Will Downstream Sector Benefit from IK-CEPA? Gov't Think So

TheIndonesia.id - Indonesian authorities shared the optimism that the recently ratified Indonesia-Korea Comprehensive Economic Partnership Agreement (IK-CEPA) will back domestic industries, including the downstream sector, and fuel the performance of domestic commodities in the enormously potential South Korean market.

Speaking at the Indonesian Next Generation Journalist Network on Korea workshop initiated by the Foreign Policy Community of Indonesia (FPCI) and Korea Foundation, director for national export development at the Ministry of Trade Ni Made Ayu Marthini said, generally, the bilateral trade agreement will increase Indonesia’s share in the Korean market.

“Korea is Indonesia’s paramount partner,” Marthini said. “[However] Indonesia is still lagging behind Vietnam, Malaysia, and Singapore as the origin of imported products in Korea.”

On August 30, members of the House of Representatives (DPR) agreed to ratify the IK-CEPA. It has yet to be implemented, but the agreement stipulates that South Korea will eliminate 95.54 percent tariff posts for the import of Indonesian products while Indonesia eliminates 92.06 percent tariff posts for imported South Korean products.

Impacts of IK-CEPA to Indonesia’s Raw Materials

Aside from all the razzmatazz around the agreement and its ratification, it is worth knowing what impacts IK-CEPA will bring to Indonesia’s raw materials.

Based on data from the Ministry, among the top five of Indonesia’s export commodities is coal, which is also still imported to South Korea. If the Indonesian government is desperate to increase its export figure to South Korea, it begs the question of whether IK-CEPA will become a countermove to another grand plan of encouraging downstream sector and slowly (but surely) put an end to the export of raw materials.

Asked about this, Marthini said the Ministry envisions IK-CEPA to, in the future, be the accelerator that will support downstream sector in Indonesia. And in particular, she cited the development of electric vehicles as an example.

“The Indonesian government’s policy is already very clear. Nothing wrong, of course, [with] export[ing] our raw materials and resources. But we have to know that, after a while, we are ready to come up with end or intermediate products,” she explained, adding that the country will have to do it step by step through research and development as well as investment, among many things.

“With [the agreement with] Korea, one day, we also would like the Indonesian industry to also become big in electric vehicle industry. It can happen, and it already started. If I can mention names, Hyundai already have a facility here,” Marthini said, mentioning the new plant of Hyundai Motor Group in Cikarang, West Java, which has an initial production capacity of 150,000 units. It has also been confirmed that Hyundai is planning to further invest US$1.55 billion to the plant, and the production capacity is due to increase to 250,000 units.

Marthini said it is not impossible that, little by little, the production of electric cars will move entirely to Indonesia and support downstream processing of Indonesia’s raw materials.

“Maybe CBU [completely built-up] first, and then the battery, and so on...” she said. “Technology transfer happens, the know-how, and the skills. One day, without you knowing, boom, Indonesia can be a powerhouse for electric car. And it is possible with collaboration with our trading partners, such as Korea.”

Indonesian President Joko Widodo has repeatedly made it known that his cabinet is aiming towards the end of raw material export and is pushing for more value-added exports.

At the start of this year, for example, Widodo ordered his cabinet to push for timely and immediate realization of downstream projects, including for coal.

“There shouldn’t be any postponements, and we expect that once we complete [the project] here, we can immediately start at other locations,” he said on January 24, during a groundbreaking of a downstream facility in Muara Enim, South Sumatra, that will turn coal into dimethyl ether (DME).

Such downstream projects are expected to create more job opportunities and reduce Indonesia’s dependency on imported products.

According to the President, investment on one downstream project can create up to 14,000 new jobs, and he criticized state officials who still prefer to import products for domestic consumption.

“Some are very comfortable with import. It has become a routine to import, import, and import, without considering that it actually creates loss to the country and the public due to lack of new job opportunities,” the former Jakarta mayor said.

The Ministry of Trade has got the memo, and Marthini expressed the optimism that Indonesia is on the right track to realize the vision.

“Insya Allah, but we need to work on it, of course. And it cannot be instant. It has to be strategized, and I think we’re doing it now – with the right policies on industry, investment, and trade,” she concluded.