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THE JAPANESE-INDONESIA ECONOMIC PARTNERSHIP -- "JIEPA"


July 24, 2008 Source: www.AsiaEcon.org The Japan-Indonesia Economic Partnership Agreement ("JIEPA") is a good deal all around. The agreement highlights a longstanding economic relationship between Japan and Indonesia.


July 24, 2008

Source:  www.AsiaEcon.org

The Japan-Indonesia Economic Partnership Agreement (“JIEPA”) is a good deal all around. The agreement highlights a longstanding economic relationship between Japan and Indonesia. More than that, it symbolizes Japan’s investment in the social and economic development of Indonesia, a move that benefits not only Indonesia, but could also prove to have numerous benefits for Japan in the future.

The July 1, 2008 JIEPA came into effect the same year that Japan and Indonesia celebrate their 50th anniversary of bilateral diplomatic ties. The two countries began formal discussions on the JIEPA two years earlier, and the pact was sealed on August 20, 2007 under the leadership of Japanese Prime Minister Abe Shinzo and Indonesian President Susilo Bambang Yudhoyono. While this is Indonesia’s first Economic Partnership Agreement, Japan has had similar agreements with other countries in Southeast Asia which have proven successful.

Both Japan and Indonesia have benefited tremendously from one another in the past 50 years. Between 1967 and 1999, Indonesia received 3,432 billion yen in Japanese Official Development Assistance (ODA) loans. Japan gave more in ODA loans to Indonesia than any other country in 2001 and only more to China in 2002. Receiving the ODA loans have assisted Indonesia in developing universities, railways, and irrigation systems. Furthermore, Japan is Indonesia’s largest creditor with loans totaling $20.3 billion.

Japan has benefited in perhaps even greater ways from the economic ties between the two nations. Currently, around 20% of Indonesia’s total exports go to Japan. These exports are mostly resource-based items like oil, gas, coal, timber, and metals. On the other hand, Japan exports mostly industrial goods and machine inputs to Indonesia. This difference in types of exports is more advantageous to Japan because their industrial goods and machine inputs command a much higher price than the resource-based materials. Economic ties with Indonesia have ensured Japan a steady supply of natural resources. In the past thirty years, almost 70% of Indonesia’s fuel, mineral, and metal exports have landed on Japanese shores.

The implementation of the JIEPA is to designed to strengthen existing economic ties between Japan and Indonesia. However, the agreement brings about certain changes that may prove to be more profitable to Japan than to Indonesia, especially when taking into consideration the future exchanges that these countries will have with one another. Certainly, the reduction in tariffs is a win-win situation because it will open additional channels for trade. Tariff-free trade between Japan and Indonesia will reach 92% (by value). Indonesia will work to eliminate virtually all tariffs on Japanese products and has already abolished 58% of them upon the implementation of the JIEPA. Japan will eliminate more than 90% of its tariffs on Indonesian goods, 80% of which were abolished on July 1. These tariff reductions are expected to stimulate more trade between the two countries.

One major benefit for Japan is a guaranteed flow of energy imports. Japan’s New National Energy Strategy, implemented in May 2006, aims at creating stronger relationships withresource-rich countries. Indonesia is just the kind of country that Japan needs to solidify relations with if it hopes to achieve the goals put forth by the New National Energy Strategy.

While Japan gained the energy security it desired, Indonesia stands to make several huge economic strides under the JIEPA. The agreement will allow Indonesian textile makers to export a wider variety of goods, including higher value items like clothing, to Japan. Indonesia’s auto industry will likewise reap significant benefits. Firms can now import parts and materials from Japan at lower costs. The Indonesian auto industry hopes this will make Indonesia more competitive as an automobile production center.

The JIEPA will also increase Indonesia’s ability to send workers to Japan. Indonesia will send 400 nurses and 600 caregivers over the next two years. Nurses will be given special three-year visas and caregivers will be given four-year visas. These medical workers will be educated in Japan in order to pass Japan’s national nursing and care workers exams. Those who pass the exam will be allowed to continue to work in the country.

The agreement will also further develop Indonesia’s supporting industry. Japan will send experts in mold and die, a small piece of semiconducting material, to train Indonesian workers. In addition, the Japan External Trade Organization (JETRO) will work with both the Indonesian and Japanese governments to develop Indonesia’s human resources in the auto parts industry. Japanese experts will travel to Indonesia to deliver lectures and give council to Indonesian workers. These improvements will create jobs and expand SMEs across Indonesia, thus attracting international firms to invest in Indonesian companies.

On the surface, it appears that Indonesia and Japan both gained significant economic benefits from the implementation of the JIEPA, and it would be a toss-up to determine which country got the better deal. Japan has secured the energy imports it desired and Indonesia has secured Japan’s commitment to capacity-building in crucial areas of the Indonesian economy. But besides what is outlined in the JIEPA, Japan stands to gain future benefits as Indonesia’s economy continues to blossom. Keeping strong ties with Indonesia not only guarantees Japan a consistent supply of natural resources, but may create potential for additional resources in the future. Japan has already developed specific areas of Indonesia to secure future benefits. For example, Indonesia’s two major liquefied natural gas (LNG) facilities were built under supply contracts to Japan. Consequently, Indonesia has been Japan’s largest supplier of natural gas for over thirty years.

To secure these imports of natural gas and numerous other benefits, it is in Japan’s best interest to continue to assist Indonesia’s economic and social development. As the fourth most populous country in the world, Indonesia has tremendous potential for future growth. Keeping close economic ties with the country may prove to be a wise investment for Japan that will yield increasingly more benefit as Indonesia continues to develop. Thus, what is good for Indonesia is good for Japan. Any amount of resources that Japan invests in Indonesia is an investment in which both parties gain.

Source: www.AsiaEcon.org

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Source: www.asiaecon.org |


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