An Entry Gate For Türkiye: Indonesia

RCEP has the potential to offer significant opportunities for Turkish businesses in the East.

COUNTRY PANORAMA 07.04.2022, 15:35 07.04.2022, 15:48
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An Entry Gate For Türkiye: Indonesia

Countries in the East Asian Region have increasingly developing trade and economic relations through free trade agreements (FTAs). The Association of Southeast Asian Nations (ASEAN) has signed FTAs with six partners: The people's Republic of China (ACFTA), the Republic of Korea (AKFTA), Japan (AJCEP), India (AIFTA), and Australia and New Zealand (AANZFTA). Apart from this, the leaders of 16 participating countries established the Regional Comprehensive Economic Partnership (RCEP) to expand and deepen the ties between the parties and increase the parties' contribution to the region's economic development. RCEP builds on existing ASEAN+1 FTAs intending to strengthen economic relations, promote trade and investment, and minimise the development gap between the parties. One of the five founding members of ASEAN, whose foundations were laid in the main hall of the Ministry of Foreign Affairs building in Bangkok, the capital of Thailand, on 8 August 1967, is Indonesia. According to July 2021 data, Indonesia's exports to ASEAN countries are approximately 43 billion dollars. In the same period, its imports from ASEAN countries are approximately 37 billion dollars. As can be seen, Indonesia is in a profitable position in trade with ASEAN countries. Considering this situation, it is possible to think that the opportunities provided by RCEP are advantageous for Indonesia. Considering that the RCEP agreement entered into force on January 1, 2022, the possibility that China's production power and diversity will harm Indonesia's exports comes to mind. However, the increase in labour costs in China production can be considered an advantage for Indonesia. In addition, the fact that many developed countries have started to shift their investments in China to ASEAN countries may positively affect Indonesia.

Although it is possible to expect a benefit, primarily through our companies and brands that have investments in RCEP member countries, TÜRKİYE's exports may be adversely affected in the short and medium-term since profitable FTAs have not been signed with all RCEP countries yet. If Turkish companies shift their overseas investments, especially to ASEAN countries, TÜRKİYE may benefit from customs clearance in the long run. Given the fact that the 16 participating countries account for almost half of the world's population, contribute to nearly 30 percent of global GDP and more than a quarter of world exports, RCEP has the potential to offer significant opportunities for Turkish businesses in the East. Although TÜRKİYE is not a member of ASEAN, it became a party to the “ASEAN Friendship and Cooperation Agreement (ASEAN / TAC) in 2010. At the 50th ASEAN Foreign Ministers Meeting held in Manila in 2017, a Sectoral Dialogue Partnership (SDO) between TÜRKİYE and ASEAN was established. In this context, according to the changes and developments in the economy, trade and international relations, TÜRKİYE should be more organised to take a position quickly, and it should work in coordination with especially government institutions, the business world, universities and research centres. Indonesia is one of the potential partners that can be a gateway to this significant and new world that stands before TÜRKİYE. 51 companies with Turkish capital operate in Indonesia, and 19 companies with Indonesian capital operate in TÜRKİYE. TÜRKİYE's investment in Indonesia is 140.3 million dollars in total. However, when we observe the import and export figures, TÜRKİYE does not perform sufficiently in the trade between the two countries. According to TUIK's eleven-month report for 2021, while TÜRKİYE's exports to Indonesia are 271 million dollars, Indonesia's exports to TÜRKİYE are at the level of 1 billion 669 million dollars. Our primary export goods are tobacco products, wheat flour, boron minerals, carpet-rug, marble, some machinery. At the same time, our imports from Indonesia are synthetic yarn, synthetic woven fabric, natural rubber, palm oil, paper and pulp, and shoes. When we come to 2022, the trade between the two countries, especially within the scope of the defence industry, will increasingly continue. At the beginning of this year, MT Kaplan Tanks were exported to Indonesia for the first time. Considering that a total of 18 tanks will be delivered this year, it is possible to foresee that the trade between Indonesia and TÜRKİYE will develop further. In addition, if considering that systems developed by TÜRKİYE, such as the Network Supported Data Integrated Combat Management System (ADVENT), are also exported to Indonesia, and that according to media reports, Indonesia has started negotiations to buy Warships from TÜRKİYE, it can be said that defence industry products are in demand in Indonesia. With joint defence industry investments in this country, TÜRKİYE can sell more goods to ASEAN and RCEP countries via Indonesia. Indonesia, the country with the largest Muslim population, may also be a new market for TÜRKİYE in terms of the participation finance sector. According to the news in the press and the 2020 Islamic Finance Development Indicator (IFDI) report, Indonesia ranks second among the world countries in Islamic finance development. The two countries can open new horizons for their investors by combining their experiences and partnerships in the banking and finance sectors.

Prof. Dr. A. Merthan Dündar

Ankara University Asia-Pacific Studies Application and Research Center (APAM) Director 

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