Indonesia is set to join the Regional Comprehensive Economic Partnership (RCEP).

This is the world’s largest free trade agreement.While Indonesian exports will benefit from the reduction in tariffs between RCEP members, the country’s downstream industries are also well poised to receive greater investments. Supported by an abundance of natural resources, Indonesia is actively seeking to climb up the global value chain – transitioning from an exporter of raw commodities to a producer of high-value products.

The RCEP presents an opportunity for Indonesia to better integrate into regional value chains and attract investments into its industries, especially manufacturing, which accounts for 20 percent of GDP. Indonesia aims at becoming a manufacturing hub. Indonesia’s main areas of production are textiles and garments, electronics, automotive, footwear, food and beverages, and chemicals. The country’s trade-to-GDP ratio is 40 percent, lower than the global average of 55 to 60 percent, highlighting that Indonesia is poorly integrated with global supply and value chains.

However, with RCEP set to eliminate 92 percent of tariffs on goods traded among its 15 members, Indonesia fears that this could trigger an influx of imported goods and thus impact the competitiveness of local businesses, particularly micro and small medium enterprises.