p-ISSN 2980-4868 | e-ISSN
2980-4841
The Impact of Utilization Free
Trade Agreements (FTA) and Fiscal Facilities KITE-IKM on the Export Performance
of Small and Medium Enterprises (SMEs)
Riza Agustian Achmad1*,
Christina Ruth Elisabeth2
1,2 Universitas Indonesia, Indonesia
Email: riza.elearning@gmail.com1*
ABSTRACT:
This study employs the random-effect panel data method at the firm
level to determine the impact of Free Trade Agreements (FTAs) and fiscal
allowance KITE-IKM (Ease of Importing for IKM Export Purposes) on the export
performance of Small Medium Enterprises (SMEs) in Indonesia. The data used is
panel data from 2019 to 2023. The units of analysis of this study are SME
exporters in Indonesia. The dependent variable is the export value of SMEs, and
the independent variables are FTAs and KITE-IKM fiscal policy,
considering factors such as the real effective exchange rate (REER), firm
characteristics, and firm management. The results indicate that both FTAs and
KITE-IKM policies have a positive and significant impact on the export
performance of SMEs. However, the effects of fiscal policy (KITE-IKM) are
higher than FTAs since this policy simultaneously reduces the
cost of production and the cost of trade. Control variables (Real Effective
Exchange Rate, Firm Scale, Furniture Sector, and COVID) also show a positive
and significant relationship with SME export performance. This study suggests
policy harmonization on fiscal and trade policy to improve SMEs' productivity
and export competitiveness.
Keywords: Utilization
Free Trade Agreements, Fiscal Facilities KITE-IKM, Export Performance, Small
and Medium Enterprises.
INTRODUCTION
The globalization of trade that is currently occurring has brought
significant changes in the dynamics of international trade. One of the main
tools used in penetrating foreign markets through exports is through FTAs. Free
Trade Agreements (FTAs) play an important role in increasing a country's
economic growth. This is done by encouraging opportunities for the creation of
a country's exports and expanding market access. Market access is considered
important to help Small and Medium Enterprises (SMEs) to enter foreign markets.
The share of exports of SMEs in developing countries still needs to grow. The
average export rate of SMEs in ASEAN countries is only around 23% (Wignaraja, 2012).
FTAs are expected to provide legal certainty and a clear framework for
certainty for the business world, especially in the export sector. FTAs can
provide opportunities for each country to eliminate or reduce trade barriers
such as tariffs and quotas so that it is expected to encourage the flow of
trade in goods and services between FTA member countries. FTAs can affect the
level of export efficiency, especially related to trade costs (Kaushal, 2022). FTAs can increase the ability of domestic
industries to be able to compete in the international market, in addition to
FTAs can encourage investment through Foreign Direct Investment (FDI) in the
country.
The main obstacles that the SME sector often faces in export
activities include high export costs, competitiveness, raw materials, opening
market access and marketing. Several obstacles such as barriers to information
and human resources, distribution, logistics, promotion, finance, procedural
and price are still found and affect the contribution of Indonesian SMEs in the
global value chain (Revindo et al.,
2019. The use of FTAs should be able to encourage
the SME sector to export in order to increase national exports. The existence
of a free trade agreement is expected to encourage increased market access,
market liberalization and bring in FDI (Budi & Putri, 2023).
Access to imported raw and intermediate goods is still one of the main
obstacles to the productivity of firms in Indonesia. A study by (Elisabeth et
al., 2020) found that the Non-Tariff Measures (NTMs) imposed on imported
intermediate products significantly reduced the productivity and profitability
of Indonesian manufacturing firms. SMEs also faced similar obstacles. The
availability of raw materials needed by SMEs is often unstable and insufficient
to meet the needs of SMEs in producing the goods produced. This can be caused
by local production limitations or disruptions in the supply chain. The high
price of raw materials locally is also one of the problems in the production of
SMEs which has the potential to reduce the quality of the products produced.
Based on information from the Ministry of Trade, the SME sector that is
experiencing considerable difficulties related to raw materials is the textile
sector (fabric and silk) and processed food (refined sugar). The high price of
raw materials and the volatility of the price of raw materials for SMEs are one
of the main obstacles to the production process of the goods produced by SMEs (Cahyono et al., 2023). This is also the main problem for SMEs where the price of goods to
be exported does not compete with other countries. In order to encourage SME
exports, the government issued a policy to provide fiscal facilities in the
form of import facilitation facilities for export purposes (KITE-IKM). Through
this policy, SMEs are able to obtain cheaper raw material prices, which can
improve their price competitiveness in the export market.
The export contribution of SMEs in Indonesia is one of the lowest in
ASEAN (Yoshino and Wignaraja, 2015). Indonesian SMEs' export contribution
currently only reached 15.7% of total national exports, significantly lower
than Singapore's, which was 41%. Meanwhile, in Thailand and Singapore, the
contribution of SME exports was 29% and 24%, respectively. Previous research
has identified that FTAs and fiscal facilities significantly impact a country's
total exports. FTAs have a positive impact on firm performance but tend to have
a greater effect on larger companies, as larger companies are more likely to
utilize FTAs (Hayakawa, 2015). The utilization of FTAs positively and
significantly impacts a country's economic growth (Kusuma, 2017; Anggrainy,
2023; Tangavelhu et al., 2021; Cestepea et al., 2014). Export promotion
programs, including tax and financial incentives, trade fairs, and the presence
of representative offices, positively and significantly affect the export
performance of small and medium-sized enterprises (Quaye, 2017). Tax incentives
also have a positive and significant impact on firm performance (Meyende,
2013).
Most studies estimate the impact on the aggregate or country level. To
the best of our knowledge, our study is the first to estimate the effect of
FTAs and fiscal facilities on SMEs' export performance. The findings of this
study will improve understanding of how FTAs and fiscal facilities can improve
market access for small and medium-scale firms, which face relatively higher
costs than big-scale firms. This study will focus on SMEs because the current
export performance and the FTA utilization of SMEs is still low.
In this context, this study will examine the impact of FTAs and
KITE-IKM fiscal facilities on the export performance of SMEs which is expected
to provide valuable insights for the government, especially to formulate more
strategic policies in the future in encouraging the success of SME exports
through the use of FTAs and KITE-IKM fiscal facilities.
FTA utilization in Indonesia is still low for several schemes. The
long management process of FTAs, which results in high costs for firms, is the
main cause of the low rate of FTA utilization. To improve this condition, the
government needs to formulate a strategic and harmonized policy on FTAs,
fiscal, and logistics to encourage the success of SME exports. This study aims
to analyze the effect of the utilization of FTAs and fiscal facilities of
KITE-IKM in encouraging the export performance of SMEs.
RESEARCH METHODS
This study used the annual data of SME exporting firms
from 2019 to 2023. The observation unit is at the firm level. The criteria for
SMEs are based on PMK Number 177 of 2016. We employed 135 SME exporting firms
as a sample. The total observation was 675 firms. Firms that used FTA are all
the firms that submitted and used a Certificate of Origin (SKA) document as a
requirement to get the FTA tariff scheme.
Research Variables
The variables used in this study are divided into two main
variables: export value as a dependent variable and FTA utilization variables,
as well as KITE-IKM as interest variables. We also employ several control
variables related to macroeconomic factors, firm and managerial
characteristics.
Main Variables
The main variable used in this study is the firm's export
value. The value of a firm's exports refers to a certain amount of foreign
exchange value obtained from the proceeds of export sales. In this case, the
value of exports has been widely used in several studies on the impact of FTAs
on export performance, such as (Kusuma, 2017; Tangavelhu, 2021; Ardiyanti, 2015), which use the value of firms' exports as an
independent variable in their research model. The variables used in this study
are divided into two categories: the main variables, which include the export
value as the dependent variable and the utilization of FTAs and KITE-IKM
facilities as the variables of interest, as well as several control variables
related to macroeconomics, firm conditions, and firm management. The FTA
variable is expected to analyze the extent to which the utilization of FTAs can
enhance the export performance of SMEs, particularly in terms of expanding
market access. The fiscal facility variable for SMEs is used to analyze the
fiscal policies aimed at addressing the raw material issues faced by SMEs in
enhancing exports.
Control Variables
1)
The macro variable in the form of
the Real Effective Exchange Rate (REERt) in the index is calculated as a
weighted average of the bilateral real effective exchange rate in each trading
partner and as a measure of the competitiveness of export products against
trading partners. REER data was obtained from IFS, IMF. The price
competitiveness theory states that when the REER weakens (depreciates), the
export price of a country becomes cheaper for foreign buyers, thereby
increasing the volume of exports. Kang and Dagli (2018) also found that the real
effective exchange rate can have a direct impact on increasing a country's
exports. The impact of exchange rate depreciation will have a direct effect on
the export performance of developing countries (Arize et al., 2017).
2)
Firm Characteristics:
The Firm Life Cycle Theory explains that a firm goes
through various stages in the firm's life cycle, ranging from establishment,
growth, maturity, to decline. Each of these stages has different
characteristics and challenges. The enterprise life
cycle theory states that older and larger firms tend
to have more resources and experience, which can improve their ability to
export. The determination of a firm's high export performance can be influenced
by the characteristics of the firm (Baldauf, 2000). The explanation of the
characteristics of the firms used in this study can be described as follows:
a)
Firm Age (AGE) is the length of
the firm's establishment as an industry which is measured from the period of
the firm's deed of establishment (in years). The firm's age data was obtained
from INSW and DJBC.
b)
Business Scale (SCALE) is a
grouping of SMEs into small/medium industries by paying attention to the amount
of annual sales through the average annual export with the amount according to
the criteria of PMK-177/2016. The criteria for small industry scale are the
average annual exports of 300 million-2.5 billion Rupiah (Small Industry) while
the medium industrial scale is the average annual export with an amount of
2.5-50 billion Rupiah. The scale of the business is in the form of a dummy
variable with a value of 1 if it is medium-scale and 0 if it is small-scale.
The export value was obtained from DJBC, Ministry of Finance.
c)
Business Sectors (SECTOR) are the
business fields of each firm which are divided into 6 categories, namely the
furniture, handicrafts, textiles, wigs, processed food and beverages, and other
sectors. SEC1 is a dummy that is worth 1 if the processed food and beverage
sector and 0 others. SEC2 is worth 1 if the sector wigs and 0 others. SEC3 is
worth 1 if the textile sector and 0 others. SEC4 is worth 1 if the craft sector
and 0 others. SEC5 is worth 1 if the furniture sector and 0 others. With the
baseline of other sectors. Data was obtained from BPS, INSW, and DJBC.
3)
Managerial Characteristics
According to the Resource-Based
View (RBV) Theory, a framework in strategic management that focuses on the
firm's internal resources is the main key to achieving sustainable competitive
advantage. This theory was first introduced by Jay Barney in 1991. The quality
of a firm's management affects the firm's strategy and operations, which in
turn can affect export performance. The firm's managerial
status is explained through Gender (GENDER) and
nationality (NATION) of the commissioner/owner of the firm is the nationality
and gender (gender) of the commissioner/owner of the firm. Data was obtained
from INSW, and DJBC. Managerial characteristics have a great influence on the
firm's export development (Leonidou et al., 1998).
Research Hypothesis
The hypothesis of this research is as follows:
Table 1. Research Hypothesis
|
No |
Variable |
Influence |
Hipotesis |
|
1. |
FTA |
Positive |
FTA has a Positive Effect on SME Export Performance |
|
2. |
KITE-IKM Facilities |
Positive |
KITE-IKM Facility has a positive effect on the
export performance of SMEs |
Model Specification and Estimation Method
This
research will examine the impact of FTAs and policies of the KITE-IKM Facility
on the export performance of SMEs. The empirical model used in this study uses
are, as follows:
LnExportit = α0 + 𝛽1FTAit + 𝛽2KIKMit + 𝛽3REERit + 𝛽4SCALEit + 𝛽5LABOURit + 𝛽6CAPITALit + 𝛽7SECit + 𝛽8LOCit + 𝛽9NATIONit + 𝛽10COVIDit + 𝛽11AGEit + 𝛽12GENDERit + eit
The empirical model is based on firm theory,
which focuses on how firms make decisions about whether to export or serve the
domestic market, considering their marginal costs and trade costs. By utilizing
FTA, firms can pay lower tariffs, which can reduce marginal costs and increase
profitability and productivity (Melitz, 2003). Similarly, by using the KITE-IKM
scheme, SMEs can get lower imported tariffs for their raw materials and lower
export tariffs in export destination countries, which can also decrease
marginal and trade costs. The dependent variable is LnExportit,
which refers to the firm's export value. FTAit
is the dummy variable for FTA utilization, KIKMit
is the dummy for the KITE-IKM Facility, REERit
is the real exchange rate of the rupiah currency, SCALEit is the scale of the firm, LABOURit is the number of workers, CAPITALit is the firm's initial capital, SECit is the business
sector, LOCit is the
location of the firm, NATIONit
is the nationality of the firm's director or leader, COVIDit is the condition of the Covid 19 pandemic, AGEit
is the age of the firm, and GENDERit
is the gender of the firm's directors or leaders. The estimation method used in
the study is an econometric analysis approach through the Random Effect Model
(REM). FTAs have both positive and
negative impacts on the export performance of small and medium-sized industrial
enterprises (Hayakawa, 2015; Sinaga et al., 2015). Tax incentives have a
positive and significant impact on firm performance (Meyende, 2013). Exchange
rate depreciation has a positive direct effect on the export performance of
developing countries (Arize et al., 2017). The determination of a firm's high
export performance can be influenced by characteristics of the firm, including
age, capital, and labor (Baldauf, 2000). Managerial characteristics have a
significant influence on the firm's export development (Leonidou et al., 1998).
Table 2. Relationship Between Variable
|
Variable Name |
Variable Definition |
Unit/Level |
Source |
|
Export |
Export Value |
IDR |
Directorat General Customs and Excise |
|
FTA |
FTA |
Dummy |
Ministry Of Trade |
|
KIKM |
Facility KITE-IKM |
Dummy |
Directorat General Customs and Excise |
|
REER |
Real Effective Exchange Rate |
Rp/LCU |
IFS, IMF , World Bank |
|
AGE |
Firm Age |
Year |
Directorat General Customs and Excise |
|
SCALE |
Scale |
Dummy (1=Medium, 0=Smalll) |
Directorat General Customs and Excise |
|
SEC |
Sector |
Dummy Sector Baseline: Others Sector |
Directorat General Customs and Excise |
|
GENDER |
Gender |
Dummy (1=Male, 0=Female) |
Directorat General Customs and Excise |
|
NATION |
Nationality |
Dummy (1=Foreigner, 0=Indonesian People) |
Directorat General Customs and Excise |
|
LABOUR |
Total Labour |
People |
Directorat General Customs and Excise |
|
CAPITAL |
Capital |
IDR |
Directorat General Customs and Excise |
|
LOC |
Location |
Dummy (1=Industrial Area, 0=Non Industrial Area) |
Directorat General Customs and Excise |
|
COVID |
Pandemic Covid 19 |
Dummy |
Kepres RI Nomor 11 Tahun 2020 Kepres RI Nomor 12 Tahun 2020 Kepres RI Nomor 24 Tahun 2021 |
RESULTS AND DISCUSSION
Estimated Results
The
Relationship between FTA and IKM KITE on SME Export Performance
Table 3. shows the results of OLS and RE estimation. The average
export value of SME that used FTA facilities was higher than SME exporting
which not used it during the 2019-2023 observation period. The study with the
OLS model without using control variables showed a larger estimation result
where the average export value of SME exporting firms that used FTA facilities
was 215% higher than that of firms without FTA facilities.
The table above also shows the results of the study using a random
effect model. Statistically, the results of the estimates shown showed similar
results to the OLS study, but there was a slight difference from the results.
The random effect model shows that the average export value of SME exporters
using FTA facilities is 85% higher than the average export value of SME
exporters not using FTA facilities. SME exporters using KITE-IKM facilities
show that the average export value of SME exporters using FTA facilities is
320% higher than the average export value of SME exporters not using KITE-IKM
facilities.
The furniture sector continues to show the highest export
performance results compared to other sectors. Conversely, the processed food
sector consistently shows the lowest export performance results. The estimation
results of the random effect model for the REER variable indicate a positive
and significant impact on the export value of companies. This suggests that
when the real effective exchange rate of the rupiah increases by 1 unit,
meaning a depreciation of the rupiah, the export value of SMEs will increase by
23%. The COVID-19 pandemic led to an increase in overseas demand for exports,
and during COVID-19, the depreciation of the rupiah exchange rate also
contributed to the rise in export value, as shown in the table below.
Statistically, the average export value of medium-sized SME exporting companies
is 288% higher compared to small-scale SME exporting companies.
The results of a positive and significant estimate of the effect of
FTA utilization on the export performance of SME exporting firms show the
direct impact of FTA utilization. This is in line with previous research
related to the use of FTAs and KITE-IKM which can improve the export
performance of firms such as (Anggraini, 2023; Hayakawa, 2015; Cestepea et al,.
2014; Kusuma, 2017; Quaye, 2017). According to Melitz (2003) which has been
explained earlier, FTAs and KITE-IKM Facilities cause a reduction in trade
costs so that they can reduce marginal costs that can help firms increase
export value in the global market. FTAs and SMEs based on research conducted
can have a positive impact on the export performance of SME exporting firms
which is also in line with the expected hypothesis.
Table 3. Estimation Results
|
Variable |
1 LnEXPORT OLS |
2 LnEXPORT OLS |
3 LnEXPORT RE |
4 LnEXPORT RE |
|
dummyFTA |
2.157*** (0.235) |
0.764** (0.264) |
2.157*** (0.416) |
0.858** (0.443) |
|
dummyKIKM |
3.314 *** (0.191) |
3.199 *** (0.199) |
3.314*** (0.337) |
3.204*** (0.34) |
|
RES |
|
0.158 |
|
0.235** |
|
SCALE |
|
(0.133) 3.022*** (0.291) |
|
(0.105) 2.881*** (0.479) |
|
LABOUR |
|
- 0.002 |
|
-0.002 |
|
|
|
(0.098) |
|
(0.016) |
|
CAPITAL |
|
-9.05 |
|
-7.93 |
|
|
|
(1.24) |
|
(2.11) |
|
SEC1 FOOD |
|
-0.06 (0.432) |
|
0.008 (0.729) |
|
SEC2 WIG |
|
0.27 (0.338) |
|
0.293 (0.564) |
|
SEC3 TEXTILE |
|
0.67** (0.346) |
|
0.692 (0.578) |
|
SEC4 HANDCRAFT |
|
0.201 (0.329) |
|
0.288 (0.538) |
|
SEC5 FURNITURE |
|
0.888** (0.305) |
|
0.918* (0.507) |
|
PLACE |
|
-0.843* |
|
-0.815 |
|
|
|
(0.464) |
|
(0.791) |
|
NATION |
|
-0.403** |
|
-0.231 |
|
|
|
(0.203) |
|
(0.244) |
|
COVID |
|
0.467* |
|
0.666** |
|
|
|
(0.349) |
|
(0.28) |
|
AGE |
|
-0.019* |
|
-0.018 |
|
|
|
(0.014) |
|
(0.024) |
|
GENDER |
|
-0.204 |
|
-0.178 |
|
Constant |
19.546 |
(0.196) 2.111 |
19.546 |
(0.33) -5.837 |
|
|
(0.18) |
(13.573) |
(0.317) |
(10.749) |
|
Observations |
675 |
675 |
675 |
675 |
|
RSquared |
0.525 |
0.597 |
|
0.01 |
The dependent variable is the FTA dummy.
All error values show robust results and are presented in parentheses.
The symbols ***, **, and * indicate 1%,
5% and 10% statistical significance.
Source :
author’s calculation
Table 4. Estimated Results of FTA
and KITE-IKM Relations on
SME Export Performance Based on
Sector Distribution
|
Dependent Variabel |
Export Value (Ln) |
||||
|
|
SEC
FOOD |
SEC WIG |
SEC
TEXTILE |
SEC
HANDCRAFT |
SEC
FURNITURE |
|
dummyFTA |
2.70 |
-9.57 |
-1.13 |
8.82* |
-1.42 |
|
|
(4.91) |
(9.33) |
(4.50) |
(673) |
(2.79) |
|
dummyKIKM |
3.87 |
8.12 |
2.07*** |
4.13 |
5.01*** |
|
|
(4.12) |
(8.76) |
(5.50) |
(5.93) |
(2.28) |
|
REER |
2.67 |
2.53*** |
-1.52 |
2.61* |
8.36 |
|
|
(2.88) |
(1.14) |
(1.39) |
(1.95) |
(7.04) |
|
LABOUR |
-1.87*** |
-1.54 |
-2.02 |
-4.98* |
-4.66 |
|
|
(5.81) |
(889) |
(2.37) |
(2.65) |
(1.47) |
|
LnCAPITAL |
7.71*** |
-1.54 |
3.73*** |
-2.03 |
-2.58 |
|
|
(3.55) |
(8.89) |
(1.82) |
(-1.04) |
(1.32) |
|
NATION |
1.11 |
-1.86 |
-1.87 |
5.04 |
-1.67 |
|
|
(1.01) |
(2.70) |
(3.49) |
(4.61) |
(1.45) |
|
COVID |
2.24 |
7.21*** |
-1.83 |
6.68 |
1.15 |
|
|
(8.24) |
(3.16) |
(3.66) |
(5.18) |
(1.88) |
|
AGE |
2.22* |
8.37*** |
-3.27 |
-3.18 |
-8.07 |
|
|
(1.34) |
(3.74) |
(2.44) |
(4.20) |
(1.46) |
|
GENDER |
-6.13 |
1.14 |
-2.92 |
-1.15*** |
-7.86 |
|
|
(2.07) |
(7.68) |
(5.09) |
(5.67) |
(2.03) |
|
Constant |
-1.91*** |
-2.54 |
8.89 |
-2.23 |
-7.67 |
|
|
(8.39) |
(2.10) |
(1.45) |
(2.04) |
(7.65) |
|
Observations |
35 |
115 |
150 |
110 |
200 |
|
Rsquared |
0.11 |
0.15 |
0.05 |
0.01 |
0.02 |
The dependent variable is the FTA dummy.
All error values show robust results and are presented in parentheses.
The symbols ***, **, and * indicate 1%,
5% and 10% statistical significance.
Source :
Author’s Calculation
Table 4. shows the results of the random
effect model estimation to show the impact of FTA and KITE policies on each SME
sector. Based on the results of the FTA policy impact and fiscal facilities,
KITE-IKM has differences between each SME sector. The impact of the FTA Policy
has a positive and significant impact on the handicraft sector by 882% at a
significance level of 10%, where based on the sampling of existing data for SME
exporters in the handicraft sector, the average export value of SME exporting
firms that utilize FTA facilities is higher when compared to SME exporting
firms that do not utilize FTA facilities during the 2019-2023 observation
period. Ceteris paribus. The impact of
the KITE-IKM fiscal facility policy is highest in the furniture sector which
shows positive and significant results of 501%. This is in line with
statistical data on the use of KITE-IKM, where the sector that utilizes
KITE-IKM facilities the most is the furniture sector. The impact of the FTA
utilization policy has positive and significant results on the handicraft
sector, while the impact of the KITE-IKM fiscal policy has positive and
significant results on the furniture and textile sectors. The impact of FTA
utilization becomes insignificant in the food sector due to the very low level
of FTA utilization in this sector. There are two important reasons why
exporters do not utilize FTAs: the low preference margin for the food sector,
where the average MFN tariff is only around 5%, and the high cost of managing
FTAs, which is not proportional to the benefits generated for the food sector.
If you compare the statistical results of the impact given between the
FTA utilization policy and the use of fiscal facilities in the form of KITE
IKM, it can be seen that the policy of providing fiscal facilities in the form
of KITE IKM facilities has a greater impact on the export performance of SMEs.
This shows that in addition to the use of FTAs, other policies such as fiscal
facilities also provide great benefits for increasing SME exports in Indonesia.
By looking at the current conditions where each of these policies is still held
by several different agencies where the FTA is currently managed by the
ministry of trade and the KITE-IKM facility is managed by DJBC, the ministry of
finance. The integration of all existing policies in supporting the increase in
SME exports such as FTA utilization policies, fiscal policies, financing
policies and logistics policies is an important key to the success of
increasing SME exports. SME exporters are expected to be able to easily access
all existing policies by eliminating all existing obstacles such as lack of
information, ease of management requirements and length of management time.
Therefore, the government needs to form an integrated ecosystem that can
integrate all existing policies to make it easier for SME exporters to access
every government policy given in supporting SME exports.
This study analyzes the role of FTA utilization and fiscal facilities
of IKM KITE in improving the export performance of SME exporting firms using
observation analysis variables of 135 SME exporters in the 2019-2023 period.
FTA utilization is measured through the use of a Certificate of Origin (SKA)
used by exporters to obtain exemption or reduction of import duty rates in the
destination country. Through the utilization of FTAs, exporters are expected to
get expanded market access, low raw material prices, competitive export prices
and improved quality of competitiveness of export goods. Some of the obstacles
that are often faced by SME exporters such as market access, marketing, prices
and high export costs can be overcome through the utilization of this FTA.
The Impact of FTAs in Boosting SME Export
Performance
FTAs have an important role in encouraging the export performance
of SMEs. The provision of lower pre-currency tariffs should be able to entice
importers in destination countries to buy goods from Indonesia. The
discriminatory nature of an FTA consists of the provision of preferential
tariffs to FTA members. The preferential tariff is lower than the Most Favour
Nation (MFN) tariff on tariffs imposed on imports from non-members. The
difference between MFN rates and preferential rates is known as the preferential
margin.
Table 5. Total Export Value of
SMEs Using FTA
|
FORM |
FOB (USD) |
Total |
|||||
|
2019 |
2020 |
2021 |
2022 |
2023 |
|||
|
FORM A |
24,892,924,164 |
27,733,614,637 |
14,314,909,204 |
13,192,753,252 |
8,924,166,927 |
89,058,368,184 |
|
|
FORM AANZ |
2,344,146,178 |
1,972,901,237 |
3,515,726,198 |
4,667,545,981 |
3,198,367,368 |
15,698,686,961 |
|
|
FORM AHKFTA |
- |
5,341,012 |
9,077,895 |
30,939,602 |
22,074,714 |
67,433,223 |
|
|
FORM AI |
12,618,238,062 |
10,351,653,484 |
11,497,518,242 |
20,299,944,706 |
171,969,390,779 |
226,736,745,274 |
|
|
FORM AJCEP |
868,550,469 |
783,061,415 |
897,659,380 |
1,149,682,728 |
864,588,138 |
4,563,542,130 |
|
|
FORM AK |
5,910,828,456 |
5,106,658,298 |
31,400,024,652 |
9,578,082,309 |
8,341,756,714 |
60,337,350,430 |
|
|
FORM ANEXO III |
31,590,554 |
13,551,007 |
23,599,369 |
32,226,591 |
31,705,804 |
132,673,324 |
|
|
FORM B |
16,525,590,889 |
14,831,202,281 |
22,732,255,924 |
35,037,000,282 |
126,535,961,357 |
215,662,010,733 |
|
|
FORM COA |
15,273,075 |
10,262,906 |
7,666,081 |
6,153,708 |
5,296,911 |
44,652,681 |
|
|
FORM D |
31,191,981,429 |
26,191,301,339 |
54,487,782,351 |
126,594,169,854 |
60,878,008,893 |
299,343,243,866 |
|
|
FORM E |
26,509,836,070 |
28,512,780,338 |
52,917,709,960 |
53,443,541,098 |
86,132,078,646 |
247,515,946,112 |
|
|
FORM GSTP |
21,436,875 |
24,689,203 |
23,952,406 |
27,779,938 |
14,603,979 |
112,462,401 |
|
|
FORM HANDICRAFT PRODUCT |
1,195,608 |
854,964 |
378,633 |
499,114 |
379,891 |
3,308,209 |
|
|
FORM IA-CEPA |
- |
14,586,109 |
85,979,333 |
64,403,561 |
53,954,333 |
218,923,336 |
|
|
FORM IC-CEPA |
19,877,838 |
115,767,800 |
199,437,210 |
426,080,031 |
425,668,896 |
1,186,831,775 |
|
|
FORM ICO |
1,429,188,921 |
1,326,582,518 |
1,174,189,138 |
3,003,884,223 |
1,473,035,623 |
8,406,880,423 |
|
|
FORM IJEPA |
5,947,650,097 |
4,956,096,141 |
7,494,885,587 |
7,843,551,960 |
6,905,576,109 |
33,147,759,895 |
|
|
FORM IK-CEPA |
- |
- |
- |
- |
477,668,941 |
477,668,941 |
|
|
FORM IM |
- |
- |
- |
6,981 |
35,951 |
42,931 |
|
|
FORM IP |
1,467,592,651 |
1,981,334,010 |
3,161,988,516 |
3,464,168,013 |
2,626,450,904 |
12,701,534,094 |
|
|
FORM RCEP |
- |
- |
- |
- |
439,023,360 |
439,023,360 |
|
|
FORM TP |
441,531,175 |
191,232,771 |
250,848,098 |
220,243,354 |
115,922,517 |
1,219,777,915 |
|
|
FORM UAE-CEPA |
- |
- |
- |
- |
354,505,986 |
354,505,986 |
|
|
TOTAL FOB FTA (USD) |
130,237,432,511 |
124,123,471,469 |
204,195,588,178 |
279,082,657,285 |
479,790,222,739 |
1,217,429,372,183 |
|
|
TOTAL FOB EXPORT (USD) |
1,676,920,000,000 |
1,631,919,000,000 |
2,316,095,000,000 |
2,919,043,000,000 |
2,588,189,000,000 |
11,132,166,000,000 |
|
|
PERCENTAGE UTILIZATION
FTA (%) |
7.77 |
7.61 |
8.82 |
9.56 |
18.54 |
10.94 |
|
Source:
Ministry of Trade, BPS, data processed
If you look at the graphs and tables
above, you will see that the utilization rate of FTAs in Indonesia is still
very low. The average FTA utilization rate for each type of FTA remains below
20% for the period from 2019 to 2023, with an average of only around 10.94%.
The highest amount of FTA utilization is still dominated by FORM D,
specifically the ASEAN FTA, with a total export value of USD 299,343,243,866.
This table also shows that the intensity of FTA utilization still differs.
According to the Uppsala theory, SMEs can begin their internationalization by
targeting markets that are geographically and culturally close to their home
country, such as ASEAN countries. This approach helps to reduce the risks and
uncertainties associated with operating in foreign markets. Consequently, data
on FTA utilization indicate that the highest level of FTA utilization is
observed in exports to ASEAN countries. The lowest level of FTA utilization is
seen in exports to Mozambique using FORM IM, where the export volume to this
country is relatively small due to factors such as distance and cultural
dissimilarity. Some of the obstacles complained about by exporters are the high
cost of processing and the length of time for processing SKA which is used as a
requirement for managing predestination tariffs in the destination country. The
utilization of FTAs is still dominated by relatively large firms. Small firms
are still constrained in the cost and length of time it takes to get FTA
facilities. Keck and Lendle (2012) said that the use of FTAs will incur its own
fixed costs. However, it should be SMEs
that get positive effects from the FTA. Through the use of FTAs, SMEs can
increase product competitiveness, obtain cheap raw material prices in order to
compete in the export market and expand market access.
Policy Analysis to Increase SME Exports
By looking at the export potential of SMEs owned by Indonesia, of
course, the government must seriously support this with various policies. The
policies taken are expected to have a positive impact on increasing SME exports
in Indonesia. The current policy regarding the increase in SME exports involves
several related parties, including the central government, local governments,
related financing institutions and market place firms including opening market
access, providing financing services, cooperation with E-Commerce, and
exemption from import duties and taxes on imported raw materials (fiscal
incentives).
a)
Policy to open Market Access
The government needs to implement
several policies to open SMEs' market access, which involve the central and local
governments, such as the trade attaché of the Ministry of Trade. As in
Elisabeth and Verico (2022), some trade regulations related to Technical
Barriers to Trade (TBT) reduced Indonesia's exports. This study suggests the
need for policy evaluation and improvements to restrictive TBT in export
destination countries.
b)
Financing Services Policy
One of the main problems faced by
many SMEs is related to financing. President Joko Widodo on several occasions
stated that the government must fully support the SME sector to be able to
carry out export activities. The ratio of financing loans to total loans is
still very small, around 19.7 percent. Currently, the financing service policy
for SME exports that can be used by SME actors consists of people's business
loans (KUR), savings and loan cooperatives and financing from the Indonesian
Export Financing Institution (LPEI).
c)
Cooperation with E-Commerce
The opening of market access is
one of the supporting factors for increasing SME exports. In addition to the
utilization of the implementation of the FTA, one of the market access that can
be used by SMEs to be able to export using the marketplace. One of the factors
that can support the competitiveness of micro, medium and small enterprises
through technology (Sambamurthy et al, 2003). Several related parties have
created several applications that can support SMEs to be able to export, such
as the GoExport application. The application contains guidelines for SMEs to be
able to export, licensing in export destination countries and trade
facilitation between countries through FTAs.
d)
Fiscal Incentive Policy
In an effort to increase the
competitiveness of the domestic industry, the Government in October 2015,
issued a Policy Package Economics Volume I which aims to increase economic
activities due to the decline in world economic conditions. The policy contains
deregulation, debureaucratization and fiscal incentives through the efficiency
of raw material procurement, reducing the burden on the national industry and
making export activities smoother. In supporting efforts to increase SME
exports, the Government has issued a policy in the form of facilitating Import
Facilitation for Export Destinations for SMEs or KITE-IKM Facilities.
e)
The Level of Effectiveness of the
Policy to Increase SME Exports
Policies taken by the government
at both the central and regional levels to increase SME exports have been
carried out a lot. However, according to the author, the results shown,
especially in the foreign exchange earnings from the export of SME products,
are still very small. By looking at the large number of SMEs in Indonesia, the
number of SME exports should be further increased in order to encourage
economic growth nationally with a target of achieving 30 percent of total
non-oil and gas exports by 2024. There are two main things that cause existing
policies to run ineffectively, namely the lack of collaboration or coordination
between related parties both between the central and regional governments or
existing financing institutions and the lack of data on SMEs in Indonesia in
real time. Good data collection of SMEs by the government is expected to be
able to find SMEs with potential for export so that they can obtain facilities
that facilitate both opening market access and financing.
1)
Weak Coordination Between Related Parties
In an effort to encourage an
increase in SME exports, good coordination is needed between interested
parties. It is hoped that existing policies can run optimally. All programs in
each relevant Ministry and Financing Institution should be integrated into a
system so that the utilization by SMEs can be carried out optimally in
encouraging exports for SMEs in Indonesia. It is necessary to form a Special
Team (Task Force) to handle the increase in SME exports in order to coordinate
all related parties, including:
a)
The Ministry of Finance is
responsible for the ease of fiscal facilities and ease of export procedures.
b)
The Ministry of Industry is
responsible for product development and standardization and coordinates with
each relevant agency in the region to develop KM products so that they can be
exported.
c)
The Ministry of Trade is
responsible for the use of trade attachés in opening market access for SMEs and
trade cooperation agreements between countries (FTAs)
d)
The Ministry of Cooperatives and
Small and Medium Enterprises is responsible for determining SMEs that have the
potential to export and guidance related to the sustainability of export
activities as well as evaluating policies and facilities received by SMEs that
have export potential.
e)
The Indonesian Export Financing
Institution (LPEI) is responsible for the ease of financing for SMEs that will
export.
If all the relevant parties above can coordinate and
eliminate sectoral egos with one goal of increasing SME exports in Indonesia,
the target of achieving SME exports of 30 percent in 2024 should be achieved.
2)
Lack of Real-Time IKM Data Collection Level
The collection of IKM data in real
time is expected to provide information for each related party to be able to
provide facilities and facilities to support SME exports to be more optimal.
The government is expected to form a national dashboard which contains all SME
data in Indonesia. Through the national dashboard, it is hoped that all the
information needed by SMEs to be able to export can be accepted, especially
related to market access, financing and licensing in the destination country.
This of course also helps SMEs in unlocking export potential. IKM data
collection through an integrated system can also help the government evaluate
every policy given to SMEs on the level of success achieved.
CONCLUSION
This
study is intended to determine the direct impact of the utilization of FTAs and
fiscal facilities of KITE-IKM on the export performance of SMEs in Indonesia.
The results of the study show that SME exporters who use FTA facilities have an
average export value of 85% higher than exporters who do not use FTA facilities
which is also in line with the research hypothesis mentioned earlier. This
research is also intended to see the impact of other policies in the form of
providing fiscal facilities for KITE-IKM in encouraging the export performance
of SMEs. Through this facility, exporters get cheap raw material prices so that
they can provide competitive prices in the world export market. The results of
the study show that the provision of IKM KITE facilities can improve the export
performance of SMEs in Indonesia. This is indicated by the results of the study
where exporters who obtained KITE IKM facilities had a higher average export
value of 320% when compared to exporters who did not receive KITE IKM facilities.
The impact of the FTA utilization policy has positive and significant results
on the handicraft sector while the impact of the KITE-IKM fiscal policy has
positive and significant results on the furniture and textile sector.
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|
Riza Agustian Achmad,
Christina Ruth Elisabeth(2024) |
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First publication right: Asian Journal of Engineering,
Social and Health (AJESH) |
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