TheJakartaPost

Please Update your browser

Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.

Jakarta Post

S. Korea-Indonesia CEPA ‘back on table’

Resuming talks: Centre for Strategic and International Studies deputy executive director Medelina K

The Jakarta Post
Jakarta
Fri, December 7, 2018

Share This Article

Change Size

S. Korea-Indonesia CEPA ‘back on table’

R

esuming talks: Centre for Strategic and International Studies deputy executive director Medelina K. Hendytio (center) exchanges tokens of appreciation with Korea Institute for International Economic Policy president Jae-Young Lee (right), while South Korean Ambassador to Indonesia Kim Chang-beom claps after a discussion forum in Jakarta on Wednesday. Kim said South Korean and Indonesian trade ministers had agreed to continue the Indonesia-Korea Comprehensive Economic Partnership Agreement negotiations after the two countries failed to reach an agreement in 2014. (JP/Dhoni Setiawan)

South Korea announced on Wednesday that the Indonesia-Korea Comprehensive Economic Partnership Agreement (IK-CEPA) is “back on the table” after talks collapsed in 2014 as the two countries failed to reach an agreement.

The announcement came earlier this week from South Korean Ambassador to Indonesia Kim Chang-beom, who said the two governments were in discussion.

“The trade ministers have just discussed the idea. We hope to have an initial consultation on how and when to restart IK-CEPA negotiations,” Kim told The Jakarta Post during a discussion on bilateral economic relations in Jakarta on Wednesday.

The ambassador did not detail the potential topics up for negotiation but noted that negotiations might progress slowly because the Indonesian government was preoccupied with other bilateral agreements, such as with the European Free Trade Association.

“Next year, we are also expecting some concrete projects on infrastructure, the digital economy and more investment in the lifestyle sector, such as health care and cosmetics,” he said during the discussion, hosted by the Korea Institute for International Economic Policy (KIEP) and the Centre for Strategic and International Studies (CSIS).

He noted that the amount and rate of next year’s investment disbursement would depend upon political developments around the legislative and presidential elections.

The idea to reopen negotiations followed strengthening bilateral diplomatic ties after President Moon Jae-in visited Jakarta in late 2017 and President Joko “Jokowi” Widodo returned the favor with a visit to Seoul in September.

During Jokowi’s visit, the two heads of state committed to increase bilateral trade to US$30 million by 2020.

Korea International Trade Association data show that, in 2017, South Korean exports to Indonesia amounted to US$8.4 billion, compared to Indonesia’s $8.2 billion exports to Korea in the same year.

Nevertheless, the commitment spurred Trade Minister Enggartiasto Lukita to call upon his South Korean counterpart to reopen IK-CEPA negotiations when they met on the sidelines of last month’s 33rd ASEAN Summit in Singapore.

Negotiations on the IK-CEPA, which began in 2011, collapsed in 2014 over disagreements related to foreign direct investment (FDI).

Specifically, Indonesia had demanded the South Korean government guarantee FDI into Indonesia, which would otherwise lose out in the IK-CEPA because its industry could not compete with South Korea’s.

“But of course South Korea could not give such a guarantee because the investment would come from the private sector. The government has no power to dictate the investment choices of private companies,” said CSIS economics researcher Deni Friawan.

He added that Indonesia should, instead, improve its business climate to naturally attract South Korean investors, including by further opening its market to FDI. Such improvements, however, are difficult to achieve because of a combination of nationalist politics, which favors protectionism, and sluggish bureaucratic reform.

Just last week, the government backtracked on a market-liberalization policy related to the negative investment list (DNI) following outcry from the business community, which feared that the policy would lead to a foreign takeover of domestic industry.

Korea University macroeconomics and finance professor Park Bun-sook concurred with Deni, saying that Vietnam was a more attractive investment option for South Koreans.

ASEAN data shows that South Korean investment in Vietnam last year amounted to $3.4 billion, the highest in the region. In comparison, Indonesia ranked fifth, with only $157.6 million.

“Vietnam’s manufacturing industry is more efficient than Indonesia’s and the country is more culturally similar to South Korea, so many South Korean investors prefer Vietnam,” he said.

He added that Indonesia’s failure to improve its business climate and absorb existing Korean technology, such as in shoe manufacturing, had resulted in dwindling investor confidence with investment dropping sixfold in the past five years from $980 million in 2013.

“The 2017 ease of doing business index ranks South Korea the fourth-best in the world, yet businessmen and investors still complain about complications. Meanwhile, Indonesia ranks 72nd, so imagine how challenging it would be to build business relations,” he said. (nor)

{

Your Opinion Matters

Share your experiences, suggestions, and any issues you've encountered on The Jakarta Post. We're here to listen.

Enter at least 30 characters
0 / 30

Thank You

Thank you for sharing your thoughts. We appreciate your feedback.