Linda Yulisman, Jakarta – Entering the fifth year of its implementation, the Indonesia-Japan Economic Partnership Agreement (IJ-EPA) has yet to bring significant improvements to trade relations between both countries despite surging trade and investment, a study shows.
Indonesia has not reaped the maximum benefits from the partnership as it cannot take full advantage from increased market access due to a lack of product diversification, the study by the Centre for Strategic and International Studies (CSIS) suggests.
"Sectors whose products dominate our exports remain the same as before the IJ-EPA took effect, with other sectors still underdeveloped," said Deni Friawan, a researcher at the center on Monday in Jakarta.
Automotive, electronics, iron and steel, and chemical industries are among the sectors that have long enjoyed excellent access to the world's third-largest economy, and mostly obtained a zero percent tariff under a user-specific duty free scheme enabled by the agreement, according to the study.
Meanwhile, garment and textile, footwear, food processing, pulp and paper and fisheries are the key sectors that have not seen a marked upward trend in shipments to the Japanese market. They also received a tariff cut, although still lower than those with a duty free arrangement.
Both parties will evaluate the progress in the implementation of the agreement in July this year, five year after it came into force.
The study also reveals that while exports to Japan, particularly manufactured goods, bounced back in the period stretching from 2009 to 2011 to the level before the global economic crisis in 2008, its growth was outpaced by the rate of imports.
Exports of manufactured products expanded by 78.08 percent to US$12.58 billion in 2011 from 2009, but imports perked up by 97.07 percent to $19.23 billion in a similar period.
Compared to other Southeast Asian countries, Indonesia suffered the lowest decline in export intensity to Japan, and at the same time, it saw the highest rise in import intensity from Japan, the study says.
"We lost our competitive edge due to expensive production costs caused by a variety of reasons, including high logistics costs, workers' wages, poor infrastructure and illegal fees," Deni explained, adding that the problems would be priority issues to address, in addition to other barriers in the Japanese market, such as stringent environmental and food safety standards.
Separately, the Industry Ministry's director general for international trade cooperation, Agus Tjahajana, expressed his dissatisfaction over the development of Indonesia's trade relations with Japan, saying that Indonesia's export structure was still dominated by raw materials instead of manufactured goods.
"We do hope our exports of value-added goods will climb in the future to solve the current trade imbalance, and Japan should help us work on this," said Agus.
Indonesia shipped mainly natural gas, petroleum and coal to Japan while buying mostly high-tech automotive components, heavy equipment and machinery, industry statistics show.