Posted on 16 Jul 2012
Indonesia and South Korea have begun the first round of negotiations for a free trade and investment cooperation agreement on Thursday, with a target to boost bilateral trade to US$50 billion by 2015.
The negotiations, which started in Thursday, are a follow up to a set of recommendations proposed by a joint Korea-Indonesia study group in December.
The first round of negotiations focused on the scope of trade in goods, services and rules of origin, in what will be known as the Indonesia-Korea Comprehensive Economic Partnership Agreement (IK-CEPA), Indonesia’s chief negotiator, Sahala Lumban Gaol, said after the meeting in Jakarta.
Sahala said delegates approved the establishment of seven working groups to deal with the technicalities of CEPA, such as working groups on goods, services, investment, rules of origin, customs and trade facilitation.
Anastasius Riyanto, a member of the delegation who represents the Industry Ministry, said that to reap the maximum benefits of the partnership, Indonesia needed significant investment from Korea, in addition to capacity building and cooperation to enhance the competitiveness of the domestic industry. “Investment is particularly crucial, because in terms of trade, the impact of the partnership will not be that high,” he said.
With this agreement, Indonesia expects its partnership with Korea will move beyond the ASEAN-Korea free trade agreement (FTA), Riyanto added.
ASEAN and Korea signed an FTA in August 2006, which became effective through gradual tariff reductions beginning in June 2007.
Indonesia’s trade with Korea has grown significantly since the implementation of the agreement, according to statistics from the Trade Ministry.
In 2007, bilateral trade totaled $10.78 billion, and jumped to $29.39 billion in 2011. Indonesia exported $16.38 billion of commodities and goods to Korea, while its imports stood at $13 billion last year.
Kim Young-moo, Korea’s chief negotiator, said that Korea expected to move on the next round of negotiations and finalize the CEPA as soon as possible before the ASEAN-Korea FTA reducedall tariffs in the sensitive and highly sensitive tracks by 2016. “The CEPA will liberalize more items in the sensitive and highly sensitive tracks, so as we get closer to 2016, this will be meaningless,” he said.
To boost investment, as expected by Indonesian counterparts, both parties would draft a better investment scheme compared to the ASEAN-Korea FTA, which would provide higher protection for investment, Kim said.
Last year, investment from Korean companies topped $1.2 billion, representing 6.06 percent of total foreign direct investment of $19.8 billion — making Korea the fifth largest investor in Indonesia.
In the first quarter of this year, Korean investors injected around $500 million in Indonesia, making the country the third-largest investor in Indonesia this year, after Singapore and Japan.
Among the realized projects are a steel plant in Cilegon, Banten, built jointly by Posco Steel Corp., the world’s third-largest steel producer, and state-owned steel producer PT Krakatau Steel, with an anticipated investment of $6 billion, and a tire plant in Lippo Cikarang in Bekasi, West Java, built by Hankook, the world’s seventh-largest tire maker, at a cost of $353 million.
