By Muhammad Zulfikar Rakhmat, Dimas Permadi, and Ramadha Valentine

Although Indonesia does not officially recognize Taiwan as an independent country, the relationship between Indonesia and Taiwan has been a mutually beneficial one. Taiwan’s "New Southbound Policy" policy has also strengthened cooperation with Indonesia in various fields.

Economic partnership

Economic ties between the two have increased significantly since 1971, and Indonesia occupied the 14th position of Taiwan's largest trading partner last year. Taiwan exports products to Indonesia such as iron and steel, chemicals, textile raw materials, among others, while importing resources like coal, wood, rubber, natural gas from Indonesia.

The collaboration was strengthened by a contract between Indonesia’s State Enterprises (BUMN) Ministry and CPC Corporation Taiwan-based oil and gas company.

To facilitate trade cooperation, Indonesia has established an official trade office in Taipei in 1970, known as the Indonesian Economic and Trade Office (KDEI). Taiwan reciprocated the effort and established its trade office named Taipei Economic and Trade Office (TETO) in Jakarta in 1971. In 2015, the Taiwan-owned trading office was also established in Surabaya, an Indonesian port city.

Agriculture is one of the most crucial sectors of cooperation between Indonesia and Taiwan. The two countries have established partnerships in three main areas, namely irrigation infrastructures, horticultural modernization through an Indonesian team conducting comparative studies to Taiwan, and investments in the Indonesian sugar industry.

This economic partnership has also extended to other areas such as smart technology, culture tourism, healthcare. Events like Taiwan Expo and Industrial Collaboration Summit have also been well attended by government officials, business people, and academics from both countries.

Most recently, Taiwan has also agreed to cooperate on implementing “Industrial 4.0” in Indonesia. Taiwan’s Industrial Technology Research Institute will be working with Indonesia’s Ministry of Industry in establishing the Digital Capability Center (DCC), a test center for experimenting with new digital solutions.

Social and cultural development

In addition to the economic partnership, Taiwan-Indonesia relations have also expanded into the soft-power sector. One important example lies in the education sector, where 4,500 students from Indonesia are reportedly studying Taiwan. In August this year, the Taiwanese government also offered 79 university scholarships to Indonesians to study various subjects such as engineering and management. TETO’s Director of Education, Grace Ou, stated that scholarships were given to strengthen ties between Indonesia and Taiwan.

Moreover, two Indonesia-based international schools were established as a result of this friendly relationship: Jakarta Taipei School and Surabaya Taipei International School.

Besides the academic field, the ties are also apparent in the cultural sector. For example, recently, in the celebration of Chinese New Year, Taiwan’s Overseas Community Affairs Council organized various cultural programs such as arts and cultural exhibitions to promote Taiwanese culture in Indonesia.

Taiwan is also one of the main tourist providers to Indonesia. In 2017, 211,000 Taiwanese tourists visited Indonesia, a slight increase from 209,000 in 2016. This increase could be due to the fact that Indonesia recently relaxed visa regulations for Taiwanese tourists by giving them a 60-day visa-free stay.

Future challenges

The relationship between Indonesia and Taiwan can be further strengthened by Taiwan’s policies, one of which is prioritizing Indonesia as its strategic ally. Taiwan sees Indonesia as a crucial partner, given that it is one of the G20 members and it has a relatively high level of consumption.

With a population of 265 million, Indonesia certainly provides a big market for Taiwanese products. Its focus on infrastructural development can also see the potential of Taiwanese investment as its projects are still seeking for massive funding.

However, the challenge for Taiwan is adjusting to Indonesia’s taxation regulations, which impose a 10 percent tariff on Taiwanese imports. Under the Regional Comprehensive Economic Partnership, almost every major trading country in the Asia-Pacific region will benefit from the mega trade deal, except India and Taiwan.

Another challenge within Indonesia-Taiwan cooperation is China. With its growing economic and military strength, China has been increasingly pressuring its neighbors, especially Taiwan.

Because of the ASEAN-China Free Trade Area agreement, Chinese goods enjoy zero tariffs in the Southeast Asian market while Taiwanese goods have to compete with them. China has also put a lot of pressure on Indonesia to cut or reduce TETO activities outside the economic and trade fields.

Taiwan also is likely to face severe competition from large free trade agreements such as the ASEAN-China Free Trade Area and Regional Comprehensive Economic Partnership. With China’s economic influence reaching such a large free trade area, Taiwanese products can become less competitive. Thus, Taiwanese companies must consider investing more of its manufacturing activities in countries like Indonesia and the Philippines.

With the New Southbound Policy, Taiwan must find a way to score more free trade agreements within Southeast Asia. And as Indonesia-China relations grow exponentially, if efforts are not made, these problems could hinder the smooth ties between Jakarta and Taipei.

READ NEXT: Indonesia Should Stop Fearing Chinese Workers

TNL Editor: Daphne K. Lee (@thenewslensintl)

If you enjoyed this article and want to receive more story updates in your news feed, please be sure to follow our Facebook.