How Indonesia Can Benefit from ASEAN-Korea Business Partnership

The emergence of strong and strategic business partnership can be a game-changer In the dynamic landscape of global business. The presence of collaboration will set the stage for remarkable growth and collaboration. 

As we delve into investment opportunities, one particular avenue shines brightly on the horizon. It’s the ASEAN-South Korean Business Partnership. This compelling alliance showcases the immense potential for mutual prosperity and underscores the significance of regional cooperation in today’s interconnected world. 

The ASEAN-Korea Business Partnerships

The bilateral meeting between the Association of Southeast Asian Nations (ASEAN) and South Korea was opened by Indonesia President Joko Widodo on September 6, 2023. The meeting focused on several areas of cooperation, particularly in emerging economies like fintech, the digital economy, and the start-up ecosystem.

In the meeting, South Korea also announced a contribution of USD 30 million (IDR 459 billion). The monetary contribution will enhance capacity in artificial intelligence (AI). Furthermore, there was an addition of USD 16 million (IDR 245 billion) to implement AOIP.

Leaders also addressed concerns about the Korean Peninsula, particularly the launch of missiles and nuclear programs that violate international law and threaten regional security. The ASEAN-Korea Summit has endorsed a single document, the Joint Statement of the 24th ASEAN-Republic of Korea Summit regarding Cooperation on the ASEAN Outlook on the Indo-Pacific (AOIP).

Historical Background of ASEAN and South Korea Collaboration

ASEAN and South Korea are considered middle powers countries. The relationship between the two countries keeps getting stronger amidst a changing global order heavily influenced by major power competition.

ASEAN and South Korea established a sectoral dialogue partnership in 1989, which evolved into a comprehensive one by 1991. These strong ties primarily stem from the two nations having complementary economic resources and sharing strategic interests, supported by their substantial economic integration.

Historically, ASEAN had a limited role in South Korea’s foreign policy because it primarily focused on the West. However, the Asian financial crisis in 1998 prompted a change in approach, leading to increased regional cooperation to avoid future crises.

South Korea began engaging in ASEAN-led initiatives such as ASEAN Plus Three, the East Asia Summit, and the ASEAN Regional Forum. The establishment of the ASEAN Centre in 2009 and the South Korea Mission to ASEAN in 2012 underscored the growing importance of ASEAN in South Korea. 

Why Does ASEAN Matter to South Korea?

With a population of 650 million and a GDP of USD 2.8 trillion, ASEAN occupies a strategically significant position within the Asia-Pacific and Indian Ocean regions. Furthermore, the area always shows consistent growth and future potential in the global economic landscape. 

Consequently, countries like the US, China, Japan, India, Australia, and the EU are enhancing their cooperation with ASEAN. Due to its heavy reliance on China, South Korea recognized the importance of building relationships with ASEAN, particularly after experiencing disputes related to the Terminal High Altitude Area Defense (THAAD) system.

ASEAN has since become South Korea’s important partner, often seen as its alternative to China. In this context, the New Southern Policy Initiative by South Korea was timely and significant as it presented a clear vision and strategy for engaging with ASEAN.

How Does Indonesia Play a Big Role in South Korea’s Economy?

Indonesia and South Korea celebrated the 50th year of their diplomatic relationship on January 1, 2023. Over the past five years, both countries have initiated various plans and agreements to strengthen their ties and promote closer cooperation.

In 2017, South Korea’s President Moon Jae-in and Indonesia’s President Joko Widodo elevated the existing strategic alliance to a “special strategic partnership,” emphasizing four main areas:

• People-to-people exchanges
• Defense
• International relations
• Regional and global cooperation
• The development of infrastructure and trade

Moreover, in 2019, they negotiated the Indonesia-Korea Comprehensive Economic Partnership Agreement (IK CEPA) to boost their economic partnership. This agreement goes further than the tariff reductions specified in the Free Trade Agreement. 

The agreement stated that they’re eliminating import tariffs on 95.5% of Indonesian exports to South Korea and 93% of South Korean exports to Indonesia. This bilateral agreement will significantly expand market access by removing tariffs on steel, cars, auto parts, agricultural items, and fishery goods.

This negotiating process has strengthened the relationship between the two countries, resulting in Indonesia becoming South Korea’s second-favorite ASEAN nation for foreign direct investment (FDI).

Investment Opportunities in Indonesia South Korea Collaboration

The strong ties between ASEAN and South Korea have provided several investment opportunities for Indonesia, as highlighted below:

1. Economic Cooperation

Based on the Joint Statement of the 24th ASEAN-Republic of Korea Summit on Cooperation on the ASEAN Outlook on the Indo-Pacific (AOIP), the leaders agreed to reinforce ASEAN-South Korea cooperation in the four priority areas, including economics.

It includes, but is not limited to: ASEAN-South Korea Free Trade Agreement (AKFTA), Regional Comprehensive Economic Partnership (RCEP), trade facilitation, MSMEs, circular economy, carbon neutrality, science, technology and innovation, green and digital economy, e-mobility, labor markets.

2. ICT Ecosystem Development for SMEs

The Ministry of Cooperatives and Small and Medium Enterprises (SMEs) in Indonesia has collaborated with South Korea to establish an information and communication technology (ICT) ecosystem to support the development of SMEs.

It was announced during the 2023 Indonesia Korea ICT Business & Content Partnership event in Jakarta on June 6, 2023.

Moreover, both countries will explore various opportunities for cooperation, including organizing business matching programs and consultations with Korean experts, research institutions, and SMEs.

3. Automotive and Electronic Fields

According to the Indonesian Minister of Investment, Bahlil Lahadalia, significant South Korean investments in various sectors, particularly in automotive, electronics, and the development of electric batteries for the garment and footwear industry.

The Minister conveyed it during the Maekyung Indonesia Forum, which celebrated the 50th Anniversary of Diplomatic Relations Between South Korea and Indonesia in Jakarta on May 16, 2023.

Lahadalia also emphasized that the Indonesian government is willing to provide fiscal incentives to attract South Korean investors. These incentives may include tax holidays, tax allowances, or value-added tax (VAT) reductions, and the government is prepared to support them.

4. EV Charging Collaboration with Chaevi

PT Indika Energy Tbk. (Indika Energy), has signed a Memorandum of Understanding (MoU) with Daeyoung Chaevi Co., Ltd. (Chaevi), specializing in electric vehicle charging services.

This joint venture aims to support the Indonesian government, particularly in developing electric vehicle infrastructure, by introducing fast and ultra-fast charging stations for four-wheel or more electric vehicles, including buses.

The MOU was signed during the 2023 Korea-Indonesia Economic Cooperation Forum for the 50th Anniversary of Diplomatic Relations in Seoul, South Korea. This MOU aims to expand charger exports through an agency contract with PT Energi Makmur Buana (EMB), an affiliate of Indika Energy.

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The strong partnerships between ASEAN and South Korea have created numerous investment opportunities in Indonesia that businesses should pay attention to. Businesses can collaborate with our team of experts specializing in company registration and business license services to establish a solid presence in the country and seize these valuable investment opportunities.