A free trade area for Timor-Leste and Indonesia

In July, Indonesian President Joko Widodo received President José Ramos-Horta for the first state visit of the Timor-Leste leader’s term. Both made proposals to deepen economic ties and called for the creation of a cross-border economic zone. Such a program has the potential to be revolutionary as it allows both countries to test and develop new policies with the aim of building a successful economy. These policies are essential features of successful development in advanced economies and of the impressive catch-up trajectory of East and Southeast Asia.

Both Timor-Leste and Indonesia will need to make and implement sound strategic choices, particularly to create the zone with effective economic development in mind. For Timor-Leste, the country could take inspiration from many Asian countries that industrialized before it, assuming it continues on this path.

More than 4,000 special economic zones currently exist in Asia, including more than 1,000 in the ASEAN bloc.

Important factors have contributed to the success of Asia’s economic development, such as the crucial role played by large investments in education, skills development and the accumulation of knowledge and technology, as well as the emphasis placed on the promotion of competent enterprises and learning among the workforce, which produces strong national systems of production and innovation. Economic zones have been used at different stages of development, evolving from manufacturing enclaves to multi-activity and high-tech economic hubs fully integrated into the urban and economic environment. These have proliferated and are still being created.

According to United Nations policy research, more than 4,000 special economic zones currently exist in Asia (about 75% of the global total), including more than 1,000 in the Association of Asian Nations bloc. Southeast (ASEAN). Reports by the University of Zurich, the United Nations Conference on Trade and Development and related studies by the Asian Development Bank have shown that in Thailand, development zones are expected to boost GDP growth by 5 % per year. In Malaysia, around 200 economic zones account for 60.5% of the national manufacturing industry and are located in states which contribute 40.2% of the national GDP. In China, special economic zones near the coast and close to trading partners have contributed to a permanent 12% increase in the GDP levels of more than 250 cities between 1988 and 2010, and this increase is expected to reach 20% in the United States. United.

Timor-Leste’s emerging economy will need to focus on addressing issues such as supply chain partners and trade infrastructure. City of Semarang, Central Java (Tri Eptaroka Mardiana/Unsplash)

Governments across the region would be expected to continue opening up economic zones in light of the current economic environment, which includes slowing growth, persistently high inflation, and elevated economic uncertainties. Each of these factors has important implications for East and South Asia, according to the United Nations’ latest report on the world economic situation and outlook, released in September.

It is imperative that the cross-border area between Timor-Leste and Indonesia achieves industrial development goals with a carefully defined strategy for how it will generate jobs, value-added exports and benefits to society. For Timor-Leste’s emerging economy, it will be critically important that its zone policies are designed and implemented to focus on addressing critical issues (e.g. skills gaps, coordination failures between businesses and training providers and/or supply chain partners, supply chain disruptions, poor business infrastructure), while guiding meaningful economic growth and achieving specific economic and social goals of in a way that results in more sustainable and equitable development.

Given Timor-Leste’s current stage of economic development and its late entry into international value chains, a cross-border zone would be a key pillar for building productive capacity and integrating the national economy into value chains. supply chain, particularly in the development of market segments or niche markets for its young economy. Timor-Leste’s participation in global value chains would provide access to a vast pool of innovative technologies, as well as much-needed skills and capital, and stimulate the upgrading of production in the private sector. The country must take advantage of its physical proximity to Indonesia and markets in the region. Cross-border industries and services can take advantage of this economic proximity and make Timor-Leste more attractive to foreign investment, promote trade and participation in regional value chains, and create competitive advantages.

The area deserves to be approached as an important base for deepening the bilateral relationship where the benefits and trade-offs go far beyond trade and investment.

From a development perspective, we cannot deny that the cross-border area approach can foster greater economic opportunities for Timor-Leste and Indonesia. There is evidence that a cross-border area can play a key role in establishing future global cities in border regions that serve as poles of economic development, improving the outward orientation of economies and their insertion into supply chains. global supply. Zones can even contribute to world-class urban/social/technological development and become an integrated strategy that creates high-quality infrastructure for commerce and other societal needs.

Although an economic zone can help shape an innovative and competitive border region in both countries, many other factors should eventually be developed to create and maintain distinct advantages on the other side of the border, as revealed the Asian experience. These factors include transport and logistics infrastructure, digital technologies, investments in education, innovative clusters, effective regulation, favorable investment climate, competent regulatory institutions, urban development, quality, etc

Although neighboring economies are separated by an international border, with Indonesia’s East Nusa Tenggara province to the west and sovereign Timor-Leste to the east, the promotion of a new type of cross-border area provides the basis for an alternative growth path.

Economic considerations may also aid other distinct and strategic goals that are tied to the success of a potentially new area between the two nations. In this regard, the area should also require new forms of international policy coordination at the bilateral level that policy makers would have to deal with for various purposes. The area deserves to be approached as an important base for deepening the bilateral relationship where the benefits and trade-offs go well beyond trade and investment.

Consider the various interactions between the two countries that must result in trust and reciprocity. Within the framework of the zone, conditions will emerge that can strengthen a harmonious relationship and closer political cooperation for legitimate foreign policy objectives that are of growing importance for regional stability and prosperity. The result is that a new economic partnership can usher in a new era of friendly relations, where each country works together and grows stronger in the process.

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