Free Trade

The Indonesia-Japan Economic Partnership Agreement (IJEPA), was signed in 2007 and has been in force since 2008 and was Indonesia’s first bilateral trade agreement. The IJEPA removes or reduces tariffs for 90 percent of goods, particularly for agricultural and industrial products that Japan exports to Indonesia, as well as for Indonesian agricultural products that are exported to Japan. Services are an important part of IJEPA, and the agreement enabled Japanese businesses to establish service centers in Indonesia, particularly for electronic and IT equipment. Importantly, IJEPA also enables crucial technological transfers and training of the Indonesian workforce. Japan was Indonesia’s third-largest trading partner and the fourth-largest source of foreign investment in 2022. Bilateral trade reached a total value of US$42 billion in 2022.

The Indonesia-Korea Comprehensive Economic Partnership (IK-CEPA), began with negotiations in 2012 between the two countries. The negotiations were suspended in 2014 before being resumed in 2019 and were officially implemented on January 1, 2023. The IK-CEPA eliminates 95 percent of Indonesia’s tariffs on exports to South Korea and 92 percent of South Korean tariffs on exports to Indonesia. The agreement will boost Indonesia’s fisheries and agriculture sectors while also strengthening South Korea’s automotive and industrial sectors. For South Korea, Indonesia is a potential production base, especially for automotives, petrochemicals, and steel. Automaker Hyundai is noted as being a significant investor in Indonesia and has recently invested US$1.5 billion to build an automotive plant to produce electric (EV) as well as combustion engine (ICE) vehicles. The company has also joined a consortium with LG to build Southeast Asia’s largest EV battery plant cell in Indonesia. South Korea was the seventh largest investor in Indonesia for 2022, with bilateral trade reaching US$20 billion.

 

Source: asiainvestmentresearch.org


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