trade diversion away from non-member states is expected with a fall of exports by 4.2%. In general, the share of non-member countries in Indonesian exports drops from 41.9% to 38.2%, while the one of FTAAP members increases by 3.7 percentage points (from 58.1% to 61.8%).

These higher benefits of FTAAP are due to improved access to a higher number of markets that account for 56% of global output and over one third of world trade, while its share of intra-RTA trade amounts to 65% of members’ total trade (World Bank, 2016a). Moreover, the FTAAP agreement is associated with a lower degree of liberalization of tariffs and NTMs as compared to the TPP, so the potential reductions in trade barriers are higher. In particular, the trade weighted average NTM that Indonesia faces on the FTAAP markets drops by 3.3 percentage points from 6.7% to 3.4%. The Indonesian trade weighted NTM also falls from 4.26% to 2.5% (Table 1). Regarding tariffs, they also decline, even though with a lower magnitude: the trade weighted average tariff that Indonesia faces on the FTAAP markets falls from 1% to 0.1%, while the Indonesian average tariff against other FTAAP countries declines from 0.7% to 0.15%. On the sectoral level, the highest initial tariffs that Indonesia faces on the FTAAP markets is in wearing apparel (11.3%) and textiles (5.2%), while for NTMs the highest values occur in communication and business services (47.2%), construction (42.1%), financial (33.1%), as well as trade and transport services (28.3%). Given the relatively high initial trade barriers in textiles and apparel, these sectors expand their output and exports the most. The increase in production of wearing apparel equals to 21.4%, while its exports rise by 33.1%. For textiles, the respective values are 17.9% and 37.2%. Among the biggest losers, we find the same sectors as in case of TPP-15, namely food processing and agriculture, which reduce their production by 2.2% and 1%.

# Export diversion by destination and sector

While aggregate gains in output and trade volumes are important to define the extent of benefits that would come to realization after the implementation of PTAs; changes in the composition and direction of trade are, in contrast, major determinants on the sectoral composition of those gains. Quantifying the extent of gains and losses across and within countries is crucial to define policyoptions that compensate losers, and hence reduce resistance and move negotiation agendas in favor of more ambitious and beneficial agreements.

In case of Indonesia and the PTAs analyzed in this paper, the larger aggregate gains would come from the implementation of the EU-IDN, FTAAP, and TPP-15 agreements, depicted in Figure 9 below. As expected, the share of Indonesian exports directed to the European continent would increase from 9.7 percent of total exports in the baseline, to 18.5 percent in the EU-Indonesia FTA; or from $48 billion to $98 billion in exports in 2030. FTAAP, in contrast, redirects exports to the United States, $19 billion more in exports with respect to the baseline, or a shift from 8.7 to 12 percent of total exports. TPP-15 would encourage exports to countries that are part of the TPP19