PPIE FEB UI Doctoral Promotion, Christina Ruth Elisabeth: A Review towards Non-Tariff Measures on Indonesian Manufacturing Sector
Nino Eka Putra – Public Relations of FEB UI
DEPOK – (11/8/2020) The Postgraduate Program in Economics (PPIE), Faculty of Economics and Business, Universitas Indonesia, held an open session of Doctoral Promotion for Christina Ruth Elisabeth 1506776906 online, on Tuesday (11/8/2020).
The Doctoral Promotion Session is chaired by Prof. Nachrowi Djalal Nachrowi, Ph.D., with supervisors, Dr. Maddaremmeng A. Panennungi (Promoter), Kiki Verico, Ph.D. (Co-Promoter 1), and Dr. Mahjus Ekananda (Co-Promoter 2). The team of examiners consisted of Sugiharso Safuan, Ph.D. (Chief Examiner), Dr. Telisa A. Falianty, T.M. Zakir Machmud, Ph.D., Fithra Faisal, Ph.D., and Inka B. Yusgiantoro, Ph.D.
The dissertation was written by the Promovenda entitled “Non-Tariff Measures on Indonesian Manufacturing Sector.” In the last few decades, tariffs have shown a significant decline. In 1989, the MFN tariff was 32.72%, much higher than 7.23% in 2015. On the other hand, the non-tariff policy (NTMs) increased significantly from the original 20 NTMs in 1998 to 767 NTMs in 2015.
NTMs in the manufacturing sector also showed an increase. NTMs impact more than 55% of imported products and account for more than 58% of import value. NTMs in manufactured export products also increased, particularly in the types of Sanitary and Phytosanitary (SPS) and Technical Barrier to Trade (TBT) standards.
Recent literature shows evidence that NTMs can have a positive / negative impact on company performance. In relation to regional integration, the similarity in structure of NTMs has an impact on intra-industry trade (IIT). To provide a better understanding on the effects of NTMs towards the manufacturing sector, the dissertation examines NTMs in three trade activities, namely import, export and intra-industry trade in the 2010-2015 period.
There is very little literature related to trade liberalization in Indonesia that pays attention to the impact of NTMs on company performance. The reason is the limited NTMs data at the company level. This study carried out the construction of NTMs data at the company level using a number of relevant publications and selection methods.
NTMs in this study were measured by different quantification methods. In the first study, NTMs on imported raw materials were measured using an intensity index, namely the coverage ratio and frequency index. Meanwhile, in the second study, NTMs in exported products were quantified using dummy variables. Meanwhile, the third study of NTMs on intra-industry trade was quantified using the regulatory distance index.
Basically, the first study uses NTMs company data, industrial and macroeconomic data covering 4016 companies over a 6-year period to investigate the impact of NTMs on imported intermediate inputs on productivity and profitability. The results showed that NTMs partially contributed to lowering the productivity and profit of manufacturing companies in Indonesia. The results of the research are robust when the tariff is included in the model with the overall results of the study supporting the theoretical predictions of the impact of NTMs on productivity and profit in Melitz (2013) and DRC (2011).
The results of this study are different from Baghdadi et al. (2016) who found a positive impact of NTMs on the productivity and profit of small and medium enterprises in Tunisia. However, the results of the study were similar to those of Navaretti et al. (2018) who found a negative impact of NTMs (TBT) on the average productivity of small firms in the European Union.
The second research examines the impact of NTMs in the form of product standards on the extensive and intensive margins of international trade from 1266 companies during the period 2011 to 2015. Extensive margin refers to the export participation of companies in export destination countries. Meanwhile, the intensive margin refers to the export value of the company.
In this study, the product standard was represented by SPS and TBT. The results of this study indicate that SPS has a positive impact both on the extensive and intensive margin. However, TBT only has a positive impact on the intensive margins. In addition, the results of this study support the theoretical prediction of Ganslandt and Markusen (2001), which explains that product standards can have a demand-enhancing effect. The estimation results also support the predictions of Melitz’s (2003) theory. The increase in fixed entry costs is due to compliance costs which can reduce competition and increase the market share of the most productive companies.
The impact of product standards on extensive margins is different for different company sizes and sectors. There is a significant relationship in cross over interaction. The bigger the company size, the smaller the impact of TBT on the probability of doing export. The larger the sector size, the lower the impact of SPS on the probability of exporting. This condition indicates a pro-competitive effect of product standards. Regarding the intensive margins, the larger the size of the company, the greater the impact of SPS on the intensive margins. The larger the sector size, the higher the impact of TBT. The results of this study indicate that large companies and sectors have the capacity to bear compliance costs. Another reason, large companies or sectors have already met product standards before being adopted into national standards.
The results of this study differ from Fontagne et al. (2015) who found a negative impact of SPS on extensive and intensive margins. However, it has similar results to the research of Shepotylo (2016), which found a positive impact on SPS in the extensive margins. Regarding the impact on firm size, the results of this study differ from Fontagne et al. (2015) who found that product standards are more profitable for large companies, both from the extensive and intensive margins side.
The latest research is a case study that explores the regulatory distance (RD) of NTMs and IITs between Indonesia and other automotive producing countries in ASEAN, namely Malaysia, the Philippines, Thailand and Vietnam in the 2014-2018 period. The results show that on average, the regulatory structure of Indonesian TBT is the most similar to that of other automotive manufacturers. Meanwhile, Vietnam’s TBT regulatory structure is the most different from other producers. Regarding bilateral relations, the regulatory structure is most similar to that of the relationship between Indonesia and Malaysia. Meanwhile, the most different regulatory structures are found in the bilateral relations between Malaysia and Vietnam.
From the results of mapping regulatory distances and IITs, this study finds that not all countries that have high IITs also have low regulatory distances. This ideal relationship can only be found in the relationship between Indonesia and Thailand.
There are a number of policy implications of this research. First, there is a need for downsizing and harmonization of NTMs, especially those that are imposed on imported raw materials, because the manufacturing sector still depends on the imported raw material market. Second, it is important to increase trade facilitation to help small companies / sectors meet the standardization requirements to export their products to the destination countries. Third, the importance of Indonesia and other automotive producing countries in ASEAN to harmonize NTMs, in order to increase the growth and competitiveness of ASEAN automotive sector.
The Executive Board of the doctoral promotion open session decided, Christina Ruth Elisabeth (1506776906) passed with the predicate Cumlaude and succeeded in being the 118th Doctorate in Economics. Congratulations to Dr. Christina Ruth Elisabeth! (hjtp)
(am)
