PUBLICATIONS & REPORTS

Contents Introduction

The international trade rules governing trade in textiles and textile products (TTP) are undergoing a dramatic transformation. The Multi-Fiber Arrangement (MFA) is being phased out and TTP trade will be conducted under the rules of the World Trade Organization (WTO) as of January 1, 2005. For Indonesia, this presents challenges and opportunities. In addition to the phasing out of the MFA, the global trading system is increasingly seeing the introduction of preferential trade agreements that liberalize trade amongst members, but that discriminate against nonmembers. The three major centers of world trade, North America, Europe, and East Asia are busy negotiating new PTAs that will divert trade in textiles from low-cost non-member producers such as Indonesia. Finally, China's entry into the WTO allows TTP producers there to avail of liberalized quotas and integration of TTP products into the tariffbased trade system as of 2002. With rising domestic production costs associated with restive labor markets and increased government interventions with decentralization, Indonesian TTP producers face a "double-squeeze". This paper provides some policy suggestions for how Indonesia might respond to the changes in the external and internal markets with a view to sustaining exports of TTP in the coming years.