Jakarta, Seoul forge ahead with FTA talks

Both governments have targeted a successful conclusion to the talks by the end of this year.

Trade Ministry director general for international trade cooperation, Iman Pambagyo, said representatives from both countries would meet for the fourth round of talks next week in Bali.

“I am optimistic that [Cepa] is still on track and, basically, we top up commitments we have already made in the Asean and Korea free trade agreement,” he told reporters on Monday.

The two countries kicked off talks for the free trade pact in July last year, setting foundations for agreements covering goods, services and investment.

“For Indonesia, a successful agreement by year-end would allow Southeast Asia’s biggest economy to enjoy maximum benefits, considering that by 2016 the commitment to tariff reduction under the Asean-Korea [pact] will be complete,” Iman said.

“As Korea is actively spreading its wings worldwide, it will be good for us if we can team up with the country and benefit from its advancement across the globe,” he said.

Bilateral trade between Indonesia and South Korea stood at US$27.02 billion (Bt840.2 billion) last year, down by 8.06 per cent from 2011, as exports declined by 8.18 per cent to $15.05 billion and imports dropped by 7.9 per cent to $11.97 billion.

In recent years, Korean firms have been massively expanding in Indonesia, led by the world’s third-largest steel producer Posco. 

Last year, its direct investment reached a historic high of $1.95 billion in 421 projects.

Indonesia expects the new trade pact to boost two-way trade considerably, while also helping to attract more sizeable investment from Korean businesses.

This country aims to garner better market access for, among others, its agriculture products and processed food, while so far South Korea has requested similar access for its automotive sector, Iman said.

The agreement would also enhance Indonesia’s position as an alternative for investment destination for Korean automotive firms, he added.

“Our automotive sector is robustly expanding and potentially, we can serve as a regional production base for Korea,” Iman explained.

At present, Korean automakers benefit from zero import duty for completely-knocked down (CKD) vehicles in the Indonesian market and 20 per cent duty for completely-built units (CBU), made available under the Asean-Korea FTA.

However, tariffs for several types of vehicles, such as with engines of 3,000cc or more, are still very high, and this erodes the competitive edge of Korean automakers against their Japanese rivals, which benefit from lower tariffs under the Indonesia-Japan Economic Partnership Agreement.

Indonesian automobile production is currently dominated to the tune of 90 per cent by Japanese car makers, while the production of Korean firm Hyundai stands at only 0.6 per cent.

The Cepa also offers bright prospects for the Korean shipbuilding industry in Indonesia. South Korea is the world’s largest shipbuilder, with a 43.9 per cent market share of orders in 2011.