IK-CEPA is an abbreviation for the Indonesia-Korea Comprehensive Economic Partnership Agreement, namely a bilateral free trade agreement between Indonesia and South Korea that covers the areas of trade in goods, services, investment, economics, law, and institutions. IK-CEPA aims to improve economic relations and strategic partnerships between the two countries, thereby benefiting both parties in terms of market access, investment, and cooperation.
The history of IK-CEPA began in 2012, when President Susilo Bambang Yudhoyono and President Lee Myung-bak initiated IK-CEPA negotiations on the sidelines of the G20 Summit in Los Cabos, Mexico. The reason for these negotiations is the possibility of comprehensive economic cooperation between Indonesia and South Korea, Indonesia's seventh-largest trading partner and fourth-largest foreign investor. Furthermore, these negotiations were also driven by Indonesia's desire to increase competitiveness and diversify exports to South Korea, which are still dominated by raw materials such as coal, rubber, and palm oil.
Â
IK-CEPA negotiations lasted for seven rounds until 2014 but then stopped temporarily due to differences in views and interests between the two countries regarding sensitive issues such as agriculture, industry, and services. These negotiations finally resumed in 2019 after a high-level political agreement between President Joko Widodo and President Moon Jae-in in Seoul, South Korea. The two leaders expressed their commitment to completing the IK-CEPA negotiations as soon as possible and implementing them in 2023.
After going through several rounds of intensive negotiations, Indonesia and South Korea finally succeeded in signing IK-CEPA on December 18, 2020, in Seoul, South Korea. This signing was carried out by the Minister of Trade, Agus Suparmanto, and the Minister of Trade, Industry, and Energy of South Korea, Sung Yun-mo. This signing was also witnessed by Foreign Minister Retno Marsudi and South Korean Foreign Minister Kang Kyung-wha via video conference. The signing of IK-CEPA is a historical milestone in bilateral relations between Indonesia and South Korea, marking 50 years of diplomatic relations between the two countries.
IK-CEPA was officially implemented on January 1, 2023, after receiving approval from the parliaments of both countries. The implementation of IK-CEPA is expected to have a positive impact on the economy and welfare of both countries, especially considering the challenges of the ongoing COVID-19 pandemic. Through IK-CEPA, Indonesia and Korea agreed to eliminate 92% of Indonesian import duties and 95.5% of Korean import duties within five years. Indonesian products that have good market access to South Korea include bicycles, motorbikes, car accessories, processed fish products, snake fruit, and textile products such as socks. In addition, IK-CEPA will open more than 100 service subsectors with foreign ownership from 51% to 100%, expand investment opportunities and economic cooperation in the fields of industry, agriculture, fisheries, and forestry, as well as improve trade rules and facilitate trade. Process., passenger transportation, etc. The two countries continue to strive to strengthen cooperation in various fields, including the economic sector. Especially in the new era, economic development continues to grow, including the presence of electric vehicles. The existence of electric cars is certainly a hot topic in the automotive industry today. In the end, the two countries agreed to work together to build an electric vehicle battery factory in Karawang, Indonesia. With Indonesia's wealth of natural resources and South Korea's technological advances, the two countries are seeking to become a global supply chain.
With the existence of IK-CEPA, Indonesia and South Korea hope to increase their bilateral trade volume, which in 2020 reached USD 12.9 billion, with a deficit of USD 3.5 billion for Indonesia. IK-CEPA is also expected to increase South Korean investment in Indonesia, which in 2020 will reach USD 1.8 billion, with the automotive, chemical, metal, energy, technology, and infrastructure sectors as potential sectors. Apart from that, IK-CEPA is also expected to increase the capacity and quality of Indonesia's human resources through the economic cooperation programs agreed upon in the agreement.
Meanwhile, in 2021, the total trade between the two countries was recorded at US$ 18.41 billion. In this period, Indonesia's exports to South Korea were recorded at US$ 8.98 billion, while Indonesia's imports from South Korea were recorded at US$ 9.43 billion. In the January-October 2022 period, total trade between Indonesia and South Korea was recorded at US$ 20.6 billion, up 40.36 percent from the same period the previous year, which was recorded at US$ 14.6 billion. In this period, Indonesia's exports to South Korea were recorded at US$ 10.6 billion, while imports from South Korea were recorded at US$ 9.9 billion, providing a surplus for Indonesia of US$ 712.3 million.
This agreement aims to strengthen economic relations between the two countries, promote trade and investment, and increase cooperation between Indonesia and South Korea as a whole. This agreement covers various fields, and the two countries will also form a joint committee to review and resolve issues related to trade in goods, with coverage including:
1. Trade in Goods
Under IK-CEPA, Indonesia and South Korea agreed to eliminate tariffs on a wide range of goods, providing greater access to each other's markets.
2. Trade in Services
Both countries have agreed to liberalize their respective markets by reducing or eliminating barriers to entry, such as licensing requirements, quotas, and other regulations.
3. Investment
The Agreement also includes provisions regarding the protection of investors and their investments, dispute resolution, and promotion of responsible business practices.
4. Intellectual Property
Provisions regarding the protection and enforcement of intellectual property rights, including trademarks, patents, and copyrights. Both countries have committed to ensuring that their laws and regulations comply with international standards.
5. Electronic Trading
Provisions aimed at promoting electronic commerce between the two countries. This includes measures to facilitate cross-border e-commerce transactions, such as electronic authentication, data protection, and consumer protection.
6. Dispute Resolution
Provisions for resolving disputes between the two countries. This includes a joint committee to resolve disputes regarding the interpretation and implementation of the treaty, as well as provisions for resolving disputes between investors and states.
Implementation of IK-CEPA
Implementation of this agreement will increase trade traffic between the two countries. In order to support this cooperation, in this agreement, Korea will liberalize 95.5% of its total 12,232 tariff lines, while Indonesia will liberalize 92% of its total 10,813 tariff lines. Apart from that, 92% of tariff posts in Korea will be eliminated to 0 percent since the entry into force (EIF), while in Indonesia, 86% of tariff posts will be eliminated. In the future, 3.4% of tariff posts in Korea and 5.6% in Indonesia will each be eliminated gradually over the next 3-20 years. It is estimated that in the next 5 years, this collaboration can provide the following:
* An increase in welfare of up to USD 21.9 billion.
* Economic growth of 2.4%.
* An increase in exports of 19.8%.
With the implementation of IK-CEPA on January 1, 2023, business actors can take advantage of the comprehensive coverage of IK-CEPA, such as eliminating import duties on trade in goods, increasing opportunities for trade in services, increasing investment opportunities, as well as increasing economic cooperation programs and human resource development.
I am Khanatul Ma'rufa, a student in the International Relations program at the University of Yogyakarta (Accreditation B), class of 2022. I chose to study International Relations due to my interest in learning about international political issues, international trade issues, and international economic issues. My favorite lecturer is Mr. Adi Wibawa, S.IP, MA. Starting next semester, I plan to specialize in Business Diplomacy.
