Vision Group Report: Invigorating the Indonesia-EU Partnership

to exploit potentially beneficial changes (cf. Hertel and
Reimer, 2005). Moreover, countries may need to strengthen
social protection to mitigate adjustment effects of trade
liberalisation (cf. Winters et al., 2004).
In the case of Indonesia ex-ante analysis has found
trade liberalisation generally reduces poverty with more
liberalisation entailing a stronger reduction in poverty.
Robilliard and Robinson (2005), for example, find that full
multilateral trade liberalisation would reduce the number
of the poor by around 1.3 million people. Since the majority
of the poor in Indonesia receive income from agriculture
and transfers (Hertel et al., 2003), significant reductions
in poverty will be driven by this strata. Henceforth for
trade liberalisation to be poverty-reducing in Indonesia it
should benefit these parts of society. Hartono et al. (2007)
examines the poverty implications of the EU-Indonesia
FTA as opposed to some other FTAs. They find that an
Indonesia–EU FTA would benefit Indonesia relative to
other FTAs (i.e. FTAs with India or Singapore) in terms
of real GDP growth, increases in household income, and
welfare. Moreover, an Indonesia – EU FTA is supposed
to reduce poverty with increases in average household
income disproportionately benefitting unskilled labour
and rural areas.
Taking all the above into account, one should expect
the full EU-Indonesia FTA, with all the tariffs eliminated
across-the-board, to have the effect of alleviating poverty.
Nevertheless, the inclusion of additional provisions
reducing NTBs seems desirable as well as other effectively
targeted support measures.
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