Indonesia-Taiwan Economic Cooperation Arrangement

Center for Political Studies, Indonesian Institute of Science (P2P LIPI) and Chung Hua Institution for Economic Research (CIER) have been undertaking joint study on Indonesia-Taiwan economic and trade relations since 2011. from the first year of the joint study, the research teams have explored several potential sectors that Indonesia and Taiwan could develop in a more beneficial economic framework, such and agriculture, SMEs, human resource development, electronics and automotive. It is common that in any economic transaction, each party will try to get as much as possible benefits. Although, in reality, different conditions will produce different advantages. This situation is also reflected in the case of Indonesia and Taiwan economic and trade relations, in which Taiwan seems to gain more benefits and opportunities rather than Indonesia, because of its high economic performance, advanced technology, and good quality of human resources.

P2P LIPI continues the project in 2012 under the focus on “Feasibility study of ECA between Indonesia and Taiwan” by using two methodologies (or tools). First, Global Trade Analysis Project (GTAP) is to analyze the impact of ECA in the general equilibrium and the aggregated level. Second, Single Market Partial Equilibrium Simulation Tool (SMART) is to analyze impact the ECA in the partial equilibrium and disaggregated level. The Feasibility study covers two mean aspects: (1) potential impacts of ECA Indonesia and Taiwan’s trade relations. (2) potential regulatory cooperation between the two economics entities under the scheme of ECA.

To deal with the asymmetric positions between Indonesia and Taiwan, government, civil society and private sector must have the same knowledge and understanding on how to reduce the gaps. This study has also shown a fruitful economic and trade relations between Indonesia Taiwan, although there are some conditions that need to be considered. First, since Indonesia has no diplomatic ties with Taiwan, the process of ECA will be much more difficult. The preparational stage will be the most important part to negotiate any policy an single commodity in details, including environmental factor. This is primarily to reduce negative impact from Taiwan’s FDI in Indonesia. Indonesia must pay more attention in the domestic priorities (trade and investment) that must be negotiated carefully in the context of ECA. This has to be the focus of the Indonesia’s government policies. Economic growth has to be parallel with the distribution of income.

Second, Indonesia generally earns minimum benefits from the ongoing FTAs. Therefore, ECA has to be constructed for producing more economic advantages for Indonesia. The most possible scenario under ECA is be strengthening the “Private to Private” (P to P) or “Business to Business” (B to B) ties. The political reality remains that China has taken different political treatment to Taiwan. In the regional context, ASEAN also respects to the One China Policy, although Taiwan has its own interpretation about the policy. In the context of ECFA (Economic Cooperation Framework Agreement), China and Taiwan, have different interpretations about ECFA.