Towards Sustainable and Inclusive Economic Integration
Indonesia is taking on the Association of Southeast Asian Nations (ASEAN) Chairmanship for 2023. Indonesia already chaired ASEAN three times, in 1996, 2003, and 2011. Assuming ASEAN leadership amid a weakened global growth due to the Russia-Ukraine war, rising goods and commodities prices, soaring inflation, and the pandemic still hanging, Indonesia is expected to steer the trading bloc towards the realisation of regional economic integration goals while addressing global challenges and promoting national interest.
We had the honour to discuss Indonesia's preparation to chair the ASEAN next year with the Director of ASEAN Negotiation, Directorate General of International Trade Negotiation in the Ministry of Trade, Ms Dina Kurniasari.
The following is the excerpt from our interview.
Q: What does it mean for Indonesia to assume the ASEAN Chairmanship for the fourth time in 2023? What, in your personal opinion, could be the priority trade policy agendas that Indonesia may promote as ASEAN Chairman?
A: Becoming the ASEAN Chairmanship for the fourth time next year will place Indonesia as the key actor in making ASEAN more relevant and stronger as a legal entity. We realise it would be very challenging for Indonesia, considering that the global growth prospects have weakened significantly amid the war between Russia and Ukraine, rising goods and commodity prices, soaring inflation, and potential new waves of the COVID-19 pandemic.
Indonesia's Priority Economic Deliverables (PED) in ASEAN Chairmanship 2023 should be concrete and achievable, responsive to current global dynamics, and serve as a stepping stone to achieving the. It should also support our national priorities and imperative continuity of G20's priorities. The PED should be the low-hanging fruit while being impactful, focused on economic recovery and sustainability, and emphasise quality over quantity.
Domestic consultation has been intensified, and we have already indicated a short list of potential PED related to recovery/rebuilding, sustainability, connectivity, competitiveness and digital economy. We expect our next PED to become an exceptional legacy for Indonesia as we did in 2011 for initiating the RCEP Agreement that we recall as the most modern, comprehensive Mega FTAs.
Q: The world is currently undergoing tumultuous times with the ongoing pandemic recovery, the trade wars and evolving geopolitics, and the Russia-Ukraine conflict affecting supply chains globally. What strategic responses could Indonesia propose to address such challenges while maintaining the goals of the ASEAN Economic Communities Blueprint 2025?
A: Maintaining the goals of the ASEAN Economic Communities (AEC) Blueprint 2025 is one of our pillars for determining Indonesia's PED in ASEAN Chairmanship 2023.
I always believe that ASEAN is about a partnership, cooperation, trust, and growing together based on a win-win proposition. ASEAN needs to enhance closer coordination and regional connectivity to address global challenges. More collective efforts are required to address the development gap, the lack of health care, education, technology adoption and infrastructure development.
More importantly, ASEAN also should work hard to enhance inclusive growth and sustainable development. To achieve this, ASEAN should strike a good balance between commercial gains and environmental protection, which many developed partners have raised.
In addition, I believe that ASEAN can resolve the problem of rising staple food prices and ensure global supply chains by strengthening intra-ASEAN trade, promoting food security and product diversity, and increasing value-added products.
Q: Strengthening Regional Value Chains (RVC) would lead to deeper economic integration in ASEAN while also contributing to a stronger role of the bloc in the global economy. What key findings can you highlight from the recent ASEAN RVC study with ARISE+ Indonesia that could inform ASEAN's future trade policy directions?
A: First of all, I would like to extend my great appreciation to ARISE+ Indonesia for conducting an analytical study on "Economic Policy Priority of the ASEAN Indonesian Chairmanship in 2023: Strengthening Regional Value Chains". Some highlights that I can sum up are:
- Upgrading technology and innovative capability with collaboration from all actors, including industry players, government agencies, and research institutions, and taking advantage of the opportunities of ASEAN, RCEP, and other bilateral FTAs to enhance regional trade and investment.
- In the Automotive sector: update the integration roadmap to reflect the current status, achievement, and requirements of the new automotive industry landscape and make the ASEAN Comprehensive Recovery Framework a coordinated strategy focusing on post-pandemic recovery, including attracting FDI.
- In the Electronic sector: greening the electronics supply chain and promoting green industry. Policymakers should move towards strengthening understanding and practices with respect to sustainable finance and investment.
- In the Medical Devices sector: reduce reliance on single sources of materials and inputs towards a more diverse supply chain and proximity to the final market, and it is also critical to promote technology integration in the manufacture, logistics, and delivery of medical goods and services.
Q: How would you leverage the study, and what would be the follow-up?
A: The study will feed the development of a concept note as supporting data to propose one of the PEDs by Indonesia. In ASEAN, we are now also discussing the ASEAN project-based initiative, one of the initiatives proposed by Indonesia to strengthen the Regional Value Chain. One identified sector is the medical equipment sector, which still needs to be strengthened in most Member States.
As I mentioned above, we agree with the study findings presented by ARISE+ Indonesia that we must reduce our dependence on single sources in the Medical equipment sector. It poses an opportunity for ASEAN countries to improve RVCs through cooperation in the medical equipment industry. We are currently working on the concept of one economy, one entity, and one ASEAN, which envisions ASEAN as a single market and production base, allowing the development of regional production networks. Based on the study, we can analyse which countries can provide cheaper raw materials, offer more reasonable industrialisation processes, etc. Then we can establish industrial cooperation to build the identified sector together, such as medical equipment, pharmaceuticals, power grid, and food production and diversification because we are now also facing the issue of food security with the Russia-Ukraine war that disrupts supply chains.
Q: Which role will Indonesia take in this industrial cooperation, and in which sectors?
A: Indonesia is now devising strategies and regulations as well as making necessary policy adjustments to build its industries, attract Foreign Direct Investment (FDI), and shift from commodities to producing intermediate goods. Meanwhile, to determine which sector Indonesia can play more role in, I think it would require further discussion with the relevant line ministries and business actors.
Q: There is a common perception that regional economic integration is confined to multinationals and large enterprises, yet the great majority of enterprises in ASEAN are MSMEs. Do you think the MSMEs have an important contribution to ASEAN Economic Communities Blueprint 2025, and how can this be leveraged?
A: MSMEs have an essential role in ASEAN's economy, accounting for up to 99% of business establishments, amounting to more than 80% of total employment across ASEAN, and contributing to more than half of ASEAN's GDP. MSMEs are acknowledged as the backbone of the region's economic development.
Understanding the pivotal role of the MSMEs, ASEAN is currently allocating more resources for MSMEs development. A dedicated Chapter for MSMEs can be seen in some ASEAN FTAs Agreements. ASEAN has also established a specific sectoral body to handle issues related to the MSMEs, namely the ASEAN Coordinating Committee on MSMEs (ACCMSMEs). The most effective way to leverage SMEs within the region is by giving full access to financial assistance, mentoring programmes and the digitalisation of SMEs.
Q: What common challenges do ASEAN member states face to realise regional economic integration? What strategies could be considered to close the gaps between member states and ensure that no one is left behind in the integration process?
A: Against the economic gap among ASEAN member states, in 2000, ASEAN adopted a special programme for narrowing the development gap, called "Initiative for ASEAN Integration" or "IAI". Since then, the IAI Work Plan have laid down the measures and actions through which the more developed AMS – supported by ASEAN Partners and international organisations – provide the necessary support and technical assistance to enhance developing and less developed member capacity in meeting regional commitments and obligations. However, the actual dynamics of the Member States, namely amongst other political tension, often hinder their economic growth, which affects the implementation of FTAs and efforts to narrow the development gap.
There is also an economic cooperation Chapter in the existing FTAS, which aims to assist the member states in implementing the FTAs by conducting programmes such as capacity building, technical assistance, workshops, promoting innovation and technology exchange, etc. The programmes are funded by the ASEAN FTA Partners based on the request of the Member States.
The capability of ASEAN member countries to effectively implement trade agreements will affect ASEAN's credibility in the eyes of business actors and trading partners. Therefore, strengthening legal enforcement and utilising the existing dispute mechanism in ASEAN is necessary to provide guarantees for business actors to take optimum advantage of trade agreements.
ASEAN countries are dominated by the young generation, who will be important as the catalyst for economic development. There is a huge potential for the region to lower the inequality gap through better quality and access to education to meet the increasing demand for skilled workers, access better job opportunities and hence break the cycle of poverty. As such, strengthening young people's capacity with relevant skills and education should also be the priority.
Furthermore, in the negotiation process, ASEAN has its ASEAN way in which ASEAN will discuss and solve any issue among ourselves through a consensus approach before tabling the issues to our FTA Partners. This approach ensures that no one is left behind.
Q: What would be the strategies to improve awareness and implementation of the ASEAN trade agreements among Indonesian businesses and local governments?
A: We are committed to raising stakeholders' awareness by actively and regularly conducting dissemination programmes, such as workshops, seminars, focus group discussions, and coaching clinics, to persuade and encourage our business sectors to utilising all FTAs that have been agreed in which Indonesia is a Party to it.
The Dissemination program should be massive, reaching out to all regions across Indonesia and collaborating with all related agencies to ensure maximum utilisation of FTAs.
As for the utilisation rate of the Certificate of Origin in ASEAN for both intra and extra ASEAN trade, Indonesia is actively using the ASEAN FTAs (internal and external) with more than 50% utilisation rate, except for the AJCEP and the AHKFTA, which are just recently implemented.