IMPACT OF REDUCED TARIFF RATE UNDER FTA SCHEME ON IMPORT QUALITY UPGRADING

Abstract

The good quality of imported goods as input production is needed to produce quality goods. This paper examines the impact of reduced tariffs under FTA scheme on the quality of imported inputs in the Indonesian Automotive Industry in 2015-2019. Quality is measured by the unit value approach. Using data from Customs declaration documents, this paper captures the impact of tariffs on the quality of imported products using the Difference-in-Difference (DiD) method. The result shows that the reduction in tariffs does not have a significant impact on improving the quality of imported products. Most of Indonesia's automotive exports are dominated by less developed countries. Thus, producers do not take advantage of the reduction in tariffs to improve the quality of imported products to adapt purchasing power in the export market. They focus more on productivity to produce cheaper goods so that export products become more competitive in the export market in terms of price.