Maximizing International Trade Agreement: The Role of Distribution Services in Supporting Indonesia Economic Growth By: Ms. Siti Tri Joelyartini Mr. Geovani Kusuma Ms. Ria Devika Hayuningtias Presented in Trade in Sevices Forum 23 November 2016, Hotel Le Meridien, Jakarta, Indonesia
OUTLINE 2 I. Why Distribution Services? II. Classification of distribution services in international Trade III. Indonesia’s Commitments in Distribution Services under FTAs and the GATS IV. Performance of Distribution Services in Indonesia V. Government Regulation concerning Retail Services VI. Implication of commitments’ and measures of Distribution Services VII. Conclusions & Recommendations
3 I. Why Distribution Services?
I. Why Distribution Services? 4 Distribution is the critical part of the value chain that links producers (farmers, food processors and manufacturers) to the end-consumers. With a 14.34 per cent share in the country’s GDP in 2010 the value of wholesale and retail trade reached some 331 billion Rupiah. Distribution is a labor-intensive sector in Indonesia. It employs around 17% of total workforce and grows steadily over the last decade and scoring average 7% of annual growth, which is higher than average national growth, 5.8%. Opportunity in distribution sector remained high, especially for micro, small, medium enterprises, since it is relatively easy to set up a business in this sector, for example by establishing small retail shop with limited capital and employee.
5 II. Classification of Distribution Services in International Trade
II. CLASSIFICATIONS OF DISTRIBUTION SERVICES SECTOR 6 Franchising Other (CPC 8929) Distribution Services Wholesale Commission Trade Agents’ Services (CPC Services (CPC 622) 621) Retailing Services (CPC 631+632+6111 +6113+6121) DISTRIBUTION SERVICES
Retailing Services (CPC Commission Agents’ Wholesale Trade 7 631+632+6111+6113+ Services (CPC 621) Services (CPC 622) 6121) On Food, Beverages and Tobacco (CPC 6310) On Agricultural raw materials and live animals (CPC 62111) On Agricultural Raw Materials and Live Animals (CPC 6221) On Pharmaceutical and Medical Goods and Cosmetics (CPC 6321) On Food Products, Beverages and Tobacco (CPC 62112) On Food, Beverages and Tobacco (CPC 6222) On Textiles, Clothing, Footwear and Leather Goods (CPC 6322) On Fuels, Metals, Ores, Timber, Building Materials and On Household Appliances, Articles and Equipment (CPC On Textiles, Clothing and Footwear (CPC 6223) Industrial and Technical Chemicals (CPC 62113) 6323) On Hardware, Paints, Varnishes and Lacquers, Glass, Construction On Machinery, Industrial Equipment and Vehicles other than On Household Appliances, Articles and Equipment (CPC Materials and do-it-yourself Materials and Equipment (CPC 6324) Motor Vehicles, Bicycles and Motorcycles (CPC 62114) 6224) On Office Equipment, Books, Newspapers and Stationery and Photographic, Optical and Precision Equipment (CPC 6325) On Furniture, Household Goods, Hardware and Ironmongery On Pharmaceutical and Medical Goods and Cosmetics (CPC Other Specialized Retail Sales of Non-Food Products (CPC (CPC 62115) 6225) 6329) Wholesale Trade Services of Motor Vehicles (CPC 61111) On Textiles, Clothing and Footwear (CPC 62116) On Miscellaneous Consumer Goods (CPC 6226) Retail Sales of Motor Vehicles (CPC 61112) On Pharmaceutical and Medical Goods and Cosmetics (CPC On Intermediatts, other than agricultural; On Waste and 62117) Scrap and Materials for Recycling (CPC 6227) Sales of Parts and Accessories of Motor Vehicles (CPC 61130) Sales of Motorcycles and Snowmobiles and Related Parts On Goods n.e.c (CPC 62118) On Machinery, Equipment and Supplies (CPC 6228) and Accessories (CPC 61210)
8 III. Indonesia’s Commitments in Distribution Services under FTAs and the GATS
INDONESIA’S COMMITMENTS FOR DISTRIBUTION SERVICES Indonesia’s commitments at The 9 th Package of ASEAN Framework Agreement on Services (AFAS 9) : 9 1. Wholesale Trade Services of Food, Beverages and Tobacco with Minimum Space above 5000 m2 (CPC 6222), FDI through joint venture up to 51% 2. Wholesale Trade Services of Textile, Clothing and Footwear with Minimum Space Above 5000 m2 (CPC 6223), FDI through joint venture up to 51% 3. Direct Selling (Multi Level Marketing), FDI through joint venture up to 51% Indonesia’s commitments at ASEAN -Japan CEP: 1. Wholesale Trade Services of Food, Beverages and Tobacco with Minimum Space above 5000 m2 (CPC 6222) 2. Wholesale Trade Services of Textile, Clothing and Footwear with Minimum Space above 5000 m2 (CPC 6223) For the above-mentioned subsectors, FDI is only permitted to operate in Kalimantan, Sulawesi, Nusa Tenggara, Maluku and Papua but only operate in capital regency. It shall establish distribution supporting facilities. Foreign investors have the obligation to cooperate with at least 100 Indonesian SMEs yearly and all wholesalers shall maintain 80:20 configuration (80 is for local products). Mode 1 and Mode 4 are still unbound. 3. Wholesale Services (CPC 6111, 6224, 6228) related to the distribution of automobile (excl.motor cycle), household electrical appliances, office machineries, construction machineries supplied by a Japanese company in Indonesia, Mode 3 commitment shall be reviewed 10 years after the agreement enters into force. Mode 1,2,4 are still unbound 4. Retail sales of food, beverages and tobacco with space between 1200 up to 5000 m2 (only supermarket) (CPC 6310), FDI is allowed through joint venture up to 35%. Mode 1 and 4 are still unbound 5. Franchise Services (CPC 8929) limited only franchisor, FDI is allowed through joint venture up to 51% 6. Direct Selling (Multi Level Marketing), Mode 1 and 2 are “none” while Mode 3 and 4 are “unbound” ASEAN-China ASEAN- ASEAN-India ASEAN-Korea Indonesia has not committed the Multilateral Fora TIS Australia-NZ FTA TIS ATS Distribution Services Sector at:
10 IV. Distribution Services in Indonesia
a. The Role of Distribution Services 11 1. Direct contribution in the The Development Development output and labor of National of distribution Economy services 2. Impact * multiplier effects * infrastructure services Direct Job Creation In agro-based developing economies where traditional retail (traditional market) • dominant: a major contribution to job creation because of the ease of creating a small retail outlet. Impact Importance for Manufacturing Competitiveness The productivity and efficiency of distribution services greatly affects the prices of • goods and services distributed. The competitiveness of producers of manufactured goods is also impacted by their access to efficient and competitive distribution services.
b. Structure of Retail Sector in Indonesia 12 Retail Structure in Indonesia (according to its management system) Modern Retail Traditional Retail - Modern store management - Traditional management system; system; - Operated by individuals; - A large amount of capital; - Consumers could bargain the - Prices are fixed beforehand or product prices. fixed price that is imprinted in every product.
c. The Development of E-Retailing in Indonesia 13 2000 – 2010, the era of e ‐ retailing. The electronic ‐ based retailers or e ‐ retailing began to develop such as Multipolar Group with LIPPOSHOP, Sanur, Click and Drag and Gramedia on ‐ line 2010 – Present, 1960 – 1990, it is the era of modern retail e ‐ retailing and came up in specialized market various formats enlargement such as mass 1990 – 2000, merchandiser and grocery the development of Convenience Store, High Class Department Store, Branded Boutique (High Fashion) and Cash and Carry Before the 1960s, traditional retail was in form of independent retailers Source: Document 2013/SOM2/GOS/WKSP/009
d. INDONESIA RETAIL MARKET GROWTH 14
e. Indonesia Retail Sales Value Share (%) 15 Source: Euromonitor
f. Indonesia: sales in Modern Retailers (IDR Trillions) 16
g. STRI for Distribution Services by Category of Restriction 17 Source: Ueno, A. et al. (2014), “ Services Trade Restrictiveness Index (STRI): Distribution Services ” , OECD Trade Policy Papers, No. 173, OECD Publishing, Page 16.
h. Qualitative Analysis Result 12 Services Sectors 18 Share of Domestic Conclusion Based on No Services Sector Demand (%) I-O Table Business Services 102,43 excess demand 1 Communication Services 100,24 excess demand 2 Construction and Related Enggineering 100,04 excess demand Services 3 Distribution Services 84,50 excess supply 4 Educational Services 100,64 excess demand 5 Environmental Services 2782,73 excess demand 6 Financial Services 102,94 excess demand 7 Health Related and Social Services 101,98 excess demand 8 Tourism and Travel Related Services 100,94 excess demand 9 Recreational, Cultural and Sporting 95,71 excess supply Services 10 Transport Services 106,54 excess demand 11 Other Services not included elsewhere 100,01 excess demand 12 Share of Domectic Demand is a percentage from Domestic Demand towards Domestic Output PRESISI INDONESIA Research Source: Indonesia I-O Table 2010, BPS (2015), processed.
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