On 13 November 2022, the handover of ASEAN chairmanship from Cambodia to Indonesia was held at the ASEAN summit. Adopted the “ASEAN Matters: Epicentrum of Growth” theme, Indonesia is responsible for one year of ASEAN’s chairmanship. At the ASEAN summit, Joko Widodo, the President of Indonesia, said that ASEAN should be a peaceful and stable area and a presenter for global stability (Southgate, 2023). Some agendas should be a concern in Indonesia’s chairmanship. One of those is the issue that ASEAN has always faced: the South China Sea disputes. The conflicting claims of ASEAN’s countries’ sovereignty have worsened the relationship between China and ASEAN. So, how will Indonesia react while connecting the interest of Indonesia’s foreign policy?

Current Status of the Territorial Disputes in The South China Sea 

The status of the South China Sea remains uncertain. The claim of ASEAN countries’ seas has been seen as an insult to countries’ sovereignty. Criticization until objection to the nine-dash line as a legal argument by China has been an agenda by ASEAN countries for years. Other countries, such as the United States, have stated their position to object to China’s claim by rejecting the claim of Vietnam, Indonesia, and Malaysia seas (U.S. Department of State, 2020). Other than that, the USA has expressed its concern about how unlawful the claims are and how China has violated international law (U.S. Department of State, 2020).

The tension between ASEAN and China has gradually increased due to this issue. China has increasingly put its efforts into reclaiming the land by expanding the size of the lands, military installations, and ports, especially in the Paracel and Spratly Islands (Center for Preventive Action, 2022). China also has militarized Woody Island with its jet, radar system, and cruise missiles (Center for Preventive Action, 2022). The Philippines, as one of the ASEAN members, has had a long-time dispute and negotiation with China. In reaction to China’s continued incursions into areas of Phillippine-claimed waters in the South China Sea, the Philippines has increased its military presence and gathered U.S. military assistance in the region (Gomez, 2023).

How about Indonesia’s response? The new demarcation exclusive economic zone (EEZ) between Indonesia and Vietnam will resolve the illegal, unreported, and unregulated (IUU) fishing (Strangio, 2022). This demarcation is also seen as an important step in settling maritime disputes in the South China Sea. In its ASEAN chairmanship 2023, Indonesia has also started a code of conduct (COC) for the South China Sea dispute (Reuters, 2023). This negotiation which has been ongoing for over 20 years, tried to be restarted by Indonesia. Even though the claim to proprietorship of territorial waters covers with Indonesian EEZ through the Natuna islands, Indonesia has frequently said that Indonesia is not a part of the South China Sea disputes (Pratama, 2023). Fact that China has sent a letter to stop Indonesia from drilling for oil and gas in Natuna and even sent Coast Guard to monitor it (Reuters, 2020), Indonesia reacted as if it is not an urgent thing. Indonesia responded and rejected the claim under the UNCLOS agreement saying that China’s claim had no legal basis (Reuters, 2020). While this scene happened in 2019, there are no further policies to China’s ego. This Indonesia’s silent treatment has indicated that Indonesia, with its interest in China’s policy, will not likely take serious steps to encounter China’s domination of the South China Sea.

Indonesia’s Current Foreign Policy: Tend to Align with China

A close relationship between China and Indonesia cannot be debated anymore. Under Joko Widodo’s chairmanship, a large investment cooperation called Belt and Road Initiative (BRI) has started. One of the most controversial projects, the Jakarta-Bandung high-speed railway, is under the BRI investment (Fitriani, 2022). Electric vehicles, a lithium battery factory in Morowali, Jatigede dam, and other developments are also under the BRI investment (Fitriani, 2022). Other than that, the mining and energy industries receive the majority of Chinese investment in Indonesia. Indonesia had the most coal-fired power stations developed overseas by Chinese companies as of 2021. Besides, Indonesia and China are also good partners for their food security. The decision of Indonesia to ratify the China Regional Comprehensive Economic Partnership (RCEP) shows satisfaction for China (Rahmat, 2022). The renewing agreement, Bilateral Economic and Trade Cooperation (BETC), that has been expired in April 2021, has also been an agenda of G20 between Indonesia and China (Rahmat, 2022). Based on these facts, it can be concluded that Indonesia’s interest has tended to favor China’s interest.

Even though its principle of foreign policy, “bebas aktif” (independent and active), it is understandable for Indonesia to align with the Asian superpower, China. It is logical and pragmatic because China offers more chances than other major powers and has become the main driver of global economic growth. Since the signing agreement of the Indonesia-China Strategic Partnership in 2005, China has become Indonesia’s largest trading partner. Moreover, China and Indonesia also have the highest import and export growth rates among ASEAN nations. According to the National Bureau of Statistics and China Customs, China and Indonesia’s combined import and export volume climbed from $66.234 billion in 2012 to

$124.57 billion in 2021, with a detail of USD 31.951 billion to USD 63.923 billion, Indonesia exported more goods to China. Other than that, through the China-ASEAN Free Trade Area, this bilateral trade has positively affected the expansion of some export commodities, such as palm oil and coal (Maria, 2022). The fact that both economies are complementary, with  China having advantages in manufacturing and technology while Indonesia is rich in agricultural and raw materials, has been seen as a bilateral mutual relationship. In the future years, China’s investment in Indonesia will keep increasing as it becomes a more significant trading partner for Indonesia. Therefore, it makes more sense to accept China’s emergence and work together to counter the challenges it poses than condemning it or excluding it, which will only feed great power rivalries that could jeopardize Indonesian interests in the long run.

During Indonesia’s presidency, ASEAN’s economic recovery from the COVID-19 pandemic and promoting ASEAN’s economic growth will be the main agenda for the 2023 chairmanship (Southgate, 2023). These objectives can be seen in its eight flagship events, of which the Trade Ministry of Indonesia is responsible for four. These four flagship events, The ASEAN Online Sale Day, the ceremony of the RCEP, the launch of the new ASEAN tariff finder, and also the Digital Economy Framework Agreement (DEFA) agreement (ANTARA, 2023), have been seen as a focus on promoting ASEAN’s economic interest and strengthening the regional organization’s relevance in the global arena. These agendas align with Indonesia’s concern about its economic policy and also strengthen its relationship with China.

What is next?

Indonesia’s ignorance of the South China Sea dispute and Indonesia’s foreign policy tendency to China’s cooperation leads the writer to one conclusion: Indonesia will not likely finish the disputes between ASEAN members and China on the chairmanship of ASEAN. The dependency on China will guide Indonesia to enhance its foreign policy on the economy,

rather than solving the South China Sea issue. Despite numerous concerns about the stability of the area, Sulaiman (2019) argues that Indonesia is not developing a coalition to counter China’s expanding dominance in the South China Sea or improving its ability to project power. Indonesia’s interest has fallen into China’s hands. The strategic culture that affects Indonesia’s military and foreign policy thinking on threat perceptions and economic considerations results in under-balancing conduct, which restricts Indonesia’s alternatives in relation to China. China as a state is therefore not regarded as posing a significant, direct, or immediate threat that would require a prompt response and could damage Indonesia’s more significant interests. Moreover, the writer believes that Indonesia maintains its stance in position: Indonesia does not think that the issue is urgent to solve. Indonesia’s government is ignorant enough about the issue and currently does not have any intention to make policies to counter the unilateral recognition. Indonesia also has not been damaged enough to shift its foreign policy for the security of sovereignty. Therefore, Indonesia’s interest in the mutual economic relationship with China has made stagnancy on the issue, even in Indonesia’s year of ASEAN chairmanship.

Through the article, the writer believes that the settlement of South China Sea disputes will remain stagnated, not much different from the chairmanship of Cambodia. The interest between Indonesia and China has gradually strengthened and will obstruct the settlement of the issue, including foreign policy tendencies and economic reasons. Thus, Indonesia should not get swayed by the mutual relationship but view the issue with an objective perspective. The ASEAN region has got threatened enough to create a project power to encounter China’s power. Therefore, Indonesia needs to balance the security danger that China poses in the South China Sea by taking necessary steps, especially in its ASEAN chairmanship in 2023.

About Writer

Jefferson Davids Soasa is an undergraduate in the department of International Relations at Universitas Gadjah Mada.

Bibliography

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Imagine businesses of all sizes, effortlessly trading goods and services across ASEAN borders, tapping into diverse markets, and seizing growth opportunities. Picture investors eagerly exploring investment prospects in ASEAN, fueling economic growth and creating job opportunities. Envision entrepreneurs, armed with innovative ideas and regional market access, expanding their businesses and contributing to prosperity. The ASEAN Economic Community (AEC) Blueprint seeks to create such an environment, where businesses of all sizes can thrive and contribute to inclusive development in the region. The AEC Blueprint serves as a roadmap to transform this vision into reality, propelling ASEAN towards a new era of economic integration for inclusive development in the region.

The AEC Blueprint 2025 outlines five reinforcing characteristics for ASEAN’s economic integration, namely: (i) A Highly Integrated and Cohesive Economy; (ii) A Competitive, Innovative, and Dynamic ASEAN; (iii) Enhanced Connectivity and Sectoral Cooperation; (iv) A Resilient, Inclusive, People-Oriented, and People-Centered ASEAN; and (v) A Global ASEAN. These characteristics provide a roadmap for ASEAN’s economic integration efforts, emphasizing the need for integration, competitiveness, innovation, connectivity, inclusivity, resilience, and global engagement (ASEAN, 2015). We are currently two years away from achieving the dream, and as ASEAN continues to evolve as a regional bloc, the AEC Blueprint still presents both opportunities and challenges for member countries, including Indonesia, in its pursuit of greater economic cooperation towards 2025 and beyond. 

Unleashing Underestimated Economic Sector

The AEC Blueprint 2025 presents a plethora of opportunities for Indonesia. In essence, the blueprint creates greater market opportunities for ASEAN members. The integration of ASEAN markets under the AEC framework will hopefully drive Indonesia to improve competitiveness and efficiency for intra-ASEAN trade. This collective effort among ASEAN member countries has the potential to unlock underestimated economic sectors.

The services sector, despite its contribution of over 64.4% to the global GDP (World Bank, 2021b), has often been colloquially referred to as the “Cinderella sector”. This stems from the belief held by economists, industrial relations researchers, and innovation scholars who regard the sector as relatively unproductive compared to other sectors, despite its potential to bring significant value to the economy (Miles & Boden, 2015). In fact, William Baumol went so far as to suggest that the expansion of this low-productivity services sector could potentially hinder economic growth due to limited productivity improvement, potential labor cost savings, and price-inelastic demand (Baumol, 1967). This concept is now known as “Baumol disease”. Interestingly, the services sector’s share in Indonesia’s GDP is relatively high compared to other sectors, contributing 42.8% to its total GDP, highlighting the significant opportunities that can be tapped into for the economies (World Bank, 2021a).

However, Indonesia still faces challenges in its services sector, as indicated by the OECD’s Services Trade Restrictiveness Index. It reveals that Indonesia demonstrates high levels of restrictiveness, particularly in legal services (scoring 0.9), accounting (scoring 0.7), and telecommunication (scoring 0.6), where a score of zero indicates complete openness and a score of one indicates complete closure to foreign services (OECD, 2022). These restrictions can potentially limit the availability of high-quality services and productivity.  Opening up the services market can effectively address these quality issues and provide opportunities for Indonesia to access higher quality services from abroad, and of course benefiting other economic sectors as well. Just like goods, high-quality and efficient services do not necessarily have to be produced domestically. Services trade allows Indonesia to access the immediate benefits of better quality services from abroad which can support other economic sectors.

Enhancing Manufacture, Fisheries and Agriculture Sector

Indonesia, being the ASEAN country with the largest population and GDP, holds other significant opportunities from the AEC Blueprint. The country’s abundant natural resources, particularly in agriculture and fisheries, further amplify its potential for economic gains through the AEC. Despite these favorable demographic and economic factors, recent industrial performance in Indonesia has been subpar. The fisheries and agricultural sectors, in particular, face weak competitiveness within ASEAN. Additionally, Indonesia faces competition from Vietnam in prawns and textiles, as well as from Thailand in the automotive supply chain within ASEAN (Aswicahyono & Soedjito, 2016). To achieve competitiveness within ASEAN, Indonesia must focus on developing a robust manufacturing base and enhancing the quality of its human capital. However, the country is grappling with persistent challenges related to infrastructure, including logistics, energy supply, and transportation, as well as an inefficient bureaucracy and corrupt institutions.

Unfortunately, Indonesia’s Business Freedom Index by The Global Economy had a decline in its value from 71 in 2021 to 67 in 2022, giving Indonesia just 57th in the Business Freedom ranking amongst 175 countries (Global Economy, 2022). In addition to that, Indonesia only ranks 95th on the Corruption Perception Index (Global Economy, 2021), indicating that practices of administrative and political corruption are still high. In order to combat these problems, Indonesia should focus on improving the regulatory environment to enhance business freedom. This may include simplifying and streamlining business regulations, reducing bureaucratic red tape, and enhancing transparency and efficiency in administrative processes. This could help create a more conducive environment for businesses to operate, attract investment, and foster economic growth in strategic sectors like agriculture and fisheries, while also giving strict regulations to mitigate the practice of corruption.

A Shift to Green Economy

The AEC Blueprint 2025 indeed emphasizes the importance of environmental sustainability and the integration of green principles into the economic policies and practices of ASEAN member states; it is specifically stated in the second characteristic of its framework, “A Competitive, Innovative, and Dynamic ASEAN”. This includes efforts to reduce GHG emissions, promote renewable energy, enhance resource efficiency, and address climate change impacts. The Blueprint also encourages the adoption of sustainable production, consumption patterns, and the promotion of sustainable agriculture, forestry, and fisheries practices (ASEAN, 2015). But even so, its implementation to shift to a greener economy is not as good as its vision. In fact, The Regional Comprehensive Economic Partnership (RCEP), the largest economic cooperation initiated by ASEAN countries to accomplish AEC’s visions, does not include a single chapter or regulation about the environmental consideration (CECPHILS, 2023). Provisions of RCEP for reducing tariffs could make non-renewable energies such as fossil fuel cheaper and more accessible to member countries. This may lead to an escalation in their utilization, particularly in Indonesia, which relies heavily on coal production and consumption. In addition, a recent study revealed that if all tariffs were eliminated among RCEP members, it could significantly increase approximately 3.1% in global carbon dioxide emissions from fuel combustion annually. This would effectively double the average annual growth rate of global CO2 emissions observed in the last decade (Tian et al., 2022).

Bright Future for Indonesia and ASEAN 

As ASEAN advances towards the realization of the AEC 2025, Indonesia faces a dual landscape of opportunities and challenges that must be addressed within a limited timeframe of approximately two years. While the AEC 2025 offers prospects for increased economic integration that could benefit Indonesia’s economy, challenges such as the need for structural reforms, increasing competitiveness, and environmental impact mitigation must be effectively navigated. Strategic planning, policy coordination, and stakeholder engagement are crucial for Indonesia to maximize the potential of the AEC 2025 and promote sustainable and inclusive economic growth. This will not only contribute to Indonesia’s prosperity and resilience but also to that of the broader ASEAN region.

About Writer

M. Tora Bhanu Pandito is an undergraduate student at the Faculty of Economics and Business of University of Brawijaya. His interests extend beyond the classroom, as he is deeply invested in foreign policy issues, writing research articles, and enhancing the creative economy. He had the privilege of serving as the Head of Creativepreneur for the Student Executive Board, leading several university initiatives aimed at empowering MSMEs and fostering entrepreneurship that promotes sustainable economy. Contact can be made through his email at torapandito@gmail.com.

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