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Understanding the Indonesia-Korea Comprehensive Economic Partnership Agreement (IK-CEPA)

The Indonesia-Korea Comprehensive Economic Partnership Agreement (IK-CEPA) is a bilateral trade agreement between Indonesia and the Republic of Korea. The agreement was launched in 2012 by the 6th President of the Republic of Indonesia, President Susilo Bambang Yudhoyono and President Lee Myung Bak. After seven rounds of negotiations, negotiations were paused in 2014 and resumed on February 19, 2019. The agreement was signed on December 18, 2020 in Seoul, South Korea, and officially implemented on January 2, 2023.

source: biro humas kemendag

Program implemented under the IK-CEPA:

One of the programs implemented under the Indonesia-Korea Comprehensive Economic Partnership Agreement (IK-CEPA) is the opening of more than 100 service sub-sectors with foreign ownership ranging from 51% to 100%. This initiative allows for increased foreign investment in various service sectors, such as transportation, construction, and business services. The liberalization of services under IK-CEPA is expected to boost trade in services and enhance economic cooperation between Indonesia and South Korea.

Benefits of IK-CEPA

Market Access: IK-CEPA aims to increase market access for Indonesian goods to South Korea beyond what is offered by the ASEAN-Korea Free Trade Agreement.

Economic Cooperation: The agreement covers cooperation in various sectors such as industry, agriculture, fisheries, forestry, trade facilitation rules and procedures, individual movement of people, and other areas of cooperation.

Tariff Elimination: The agreement involves the elimination of tariffs on a significant number of tariff lines for both countries. Approximately 92% of Korean tariff lines will have tariffs eliminated immediately upon implementation, with an additional 3.4% phased out over 3-20 years.

Economic Impact: The elimination of tariffs has the potential to increase welfare by USD 21.9 billion in the fifth year after implementation, boost economic growth by 2.43%, increase exports by 19.8%, and imports by 13.8%.

Service Sector Opening: More than 100 sub-sectors in services with foreign ownership ranging from 51% to 100% are opened up under IK-CEPA, potentially increasing the trade balance in services by USD 792 million.

Investment: South Korean investment in Indonesia is expected to rise to USD 3.63 billion by the fifth year of IK-CEPA implementation, with an average growth rate of 15.59%. Key sectors for potential investment include automotive, chemicals, metals, energy, technology, and infrastructure.

Implementation and Future Prospects

The successful ratification of IKCEPA signifies a deepening economic partnership between Indonesia and South Korea with a focus on trade and investment cooperation. The two countries have also ratified the Regional Comprehensive Economic Partnership (RCEP) Agreement further enhancing their economic ties.

The relationship between Indonesia and South Korea has been elevated to a Special Strategic Partnership with collaborations in various fields such as diplomacy, defense, economy, culture, and people-to-people relations.

Joint Committee on Economic Cooperation (JCEC) meetings have been instrumental in discussing and agreeing on cooperation across multiple sectors reflected in working groups focusing on investment and trade, industry, energy and mineral resources, as well as e-commerce.

In terms of bilateral economic relations between Indonesia and Korea, total trade reached USD18.4 billion in 2021 showing a significant increase compared to previous years. South Korea also stands as the seventh-largest investor in Indonesia with total Foreign Direct Investment (FDI) amounting to around USD1.6 billion in 2021.

source: biro humas kemendag

The Indonesia-Korea Comprehensive Economic Partnership Agreement (IK-CEPA) provides great benefits to both countries through various aspects. One of the main benefits of IK-CEPA is increased market access between Indonesia and South Korea. In addition, the economic cooperation established through IK-CEPA also covers various economic sectors. This cooperation is not only limited to trade in goods, but also includes investment, services, technology, and innovation.

This increase in investment will also have a positive impact on the volume of trade between the two countries. With a clear framework of cooperation through IK-CEPA, businesses in Indonesia and South Korea will feel more confident to conduct cross-border trade.

Overall, IK-CEPA not only provides economic benefits for Indonesia and South Korea, but also strengthens the relationship between the two countries in terms of trade and investment. With this agreement, it is expected that cooperation between the two countries will increase and have a positive impact on economic growth and the welfare of the people in both countries.

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