Japan urged to invest in RI manufacturing

Japan urged to invest in RI manufacturing

Urip Hudiono, The Jakarta Post, Jakarta

Indonesia is seeking an increase in Japanese investment in the
manufacturing sector through an Economic Partnership Agreement
(EPA) the two countries are currently discussing, to further
bolster Indonesian trade to Japan, a minister says.

Preparatory talks between Indonesia and Japan towards
negotiations on the EPA -- equal in essence to a free trade
agreement (FTA) -- are nearing completion.

"One of our main considerations in establishing the EPA is how
we can benefit from it in terms of a rise in investment from
Japan to Indonesia," Minister of Trade Mari E. Pangestu said on
Tuesday after opening a seminar on the challenges and
opportunities of the Indonesia-Japan EPA.

"This is because investment is key to better trade relations
-- if investment increases, then trade will usually increase as
well."

Mari explained that although Indonesia currently has a sound
trade relationship with Japan, Indonesia's exports to the country
still consist mainly of oil, gas and other mining products.

"Our exports of manufactured goods are still not as much as we
are expecting," she said.

More Japanese foreign direct investment (FDI) in manufacturing
industries, Mari said, is therefore essential to increase
production capacity, as well as exports to Japan and its
production network in the region.

"We expect that the EPA, focusing on investment, can realize
this, so our exports of manufactured products can also increase,"
she said.

Trade data shows that Indonesia's total exports to Japan
reached US$15.96 billion last year, up 17.34 percent from 2003.
Imports in 2004, meanwhile, also increased by 43.83 percent to
$6.08 billion.

Speaking during the seminar, Japan International Cooperation
Agency (JICA) economist Shujiro Urata from Waseda University
suggested that the planned EPA should also include broader
economic cooperation -- apart from establishing and facilitating
bilateral trade alone.

"The EPA should also include cooperation in developing small
and medium sized enterprises and human resources, as well as
promoting science and technology transfer," he said.

In terms of FDI, however, Urata said that Indonesia still has
a lot of catching up to do to improve its investment climate.

Citing a survey from the Japan Bank for International
Cooperation (JBIC), Urata explained that many Japanese investors
are still concerned about Indonesia's social and political
stability.

Indonesia is also facing tougher competition from other FDI
destinations, with investors concerned with the lack of skilled
personnel, unstable prices and exchange rates, transparency in
the tax and legal system, and underdeveloped infrastructure.

Meanwhile, concerning the progress of the EPA plan itself,
Mari explained that Indonesia and Japan are wrapping up their
preparatory talks and preliminary studies, and expect to soon
enter formal negotiations.

Indonesia and Japan held a marathon of preparatory talks for
the EPA -- in Jakarta in February, in Bali in March and in Tokyo
this month.