Trade between Indonesia and South Korea increased 29 per cent from January 2021 to September 2021 compared to the same period last year.

Much of Indonesia’s textile exports are in the form of raw materials such as spun yarn which is later processed into cloth by the textile industry in South Korea. Finished goods processed in South Koreaare sent back to Indonesia to meet the domestic market demand and some are re-exported to the United States and Europe.

Indonesia’s textile trade balance with South Korea is expected to remain in deficit despite the Indonesia-Korea Comprehensive Economic Partnership Agreement (IK-CEPA) which comes into force next year.Under the agreement, South Korea will eliminate more than 95 per cent of its tariff lines and Indonesia will eliminate over 92 per cent and give preferential tariffs to support Korean investment. CEPA will not only impact industries such as automobiles but also technology. CEPA will also facilitate exchanges of professionals in areas such as science, technology, software and robotics, promoting cooperation in high-tech industry.

However the implementation of the IK-CEPA will not have a significant effect on boosting the export performance of Indonesia’s textile industry. The market structure created by South Korea has forced Indonesia to export raw materials.