indonesia-korea comprehensive economic partnership agreement
TRANSCRIPT
Indonesia-Korea Comprehensive Economic Partnership
Agreement (IKCEPA): A Constructivist Analysis
Master Thesis
Anggun Paramita Mahdi
Ubi 2 / 9, Surabaya, Indonesia, 60244
S 2159929
+62 8111997093
Supervisor : Dr. G. C. van Roozendaal
Master of Arts in International Relations
Department of International Relations and International Organization
University of Groningen
2013
DECLARATION BY CANDIDATE
I hereby declare that this thesis, “Indonesia-Korea Comprehensive Economic
Partnership Agreement (IKCEPA): A Constructivist Analysis“, is my own work
and my own effort and that it has not been accepted anywhere else for the award
of any other degree or diploma. Where sources of information have been used,
they have been acknowledged.
Name Anggun Paramita Mahdi
Signature
Date
i
Abstract
In globalization era with the advance of technology and the increase of
international trade, increased dependency between countries became inevitable.
Countries dependency, particularly in international trade, was caused by the
comparative advantage owned by each country. Realizing the dependency, countries
have been searching for means to deal with the dependency. One of the means to cope
with the dependency is by encouraging international cooperation, either through
international trade cooperation such as the WTO or by regional and bilateral trade
cooperation.
Countries encourage trade cooperation to gained and increase potential market
access in their partner countries market. One of the forms of cooperation that could be
used to increase market access and deal with countries interconnectivity is by
liberalizing trade tariff and reducing trade barriers among countries. One of the channels
to reached international cooperation is through the WTO. However, due to the
complexity of the WTO mechanisms in concluding and reaching an agreement, the
WTO negotiations experienced a stalemate which made countries began to look for
alternative to reach those goals. One of the alternatives is by initiating free trade
agreements.
As one of active member of the WTO, Indonesia has been actively participated
in international trade cooperation. In several years, Indonesia has been actively engaged
in several regional trade agreements (RTA). However, in recent years, some concerns
were raised among the Indonesian public on the implementation of the free trade
agreements. These concerns were raised because Indonesia experienced deficit in the
implementation of several free trade agreement. These concerns shaped the perception
of the Indonesian public and the government of free trade agreements. Since Indonesia
is about to initiate negotiations on Indonesia-Korea Comprehensive Economic
Partnership Agreement (IKCEPA), this thesis will analyze the influence of these
perceptions on the negotiations of IKCEPA.
In order to analyze this matter, a constructivist approach will be used in this
thesis. Constructivists approach is use because constructivists include in their analysis
perceptions, ideas, norms and interests in the analysis. Interest, history, domestic and
international situation, idea and perception influenced and shaped on how Indonesian
public and also government see free trade agreement and how the implementation of the
agreement will influence Indonesia. It also influenced the Indonesian government
choice of strategies on taking decision to continue the negotiation of IKCEPA and
determining position on the negotiation.
Keyword: regional trade agreements, comprehensive economic partnership agreements,
Indonesia, Korea.
ii
Acknowledgement
First of all, I would to thank to Allah, the Almighty for his blessings that I could
finish the thesis as well as I have finished all of my courses. I also would like to express
my gratitude to those people who helped and supported me in the process of writing this
thesis, particularly Professor Gerda Van Roozendaal as my thesis supervisor. Without
her help and patience in supervising me, I would not have been able to bring this thesis
into the very end.
During my study in Groningen, I have experienced things and met people who
made my life in Groningen colorful. Between those people, I have to address
specifically some people like my Groningen-STUNED and Diaconessen House fellows,
as my friends who made my days in Groningen exciting and enjoyable. I would like to
thank them for their support during the writing process of this thesis. I would also have
to give my high appreciation to my superiors, seniors and colleagues in the Ministry of
Trade Republic of Indonesia. I have to thank NESO Indonesia and STUNED
Scholarship for giving me opportunities to study in the Netherlands, particularly
University of Groningen and experienced a lot of things during my stay in Groningen.
Last but not least, I have to thank my amazing and wonderful family for always
supporting and believing in me to finish my thesis and study. I would also like to
dedicate this thesis to my beloved mother and hoped that I have made her proud.
In the end, I have to admit this thesis is not a perfect academic writing. I hope I
can get a lot of input from the reader to develop it into a much better academic writing.
iii
List of Abbreviations
ACFTA ASEAN-China Free Trade Agreement
AEC ASEAN Economic Community
AFTA ASEAN Free Trade Agreement
ATIGA ASEAN Trade in Goods Agreement
ASEAN Association of South East Asian Nations
AKFTA ASEAN-Korea Free Trade Agreement
CEPA Comprehensive Economic Partnership Agreement
CEPT Common Effective Preferential Tariffs
CLMV Cambodia, Laos, Myanmar, Vietnam
FTAs Free Trade Agreements
GATT General Agreement on Tariffs and Trade
GDP Gross Domestic Product
IJEPA Indonesia-Japan Economic Partnership Agreement
IKCEPA Indonesia-Korea Comprehensive Economic Partnership Agreement
IMF International Monetary Fund
MFN Most Favored Nations
MIDEC Manufacturing Industrial Development Center
RTAs Regional Trade Agreements
USDFS User Specific Duty Free Scheme
WTO World Trade Organization
iv
Table of Contents
Abstract i
Acknowledgement ii
List of Abbreviations iii
I. Introduction 1
I.1. Background 1
I.2. Methodology 4
I.3. Structure of the Thesis 4
II. Theoretical Framework 6
II.1. International Political Economy 6
II.2. Constructivists Approach in International Political Economy 8
II.3. Dependent and Independent Variable 11
II.3.1. Agents 12
II.3.2. Interests 13
II.3.3. Ideas 15
II.3.4. Norms 17
II.3.5. Perceptions 19
III. Indonesian Trade Agreements 23
III.1. Regional Trade Agreements 23
III.2. Indonesian Trade Agreements 28
III.2.1. ASEAN Free Trade Agreements (AFTA) 29
III.2.2. ASEAN-China Free Trade Agreements (ACFTA) 33
v
III.2.3. Indonesia-Japan Economic Partnership Agreement (IJEPA) 38
III.2.4. Perception of Indonesian Public on RTA 42
IV. Indonesia-Korea Comprehensive Economic Partnership Agreement (IKCEPA)
44
IV.1. Indonesia-Korea Trade Relation 44
IV.2. IKCEPA 47
IV.3. Perception on IKCEPA 50
V. Conclusion 63
Bibliography 66
1
I. Introduction
I.1. Background
In the era of globalization, countries are closely interconnected, especially
through international trade. Countries engage in international trade to enhance
cooperation and increase their national economic growth. One of the important features
of international trade is trade agreements. Through trade agreements, countries could
increase their export and expand their international market, especially because of the
elimination of trade barriers. It is also expected that through trade agreements, countries
could draw investments and also increase their competitiveness through cooperation in
capacity building.
As one of the countries that actively participates in international trade,
Indonesia has been taken part and implemented several regional and bilateral trade
agreements, such as Association of Southeast Asian Nations (ASEAN) Free Trade Area
(AFTA) which is now called ASEAN Trade in Goods Agreement (ATIGA), ASEAN-
Korea Free Trade Agreement (AKFTA), ASEAN-China Free Trade Agreement
(ACFTA) and Indonesia-Japan Economic Partnership Agreement (IJEPA).1 Other than
regional and bilateral trade agreements that have been implemented, Indonesia is
currently taking part in several trade negotiations.
One of the countries that is currently negotiating a bilateral trade agreement
with Indonesia is South Korea.2 Since the establishment of Indonesia and Korea
diplomatic relations in 1966, both countries have enjoyed a mutual beneficial bilateral
relation. This relationship becomes closer when the two countries signed the Joint
Declaration on Strategic Partnership to Promote Friendship and Cooperation in the
21st Century in December 2006.
In terms of bilateral trade relations, Korea has become one of Indonesia’s most
important trading partners. The total trade between Indonesia and Korea has continued
to grow significantly in the last five years. In 2011, Korea became Indonesia’s seventh
largest export destination and sixth largest import source.3
1 Hereafter it will be referred to the abbreviations
2 Hereafter it will be referred to as Korea
3 “ Growth of Non Oil and Gas Exports by State Destination,” Ministry of Trade of Indonesia (website),
http://www.kemendag.go.id/statistik_perkembangan_ekspor_nonmigas_(negara_tujuan)/ and “Growth of
2
In order to increase the bilateral trade relations, in February 2011, Indonesia
and Korea agreed to conduct a joint feasibility study as a preliminary step to bilateral
trade agreement. The feasibility study had been concluded in December 2011 and the
result of the study became a recommendation for both countries to initiate negotiations
on bilateral free trade or comprehensive economic partnership agreement.4 The result of
the study has also been disseminated to Indonesia and Korea public, the academic
society, and the business and industry associations in 2012. The round of the
negotiations started in 2012, in which the first round was held in July 2012. By
implementing the comprehensive economic partnership agreement, both countries hope
that the bilateral trade will significantly grow and in the same time would increase
investment and cooperation in economic and also capacity building. This agreement is
expected to be concluded in 2013 and to be implemented mid 2014, prior to the last
stage of tariff liberalization for goods that are listed in sensitive list AKFTA, which is
expected to be reduced to 0-5% in 2016.5
A comprehensive economic partnership agreement is believed to be able to
bring economic prosperity and growth since it could increase country’s international
competitiveness. However, other than to bring advantages, this agreement could also
bring some unfavorable effects. One of the unfavorable effects of this agreement is
when one sector of industry fails to increase its competitiveness, it might have the
possibility to loss its domestic and international market which will also lead to
bankruptcy and an increase in unemployment. Because of the possible unfavorable
effects of the agreement, some concerns were raised among the public.
In trade negotiations, the negotiators of both countries in general take into
account the material characteristics of their countries. The material characteristics
include the resources, industrial sectors and financial sectors of the country. However,
in recent years in Indonesia, negotiators started to take non-material characteristics in
Non Oil and Gas Imports by State Origins,” Ministry of Trade of Indonesia (website), http://www.kemendag.go.id/statistik_perkembangan_impor_nonmigas_(negara_asal)/ accessed June 24, 2012. 4 Both countries agreed to use the term of Comprehensive Economic Partnership Agreement (CEPA)
instead of free trade agreement because it is intended to be a more comprehensive agreement and not just
related to the issue of tariff reduction and elimination of other trade barriers. A CEPA will include
cooperation in capacity building, investment and other economic, trade and investment cooperation.
Hereafter the term Comprehensive Economic Partnership Agreement (CEPA) will be used. 5 “State of Play Perundingan IKCEPA Tahun 2012-2013,” Ministry of Trade of Indonesia, March 14, 2013.
3
trade negotiations into account. The non-material characteristics include the perceptions
and interests of the Indonesian public and the government on trade agreements.
The non-material characteristics were taken into account in trade negotiations
because there have been some concerns from the Indonesian public regarding the
negotiation and implementation of such agreement. These concerns were raised when
Indonesia experienced a trade deficit in a period when other trade agreements had been
implemented. Such concerns shaped the perception of the Indonesian public and the
government on trade agreements.
This leads to the main research question of this thesis, “To what extent has the
perception about the effects of trade agreements in which Indonesia has taken part,
influenced the perception of the public and the government about the Indonesia-Korea
Comprehensive Economic Partnership Agreement (IKCEPA) and how those
perceptions shaped the process of negotiations and the form of the agreement?”.
In order to answer this question, this thesis will use the constructivist political
economy approach. This approach will be used because it acknowledges that
government policies could differ according to the circumstances and the time the
policies are taken. The differences are influenced by the interaction with domestic
environment, other countries government and also international norms.6
Constructivism theorizes the influence of social identities, norms and other
collectively shared ideas. Norms, cultures and identities create a social construction of
world economy, in which it is closely related with inter-subjective ideas. Constructivism
scholars believe that “inter-subjective ideas are essential to an account of policy making
and market outcomes because agents and communities use it to deal with uncertainty.”7
Constructivism also believes that non-material aspects also influence how
societies and policy makers interpret the situation surround them. It is not only material
aspects that influence the interpretation of a society and government. Constructivism
believes that norms, identities, ideas, perception and interests are socially constructed,
which will influence how agents, the Indonesian public and the government in this
6 Rawi Abdelal, “Constructivist IPE,” in Routledge Handbook of International Political Economy (IPE): IPE
as a Global Conversation, edited by Mark Blyth (New York: Routledge, 2010), 71. 7 Ibid, 62-76.
4
matter, see and interpret the subject of analysis.8 This approach will be explained in
more detail in the next chapter.
Based on the definition above, this thesis will focus on the perception of
Indonesian government and the public on regional trade agreements, in which
perception is closely related with inter-subjective ideas. The variables that will be
analyzed in this thesis are the perspectives on Indonesian industry competitiveness and
the labor employment in Indonesia, especially in the area of trade in goods and trade in
services.
I.2. Methodological Approach
This thesis is designed to be a qualitative research based on literature and
document review. To analyze the background of IKCEPA, this thesis will use the
Indonesia and Korea joint study group report as material of consideration for both
countries government to continue the result of the study to negotiation process of the
agreement. Other than using the joint study group report to analyze the perceptions,
interests and ideas of Indonesian public and government on trade agreements, this thesis
will use documents from related ministries in Indonesia, such as press release, briefing
papers, presentation, etc and also academic studies, journals, bulletins and respected
Indonesian newspapers, such as the Antara as Indonesian official news agency,
Kompas, The Jakarta Post, and other newspapers, on trade agreements that Indonesia
has been taken part. The documents used in this thesis are documents that were
published from 2005 to 2012, since the implementation of ASEAN Free Trade
Agreements (AFTA).
I.3. Structure of the Thesis
In order to answer the research question, this thesis will be divided into four
chapters. The first chapter is the theoretical framework which will focus on more detail
aspects of the theoretical framework that is going to be used in this thesis. In this
chapter, a more detail description on political economy and constructivism will be
given. This chapter will also analyze constructivist view on political economy. Prior
research on trade agreements in general will also be discussed in this chapter.
8 Loc.cit.
5
Trade agreements, bilateral and regional trade agreements, that Indonesia has
taken part in, are the focus of the second chapter. In this chapter, background on
Indonesia’s previous trade agreements will be described. The debate on the expectations
and the results or effects of the previous trade agreements will be discussed as well in
this chapter. This chapter will also study how those debates have shaped the perspective
of the Indonesia’s government and the public on trade agreement.
The third chapter will analyze the Indonesia-Korea Comprehensive Economic
Partnership Agreement (IKCEPA). In this chapter, a background of the agreement will
be given. A discussion of the findings about the perception of Indonesia’s public and
government that have already been explained in the previous chapter and the theoretical
approach will be given in this chapter. The last chapter will be the concluding chapter of
this thesis where the findings will be concluded.
6
II. Theoretical Framework
II. 1. International Political Economy
This chapter will provide the theoretical framework that is going to be used in
this thesis. This thesis will use the constructivist approach on international political
economy. This approach is chosen because of its emphasis on the inter-subjectivity of
the social reality and its emphasis on ideas, perceptions, norms, identities and interests
of the agents. However, before discussing the constructivist approach, a better
understanding of international political economy is necessary as the basic approach to
explain phenomena in international relations in general and international economy in
particular.
International Political Economy studies the interaction between politics and
economy in international relations.9 International Political Economy could also be
defined as the interaction between states and markets in the international level.10
Three
traditional approaches that are usually used in International Political Economy are
Economic Nationalism (Mercantilism), Liberalism and Marxism.
Mercantilism, according to Thomas Oatley in his book International Political
Economy, is a theory that arises in the 17th
and 18th
century and studies the relations
between state and market in determining economic activity.11
Mercantilist stresses the
importance of “wealth for national power and the role of the state to determine the
allocation of nation’s resources.”12
It believes that states should play a larger role in the
economy area. This approach also believes that government protection on national
market is necessary. This could be seen from Friedrich List theory that is quoted by
Kevin G. Cai in his books, in which he stated that “in the early stages of economic
activity, state should take an important role in terms of giving protection to national
market in order to establish a strong national economy and to be able to have an equal
position with their foreign competitors, when in the later stage the national economy is
9 Benjamin J. Cohen, International Political Economy: An Intellectual History (United States of America:
Princeton University Press, 2008), 16. 10
Robert Jackson and Georg Sorensen, “International Political Economy: Classical Theories”, in Introduction to International Relations: Theories and Aprroaches Fourth Edition (Italy: Oxford University Press, 2010) , 184. 11
Thomas Oatley, “International Political Economy”, in International Political Economy: Fourth Edition (United States: Pearson, 2010), 7-8. 12
Ibid, 8.
7
stable and strong, government protection could be replace with free trade system.”13
In
regard with the free trade system, in mercantilism approach, as Kevin G. Cai stated in
his book, “regional trade blocs and bilateralism are created as a supplementary approach
to the protection of domestic markets against external competition”.14
As Robert
Jackson and Georg Sorensen stated in their book, “mercantilists see economic activity
as one of the means to increase state power.”15
The second traditional approach in International Political Economy is
Liberalism. Liberalism appears in the 18th
century as a response to mercantilism.
Liberalism believes that economy and politic are a different field and need to be treated
separately, as stated by Thomas Oatley, “liberalism attempted to draw a strong line
between politics and economics”.16
In this sense, liberalism argues that market and
economic activity should not be influenced by government or any political influence.17
Liberalism stresses the role of market instead of the state. Markets are believed to be
able to regulate their own activity and to allocate their resources and the state should not
interfere to regulate the activities. In accordance to free trade, liberalism argues that free
trade could bring maximum wealth and economic growth for all countries in the world.
This is based on the assumption of the “law of comparative advantage” by David
Ricardo. In this law, David Ricardo, cited by Robert Jackson and Georg Sorensen in
their books, “International Political Economy: Classical Theories,” stated that “free
trade makes specialization possible, in which it will increase the efficiency and
productivity and will result in bringing the benefit to all participants of the free trade.”18
The third traditional approach in International Political Economy is Marxism.
Marxism originated from the thinking of Karl Marx, in which he argues that “economic
activity is a form of human exploitation and class inequality.”19
This thinking is mainly
based on the assumption that capitalism is based on class relations between the capitalist
class or the bourgeoisie and the working class or the proletariat. In this relation,
capitalist plays an important role in determining the allocation of resources as means of
13
Kevin G. Cai, ´Theoretical Perspectives: Constructing an Analytical”, in The Politics of Economic Regionalism: Explaining Regional Economic Integration in East Asia (Great Britain: Palgrave Macmillan, 2010), 13. 14
Ibid, 14. 15
Jackson, op. cit., 186. 16
Oatley, op.cit., 8. 17
Jackson, op.cit., 187. 18
Loc.cit. 19
Ibid., 189
8
production. Because of this, the bourgeoisie is considered to play an important role in
the political area. Marxism emphasizes the importance of economics, in which it argues
that economics is the basis of politics. Based on this assumption, Marxism argues that
“states are driven by the interests of the bourgeoisie or the ruling class.”20
In terms of
the international economy, Marxism argues that “the relations between states and
bourgeoisie are reflected in a systemic and interdependence relation between capitalist
nations and developing world, in which the developing world or the periphery is being
exploited by the capitalist countries or the core countries.”21
This relation is based on
the assumption that “international economic system is a reflection of the international
division of labor, in which the capitalist countries are being at the top of the
hierarchy.”22
Based on the explanations above, it could be seen that these three approaches
fall into the category of rational choice theories, in which they assume that human
beings are basically rational and that they made a decision without influence from social
factors and that the decisions taken are based on the material interests. These three
approaches also do not take into account the inter-subjectivity that influenced the
decision-making process. Since these three approaches could not explain the influence
of non-material and inter-subjective factors, this thesis will use the constructivist
approach. A further explanation on constructivist approach will be describe in the next
section of this chapter.
II.2. Constructivist Approach in International Political Economy
One of the approaches that takes into account the inter-subjectivity in the field
of international relations is Constructivism. Constructivism in international relations
first appeared in the early 1980s in the field of international politics, especially security
studies, as a critique of realism and liberalism and as an alternative to rationalist
theories. Inter-subjectivity could be defined as “collective ideas, knowledge and
understandings, which are shared by particular set of people in a particular set of time
and place.”23
As Audie Klotz and Cecelia Lynch stated in their book, “Inter-subjective
20
Ibid., 190. 21
Oatley, Op.cit., 10. 22
Loc.cit. 23
J. Samuel Barkin, Realist Constructivism: Rethinking International Relations Theory (Cambridge: Cambridge University Press, 2010), 26.
9
understandings comprise structures and agents, in which norms, rules, meanings,
languages, cultures, and ideologies are social phenomena that create identities and guide
actions. Inter-subjective understandings vary across time, place and hierarchies.”24
This
inter-subjectivity influences the environments and actions of the actors involved and
how they also changed by the interaction between the actors and the environment.
As an alternative to the rationalist theories, constructivism rejects the
assumption of rationalist theories in the decision making process, which is based on
“calculation of the costs and benefits of the material factors and interests.”25
Constructivists also reject the objective explanations that are generally provided by
rationalist theories. Constructivism argues that “reality is socially constructed and ideas
shaped the social, economic and political world and that subjectivity influences every
aspect of the world and how we view the world, so pure objectivity will be impossible
to reach.”26
As Rawi Abdelal stated in his article, “Constructivism is analytical
language composed primarily of the social facts of the world, those facts that exist only
because they are collectively shared ideas. Such social facts influence patterns of
political economy…….they also influence how agents interpret the material reality
around them.”27
Rawi Abdelal also stated in his article that “constructivism as an
analytical language emphasizes identities, norms, knowledge and interest.
Constructivism draws the attention to the powerful constitutive effects of collectively
held ideas, and how the ideas connect to self-understandings, the bound of legitimate
practices, the accumulation and interpretation of experience, and the material trade-offs
of choices.”28
From this definition it could be seen that in the decision-making process,
constructivists believe that inter-subjective understandings, and social facts influence
the way actors interpret the reality and also the material factors or interests that surround
them, which in the end influence the preferences in the decision-making process.
In terms of the role of the state in constructivism, it could be seen from Wendt’s
theory, as quoted in Scott Burchil’s book that, “Constructivism is a theory of
international system which emphasize the role of the state as the main unit of analysis in
24
Audie Klotz and Cecelia Lynch, Strategies for Research in Constructivist International Relations, (Armonk, New York: 2007), 7 and 9. 25
Abdelal, Op.cit., 63. 26
Rawi Abdelal and Mark Blyth, Constructing the International Economy (Ithaca, New York: Cornell University Press, 2010), 2. 27
Loc.cit. 28
Abdelal, Op.cit., 71.
10
international political theory, in which the action and relations in the states system are
inter-subjective rather than material. Wendt also argues that social and state structure
are constructed by state identities and interests and not merely based on domestic
politics or human nature.”29
The key concepts for constructivism are “ideas, beliefs, values, thoughts,
interests, perspectives, norms and identities, in which these key concepts affect the
behavior of the actors involved and how they judge or relate themselves to the current
situation that they are involved.”30
Constructivists emphasize the role of these social
factors and ideational concepts in analyzing the social reality or action. However
constructivism does not set aside the material factors which also affect the behavior of
the actors and the social reality. These material factors or material interest include
resources, wealth, population, labor, etc. As Christian Reus-Smit states,
“Constructivism is characterized by an emphasis on the importance of normative or
ideational ideas as well as material structures, on the role of identities, interests and
ideas in shaping political action and on the mutually constitutive relationship between
agent and structures.”31
Constructivists see and interpret material factors or interests
based on their inter-subjective understanding, which it affect the preferences in the
decision making process.
Since the implementation of ASEAN-China Free Trade Agreement (ACFTA), in
which Indonesia experienced a large deficit, the Indonesian public is becoming more
aware on the negotiation and implementation of free trade agreements. Because of this
increased of the awareness, the Indonesian government is starting to take into
consideration the concerns and perceptions of the Indonesian public on trade
agreements. Since inter-subjective factors and non-material interests have begun to be
considered in determining and negotiating a free trade agreement, a constructivist
approach is used in this thesis in order to be able to give comprehensive understandings
and analyze the influence of those factors on Indonesia-Korea Comprehensive
Economic Partnership Agreement (IKCEPA).
29
Alexander Wendt. (1994), “Collective Identity Formation and the International State,” American Political Science Review. 88 no.2: 384-95. quoted in Scott Burchill. National Interests in International Relations Theory (Gordonsville, VA, USA: Palgrave Macmillan, 2005), 187. 30
Paul R. Viotti and Mark V. Kauppi, International Relations Theory: 4th
Edition (United States: Longman, 2010), 277. 31
Christian Reus-Smit, “Constructivism” in Theories of International Relations: 4th Edition, edited by Scott Burchill, Andrew Linklater, et.al. (China: Palgrave Macmillan, 2009), 212.
11
II.3. Dependent and Independent Variables
Constructivist theory will be used in order to analyze the dependent variable in
this thesis. Dependent variable could be defined as “…circumstances, topics, policies
and other phenomena…” that are going to be analyzed.32
The dependent variable of this
thesis is government policy on trade agreements, which will include trade agreements
that have been implemented and also in the process of negotiation such as IKCEPA. In
order to get understanding on the dependent variable, this thesis will use the concepts of
constructivism as the independent variables. Independent variables could be defined as
“the factors that are believed to influence the dependent variable of a research.”33
Constructivism concepts that are going to be used further as independent variables of
this thesis are ideas, interests, norms and perceptions.
Research Question Dependent Variable Independent Variable
To what extent has the
perception of Indonesian
public and government about
the effects of trade agreements
in which Indonesia has taken
part influenced the perception
of the public and government
about the Indonesia-Korea
Comprehensive Economic
Partnership Agreement
(IKCEPA)?
Indonesian government
policy on trade
agreements
- Interest of the Indonesian
public and the Indonesian
government on IKCEPA
- Perception of the
Indonesian public and the
government on trade
agreements
II.3.1. Agents
Constructivism uses the term ‘agents’ to describe the actors involve in the case
study. The agents in constructivist perspective include state or government,
international organizations, individual, social movements, corporations, groups, classes,
32
Laura Roselle and Sharon Spray, Research and Writing in International Relations (United States: Pearson Education, inc., 2012), 10. 33
Loc.cit.
12
etc.34
Constructivists study the interaction between agent and structure. Structure could
be define as a system that include social relations which include shared comprehension,
rules and situation that shaped social action. 35
Constructivists believe that “structures
can shape the behavior and social identities of agents and also the other way around,
structures are shaped by the behavior and social identities of agents.”36
In this sense,
constructivists also believe and recognize that “government policy and preferences
could vary across time and could be affected by the interaction with domestic societies,
other governments and also international norms.”37
The actors or agents that will be involved in regional or bilateral trade agreement
negotiations will not be limited to the Indonesian government officials but will also
include representatives from the Indonesian business and the academic community. The
negotiation involves different agents of the Indonesian public because the result of the
negotiation will have a wide impact on the economic situation and lives of the
Indonesian public. These actors have already been involved in the negotiations since the
beginning of the agreement, when the Joint Study Group was established. In the Joint
Study Group, the actors involved will give their view and consideration on the
upcoming trade agreements, whether it will bring advantage or disadvantage for
Indonesia. In the negotiation process, the negotiators which are representatives from
related ministries will negotiate Indonesian position in each sector recommended by the
Joint Study Group.
In order to analyze and to get a better understanding of the relationship between
the dependent and independent variables in this thesis, the actors or agents that are
going to be analyzed will be limited to the Indonesian government, including the
ministries included in the trade negotiation, the Indonesian parliament and the
Indonesian public which will include the academic societies, non government
organizations, such as Indonesia Global Justice, Central Strategic for International
Studies (CSIS), etc, the business and industry associations, such as Indonesian textile
associations, Indonesian Employers Associations (APINDO), Indonesian Young
Entrepreneurs Associations (HIPMI), etc, and also the Indonesian Chamber of
Commerce and Industry.
34
Viotti, Op.cit., p.285. 35
Loc.cit. 36
Reus-Smit, Op.cit., 220. 37
Abdelali, Op.cit., p.71.
13
II.3.2. Interests
Interest could be defined as a set of goals or policy objectives that are going to
be achieved by actors or agents by using foreign economic or political policy.38
Interest
could be seen in two ways; “interest that shaped political and economic behavior and as
an analytical tool to describe, explain and asses nation’s foreign policy.”39
The interest
in this thesis will be seen as the interests that shape political and economic behavior of
the actors. According to the constructivist approach, interests are divided into two
categories, material interest and non-material or ideational interests that are based on
ideas of the actors involved. As Scott Burchill stated in his book, “identities and
interests of human beings are a product of these shared ideas rather than being natural
endowments. Constructivists believe that these shared ideas and normative practices are
a key determinant of state behavior. Constructivists believe that national interest should
be seen as key indicator of state behavior.”40
From this definition, it can be concluded
that other than to be determined objectively, interests are also shaped.
Constructivists believe that non-material or ideational interests play an
important role in determining the interests of the agents. Constructivists assume that
non-material factors shaped agents’ identities, in which those identities will lead to
interpretation of the material factors, which are based on material needs such as
economic capabilities, military capabilities, power owned by states, state’s position in
international hierarchy, resources, trade performance, etc, which in the end shape
material interests and formed action.41
Constructivists also argue that “interest are
socially constructed and could be altered by the agents or actors themselves and by the
interaction of the actors with international and domestic environment and also
interaction with other actors.”42
Scott Burchill argues that “constructivists also believe
that interest are developed, learned and re-learned over time as a consequence of
experience and reflection, in which it can be concluded that interest for constructivist is
not permanent and could change over time according to interaction and experience.”43
38
Oatley, Op.cit., p,12. 39
Scott Burchill, National Interests in International Relations Theory (Gordonsville, VA, USA: Palgrave Macmillan, 2005), 23. 40
Ibid., 186. 41
Abdelal, Op.cit., 72. 42
Viotti, Op.cit., 288. 43
Burchill, Op.cit., 196.
14
In a trade agreement negotiation, the interests that in general are taken into
account by the negotiators are material interests. Before initiating the negotiation of the
agreement, negotiators mostly take into account the trade performance of the countries
involved and evaluate the costs and benefits for both countries and the sectors that will
gain benefit or being harm because of the agreement. However, in recent years in
Indonesia, concerns have been expressed by the Indonesian public regarding the
implementation of free trade agreements. These concerns arise because of in several
trade agreements that have been implemented, Indonesian trade balance experienced a
deficit or did not experience the expected increase in the trade performance. Because of
these concerns and past experiences, similar trade agreement negotiations are being
noticed by Indonesian public. Indonesian public is getting more involved from the early
beginning of the negotiation. Their opinion and perspectives that are based on the
experience in refer to the previous trade agreements affect the interests and the process
of the upcoming trade negotiations.
Since constructivists argue that interests are socially constructed, this thesis
will look at how Indonesian government see and interpret the material interests or
factors in order to get a more comprehensive understanding on the preferences of
Indonesian government on IKCEPA. The material interests or factors that are going to
be used in this thesis will be limited to trade performance between Indonesia and Korea,
which will include the trade balance, export and import value in general and in several
sectors that expected to receive benefit and disadvantage from the agreement. In order
to provide a background on Indonesian public and governments perception on FTA, this
thesis will also look at the trade performance between Indonesia and several trade
partners who have regional or bilateral free trade agreement that have been implemented
in Indonesia. This thesis will use statistics from related ministries in Indonesia, such as
the Ministry of Trade of Indonesia, the Indonesian National Statistics Agency, and also
the Ministry of Industry, in order to give a clear view on how the negotiators use these
statistics as the material interests use to determine Indonesian basic position in the
negotiation. This thesis will look on how negotiators viewed and interpret the material
interests and shaped or to determine Indonesia preferences or position in the
negotiation.
15
II.3.3. Perceptions
In a constructivists approach, inter-subjectivity shaped the way people look at
empirical situation and social phenomena that surrounds them, which will affect
preferences and guide actions in a decision-making process. Inter-subjectivity affects
the preferences and the interpretation of agents in dealing with problems or situation.
One of the inter-subjectivity in constructivists approach is ideas. Thomas Oatley defined
ideas as “mental models that provide a coherent set of beliefs about cause and effect
relations, in which in political economy is best to describe the relationship between
government policies and economic outcomes. These ideas on how economy operates
can become a source of the preferences that groups have for particular economic
policies.”44
Constructivist described ideas as “a set of thought required by agents as
motivation.”45
For constructivist, ideas should be shared by a group of people in order
to have some influence. Nina Tannenwald described ideas as “mental constructs held by
individuals, sets of distinctive beliefs, principles and attitudes” that provide broad
orientations for behavior and policy.”46
For constructivist, “ideas are the basis for
analyzing, interpreting the world and defining interests.”47
Nina Tannenwald stated in her article that ideas could be categorized into four
type of ideas, which are:
“1). Ideologies or shared belief systems, in which it could be described as a
systemic set of doctrines or beliefs that reflect the social needs and aspirations of a
group, class, culture or states;
2). Normative beliefs, it could be described as beliefs about right and wrong
and simply associated standards of behavior;
3). Cause-effect beliefs, in which it could be described as cognitive
understandings of the world and provide guidelines or strategies for individuals on how
to achieve their objectives; and
44
Oatley, Op.cit., 12-13. 45
Barkin, Op.cit., 36. 46
Nina Tannenwald, “Ideas and Ecplanation: Advancing the Theoretical Agenda,” Journal of Cold War Studies, 7 no.2, (2005): 15. 47
Ibid, 18.
16
4). Policy prescriptions, in which it could be described as a specific
programmatic ideas that derive from causal beliefs or ideologies.”48
Constructivists argue that ideas are related to agents comprehension, history or
past experiences, choices or preferences and actions in dealing with similar problems or
situations.49
Based on the definition above, this thesis will limit the definition of ideas
based on the cause-effect beliefs because the ideas on FTAs are highly influenced by
not only global situation but also domestic situation. In this definition, ideas are seen as
a result of compilation of understandings that are based on cognitive reasons, such as
experience, judgment, etc. These cognitive understandings will influence on how the
actors or agents interpret an issue and the decision will be taken on that particular issue.
One of the forms of ideas that highly influence the interpretation and the
preferences of agents in a decision-making process is perception. Perceptions are highly
related with a mindset of actors or agents in responds to specific situation. A mindset
itself could be described as “a conceptual tools for examining how people look and
responds at specific events and problems that concern them in political or economy
affairs.”50
Perception is influenced by knowledge, prejudices, and also historical
experience.
Perception in international relations is related to the perception of the state and
also the public. In current international affairs, there is a constant need to study public
perception on international affairs. The role of the public opinion in shaping
government foreign policy has increased in recent years. As Glen Fisher stated in his
book, “Even in the conduct of diplomacy, today’s reality in foreign affairs is found less
in the formal dimension of diplomatic practice and more in the informal and even
irrational dimension which involves selective knowledge, prejudices, attitudes, and
opinions of participating masses of people.”51
In foreign affairs practices, perception is
affected by the way that an issue is being presented, perceived and understood.52
48
Ibid., 15 49
Abdelal, Op.cit., 71. 50
Glen Fisher, Mindset: The Role of Culture and Perception in International Relations (Intercutltural Press, Inc., 1997), 2. 51
Ibid., 11. 52
Ibid., 29.
17
Because of the increase of public perception and awareness which affect the decision-
making process, at the moment, the decisions are made by taking into account “the
preferences of the popular perception and objectives, in which this decision have to
match to public’s tolerable limits of morality or national self image.”53
Regarding
government perceptions, Glen Fisher stated that “Government perceptions may vary
based on its implicit purpose, which are as guardian of a given social order or tradition
or as instrument of change and modernization.”54
Based on this description, perception plays an important role in the decision-
making process, not only perception of the government but also the perception of public
on particular issue. Perception could change the policy decisions, in which it could
determine which policy choices are possible, desirable, legitimate, and appropriate in
accordance with public and government perspectives.
The perceptions that are going to be analyzed in this thesis are perceptions of
the Indonesian public and the government on trade agreements. The Indonesian
government in recent years is starting to take into consideration the concerns and the
perception of the Indonesian public on trade agreements. The perception of the
Indonesian public is analyzed by looking at the public opinion on trade agreements, as
published in the Indonesian media. In recent years, especially since the implementation
of ACFTA, the Indonesian public awareness on trade agreements has increased. This is
illustrated by the reaction of the Indonesian public toward similar trade agreements.
Because of this matter, the Indonesian government is increasingly taking the Indonesian
public perspectives on trade agreements into consideration. In the negotiation process,
the Indonesian government includes representatives from the Indonesian business and
industry associations and also representatives from the Indonesian academic society.
Based on this interaction, this thesis will analyze whether the perceptions of the
Indonesian public and also the government in reference to the previous agreements has
influenced the perception on IKCEPA. In order to analyze the Indonesian public and
government perceptions on trade agreements, this thesis will analyze the Indonesian
public perceptions through publication on the Indonesian media and academic reports or
writings from the Indonesian academic society. This thesis will make some reference
53
Ibid., 67. 54
Ibid. 92.
18
based on the documents published by the Indonesian government, such as publications
on free trade agreements, documentations on trade negotiation which will include
reports of the trade negotiations, etc.
Independent
Variable
Definition Operationalization Sources
Interest Interest could be defined as
a set of goals or policies that
are going to be achieved by
actors. This thesis will look
into how the agents viewed
and interpret the material
interests or factors and how
those interests shaped and
determine Indonesia
preferences in the
negotiation.
The interests that are going to
be analyzed are the interest of
the Indonesian government on
IKCEPA, including trade
performance and investment
rate.
Joint Study Group
Report, trade
statistics from related
Ministry in
Indonesia, Korean
investment rate in
Indonesia, official or
government
documents on FTAs
and IKCEPA.
Perception Perception could be defined
as a mindset that influence
on how people look at
specific issues. Perception
could be influenced by
knowledge, prejudice,
historical experience, etc.
Perception in this thesis will
be limited to perception of
Indonesian public on RTAs.
Perceptions that are going to be
analyzed are the perceptions of
Indonesian public on free trade
agreements.
Documents
published by the
Indonesian
government and the
public, including
documents on trade
negotiation and
publications on free
trade agreements,
academic
publication, joint
study group report
and also records of
discussion of the
negotiations. This
will include press
release published by
19
related ministry in
Indonesia and also
reports of the trade
negotiation.
The definitions and the descriptions of the concepts and theoretical framework
will help to analyze and answer the main research question of this thesis. In the next
chapter, a more detail and comprehensive background and analysis on the case study
will be given.
20
III. Indonesian Trade Agreements
The previous chapter discussed the theoretical framework that is used in this
thesis. This thesis uses a constructivist approach because constructivists offer
explanation from inter-subjective views. Constructivists believe that in international
relations, not only material interests but also non-material interests play important role
in policy making process. Constructivists also argue that government preferences may
vary overtime and influenced by domestic and international situation and also inter-
subjective factors, such as knowledge, experience or history, ideas, norms and also
perceptions. In order to gain better analysis on the perception of Indonesian government
and public on free trade agreements, a better understanding on the background of the
perceptions is needed. Because of this particular reason, this chapter will discuss several
previous regional trade agreements that Indonesia is actively participated. By discussing
the previous regional trade agreements, it could provide background to analyze the
perceptions of Indonesian public and government on free trade agreements and how
these perceptions influence IKCEPA.
III.1. Regional Trade Agreements (RTAs)
In recent years, the numbers of regional trade agreements in the world have
increased. Regional trade agreements (RTAs) could be defined as trade agreements that
were made to liberalize tariffs and reduce or eliminate trade barriers, and even in recent
years, the cooperation were beyond tariff liberalization among the members of the
agreement, in which the members may consist of two or more countries that is not
necessarily belong to the same region.55
In recent years, the scope of regional trade
agreements does not only covers liberalization and reduction of tariffs and trade barriers
in trade in goods, but also covers liberalization and reduction of barriers in trade in
services, investments, cooperation in capacity building and even includes cooperation in
mutual recognition in some agreements.
RTAs appear as trade instrument, complementary to WTO policy due to the
fact that the multilateral negotiations in the WTO, particularly the negotiations of the
Doha Round or Doha Development Agenda, experienced a set back or slow progress in
reaching an agreement or conclusion. The multilateral negotiations or the WTO rounds
55
“Regional Trade Agreements: Scope of RTAs,” WTO (website), http://www.wto.org/english/tratop_e/region_e/scope_rta_e.htm, accessed December 10, 2012.
21
itself have mainly objective to liberalize or lowering trade barriers in multilateral basis,
such as tariffs and trade rules or regulations that are considered not comply with the
WTO principles. The WTO is governed by several principles, such as encouraging non-
discriminatory, trade liberalization, fair competition, binding competition and
transparency and encouraging development and economic reform among the member
countries of the WTO.56
In regard with the Doha Round, which was launched in
November 2001, during the WTO’s Fourth Ministerial Conference in Doha Qatar, the
main objective of this round is to provide a mechanism for developing countries to
reach development and improve trade by reducing trade barriers and revising
regulations that are related to trade.57
The Doha Round also facilitates developing
countries that have been experiencing problems in implementing the WTO agreements.
Because of the reluctance of the member countries to reach an agreement to
liberalize tariffs and reduce or eliminate trade barriers in multilateral basis, in which the
decision will apply to all members of the WTO, member countries have started to find
the alternative solution to increase or expand market access, liberalize trade tariffs and
achieve further integration and economic cooperation through regional trade
agreements.58
The different aspirations of the member countries regarding the type and
the scope of the liberalization, the different bargaining positions, the development level
of the member countries, and also the different perspectives on the mutual advantage
that could be achieved are the reasons why the WTO negotiations, in particular the
Doha Development agenda experienced slow progress in concluding and reaching an
agreement among the members.59
These differences were strengthened by the decision-
making process in the WTO, particularly related to the principle of single-undertaking,
which stated that an agreement or a decision could not be reached if not all member
56
“Understanding the WTO: Principles of the Trading System,” World Trade Organization (website), accessed September 13please be consistent in the way you refer: 13 September or the other way around?, 2012, http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm. 57
“The Doha Round,” World Trade Organization (website), accessed 10 September 10, 2012, http://www.wto.org/english/tratop_e/dda_e/dda_e.htm. 58
Jo-Ann Crawford and Roberto V. Fiorentino, “The Changing Landscape of Regional Trade Agreements,” Discussion Paper WTO, 8. (2005): 16. 59
Paul Collier, “Why the WTO is Deadlocked: And What Can Be Done About It,” The World Economy, 29, no. 10 (2006): 1430-1431.
22
countries and the member countries agreed to accept all the clauses that are currently
being negotiated.60
The exemption for the WTO non-discriminatory principle is stated in Article
XXIV of GATT, which regulates customs unions and free trade areas. This article states
that countries are allowed to cooperate and develop a closer integration in order to reach
a freedom of trade through RTAs. RTAs are made to facilitate trade among the
countries involved and not intended to be made as trade barriers for countries outside of
the agreement.61
The dynamic and time-path assumption on the function of RTAs for the
multilateral trading system, in particular the WTO mechanism, is divided into two
assumptions, in which RTAs could become a stumbling block or building block for the
WTO. Economists that see RTAs as stumbling block for the WTO argue that RTAs
could disrupt the balance of world trade particularly because trade liberalizations were
based on preferential basis and in contrast or do not comply with the WTO most favored
nation (MFN) principle. This view assumes that since RTAs do not comply with MFN
principle, it will create a situation where the marginalized countries will become more
marginalized by it.62
They also believe that RTAs could decrease the effectiveness and
the trust or confidence of countries toward multilateral trading system and decrease the
interest of countries to cooperate and liberalize trade in a multilateral basis.63
This is
also known as the negative impact of the spaghetti bowl effect, in which countries tend
to focusing more on their interest in the negotiation process and maintenance of
cooperation and agreement in regional level so they tend to ignore the responsibility in
the multilateral level. The spaghetti bowl effect occurs when RTAs start to increase and
tend to overlap one another.64
RTAs are also considered to increase trade barriers and
protectionism for non-member countries.
For economists who believe that RTAs could become a building block for
multilateral world system, RTAs might be in contrast with the WTO non-discriminatory
60
Euan McMillan, “Doha Decision-Making: Implications of the Consensus and Single-Undertaking Principles for Developing Countries,” Commonwealth Trade Hot Topics, 71 (2010): 1-5. 61
“Article XXIV of GATT 1994: Territorial Application-Frontier Traffic-Customs Unions and Free-trade Areas,” WTO (website). Accessed October 15, 2012, http://www.wto.org/english/res_e/booksp_e/analytic_index_e/gatt1994_09_e.htm 62
Crawford, op.cit., 16. 63
Ibid. 64
Dilip K. Das, Regionalism in Global Trade (Cheltenham: Edward Elgar Publishing Limited, 2004), 18.
23
principle, but are still considered to be complementary to the WTO agreement. RTAs
could function as a mechanism for countries to negotiate commitments and rules that
could not be achieved or negotiated in a multilateral basis. RTAs cover a wide range of
issues that are specific to the relations between countries that are engaged in RTAs
negotiation. Because of the wide range or scope of issues that are covered by RTAs,
RTAs could be considered as WTO-plus arrangement. The issues that are considered to
be WTO-plus arrangement include investment, government procurement, services,
intellectual property, trade facilitation, environment, labor standards and competition
policy.65
By engaging in RTAs, a higher level of economic integration is expected to be
achieved and the level of economic development could be equally spread
internationally.66
There has been an assumption that when RTA reached the level of full
liberalization of the products, the participating countries will gain a high level of
competitiveness and production maturity which makes them able to compete in the
international forum.
In the Asia Pacific region, FTAs or RTAs are seen and used by policy makers
as not merely a trade policy but also part of foreign and economic policy. As Rahul Sen
and Sadhana Srivastava state in their article, “FTAs in Asia are seen as a norm”, which
has particular meaning that with the intention to achieve the goal to expand their market
and particularly gaining more market access in countries that are considered potential to
be their partner and also recognizing the necessity to increase economic cooperation in
the region, countries in the Asia Pacific region tend or prefer to pursuit cooperation in
the form of FTAs or even when they do not interested or take initiative in pursuing
policy in supporting FTAs, countries in the Asia Pacific were involved in FTAs because
of the majority of the countries in the region were participating in FTAs, which made
FTAs in Asia Pacific region grow significantly. Other reason countries in Asia Pacific
participate in FTAs is particularly because of FTAs effectiveness to achieve economic
cooperation and trade liberalization with their trading partners and in the same time
pursuing multilateral trade liberalization in the WTO.67
For this particular reason, RTAs
in Asia are growing. Indonesia as one of the countries that located in Asia Pacific region
65
Loc.cit.,72. 66
Loc.cit., 34. 67
Rahul Sen and Sadhana Srivastana, “ASEAN’s Bilateral Preferential Trade and Economic Cooperation Agreement: Implication for Asian Economic Integration,” ASEAN Economic Bulletin Vol. 26, No. 2 (August 2009): 195.
24
is certainly not at liberty from those trends. For several years, Indonesia has been
actively engaged in several regional and bilateral trade agreements. To learn more about
Indonesia experience with regional and bilateral trade agreements, next section will
describe Indonesian trade agreements as one of the countries that located in Asia and
have been actively engaged in several RTAs.
III.2. Indonesian Trade Agreements
Since Indonesia experienced a slowdown in its economic growth in 1980-1985,
the Indonesian government decided to reform their economic policy to become more
outward-looking by increasing investment and non-oil and gas export in order to
enhance their economic growth.68
As part of the policy, Indonesia became a member of
the WTO on January 1, 1995, and ever since has been committed to support
international trade, in particular trade liberalization by actively engaging in trade
negotiation and liberalizing or reducing their tariffs and trade barriers. In the WTO
scheme, Indonesia committed to reduce its bound tariffs to 40% or less for 8877 goods
or around 94.6% of its total goods in 10 years period.69
Other than its commitment to
lower their tariffs, Indonesia also committed to eliminate 98 of their non-tariff barriers
for iron and steels in the period of 10 years, in which it ended in 2004.70
The economic crisis in 1997 also encouraged Indonesia to further liberalize its
economy. During this period, Indonesia received aid from the IMF in order to stabilize
its currency. As one of the conditions to receive this aid, the IMF mandated Indonesia to
initiated structural adjustment policies. The structural adjustment policies formulated by
the IMF include tariff reduction to 0-5%, liberalization of restrictions in investment
sector, especially in wholesale and retail sectors, and other tariff reduction and
liberalization in trade protection in various sectors.71
These structural adjustment
policies and the economic reform brought Indonesia into an open trade era. In the open
trade era and in order to support the outward-looking policy and also international trade,
Indonesia has been actively participating in several RTAs. This section will describe
68
Hadi Soesastro and M. Chatib Basri, “The Political Economy of Trade Policy in Indonesia,” ASEAN Economic Bulletin 22, No. 1 (April 2005): 3. 69
Sulistyo Widayanto, Prosedur Notifikasi WTO untuk Transparansi Kebijakan Impor Terkait Bidang Perdagangan: Kewajiban Pokok Indonesia Sebagai Anggota Organisasi Perdagangan Dunia (World Trade Organization) (Jakarta: Directorate of Multilateral, Ministry of Trade of Indonesia, 2011), 4. 70
Ibid. 71
Soesastro, Op.cit ,7.
25
further on trade agreements that have been implemented and raised some concerns
among the Indonesian public.
III.2.1. ASEAN Free Trade Agreements (AFTA)
The Association of South East Asian Nation (ASEAN) was established on
August 8, 1967 with the signing of ASEAN Declaration in Bangkok, Thailand. In its
establishment, the ASEAN was founded by Indonesia, Malaysia, Thailand, Singapore
and The Philippines. In the later stages, the membership of the ASEAN increased to
include Brunei Darussalam, Vietnam, Lao DPR, Myanmar and Cambodia. The ASEAN
was established as an effort to promote cooperation among its members in social,
cultural, economic, security and also politics. By establishing the ASEAN, member
countries hope that the ASEAN could be able to bring economic growth, economic and
social development as well as to bring stability and peace in the region, and many other
forms of advantages.72
In terms of economic cooperation, the ASEAN decided to enhance cooperation
among its member countries by establishing AFTA. AFTA was the first free trade
agreement that Indonesia is actively taken part. The signing of the Framework
Agreement on Enhancing ASEAN Economic Cooperation on January 28, 1992 in
Singapore showed ASEAN member countries, not only the original member countries
who signed the agreement but also countries that joined ASEAN in the later stage,
commitment to enhance economic cooperation by liberalizing tariffs and reducing or
eliminating non-tariff barriers through AFTA mechanism. The basis for tariff reduction
schedule, including the product coverage of AFTA is regulated in the Common Effective
Preferential Tariff (CEPT) signed on January 28, 1992 in Singapore. By establishing
AFTA, member countries hoped that ASEAN’s competitiveness could be increased. In
the 9th
ASEAN Summit in Bali, Indonesia, the ASEAN head of states agreed to
establish ASEAN Community in three sectors, political, economy and socio-cultural.
This declaration is known as Declaration of ASEAN Concord II (Bali Concord II).
As a continuation of Bali Concord II and the Framework Agreement on
Enhancing ASEAN Economic Cooperation, an agreement on trade in goods (ASEAN
Trade in Goods Agreement (ATIGA) was signed on February 26, 2009 in Thailand.
72
ASEAN Secretariat, “Overview of ASEAN,” ASEAN Secretariat (website), accessed September 21, 2012. http://www.aseansec.org/about_ASEAN.html.
26
The ATIGA was an enhancement of the CEPT-AFTA to be a more comprehensive legal
instrument, which meant that ASEAN agreements related to trade in goods will be
superseded by the ATIGA. The ATIGA marked a further commitment of all ASEAN
member countries to liberalize tariff in order to achieve economic integration and
realizing the ASEAN Economic Community (AEC) which is expected to be established
by 2015. By establishing AEC, ASEAN member countries hope that ASEAN will
become a single market and production base, which it could lead to the creation of a
regional economic integration and also increasing region’s economic development and
competitiveness in global economy.73
According to the ATIGA, the ASEAN member
states should eliminate all tariffs for goods that are listed in the inclusion lists by 2010
for ASEAN-6 and 2015 or 2018 for Cambodia, Laos, Myanmar and Vietnam
(CLMV).74
Other than enhancing cooperation in trade in goods, in order to establish
ASEAN Community, ASEAN members also cooperate in other sectors such as trade in
services, investment, infrastructure, communication, trade facilitation, customs
integration, tourism, education, etc.
Before the signing of the ATIGA, AFTA was already been implemented in
Indonesia and was marked with legal enactment and the issuance of Ministry of Finance
Decree No. 28/2005 (Peraturan Menteri Keuangan No. 28/PMK.010/2005) on May 18,
2005. The decree regulates tariff reduction and elimination from 5% to 0% for 1.571
tariff lines, in which the amount of the tariff lines will be added in several phases until it
reach the target of full tariff reduction and elimination in 2010.75
By implementing
AFTA or ATIGA, Indonesia is hoping to be able to gain some advantages from the
agreement. One of the advantages that Indonesia is hoping to reach is to be able to
expand its market and increase its export to ASEAN market, since ASEAN has a vast
amount of population, approximately 591 million people.76
Indonesia also hopes to be
able to increase their non-oil and gas export, for example in agricultural sector such as
73
ASEAN Secretariate, ASEAN Economic Community Blueprint. (Jakarta: The ASEAN Secretariat, 2008), 5. 74
ASEAN Secretariat, “ASEAN Trade in Goods Agreement,” ASEAN Secretariat (website), accessed September 18, 2012, http://www.aseansec.org/22223.pdf. ASEAN-6 refers to Indonesia, Brunei Darussalam, Malaysia, Singapore, Philippines and Thailand. CLMV refers to Cambodia, Laos, Myanmar and Vietnam. ASEAN member countries agrees to give extension to CLMV countries to eliminate their tariff up to 2018 for several products that are included in sensitive products list. 75
Ministry of Finance of Indonesia, “Harmonisasi Tarif Bea Masuk, Tarif Bea Masuk CEPT for AFTA, dan Tarif Bea Masuk dalam Rangka ASEAN-China Free Trade Area”, Ministry of Finance of Indonesia (website). Accessed October 22, 2012. http://www.tarif.depkeu.go.id/Data/?type=art&file=mfn.htm. 76
“Mendag: Yang Penting Punya Rencana Aksi,” Antaranews, August 17, 2010. Accessed November 2, 2012, http://www.antaranews.com/berita/1282020084/mendag-yang-penting-punya-rencana-aksi.
27
crude palm oil (CPO), textile, food and beverage and also medicine, in which Indonesia
has the advantages and able to compete with other ASEAN members in that particular
sector.77
It was recorded that in 2011, the share of Indonesian non-oil and gas export to
ASEAN reached 21% from total of Indonesian non-oil and gas export to the world.78
Other than the opportunities to increase export, Indonesia also hopes by implementing
the agreement, Indonesia could attract investment from other ASEAN members.79
In general, the implementation of AFTA brings positive effects for intra-
regional trade. Since its implementation, the trade among the member countries has
increased. However, for individual countries, the result of AFTA implementation is
different for each country. The differentiation of effect is related with the rates of tariff
owned by each country before the implementation of AFTA. For countries that already
had low tariffs before the implementation, AFTA did not have a negative impact, in
particular in the surge of import in that country. For countries that had high tariff rates
before the implementation, AFTA could cause an increase in their import level. Due to
the increase in their import, the competitiveness level of domestic products will be
reduced, compared to the other ASEAN countries which already have low tariff rates
before the implementation.80
Since Indonesia already had a low tariff rate before the implementation,
Indonesia is considered to be one of the countries that was positively impacted by
AFTA. Since the implementation of AFTA in 2005, trade between ASEAN and
Indonesia is increasing in each year of its implementation. Indonesian export to ASEAN
increased from US$ 15.8 billion in 2005 to US$ 42.1 billion in 2011.81
Despite the
increase of Indonesian export to ASEAN, Indonesian import from ASEAN also
experienced an increase. It was recorded that Indonesian import from ASEAN increased
77
Ibid. 78
Uji Agung Santosa, “Perjanjian AFTA: Pemanfaatan tarif khusus AFTA kurang maksimal,” Kontan, November 7, 2011. Accessed November 2, 2012, http://nasional.kontan.co.id/news/pemanfaatan-tarif-khusus-afta-kurang-maksimal-. 79
“Bahan Masukan untuk Presiden RI dalam Rangka Presentasi di KADIN,” President of Indonesia Presentation at Indonesia Chamber of Commerce, May 20, 2009. 80
Emilia, “Dampak Pemberlakuan Perdagangan Bebas AFTA Terhadap Kinerja Ekspor Manufaktur Intra ASEAN,” Jurnal Penelitian Politik LIPI 112 (May 2010): 95. 81
“Program Peningkatan Kerja Sama Perdagangan Internasional” Directorate General of International Trade Cooperation, Ministry of Trade of Indonesia (presentation for Working Meeting of Ministry of Trade of Indonesia) (March 2012).
28
from US$ 17 billion in 2005 to US$ 51.1 billion in 2011, in which it made Indonesian
trade balance experienced a deficit.82
Even though AFTA increased intra-trade region and Indonesian export and
total trade to ASEAN, some concerns were raised among Indonesian public. These
concerns were raised from the assumption that Indonesia was not yet ready to
implement AFTA. The Indonesian public assumed that by implementing AFTA, there
would be several industries in Indonesia that would collapse and experience a
bankruptcy due to the increase of import, which in the end it would lead to the increase
of the unemployment rate in Indonesia. Industries that would be hurt the most in this
implementation are Indonesian small and medium industries. Indonesian industries, in
particular the small and medium industries were considered to unable to compete with
other ASEAN countries because of the lack of the capital and technology needed to
survive and compete.83
Other than the lack of capital and technology, most of
Indonesian small and medium industries are still highly dependent on domestic market
and not yet export oriented, so when AFTA was being implemented and Indonesian
market was filled with cheap imported products from other ASEAN countries,
Indonesian domestic products would lose its large domestic market.84
Other factors that
caused Indonesian industries inability to compete with other ASEAN countries in the
international market were identified as the unawareness of Indonesian industries of the
AFTA scheme, which made maximal utilization of AFTA by Indonesian industries
could not be reach. . This unawareness was likely to happen because of the lack of
information provided by government agencies to Indonesian industries which caused
confusion among Indonesian industries on how to utilize AFTA, which eventually made
the utilization of AFTA is still relatively small compared to the utilization of other trade
agreement that Indonesia participates.85
These concerns were not only stated by Indonesian business association, but
also stated by the Indonesian House of Representatives (DPR). In order to overcome or
82
Ibid. 83
Ratna Shofi Inayati, “Implementasi AFTA: Tantangan dan Pengaruhnya Terhadap Indonesia,” Jurnal Penelitian Politik LIPI 7, no. 2 (2010): 71-74. 84
Alexander C. Chandra, “Indonesia and Bilateral Trade Agreements (BTAs),” The Pacific Review Vol. 18, No.4 (December 2010): 522. Accessed October 21, 2012, http://dx.doi.org/10.1080/09512740500339018. 85
“Pengusaha kurang manfaatkan tariff khusus ASEAN,” Antaranews, November 3, 2011. Accessed November 3, 2012, http://www.antaranews.com/berita/1320327194/pengusaha-kurang-manfaatkan-tarif-khusus-asean.
29
minimize the negative impact of AFTA, the Commission V of DPR, which is in charge
of industry and investment sectors, requested the related ministries and government
agency to postpone the implementation of the AFTA.86
However, this request was not
able to be fulfilled by the related ministries, in particular the negotiation team of the
agreement, since the AFTA is a regional trade agreement which involves nine other
parties. Because it is a regional trade agreement, Indonesia could not easily postpone or
ask for a renegotiation of the implementation of the AFTA. Postponement or
renegotiation of an agreement must be agreed to by all parties and even though the
postponement or renegotiation would be agreed to by the rest of the ASEAN members,
Indonesia needs to prepare compensation to the other ASEAN members for the
postponement or renegotiation of the agreement. Because of this particular reason,
Indonesia is still implementing the AFTA according to the schedule stated in the
agreement without any postponement or renegotiation.
III.2.2. ASEAN-China Free Trade Agreement (ACFTA)
Other than conducting cooperation among its member countries, ASEAN also
conducts cooperation with its neighboring countries such as Korea, Japan, China, India,
Australia and also New Zealand in order to strengthen and develop a mutual and
beneficial partnership. One of the countries that ASEAN developed a partnership with is
China.
As one of ASEAN’s neighboring countries that has a great potential to become
an economic superpower, China has become one of ASEAN’s important partner. The
relation itself is much older than the signing of ACFTA. The relation between ASEAN
and China began in July 1991 in Malaysia when Chinese Foreign Ministers were invited
to attend the Post Ministerial Meetings as a guest of the host country. This relation
continued and developed when China was acknowledged and accorded as ASEAN’s
full dialogue partner at the 29th
ASEAN Ministerial Meeting in July 1996 in Jakarta. In
the fifth meeting of ASEAN-China Summit, which was held in Brunei in November
2001, leaders of both parties decided to establish an ASEAN-China Free Trade Zone
within 10 years. In order to reach the goal set by the leaders, ASEAN and China in
November 2002, signed a Framework Agreement on Comprehensive Economic
86
Hilman Hilmansyah, “Indonesia Belum Siap Hadapi AFTA,” Tempointeraktif, March 3, 2001. Accessed November 3, 2012, http://www.tempo.co.id/hg/ekbis/2001/03/13/brk,20010313-05,id.html.
30
Cooperation. The Framework Agreement functioned as the foundation of ACFTA.
ACFTA covers a total population of 1.9 billion people and a combined gross domestic
product of US$ 6 trillion, which makes it the world’s third largest free trade area.87
As a continuation of this agreement, both parties signed the Agreement on
Trade in Goods and Dispute Settlement in November 2004. The agreement on trade in
goods is the basis for tariff reduction and elimination for goods that are agreed to be
included in the ACFTA scheme. In the ACFTA scheme, the goods that are subjected to
tariff reduction were divided into four types of lists or stages, which were early harvest
program, normal track, and sensitive lists and highly sensitive lists. The early harvest
program has been implemented since July 1, 2007. The early harvest program scheduled
tariff elimination for goods that are listed in Harmonized System code (HS code) 01-08,
which are mainly live animal, dairy products, fish, meat and agricultural products.88
For
goods that are included in Normal Track list, the tariffs were scheduled to be eliminated
or reduced to 0-5% in January 2010 for ASEAN-6 and China and 2015 for CLMV
countries.89
Meanwhile for goods that are included in the sensitive list, the tariffs are
scheduled to be reduced to 20% in January 2012 and will be subsequently reduced to 0-
5% in January 2018 for ASEAN-6 and China.90
For CLMV countries, goods that are
included in the sensitive list will be reduced to 20% in January 2015 and gradually
reduced to 0-5% in January 2020 for CLMV.91
As for the goods that are included in the
highly sensitive list, the tariff will be reduced to 50% in January 2015 for ASEAN-6
and China and January 2018 for CLMV.92
The cooperation between ASEAN and China
is not limited to cooperation in trade in goods but also includes cooperation in trade in
services, intellectual property, investment and also standard, technical regulation and
conformity assessment.
87
“ASEAN and China,” ASEAN-China Center (website), accessed November 3, 2012, http://www.asean-china-center.org/english/2010-06/23/c_13365143.htm. 88
“Framework Agreement on Comprehensive Economic Co-operation between ASEAN and People’s Republic of China,” November 4, 2002, Article 6. 89
“Agreement on Trade in Goods of the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and China,” November 29, 2004, Annex I: Modality of Tariff Reduction and Elimination for Tariff Lines Placed in the Normal Track. 90
“Agreement on Trade in Goods of the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and China,” November 29, 2004, Annex II: Modality of Tariff Reduction and Elimination for Tariff Lines Placed in the Sensitive Track. 91
Ibid. 92
Ibid.
31
Indonesia ratified ACFTA through the issuance of Presidential Decree No.
48/2004 on June 15, 2004 and followed by the issuance of Minister of Finance Decree
No. 355/KMK.01/2004 on July 21, 2004 regarding ACFTA import tariff for early
harvest program and Minister of Finance Decree No. 235/PMK.011/2008 on December
23, 2008 which regulates import tariff for ACFTA normal track. By agreeing to
implement ACFTA, Indonesia hopes to be able to increase and expand Indonesian
export to Chinese market as well as gained market access in services sector, since China
is a large and potential market for Indonesia. Indonesia also hopes to increase
investment from China and also the possibility to strengthen cooperation in technology
transfer between two countries.93
Since the implementation of this agreement, trade between Indonesia and
China has increased in each year of the implementation. It was recorded that the total
trade increase from US$ 15 billion in 2006 to US$ 49.2 billion in 2011. Indonesian
export to China also increases from US$ 8.3 billion in 2006 to US$ 22.9 billion in
2011.94
Other than an increase in total trade and Indonesian export to China, the
Indonesian Investment Board (BKPM) recorded that China’s investment in Indonesia
also increased. It was recorded that in 2010, China’s investment in Indonesia reached
US$ 173.6 million, an increase of 81.85% compared to 2006, which reached US$ 21.5
million. The sectors that attract Chinese investors are trade and reparation, basic metal
industry, metal goods, electronic and machinery, mining, food and beverage industry,
etc.95
Even though the total trade, export and investment have increased, the
Indonesian public raised some concerns on the implementation of the agreement. These
concerns were raised because even though each year Indonesian export is increasing,
there has also a significant increase in the amount of Chinese imported goods in
Indonesia. Because of the surge of import, since 2008 Indonesia has been experiencing
a large deficit in its trade balance with China. It was recorded that in 2011, Indonesia
93
“Kerangka Perjanjian Bebas ACFTA,” Directorate of Regional Cooperation, Ministry of Trade of Indonesia (presentation for ACFTA socialization) (July 22, 2005). 94
“Trade Balance Indonesia-China”, Ministry of Trade of Indonesia (website), accessed November 3, 2012, http://www.kemendag.go.id/en/economic-profile/indonesia-export-import/balance-of-trade-with-trade-partner-country?negara=116. 95
“China Briefing Paper”, Directorate of Bilateral Cooperation, Directorate General of International Trade Cooperation, Ministry of Trade of Indonesia, (December 2011).
32
experienced a deficit of US$ 3.3 billion.96
Because of this deficit, the Indonesian public
requested the Indonesian government, in particular the government agency and the
negotiator of the agreement, to postpone or renegotiate the implementation of ACFTA.
This request did not only come from Indonesian business and industry associations and
the Indonesian Chamber of Commerce but also came from several ministries in
Indonesia, such as the Ministry of Industry and the Ministry of Small and Medium
Enterprises, and also the Indonesian House of Representatives. They requested ACFTA
to be postponed or renegotiate the agreement for several Indonesian priority sectors, in
total 228 tariff lines, such as electronic, food and beverage, toys, textiles, machinery,
furniture, cosmetics, herbal, footwear, petrochemical products, basic inorganic chemical
products, small industry products, iron and steel, and maritime goods.97
These key
priority sectors were sectors that experienced high increase in imports and considered
threatened due to the lack of competitiveness of the Indonesian industries. The
Indonesian Chamber of Commerce and Industry (KADIN) demanded the Indonesian
government to postpone the implementation of ACFTA in order to give more time to
Indonesia to develop its downstream industry.98
One of the strong reactions also came from the Indonesian Textile Industries
Associations that claimed since the implementation of the ACFTA, Indonesian domestic
market for textile has experienced a decline. Based on the survey conducted by Bank of
Indonesia in Bandung to Textile and Textile Products Companies in West Java and
Banten in February-March 2010, they claim that their domestic sales have been
declining and it affected their company performance.99
Indonesian industries fear to experience a collapse due to not able to compete
with Chinese products which have lower price than domestic products because of the
low production cost of Chinese products. The low production cost of the Chinese
products was because China has competitive advantage on low wage and labor
96
“Trade Balance Indonesia-China”, Ministry of Trade of Indonesia (website), accessed November 3, 2012, http://www.kemendag.go.id/en/economic-profile/indonesia-export-import/balance-of-trade-with-trade-partner-country?negara=116. 97
“Implementasi CAFTA: Disiapkan, Notifikasi Tunda 228 Pos Tarif,” Suara Karya, January 7, 2010, accessed November 4, 2012, http://www.suarakarya-online.com/news.html?id=243683. 98
“Chamber of Commerce Calls for ACFTA Renegotiation,” The Jakarta Post, April 23, 2011, accessed November 4, 2012, http://www.thejakartapost.com/news/2011/04/23/chamber-commerce-calls-acfta-renegotiation.html. 99
“ACFTA Terbukti Berdampak Negatif,” Kompas, May 5, 2010, accessed November 4, 2012, http://nasional.kompas.com/read/2010/05/05/16290474/ACFTA.Terbukti.Berdampak.Negatif.
33
employment because of its massive population, adequate infrastructure and the support
from the financial institution, in particular for industrial financing.100
In response to the request of the Indonesian public to renegotiate the tariff lines,
the Indonesian negotiator for ACFTA has conducted several meetings with the Chinese
government to discuss this matter. However, because ACFTA is a regional trade
agreement, both the postponement and the renegotiation could not be implemented
since Indonesia could not receive special treatment from China and should ask for
approval from the other ASEAN members. Other than asking for approval from other
ASEAN members, Indonesia should also be prepared to give concession to China for
228 tariff lines that are going to be renegotiated. Nevertheless, as a solution to
Indonesian request, both countries agreed to sign Agreed Minutes of the Meeting for
Further Strengthening Economic and Trade Cooperation between the Ministry of Trade
of the Republic of Indonesia and the Ministry of Commerce of the People’s Republic of
China on 3 April 2010 by both Ministers of Trade of both countries. In this agreed
minutes, both parties agreed to fully implement the ACFTA in a mutually beneficial
manner and to cooperate more in order to enhance bilateral trade and investment
cooperation, in which if a large imbalance occurred, the surplus side will take necessary
measures and actions to encourage its own domestic market to import more from the
deficit side. The surplus side will also provide the necessary support to the products that
experienced a large deficit through trade facilitation and trade promotion measures. The
Chinese side also agreed to give the necessary capacity building to Indonesian priority
sectors and preferential loan to Indonesia.101
Based on the agreed minutes as well, both
parties also agreed to conduct a joint outreach program in order to develop a more
comprehensive understanding with regards to the ACFTA for both countries society and
established a working group to discuss trade problems between both countries.102
100
“ICRA Indonesia Comment: The Impact of ACFTA to Indonesia-China Trade,” ICRA Indonesia, May 2011, accessed January 11, 2012, http://icraindonesia.com/uploaded/The%20Impacts%20of%20ACFTA%20020511.pdf. 101
“Agreed Minutes of the Meeting for Further Strengthening Economic and Trade Cooperation between the Ministry of Trade of Indonesia and the Ministry of Commerce of the People’s Republic of China,” April 3, 2010. 102
Ibid.
34
III.2.3. Indonesia-Japan Economic Partnership Agreement (IJEPA)
Indonesia has been actively engaged in several regional trade agreements but in
bilateral trade agreement, Indonesia only has one bilateral trade agreement that has been
signed and implemented. The Indonesia-Japan Economic Partnership Agreement
(IJEPA) was signed on August 20, 2007 and has been implemented since August 1,
2008, is the first bilateral free trade agreement that Indonesia has been actively
participate.
Both countries agreed to establish trade cooperation that exceeds a free trade
agreement, in the form of an economic partnership agreement which provides a more
comprehensive cooperation and also cover wide scope of sectors than the general free
trade agreement which mainly cover tariff liberalization. This agreement covers not
only tariff liberalization and elimination in trade in goods, but also covers other sectors,
such as cooperation in capacity building, improvement of business environment, energy
and mineral resources, movement of natural persons, intellectual property, government
procurement, trade in services and also investment.103
In this agreement, the goods are
classified into 8 categories, called the modalities of the IJEPA, in which each category
describe the scheme or stages in tariff reduction. The IJEPA covered 93% of 11.163 of
Indonesian tariff lines, in which 58% of the tariff became 0% at the time of the
agreement was entry into force and over 90% from 9.725 of Japan tariff lines, in which
80% of Japan tariff lines became 0% at the time the agreement was entry into force or
implemented.104
The tariff for goods are scheduled to be eliminate to 0% in the first year
of its implementation for goods that falls in A category, which is around 3337 tariff or
33.2% from the Indonesian total tariff. Other goods that did not fall into A categories,
the tariff will be eliminated gradually in four to sixteen stages of tariff reduction or 10-
15 years, which started by the time of the agreement is implemented or entry into
force.105
103
“Agreement between Indonesia and Japan for an Economic Partnership,” Directorate General of International Trade Cooperation, Ministry of Trade of Indonesia (website), accessed November 5, 2012, http://ditjenkpi.kemendag.go.id/website_kpi/index.php?module=news_detail&news_category_id=5. 104 Achdiat Atmawinata, Dradjad Irianto, Lucia Diawati, Adriano Adlir, Yus Susilo, Wartam Radjid, Massaruddin, Putu Juli Ardika, Ari Indarto S., Oscar Bona V.T., Solehan and Doni Kurniawan, Kedalaman Struktur Industri yang Mempunyai Daya Saing di Pasar Global: Kajian Capacity Building Industri Manufaktur Melalui Implementasi MIDEC-IJEPA, (Jakarta: Ministry of Industry, 2008), 3-20. 105
“Agreement between the Republic of Indonesia and Japan for an Economic Partnership,” August 20, 2007.
35
In the cooperation sector, both countries agreed to initiate a cooperation
program which would include capacity building and transfer technology for Indonesian
industries under the MIDEC (Manufacturing Industrial Development Center) program.
The MIDEC program was initiated as a compensation for the User Specific Duty Free
Scheme (USDFS) program. The USDFS itself is a program from Indonesia to Japan for
giving easier and faster facilitation for Japanese imported products that are related to or
will be used in the production of driver sector industries that became common interest,
which are automotive, electronic, heavy machineries or equipment, motorcycle and its
components, petroleum, gas and electric power, with the condition that the imported
products will be used as raw material and were inefficient or not able to be produced in
Indonesia.106
As compensation of the facilities given by Indonesia to Japan in the
USDFS program, in the MIDEC program, Japan committed to provide the necessary
resources or technical assistance to support Indonesian capacity building program or
activities so that Indonesian products could passed Japan non-tariff barriers. In this
program, there are several driver sectors that became priority or common interest for
both countries such as automotive, electronics, textiles, energy conservation, export
promotion and also small and medium enterprises (SME).107
Through the MIDEC
program, the Indonesian government hopes that the technical assistance, basic study and
capacity building will assist Indonesian industries to improve the quality of their
products, which will also improve their competitiveness not only in domestic market but
also international market.108
Japan has always been Indonesia’s important trading partner. Japan is
Indonesia’s second destination for non-oil and gas export and the second largest
Indonesia’s import source.109
By implementing the IJEPA, Indonesia is hoping to be
able to increase market access in Japan, not only in goods but also services sectors.
Indonesia is also hoping that Japan’s investment to Indonesia would increase because of
106
Ibid, 3-24 107
Ibid. 108
“Joint Press Statement: Indonesia-Japan Economic Partnership Agreement, November 28, 2006,” Ministry of Trade of Indonesia (website), accessed on December 5, 2012, http://ditjenkpi.kemendag.go.id/website_kpi/Umum/IJEPA/Joint%20Press%20Statement%20(November%202006)/Joint%20Press%20Statement%20IJ-EPA%20(November2006).pdf. 109
“Growth of Non-Oil and Gas Exports by State Destination,” Ministry of Trade of Indonesia (website), http://www.kemendag.go.id/statistik_perkembangan_ekspor_nonmigas_(negara_tujuan)/ and “Growth of Non-Oil and Gas Imports by State Origins,” Ministry of Trade of Indonesia (website), accessed November 5, 2012, http://www.kemendag.go.id/statistik_perkembangan_impor_nonmigas_(negara_asal)/.
36
this agreement.110
Other than increasing investment and market access in Japan,
Indonesia also hopes that by implementing the EPA, Indonesia could increase its
industrial and also human resources competitiveness with the program of capacity
building and transfer technology from Japan.111
Since the implementation of this
agreement, Indonesian trade balance with Japan experienced an increase. The total trade
between Indonesia and Japan increased from US$ 42.9 billion in 2008 to US$ 53.2
billion in 2011, in which the export increased from US$ 27.7 billion in 2008 to US$
33.7 billion in 2011 and import increased from US$ 15.1 billion in 2008 to US$ 19.4
billion in 2011.112
Other than the increase in trade in goods, Indonesia has also
conducted cooperation with Japan in the movement of natural person and has sent
several nurses to Japan under the Movement of Natural Persons program. In this
program, Japan committed to each year receives Indonesian nurses and caretakers which
have undergone selection processes and will be placed in Japan hospital and also elder
houses.113
Even though Indonesia has a surplus in its trade with Japan and also an on-
going cooperation on nurse dispatch, some concerns were still raised among Indonesian
public. These concerns appear because the Indonesian public argues that the IJEPA is an
imbalanced agreement which give more advantages for Japan. The Indonesian public
fears that by implementing this agreement, Indonesian market will be flooded with
Japanese products, especially in the electronics and the automotive sectors and
Indonesia will be in disadvantage position since Indonesia only exported raw material to
Japan.114
In addition to the concerns raised regarding the trade in goods sectors, the
110
“Tujuan, Dampak dan Manfaat Perjanjian IJEPA,” Directorate General of International Trade Cooperation, Ministry of Trade of Indonesia (presentation for Working Meeting Ministry of Trade of Indonesia) (August 12, 2008). 111
Ibid. 112
“Trade Balance Indonesia-Japan,” Ministry of Trade of Indonesia (website), accessed November 5, 2012, http://www.kemendag.go.id/en/economic-profile/indonesia-export-import/balance-of-trade-with-trade-partner-country?negara=111. 113
“Joint Press Statement: Indonesia-Japan Economic Partnership Agreement, November 28, 2006,” Ministry of Trade of Indonesia (website), accessed on December 5, 2012, http://ditjenkpi.kemendag.go.id/website_kpi/Umum/IJEPA/Joint%20Press%20Statement%20(November%202006)/Joint%20Press%20Statement%20IJ-EPA%20(November2006).pdf 114
“Kerjasama IJEPA Jangan Cuma Untungkan Jepang,” Detik Finance, February 6, 2008, accessed November 7, 2012, http://finance.detik.com/read/2008/02/06/163648/890159/4/kerjasama-ijepa-jangan-cuma-untungkan-jepang.
37
Indonesian public also considered that by looking of the implementation, the IJEPA
does not bring the expected benefit for Indonesia.115
The capacity building and the transfer technology program, in particular
through the MIDEC (Manufacturing Industrial Development Center) program, does not
give the expected benefit and progress for the Indonesian industry because the
cooperation is mostly still in the stage of basic study.116
The dispatch of Indonesian
nurses and caretakers to Japan also does not bring results as expected during the
negotiation of the agreement, in which Japan could not fulfill its commitment to accept
Indonesian nurses and caregivers in accordance to the number agreed in the negotiation
process.117
In general, the implementation of the IJEPA does not give result as expected
and considered to give less benefit for Indonesia than what is expected to be gained.
Indonesia is also assumed to not able to fully utilize the agreement due to lack of
awareness of Indonesian businesses on the way to use the certificate of origins and the
scheme of the tariff reduction.118
Because of these concerns, the Indonesian public,
in particular the Indonesia Chamber of Commerce and also the Indonesian Industry and
Business Association, requested Indonesian government to review the agreement.119
The Indonesian public hopes that the Indonesian government could analyze and
evaluate the implementation of the IJEPA and whether the implementation of this
agreement has given result as expected or benefit for Indonesia and in which sectors that
need to be revised, discontinued or made a new program to give more benefit for
Indonesia.120
By reviewing and evaluating the implementation of the agreement for the
benefit of both countries, both countries in the end will lead to a conclusion or
agreement whether this agreement will be continued or not. This review is expected to
be held in 2013 in accordance with the schedule stated in the agreement, in which it
115
Ibid. 116
“Japan Briefing Paper,” Directorate Bilateral Cooperation, Ministry of Trade of Indonesia (December 2010). 117
Ibid. 118
“Kerjasama Perdagangan Internasional: Perspektif Dunia Usaha,” Presentation of Indonesian Chamber of Commerce and Industry, November 4, 2009. 119
“Kadin Minta Pemerintah Kaji Ulang IJEPA,” Kadin Bandung (website), accessed November 7, 2012, http://kadinbandung.org/news/category/ekonomi/kadin-minta-pemerintah-kaji-ulang-ijepa. 120
“Kerjasama Bilateral dengan Jepang: Pengusaha Dukung Kaji Ulang IJEPA,” Kontan, July 5, 2012, accessed November 7, 2012, http://nasional.kontan.co.id/news/pengusaha-dukung-kaji-ulang-ijepa.
38
stated that the IJEPA will be reviewed after 4 year of implementation for its
effectiveness.121
Other than the agreements that have been implemented, Indonesia also engaged
in several agreements that currently are still waiting for ratification, are under
negotiation or in the stage of being studied by a Joint Study Group. These agreements
include the ASEAN-India Free Trade Agreements, the ASEAN-Australia, the New
Zealand Free Trade Agreement (AANZFTA), the Indonesia-Australia CEPA, the Joint
Study Group of Indonesia-India CEPA, the Joint study Group Indonesia-Chile CEPA,
the Indonesia-EFTA CEPA, the Indonesia-EU CEPA and the Indonesia-Korea CEPA.
III.2.4. Perception of Indonesian Public on RTAs
Based on the above brief description on several Indonesian regional trade
agreements that have been implemented, it is clear that in general Indonesian public has
a common view and perception on RTAs, either in a form of FTAs, EPA or CEPA. In
general, the Indonesian public sees that Indonesia is still not ready to deal with free
trade agreements. The Indonesian industries, in particular the Indonesian small and
medium industries, are seen as unprepared to compete in FTAs. The Indonesian public
fears that due to unpreparedness of the Indonesian industries and also the Indonesian
public in general, the Indonesian industries will collapse because Indonesian products
will be replaced by low cost imported products. The Indonesian public also fears that
the collapse of the Indonesian industries will cause an increase in the unemployment
rate in Indonesia. The Indonesian public also fears that because of the surge of low cost
imported products, local products will lose its domestic market and Indonesian people
are feared would only become consumers and not producers. The Indonesian public
fears that FTAs, in particular the trade agreements with Indonesian trade partners which
are considered to be more advanced or developed than Indonesia, will give more benefit
for the trade partners than for Indonesia and Indonesia is considered to be in a
disadvantage position.
The lack of competitiveness of the Indonesian industries is due to the domestic
conditions in Indonesia. One of the reasons for the lack of competitiveness of
Indonesian industries is because Indonesian industrial and business climate is still
121
“Agreement between Indonesia and Japan for An Economic Partnership,” August 28, 2007, Article 151: General Review.
39
considered to be in conducive for its industries to produce low-cost products.
Inefficiencies in the production and distribution process that are caused by the lack of
capital and efficient technologies make Indonesian products become high-cost products.
Other than the lack of capital and technologies, the lack of infrastructure needed to
support and increase efficiency also plays an important part to make Indonesian
products become high-cost products. The complexity and inefficiency of Indonesian
bureaucracy, in which the Indonesian industries sometimes have to gone through a
cumbersome and time consuming mechanism for applying industrial or business permit
also increase the lack of competitiveness and the high cost production of Indonesian
products. The lack of competitiveness of the Indonesian industries, in particular the
small and medium industries, is also because the Indonesian industries and businesses
are lack of support from the Indonesian financial sectors, in which the interest rate
needed for stimulating business is still high.
Because of the lack of competitiveness of the Indonesian industries, the
Indonesian public has several times requested the Indonesian government, in particular
the related agencies and the negotiator of the free trade agreement, to postpone or to
renegotiate the free trade agreements that have been signed or implemented. For trade
agreements that are still in the stage of joint study or negotiation, the Indonesian public
hopes that the Indonesian government could conduct a thorough study and analysis on
the advantage and disadvantage of the trade agreement, which also include the impact of
the trade agreement for the Indonesian public in general and the Indonesian industries,
in particular small and medium industries. The Indonesian public also hopes that
Indonesian government could reconsider to signed trade agreement that does not bring a
lot of advantage for Indonesia, in particular trade agreement that involving Indonesian
trade partners that are considered will gain more advantage than Indonesia. Indonesian
public also hopes that Indonesian government could repair the industrial and business
climate in Indonesia before engaging in FTAs in order to increase competitiveness and
to be more prepared to face the surge of imported products because of the FTAs.
40
IV. Indonesia-Korea Comprehensive Economic Partnership Agreement (IKCEPA)
One of the bilateral trade agreements that is currently being negotiated between
the government of Indonesia and Korea is IKCEPA. The cooperation in this agreement
is expected to be more comprehensive than the regular FTAs. The scope of cooperation
of this agreement will be more extensive, not only related to tariff elimination and trade
barriers in trade in goods but also include cooperation in trade in services, intellectual
property rights, information and communication technology, trade facilitation,
investments, and also capacity building.122
The previous chapter discussed several trade agreements that have been
implemented and in the same time raised some concerns among the Indonesian public
and provides background on the WTO view and also perception of the Indonesian
public regarding RTAs, in particular the RTAs that had been implemented in Indonesia.
This perception will help to analyze whether this perception will influence the
perception of Indonesian public and also government on the IKCEPA which is currently
being negotiated. This perception also help to analyze how the Indonesian public and
the Indonesian government perception shaped or influenced the form and process of
negotiations of the IKCEPA This chapter will give description on Indonesia-Korea trade
relations as the background of the initiation of the agreement and also the perception of
the Indonesian public and the government on the agreement.
IV.1. Indonesia-Korea Trade Relations
Indonesia and Korea relations began in 1966 with the establishment of
diplomatic relations between both countries. This relation was strengthened by the
signing of the Joint Declaration on Strategic Partnership to Promote Friendship and
Cooperation in the 21st Century by both countries President in December 2006. This
declaration marked the intention of both countries to increase cooperation and their
relationship in the future. Since the signing of the joint declaration, the cooperation
between both countries has increased and also includes a wide range of sectors that
previously had not been developed, such as cooperation in the defense sector. This Joint
122
“Indonesia-Korea Masuki Babak Baru Kerja Sama Perdagangan,” Press Release Ministry of Trade on First Round of Negotiation, Directorate General of International Trade Cooperation, Ministry of Trade of Indonesia (website), accessed November 30, 2012, http://ditjenkpi.kemendag.go.id/website_kpi/index.php?module=news_detail&news_content_id=1045&detail=true.
41
Declaration has become the foundation and guideline for both countries to formulate or
develop forms of cooperation that is expected to be able to further deepen the
cooperation between both countries.
Since the signing of the Joint Declaration, the cooperation between both
countries is increasing. In the trade sector, trade between two countries grows
significantly. Korea is the seventh largest non-oil and gas export destination and the
sixth largest import source for Indonesia.123
It could be seen from the increase in the
total trade volume from US$ 10.8 billion in 2007 to US$ 29.4 billion in 2011 with an
annual growth of 25.11%.124
Even though the balance of trade between Indonesia and
Korea experienced instability, each year a surplus is gained by Indonesia. It was
recorded that the surplus of the balance of trade reached US$ 3.4 billion in 2011 with an
annual growth of 2.85% from 2007-2011.125
Export from Indonesia to Korea increased
from US$ 7.6 billion in 2007 to US$ 16.4 billion in 2011 with an annual growth of
20.5%. Meanwhile, the import increased from US$ 3.2 billion in 2007 to US$ 13 billion
in 2011 with an annual growth of 33.8%.126
Indonesian export to Korea is mostly
dominated by mineral fuels, oils, distillation products, etc; ores, slag and ash; rubber;
electrical and electronic equipment; pulp of wood, fibrous cellulosic material, waste,
etc; and also iron and steel.127
In the other hand, Indonesian import from Korea is
mostly dominated by mineral fuels, oils, distillation products, etc; electrical and
electronic equipment; iron and steel; machinery, nuclear reactors, boilers, etc; plastics
and articles thereof; knitted or crocheted fabrics; and also rubber.128
In the investment sector, Korea is one of the biggest investor for Indonesia.
Korea has been the seventh largest investor in Indonesia over the past 20 years (1990-
123
“Growth of Non-Oil and Gas Exports by State Destination,” Ministry of Trade of Indonesia (website), accessed November 27, 2012, http://www.kemendag.go.id/statistik_perkembangan_ekspor_nonmigas_(negara_tujuan)/ and “Growth of Non-Oil and Gas Imports by State Origins,” Ministry of Trade of Indonesia (website), accessed November 27, 2012, http://www.kemendag.go.id/statistik_perkembangan_impor_nonmigas_(negara_asal)/. 124
“Trade Balance Indonesia dengan Korea, Republic of Periode 2007-2012,” Ministry of Trade of Indonesia (website), accessed November 22, 2012, http://www.kemendag.go.id/en/economic-profile/indonesia-export-import/balance-of-trade-with-trade-partner-country?negara=114 125
Ibid. 126
Ibid. 127
“Bilateral Trade between Indonesia and Republic of Korea: Total All Products,” Trade Map: Trade Statistics for International Business Development, International Trade Centre (website), accessed November 28, 2012, http://www.trademap.org/Bilateral_TS.aspx. 128
Ibid.
42
2010), with the amount of investment reached US$ 5.5 billion invested for 1719
projects.129
In 2009, Korean investment realization in Indonesia reached US$ 624
million invested for 186 projects, which made Korea the fourth largest investor for
Indonesia.130
Most Korean investments are invested to machinery and electronics sector,
chemical industry and pharmacy, textile, leather and footwear and also food and
beverages.131
In 2010, Korean investments are mostly invested in manufacturing sector;
mining; wholesale and retail trade; electricity, gas, steam and water supply; agriculture,
forestry and fishing; and real estate activities and rental leasing.132
Other than engaging in bilateral cooperation, both countries also have been
actively participating in the ASEAN-Korea Free Trade Agreement (AKFTA). The
ASEAN-Korea Free Trade Agreement was initiated with the signing of the Framework
Agreement on Comprehensive Economic Cooperation on December 13, 2005 in Kuala
Lumpur, Malaysia. This agreement was signed with the intention to strengthen relation
and enhance cooperation in economic, trade and also investment between both parties
by liberalizing tariff and eliminating or reducing non-tariff barriers. As a continuation of
the Framework Agreement on Comprehensive Economic Cooperation, both parties also
signed the Agreement on Trade in Goods on August 24, 2006 and the Agreement on
Trade in Services on November 21, 2007.
According to this last agreement, the schedule for tariff liberalization was
divided into two stages which are normal track and sensitive track. The tariffs for
normal track is scheduled to be liberalize in several stages which began in 2007 and will
be fully liberalized in 2010 for ASEAN-6 and Korea, with an exemption up to 2012 for
Indonesia, 2018 for Vietnam and 2020 for Cambodia, Myanmar and Laos.133
For goods
that are placed in the sensitive track are divided into two categories, sensitive list and
highly sensitive list, and scheduled to be reduced in several stages as well. The goods
that are being placed in the sensitive list, the tariff rates will be reduced to 20% in
January 2012 and 0-5% in 2016 for ASEAN-6 and Korea, meanwhile for Vietnam the
tariff will be reduced to 20% in January 2017 and 0-5% in January 2021 for Vietnam
129
“Joint Study Group Report Indonesia-Korea,” Joint Study Group Indonesia-Korea, October 21, 2011. 130
“Briefing Paper Korea,” Directorate Bilateral Cooperation, Directorate General of International Trade Cooperation, Ministry of Trade of Indonesia, February 2011. 131
Ibid. 132
Joint study group report, op.cit. 13. 133
“Annex 1: Modality for Tariff Reduction and Elimination for Tariff Lines Placed in the Normal Track,” Agreement on Trade in Goods ASEAN-Korea, August 24, 2006.
43
and 20% in January 2020 and 0-5% in January 2024 for Cambodia, Laos and
Myanmar.134
For goods that are placed in the highly sensitive list are divided into five
groups which were began to be reduced in January 2006 and January 2016.135
The legal enactment for AKFTA in Indonesia was marked with the issuance of
Presidential Decree No. 11/2007 and the Minister of Finance Decree No.
75/PMK.011/2007 on July 3, 2007 regarding the establishment of the import tariffs for
AKFTA, in which it was revised with the issuance of the Minister of Finance Decree
No. 236/PMK.011/2008. In this agreement, Indonesia liberalized 7875 products or
90.1% of the tariff lines for goods placed in the normal track and Korea liberalized
10873 products or 92.1% of tariff lines.136
The implementation of the AKFTA did not raise some concerns from the
Indonesian public. This is particularly because the bilateral trade performance does not
bring deficit for Indonesia. The utilization of AKFTA scheme by the Indonesian
industries experienced an increase from 9.2% in 2007 to 61% in 2011.137
The utilization
of the AKFTA is the highest utilization among the utilization of other free trade
agreements that have been implemented in Indonesia. It could be seen that Indonesian
industries are already aware about the AKFTA scheme and already utilized the AKFTA
scheme in order to receive tariff preference for their export to Korea. Even though the
tariff liberalization and the utilization of the AKFTA in Indonesia and Korea is high
enough, both countries still assume that a bilateral trade agreement should be
formulated in order to enhance cooperation and to maximize the advantages that will be
gained from the agreement. It is hoped that the bilateral trade agreement or the IKCEPA
will cover more coverage and deeper cooperation than the AKFTA.138
IV.2. Indonesia-Korea Comprehensive Economic Partnership Agreement
(IKCEPA)
The Indonesia-Korea Comprehensive Economic Partnership Agreement or
IKCEPA was first discussed by both countries in February 2011 during the visit of the
134
“Annex 2: Modality for Tariff Reduction/Elimination for Tariff Lines Placed in the Sensitive Track,” Agreement on Trade in Goods ASEAN-Korea, August 24, 2006. 135
Ibid. 136
Joint Study Group Report, Op.cit., 26 and 28 137
Directorate General of International Trade Cooperation Presentation, Loc.cit. 138
Joint Study Group Report, Loc.cit.
44
Minister of Economic Coordination of Indonesia to Korea as a Special Envoy of the
President of Indonesia. During this visit, the Korean President expressed his interest to
strengthen bilateral cooperation through the establishment of a bilateral comprehensive
economic partnership agreement.
As a follow up of this interest, both countries agreed to conduct a joint
feasibility study, which would serve as a basis for both countries in deciding whether to
precede the result of the study and conduct a bilateral free trade or CEPA negotiation.
As a continuation, the countries decided to establish a Joint Study Group which consists
of chosen experts from both countries, not only experts from the government agencies,
but also experts or representatives from the academic society, the business association
and also the chamber of commerce. The Joint Study Group was established in order to
analyze and identify the scope of cooperation that could be enhanced by the CEPA and
provide policy recommendation for both countries regarding the CEPA.139
The study held by the Joint Study Group was conducted with an analysis on the
trade complementarity of both countries based on the trade complementarity index and
analyze the impact of the IKCEPA by conducting a simulation using the Computable
General Equilibrium (CGE) GTAP V7. The CGE GTAP is a simulation model based on
empirical data or numerical solution that is used to analyze the implication of a policy
changes on a resource allocation and predict who will benefit from the policy
changes.140
Other than using the CGE GTAP simulation model, the Joint Study Group
also took into account the implementation of the AKFTA in order to analyze the
possibility to improve cooperation beyond the AKFTA and widened the scope of
coverage of the IKCEPA. The Joint Study Group also analyzed the relation of both
countries by analyzing the recent bilateral trade in goods, trade in services, investment
and other economic cooperation. The result of this study is summarized in a Report of
Joint Study Group for a Comprehensive Economic Partnership Agreement between
Indonesia and Korea, which was finalized in October 2011.
According to the report of the Joint Study Group, it was concluded that by
implementing the IKCEPA, based on the CGE simulation, both Indonesia and Korea
will receive advantages from the agreement, in which the GDP and welfare will
139
Joint Study Group report, Loc.cit. 2. 140
Stephen N. Karingi, “General Equilibrium of Trade Negotiation Outcomes,” Presentation for Trade and International Negotiations Section, United Nations Economic Commission for Africa.
45
increase. The estimate welfare to be received by Indonesia is around US$ 10.6 billion
and an increase in GDP growth around 4.37%, while Korea will receive an increase of
welfare approximately US$ 1.5 billion and an increase in GDP of 0.13%.141
The report
of the Joint Study Group also concluded that the IKCEPA is feasible and would provide
benefits for both countries. The IKCEPA is also expected to increase investment and
provide a better mechanism, transparency and protection for investors. The result of the
joint study group also stated that the IKCEPA will provide flexibility for both countries
to conduct or formulate cooperation in a wider scope or deeper coverage than that had
been included in the AKFTA. The scope of cooperation could include agriculture,
fishery, forestry, sanitary and phytosanitary (SPS), food safety and quarantine,
industrial development, mineral and energy, information and communication
technology (ICT) industry, business to business dialogue, trade remedy, government
procurement, intellectual property right, customs procedures and trade facilitation.142
With regards to the rounds of negotiations of the IKCEPA, the first round of
negotiations was held on July 12, 2012 in Jakarta. The first round of the negotiations is
the preliminary round of the negotiation that discussed and exchanged both countries
view on the terms of reference of the negotiation, which include discussion on
introduction, principles, scope and coverage that are included in the terms of reference
of the negotiation.143
In the first negotiation, the negotiators of both countries reached
an agreement on the scope and coverage of the IKCEPA that will be discussed in the
negotiations. The scope and coverage of the IKCEPA will include trade in goods, rules
of origins, customs including custom procedures, trade facilitation, trade in services,
investment, intellectual property rights, sustainable development and competition.144
However, both countries had not yet reached an agreement on the scope and coverage
related with trade remedies and cooperation, due to the differences in preference
between Indonesia and Korea, in which Indonesia assume that the trade remedies issue
141
Joint study group report, Op.cit., 44. 142
Ibid, 45-46. 143
“Indonesia-Korea Masuki Babak Baru Kerja Sama Perdagangan,” Press Release Ministry of Trade on First Round of Negotiation, Directorate General of International Trade Cooperation, Ministry of Trade of Indonesia (website), accessed November 30, 2012, http://ditjenkpi.kemendag.go.id/website_kpi/index.php?module=news_detail&news_content_id=1045&detail=true. 144
”Terms of Reference: Negotiations for the Republic of Indonesia- the Republic of Korea Comprehensive Economic Partnership Agreement (IKCEPA),” Team of Negotiation IKCEPA, December 10, 2012.
46
will refer to the WTO regulations on trade remedies so it is not necessary to incorporate
it to the IKCEPA. In terms of cooperation, both sides have not yet reached an agreement
on the issue and form of cooperations that are going to be negotiated.145
The remaining
issued that had not yet reached an agreement would be discussed inter-sessionally
between both parties. In order to achieve an effective discussion, both countries agreed
that the IKCEPA negotiation will be carried out in seven working groups. The seven
working groups included a working group on trade in goods; a working group on rules
of origin, customs procedures and trade facilitation; a working group on services; a
working group on investment; a working groups on rules (e-commerce, government
procurement, competition and IPRs); a working group on cooperation and capacity
building; and a working group on legal and institutional issues.146
Both countries hoped
that the IKCEPA could help to achieve the trade volume target of US$ 50 billion in
2015 and US$ 100 billion in 2020 that had been set by Presidents of both countries
during the bilateral meeting on March 28, 2012 in Seoul, Korea.147
The second round of negotiation was held in Jakarta, 10-11 December 2012.
The second round of negotiation discussed the finalization of the terms of reference for
negotiation of the IKCEPA. The finalized term of reference for negotiation of the
IKCEPA includes chapters on principles; scope and coverage; structure of negotiations;
market access and modalities; cooperation and capacity building; administrative
arrangements; exchange of data and information; and also contact person.148
Other than
finalizing the terms of reference, the Korean side presented the draft text in national
treatment and market access for goods, the drafts text on legal and institutional issues,
and also the draft text on rules of origin, customs procedure and trade facilitation.149
Related to the negotiation of the IKCEPA, in the terms of reference of
negotiation of the IKCEPA, both countries agreed to conduct the negotiation based on
several principles:
145
“State of Play Perundingan IKCEPA, 2012-2013,” Directorate of Bilateral Cooperation, Ministry of Trade of Indonesia, March 14, 2013. 146
Ibid. 147
“Indonesia-Korea Tingkatkan Perdagangan dan Investasi,” Directorate General of International Trade Cooperation, Ministry of Trade of Indonesia (website), accessed on November 30, 2012, http://ditjenkpi.kemendag.go.id/website_kpi/index.php?module=news_detail&news_content_id=1009&detail=true. 148
Terms of Reference IKCEPA, Loc.cit. 149
“Records of Discussion: The 2nd
Round of Negotiation Indonesia-Korea Comprehensive Economic Partnership Agreement (IKCEPA), Jakarta, 10-11 December 2012,” December 11, 2012.
47
a. “High level and comprehensiveness with the goal to achieve a high level
and comprehensive agreement which covers a wide range of scope of
cooperation;
b. Conformity or in line with the WTO rules and agreements, particularly
Article XXIV of GATS 1994 and Article V of GATS;
c. The negotiations will take into account the result of the joint study group
and the result and the progress of the implementation of the AKFTA as
references for the negotiations;
d. The IKCEPA will be based and cover three main pillars, which are market
access, facilitation of trade and investment, and also economic cooperation
that includes capacity building;
e. During the negotiations, both countries will take into account the mutual
interests and sensitivities and will consider the different economic size and
level of development;
f. The decision making process will be based on “single undertaking”
principle, in which the agreement would not be signed unless every causul
are agreed by both parties;
g. The negotiations of the IKCEPA are aiming to reach the economic target
set by the governments of both countries;
h. A review mechanism will be set to review the implementation and other
related issues;
i. Both parties also agreed to negotiate an appropriate mechanism to deal with
the potential and actual injury experienced by the related industries which
may harm the implementation of the IKCEPA;
j. The negotiations will also be concluded with the goal to bring substantial
benefits in goods and services sectors, agriculture, forestry and fishery
48
industries, and also manufacturing industries, with some consideration to
the Small and Medium Enterprises (SMEs) of both countries.”150
The chapters of the agreement is planned to include preamble, general
provisions which include objectives and general definitions, trade in goods, rules of
origin, customs and trade facilitation which include customs procedures, trade in
services, investment, intellectual property rights, competition, cooperation and capacity
building, transparency, dispute settlement, institutional arrangements, exceptions and
also final provisions.151
The negotiations of the IKCEPA will be based on request and
offers and exchange of draft text mechanism or approach, in which both parties agreed
to exchange initial requests and offers and also draft text during the meetings or through
the secretariat of both countries.
The negotiations of the IKCEPA will be conducted in several meetings,
alternately in Indonesia and Korea. The meetings will consist of plenary, co-chaired by
the Chief Negotiators and working group meetings, which will be led by the Heads of
Working Group. The negotiations will be held at the same time and place, however
when the negotiations are considered insufficient, each working groups may hold an
inter-sessional meetings to discussed the draft text of the agreement and will report the
result of the inter-sessional meeting to the plenary meeting.152
The delegations of the
negotiations consist of chief negotiators, heads of the working groups, members of
delegations which consist of representatives from related ministries and also friends of
chiefs, which include representatives from the business and industry communities or
associations and also experts from both countries.153
Other than the main delegations,
both countries also agreed to establish a trade negotiating committee with the goal to
oversee the overall process of the negotiations, to review the reports of the working
groups and also could resolve the outstanding issues submitted by the working
groups.154
Next section analyze the perspective of the Indonesian government and the
public on the IKCEPA by taking into account the bilateral relation, in particular the
150
Terms of Reference of the Negotiations of IKCEPA, Loc.cit. 151
Ibid. 152
Ibid. 153
Ibid. 154
Ibid.
49
trade relation, between Indonesia and Korea that had been discussed in this section.
Next section also taking into account the joint study groups report to analyze the
background or the reasons of the initiation of the IKCEPA, especially the reasons of
Indonesian government to initiate the negotiation of the IKCEPA.
IV.3. Perceptions on the IKCEPA
In the previous chapters and sections, Indonesian participation in international
trade, particularly Indonesian participation in RTAs and also Indonesia-Korea trade
relations have been described for the purpose of providing background for analyzing the
perceptions and the policies taken by the Indonesian government related to the
IKCEPA. In the previous chapters, it could be seen that the preferences and the policies
of the Indonesian government related to international trade change overtime.
The Indonesian government policies related to international trade could be
divided into several stages:
1. Inward-looking policies, with the emphasis on import-substitution policies,
in which the Indonesian government policies were to finance the
Indonesian industries through balance of payments and fiscal position in
order to deal with high commodity prices.155
;
2. Outward-looking policies, with the emphasis on export-oriented policies
and the aim to develop and increase non-oil and gas export. The change
from inward-looking policy to a more outward-looking policy is because of
the slow growth of Indonesian economy due to the decline in the world’s
oil prices. During this era, the Indonesian government made structural and
economic reform with the aim to increase economic growth.156
;
3. Economic and trade reform policies, in which it due to the Asian financial
crisis in 1997, Indonesia had to receive aid from the IMF in order to
stabilize the Indonesian currency. During this period, the Indonesian
government is required by the IMF to adopt structural adjustment policy,
economic recovery and reform program, which made the Indonesian
155
Misuzu Otsuka, Stephen Thomsen and Andrea Goldstein, “Improving Indonesia’s Investment Climate,” OECD Investment Insights, Issues 1, February 2011. http://www.oecd.org/daf/inv/47556737.pdf, accessed March 24, 2013. 156
Hadi Soesastro and Chatib Basri, Op.cit., 3.
50
government to liberalize restrictions in investment sector, reduce its tariff
to 0-5% and liberalize and reduce protection in various sector.157
From the explanation above, we could see that policy itself is affected by the
circumstances or the environment that surrounds the institutions at the time of the policy
was being made. Other than being affected by environment or situation, policy is also
affected by history. History affects how policy makers see the interests of the policy, the
perception of policy makers on the cost and benefits of the policies.158
Policies taken by
the government of Indonesia to increase cooperation through bilateral and regional fora
was affected by the fact or the experience that the negotiations in multilateral forums, in
particular the negotiations in the WTO and the completion of the Doha Round, were
making slow progress and the difficulties in concluding or reaching an agreement
among member in a multilateral negotiations.159
Through RTAs, higher level of
cooperation is expected to be achieved since specific issues that could not be discussed
in multilateral level and that are specifically related to the relation between parties could
be discussed.
Since government preferences and policies are influenced by perceptions,
knowledge and past experienced or history, the Indonesian government’s decision to
negotiate the IKCEPA with Korea is influenced by these factors as well. The high
utilization rate of the AKFTA certificate of origins, the lack of concerns from the
Indonesian public on the implementation of the AKFTA and also the possibility to
explore and cooperate in more or various sectors than the AKFTA, became one of the
considerations taking into account by the Indonesian government in agreeing with the
Korean proposal to conduct negotiations on the IKCEPA.160
Other than taking into
account the previous experience in the AKFTA, Indonesia is also taking into account
Korean position as one of Indonesian important trading partners.161
The requirement from the Indonesian government to established a Joint Study
Group before initiating the negotiations of the IKCEPA, which consists of
representative from the related ministries, the academic society and also the business
157
Ibid. 158
Jeffrey A. Hart and Prakash Aseem, Responding to Globalization (London, GBR: Routledge, 2000), 18. 159
Collier, Op.cit. 160
Terms of Reference of the Negotiations of the IKCEPA, Op.cit. 161
Joint Study Group Reports, Op.cit.
51
societies, to analyze the potential sectors for both countries, the compatibility of trade
and the possible costs and benefits of the agreement, was also based on some
considerations on the Indonesian public perception and concerns related to FTAs that
have been implemented in Indonesia due to the high deficit and the ineffectiveness of
the cooperation in the FTAs. As we have seen in the previous chapter, such concerns
arose because of the Indonesian public perception of FTAs as detrimental to Indonesian
industry, particularly for the Indonesian small and medium industries that have similar
products with the imported goods.162
The Indonesian public was afraid that due to the surge of low price imported
goods, Indonesia would only become a consumer country and would also cause
bankruptcy and increase unemployment rate.163
The unpreparedness of Indonesian
industries to face free trade agreements, because Indonesian industries are considered
uncompetitive to produce low prices but quality goods due to the in conducive
Indonesian business and industries environment, particularly in production and also
distribution of the goods. The inefficiency was caused by the lack of technology needed
to produce low price goods. Other than the lack of technology, the complexity of
Indonesian bureaucracy and the lack of adequate infrastructure also became the factors
that caused Indonesian products to have high production costs which resulted
Indonesian goods to have high prices and losing their domestic market.164
In addition to
the fear of collapse of Indonesian industries, the Indonesian public also worried that
with the increase of low price imported products in Indonesia, it would become a
consumer society and would reduce the desire to produce something because of the high
production costs.165
As we have seen in the previous chapter, the Indonesian public thinks that free
trade agreements do not bring advantages that are expected to be gained from the
agreements. The Indonesian public considers that the implementation of FTAs will only
bring benefit for Indonesian big industries. The Indonesian public assumes that in the
process of negotiations, the negotiators prioritize the interest of the big industry in
Indonesia and do not include the opinion of the Indonesian public and the small and
162
“ACFTA Terbukti Berdampak Negatif,” Kompas, May 5, 2010, accessed November 4, 2012, http://nasional.kompas.com/read/2010/05/05/16290474/ACFTA.Terbukti.Berdampak.Negatif. 163
“ACFTA dan Ancaman Kedaulatan,” Jurnal Sosial Demokrat Vol 8 (3), February-June 2010, 14. 164
Ibid. 165
Ibid.
52
medium industries, particularly when they are the one who have the biggest possibility
to be injured or affected by the agreement.166
Because of the past experience in the implementation of FTAs, a lot of requests
to postponed the implementation of the FTAs were expressed, not only from the
Indonesian business associations, the mass media and also related ministries, such as
Ministry of Industry of Indonesia but also from the Indonesian House of
Representatives. The Indonesian public also urged the negotiators of the FTAs to review
or evaluate the implementation of the FTAs and even to withdrawn Indonesia
participation in the agreement. The Indonesian public requested the negotiators to
consider the domestic situation in Indonesia and hopes that Indonesia participation
could be postpone until Indonesia is considered ready enough to deal with and compete
in the agreement.167
In order to prevent or minimize the concerns raised by the Indonesian public,
the Indonesian government involved all stakeholders, including representatives from the
business associations, the related ministries, and also the academic societies, in the
preparation process before the official negotiations started. Those stakeholders were
being involved in the Joint Study Group in order to receive public view or opinion
before the negotiators start the negotiations of the agreement. By involving the
Indonesian public, the government has taken preemptive measures on reducing public
concerns that might occur in the future. Other than to include representatives from the
Indonesian public in the Joint Study Group, a public consultation and disseminations to
socialize the result of the Joint Study Group. In Indonesia, the public consultation was
held on December 22, 2011 in Jakarta and in February 2012 in Medan, which was
attended by representatives from the business community, the academic society, the
mass media, the Indonesian legislative and the representatives from related ministries.
Other than to increase public awareness and to socialize the upcoming negotiations, the
public consultation and socialization were held to receive information on public
response and opinion in regards with the IKCEPA. The negotiations about the IKCEPA
are also taking into consideration the report of the Joint Study Group, in which it was
stated that the relations between Indonesia and Korea is a complementary relations and
that based on the simulation, the implementation of the IKCEPA is expected to increase
166
Ibid. 167
“ACFTA dan Ancaman Kedaulatan,” Jurnal Sosial Demokrat Vol 8 (3), February-June 2010, 14.
53
welfare and the GDP for both countries. Other than increasing the GDP and welfare, the
IKCEPA is also expected to bring more investment to Indonesia and also increase trade
volume between both countries. Both countries set a target that the trade volume to
reached US$ 50 billion in 2015 and US$ 100 billion in 2020.168
In addition to taking into account the result of the Joint Study Group, the
Indonesian government also sees that the implementation of the IKCEPA could increase
Korean investment in Indonesia. Korean investment that would enter Indonesia after the
implementation of the IKCEPA is expected to reach US$ 50 billion.169
Korean
investment would be allocated in manufacture, infrastructure, electronic, iron and steel,
technology, cellphone manufacture, energy and also automotive sectors.170
By initiating
the IKCEPA, it will support the Korean government and investors interest to further
invest in Indonesia and also their interest to support and invest in Indonesian
development program (Masterplan for Acceleration and Expansion of Indonesia’s
Economic Development or MP3EI) which was declared by the representatives of the
Korean government in the meeting between Indonesian Minister of Economic
Coordination and Korean government representatives during the Korea-Indonesia Jeju
Initiative on October 2012 in Jeju, South Korea.171
With the implementation of this
agreement and the increase of Korean investments in Indonesia that are expected to be
reached, Indonesia hopes that Korea would make Indonesia as its production base for it
manufacture products which would also increase employment, increase the possibility
of transfer technology and would also increase welfare and development of the region
where the investment would take place.172
Other than to increase investment, the other Indonesian interest is to gain
market access for Indonesian goods in Korea. By establishing the IKCEPA, Indonesian
goods would receive preference from the agreement which would stimulate the
168
“Investor Korsel Sangat Membantu Pertumbuhan Ekonomi Indonesia,” President of Republic of Indonesia (website), accessed in 15 February 2013, http://www.presidenri.go.id/index.php/fokus/2012/03/28/7802.html. 169
“RI Bidik Investasi Korsel,” Ministry of Industry of Indonesia (website), accessed in 15 February 2013, http://www.kemenperin.go.id/artikel/4486/RI-Bidik-Investasi-Korsel. 170
“Korea Selatan Diharapkan Berinvestasi US$ 50 milliar,” Ministry of Industry of Indonesia (website), accessed on 15 February 2013, http://www.kemenperin.go.id/artikel/4478/Korea-Selatan-Diharapkan-Berinvestasi-US$-50-Miliar. 171
“RI-Korea Sepakati Kerjasama 8 Proyek Infrastruktur,” Sekretariat Kabinet Republik Indonesia (website), October 13, 2012, accessed in 15 February 2013, http://setkab.go.id/berita-6034-ri-korea-sepakati-kerjasama-8-proyek-infrastruktur.html. 172
Ibid.
54
Indonesian industries to enhance their goods quality and competitiveness, so it would
increase export and trade performance between both countries. The Indonesian
government sees the IKCEPA as one of the means to secure or not losing its potential
market and to increase competitiveness for their exported goods in the Korean market,
since Korea is also actively engaged in free trade agreement, not only in regional free
trade agreement such as the AKFTA, but also in several regional and bilateral free trade
agreements. It was recorded that since the establishment of the Korean FTA roadmap in
2003, Korea has been actively participating in eight free trade agreements that have
been implemented, two are already concluded, eleven free trade agreements that are
currently being negotiated with its key partner countries and also four free trade
agreements that are currently under consideration.173
In addition to increasing investment, maintaining and also gaining market
access, another Indonesian interest concerning the agreement is in the economic
cooperation program in the agreement, which includes capacity building program.
Indonesia hopes that the agreement will facilitate Indonesian products to be able to enter
Korean market. Through the economic cooperation program and also capacity building,
Indonesia also hopes that a mutual recognition and transfer technology could be realized
through this agreement. By initiating a mutual recognition and transfer technology
program, Indonesian goods could be able to meet international standard in general and
Korean standard in particular.174
The Indonesian public concerns and perception of FTAs can not stop the
government to consider and initiate study or negotiation process of new FTAs with
other partner countries nor stopping or pending the implementation of the existing free
trade agreements. However, this perception altered the perception of the Indonesian
government on the form of the FTAs and also the stages or steps in FTAs discussion or
negotiations. In the recent free trade agreement negotiations such as the IKCEPA, the
IACEPA (Indonesia-Australia CEPA), and also the IECEPA (Indonesia-EFTA CEPA),
the Indonesian government prefers to negotiate trade agreements in the form of
Comprehensive Economic Partnership Agreement (CEPA) rather than in the form of
free trade agreements. Through CEPA, a more comprehensive cooperation can be
173
“Bilateral Trade Agreements,” Ministry of Trade, Industry and Economy (website) http://www.mke.go.kr/language/eng/policy/Tpolicies_03.jsp, accessed March 22, 2013. 174
“State of Play Perundingan IKCEPA, 2012-2013,” Directorate of Bilateral Cooperation, Ministry of Trade of Indonesia, March 14, 2013.
55
explored and discussed than the average free trade agreements. The coverage or scope
of cooperation in the CEPA could be done in various sectors and would not be limited
to tariff reduction and elimination in goods and services. The emphasis of the CEPAs
are more in the investment, cooperation and capacity building, which expected to be
able to bring transfer technology, the increase in products standard and mutual
recognition for Indonesian products.175
In addition to changes in the Indonesian government preferences on the form of
the trade agreements, the Indonesian public and the Indonesian government perceptions
also altered the process of negotiation of the CEPA, in which the Indonesian
government takes into consideration and makes necessary measure to minimize the
Indonesian public concern by involving representatives from the public from the
beginning of the process which is the establishment of the Joint Study Group. By
including representatives from the Indonesian public in the Joint Study Group, the result
of the study would cover different aspects and opinions on the costs and benefit, not
only from the government’s point of view but also from the public view. The perception
and concerns also makes the Indonesian government to give preliminary information
through public consultation and seminar about the result of the Joint Study Group to the
Indonesian public, in which in the previous agreements, the socialization or seminar
were held after the negotiations are concluded and the agreement was signed by both
parties.
The perceptions and the concerns of the Indonesian public also changed the
IKCEPA negotiations mechanism. In the previous FTAs or RTAs that have been
implemented or currently under negotiation, the members of the delegations did not
include representatives from business or industries association. The delegations of the
negotiations only consisted representatives from related ministries of both countries.
However, in the case of the IKCEPA, as it could be seen from the terms of reference of
the negotiations, both countries agreed to include representatives from the business or
the industries associations and also experts from academic society as part or member of
delegations.176
The influence of perceptions, history or past experience, particularly
related with the Indonesian public perceptions and concerns of FTAs, could also be seen
175
“Nota Dinas Laporan Public Consultation on the Report of Joint Study Group for Indonsia-Korea Comprehensive Economic Partnership Agreement,” Directorate of Bilateral Cooperation, Ministry of Trade of Indonesia, December 2011 and Das, Op.cit. 176
Terms of Reference of the negotiations of the IKCEPA, Op.cit.
56
from the inclusion of special consideration for the SMEs and mechanism to deal with
the possibility of injuries experienced by industries during the implementation of the
agreement in the terms of reference of the negotiations of the IKCEPA.177
By including
this special consideration and mechanism in the terms of reference, a prevention
mechanism is set up by the negotiation teams of both countries, with the aim to reduce
the negative impact of the implementation of the agreement and to minimize the
possible concerns that might be raised by the public.178
Even though perception of the Indonesian public and Indonesian past
experience on FTAs altered the form of the FTAs into CEPA, the process of the
negotiation, and the members of the delegations, it still could not stop Indonesia to be
engaged in further discussion with its partner countries related to FTAs nor pending or
renegotiate the implementation of the FTAs that have been signed by both parties. As
one of active member of the WTO and in the era of globalization, countries, in this case
Indonesia, could not avoid to be involved in the discussion on free trade agreements
since most of Indonesian partner countries also engaged in RTAs.
177
Ibid.
57
V. Conclusion
As a conclusion of this thesis, based on the previous chapters, it could be seen
that Indonesia participates in regional trade agreements because the multilateral trade
negotiations in the WTO experienced a set back or slow progress in concluding the
negotiation due to the WTO single undertaking principle, in which the differences in the
preference of each countries make it difficult to reach an absolute vote and agreement.
RTAs appear as alternative for countries to strengthen and increase their economic
cooperation and also to pursue trade liberalization and market access that could not be
achieved in multilateral basis. RTAs are expected to give more advantage and
strengthen the economic relation between parties included in the agreements, since the
scope and coverage of the issues to be discussed are more comprehensive than the issue
discussed in multilateral negotiations.
In addition to the slow progress of the WTO negotiations, Indonesia also
participates in regional trade agreements because most of Indonesian neighbors and
potential trade partner countries were engaged in several regional trade agreements,
especially its neighbors in the Asia Pacific region where regional trade agreements have
become more of a norm than a mere economic and trade policy. Since the Asian
financial crisis in 1997, countries in Asia Pacific realized the necessity to increase
economic cooperation and strengthen the relation among themselves in order to prevent
such crisis happened again in the region. Because of this, countries in the Asia Pacific
region are actively promoting or making policy that support economic and trade
cooperation in the form of regional trade agreements. Since most of the countries in
Asia Pacific were participating in several regional trade agreements therefore in order
not to lose their existing market and be able to compete with their competitors and also
receive preferences, Indonesia could not avoid being involved and therefore actively
participates in several regional trade agreements that have been signed, implemented
and also several regional trade agreements that are currently being negotiated with its
partner countries. This also the case with Korea, since Korea is one of Indonesian
important trading partner, in which Korea is Indonesia seventh largest non-oil and gas
export destination and the sixth largest import source, and is engaged in several free
trade agreements, Indonesia agreed with Korean proposal to established negotiation on
the IKCEPA with some requirements, such as establishing Joint Study Groups that
58
consist of representatives from both countries public and conduct socialization or public
consultation of the result of the feasibility study to both countries public.
These requirements proposed by Indonesian government were influenced by
Indonesian public perception based on Indonesian past experience on the
implementation of free trade agreements which did not resulted as expectations, such as
the deficit experienced by Indonesia in several free trade agreements due to the surge of
imported goods from partner countries and the cooperation programs that did not work
as planned or expected. Indonesian public sees free trade agreements as detrimental or
harmful for Indonesian industries, particularly the small and medium industries, because
Indonesian industries are considered not ready to deal with free trade agreements. The
perceived unpreparedness of the Indonesian industries, due to the lack of capital,
technology, infrastructure and also to the bureaucracy complexity were seen as the
causes for the Indonesian industries not to be able to produce low price goods and lack
of capacity and competitiveness needed to compete with low price imported goods that
receive preference from the agreements. Because of this perception, the Indonesian
public raised some concerns and requested to renegotiate the free trade agreements that
have been implemented and reconsidered the new free trade agreements proposal from
Indonesia partner countries. However, this perception and the Indonesian public
concerns could not stop the progress of the implementation of the FTAs nor could
prevent Indonesia to consider or accept its partner countries proposal to initiate new
FTAs.
Even though this perception has not been able to stop the progress of the FTAs,
this perception changed the perception of the Indonesian government on the form of the
FTAs. In recent years, the Indonesian government agreed to consider its partner
countries proposal to initiate negotiation on new trade agreements with the condition
that the agreement should be in the form of comprehensive economic partnership
agreement or CEPA. A CEPA is expected to be a high level agreement that not only
cover tariff reduction and liberalization in trade in goods and services but will also
cover broader scope of sector, with the emphasis in cooperation, including capacity
building, transfer technology and even mutual recognition. By initiating this agreement
it is expected to bring mutual benefit for both countries and would increase
competitiveness and also Indonesian industries capacity.
59
The perceptions and concerns of the Indonesian public also caused the change
of mechanism in the negotiations of the IKCEPA. One of the changes is the
involvement of representatives of the Indonesian public in the negotiations of the
IKCEPA. In the negotiations of the IKCEPA, the representatives of the Indonesian
public are included as members of delegations of the negotiations. The involvement of
representatives from the Indonesian public, particularly from the Indonesian business
and industries associations, as members of delegations in FTAs negotiations is not
common in FTAs negotiations and IKCEPA is the first FTAs negotiation that
implements this mechanism. In addition to the involvement of the representatives of the
Indonesian public in the negotiations, the special consideration for the SMEs and the
precautious mechanism for the possibility of injuries experienced by the industries was
also influenced by the perception and concerns of the Indonesian public. As for this
mechanism and special consideration, it is also the first time to be incorporated in FTAs
negotiations.
Other than being shaped or influenced by perception of the Indonesian public
and the Indonesian government on FTAs, in the case of the IKCEPA, the Indonesian
government interests also influenced the decision to initiate the negotiation of the
IKCEPA. Taking into account the trade performance and trade complementary between
both countries which did not experienced deficit and is increasing each year, the amount
of Korean investment that is already placed in Indonesia and also the investment that
isexpected to be received from the agreement, and also taking into account the increase
of welfare and GDP that have been calculated by the Joint Study Group and expected to
be obtained from the implementation of the agreement, the Indonesian government
agreed to continue the feasibility study and initiate the negotiation of the IKCEPA.
The Indonesian government interests on the IKCEPA are to increase trade,
secure and gained more market access and also to increase investment. These interests
were based on calculation on the material facts that were used by the government to
determine Indonesian position on the IKCEPA and by the Joint Study Group estimation
of costs and benefit of the agreement. Other than the interest to increase trade,
investment and market access, the Indonesian government also sees the IKCEPA as one
of opportunity to increase Indonesian industries’ capacity and competitiveness by
encouraging a cooperation program which includes capacity building and the possibility
of mutual recognition program in the agreement since Korea is one of the countries that
60
is considered to be more economically developed and has the technology and
capabilities that could help Indonesian industries to be become more developed.
It could be seen that interest, history, domestic and international situation, idea
and perception influenced and shaped on how Indonesian public and also government
see free trade agreements and how the implementation of an agreement will influence
Indonesia. It also influenced the Indonesian government’s choice of strategies on taking
decision to continue the negotiation of the IKCEPA and determining position on the
negotiation. These factors could help the Indonesian government, particularly the
negotiators of the agreement, to evaluate and correct the deficiencies in the earlier
agreements and improve the upcoming agreements that would be negotiated. Because of
these factors, the upcoming negotiations process of RTAs and the form of the RTAs are
shaped by the preferences or considerations based on those factors. Moreovers, these
factors could also support an improvement in Indonesian domestic situation, particularly
the business, the industry and the investment climate, such as Indonesian logistics,
bureaucracy, policy and assistance from the Indonesian government for industries and
businesses.
61
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