation. Thetrend in turneffects the tradebalance, and thus demandsmore resources to be imported or exported to meet the demand.(The Economist, 2016)................

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