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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

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Page 1: Indonesia-Korea Comprehensive Economic Partnership Agreement

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

Page 2: Indonesia-Korea Comprehensive Economic Partnership Agreement

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

Page 3: Indonesia-Korea Comprehensive Economic Partnership Agreement

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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.

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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.

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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

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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

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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

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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

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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.

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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.

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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.

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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.

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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.

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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).

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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.

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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.

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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.

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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).

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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.

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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.

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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.

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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)/.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

Page 62: Indonesia-Korea Comprehensive Economic Partnership Agreement

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.

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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.

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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

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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.

Page 66: Indonesia-Korea Comprehensive Economic Partnership Agreement

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

Page 67: Indonesia-Korea Comprehensive Economic Partnership Agreement

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.

Page 68: Indonesia-Korea Comprehensive Economic Partnership Agreement

61

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