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.