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ndonesia can reap many benefits and seize more opportunities from tighter economic ties through an economic cooperation agreement with Taiwan, one of the key developing economies in East Asia, a local research institution says.

LIPI economist Agus Sarip Hidayat said on Wednesday in Jakarta that Indonesia had bright prospects in further cooperation with Taiwan, particularly due to the possible transfer of knowledge and technology from Taiwanese small and medium enterprises (SMEs), which had become the backbone of that country’s economy and contributed more than 60 percent of its total exports.

“SME’s play a major role in Taiwan’s economy. What we can get from them is the technical assistance to help strengthen our own SMEs,” he said after the signing of a memorandum of understanding between LIPI and Taiwan’s Chung-Hua Institution for Economic Research (CIER) to conduct a feasibility study on an economic cooperation agreement between both countries.

Indonesia has around 50 million micro, small and medium enterprises, representing about 90 percent of business entities in the country, but they contribute less than 50 percent of the gross domestic product (GDP).

Agus said that apart from the absence of diplomatic ties, Indonesia and Taiwan could continue cooperation which would make a “positive contribution” to both countries. At present, both countries have quasi-official relations as they do not have formal diplomatic ties due to Indonesia’s one-China policy.

Taiwan runs Taipei Economic and Trade Office in Jakarta to represent its commercial interests in Indonesia, while Indonesia has a trade representative mission, Indonesian Economic and Trade Office to Taipei in Taiwan.

Andrew LY Hsia, the representative of Taipei Economic and Trade Office in Indonesia, expected that bilateral tariffs could be reduced through an economic agreement with Indonesia. Other Asian countries, such as China and South Korea, enjoy easier trade regimes and freer flows of goods as they have already sealed free-trade agreements with ASEAN.

Taiwanese firms are also keen to invest more in Indonesia, especially in the sectors outside their traditional interests. “In the past, our investment has been in labor intensive industries, such as shoes, textiles, furniture and agriculture. Now I think it’s time to upgrade this investment into the information and communication technology [sector],” he told The Jakarta Post.

Apart from investing in the high-technology sector, the firms may also invest in the manufacturing of machinery, automobile spare parts and motorcycles, and other sectors, such as aquaculture and agriculture.

Relations between Indonesia and Taiwan have moved far beyond the political domain, and therefore, non-diplomatic relations have grown substantially, particularly on trade, agriculture, tourism and other economic-related issues.

In 2010, Taiwan was Indonesia’s 10th-biggest trading partner, while Indonesia was Taiwan’s 11th-largest trading partner. As of 2010, Taiwan was the 8th-largest foreign investor in Indonesia with an accumulative investment of US$14 billion, particularly focusing on agriculture, textiles and footwear, furniture, forestry and trade services.