Japan's Economic Diplomacy Towards East Asia: Fragmented Realism and Naive Liberalism." S

JAPAN’S ECONOMIC DIPLOMACY TOWARDS THE ESTABLISHMENT OF JAPAN – INDONESIA ECONOMIC PARTNERSHIP AGREEMENT (JIEPA) (2003-2008)

Nurul Ilmi Jamila ID no. 016201300113

A thesis presented to the Faculty of Humanities President University in partial fulfillment of the requirements for Bachelor Degree in International Relations Major in Diplomacy

2017 THESIS ADVISER RECOMMENDATION LETTER

This thesis entitled “JAPAN’S ECONOMIC DIPLOMACY TOWARDS THE

ESTABLISHMENT OF JAPAN – INDONESIA ECONOMIC

PARTNERSHIP AGREEMENT (JIEPA) (2003-2008)” prepared and submitted by Nurul Ilmi Jamila in partial fulfillment of the requirements for the degree of Bachelor in the Faculty of Humanities has been reviewed and found to have satisfied the requirements for a thesis fit to be examined. I therefore recommend this thesis for Oral Defense.

Cikarang, Indonesia, June 5, 2017

Recommended and Acknowledged by,

Drs. Teuku Rezasyah, M.A., Ph.D.

PANEL OF EXAMINER APPROVAL SHEET

The panel of examiners declare that the thesis entitled “JAPAN’S ECONOMIC

DIPLOMACY TOWARDS THE ESTABLISHMENT OF JAPAN –

INDONESIA ECONOMIC PARTNERSHIP AGREEMENT (JIEPA) (2003-

2008)” that was submitted by Nurul Ilmi Jamila majoring in International

Relations from the Faculty of Humanities was assessed and approved to have passed the Oral Examinations on June 2, 2017.

Drs. Teuku Rezasyah, M.A., Ph.D. Chair - Panel of Examiners

Witri Elvianti, Examiner

Prof. Anak Agung Banyu Perwita, Ph.D Examiner

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DECLARATION OF ORIGINALITY

I declare that this thesis entitled “JAPAN’S ECONOMIC DIPLOMACY

TOWARDS THE ESTABLISHMENT OF JAPAN – INDONESIA

ECONOMIC PARTNERSHIP AGREEMENT (JIEPA) (2003-2008)” is, to the best of my knowledge and belief, an original piece of work that has not been submitted, either in whole or in part, to another university to obtain a degree.

Cikarang, Indonesia, June 5, 2017

Nurul Ilmi Jamila

ABSTRACT

Title: Japan’s Economic Diplomacy towards the Establishment of Japan- Indonesia Economic Partnership Agreement (JIEPA) (2003-2008)

The fear of being excluded from the global economic trading outside the traditional WTO negotiations, such as, Free Trade Area and Economic Partnership Agreement has led Japan to have rearrangement on its policies of international economic. Japan has been promoting on establishing Economic Partnership Agreement (EPA) with other countries. The model of EPA is advantageous for Japan as it is easier for the policy-makers to reserve some accounts in protecting certain economic sector while in the same time negotiating on the liberalization of specific sector that feels the need to be more competitive in a larger scale and reform the structures. The strategic priorities for Japan in finding partners in doing EPA are being judged from the country’s economic, geographic, feasibility, time- related, and political and diplomatic criteria, and Japan saw Indonesia as a country that would fit to be the perfect partner. Japan and Indonesia has enjoyed complementary relations and interdependent economic ties, so the proposal from Japan was received well by Indonesia. This thesis hence analyzes the strategy of Japan in performing their economic diplomacy towards the establishment of Japan-Indonesia Economic Partnership Agreement.

Keywords: Economic Partnership Agreement, economic diplomacy, national interest, Foreign Direct Investment.

ABSTRAK

Judul: Japan’s Economic Diplomacy towards the Establishment of Japan- Indonesia Economic Partnership Agreement (JIEPA) (2003-2008)

Ketakutan dikecualikan dari perdagangan ekonomi global di luar perundingan tradisional WTO, seperti, Free Trade Area dan Economic Partnership Agreement telah membuat Jepang memiliki penataan ulang kebijakan ekonomi internasionalnya. Jepang telah mempromosikan pembentukan Economic Partnership Agreement (EPA) dengan negara lain. Model EPA menguntungkan bagi Jepang karena lebih mudah bagi pembuat kebijakan untuk mencadangkan beberapa akun dalam melindungi sektor ekonomi tertentu sementara pada saat yang sama menegosiasikan liberalisasi sektor tertentu yang merasa perlu untuk lebih kompetitif dalam skala yang lebih besar. Dan reformasi struktur. Prioritas strategis Jepang dalam menemukan mitra dalam melakukan EPA dinilai dari kriteria ekonomi, geografis, kelayakan, waktu, dan politik dan diplomatik negara tersebut, dan Jepang melihat Indonesia sebagai negara yang cocok untuk menjadi mitra yang sempurna. Jepang dan Indonesia telah menikmati hubungan saling melengkapi dan hubungan ekonomi yang saling bergantung, sehingga usulan dari Jepang diterima dengan baik oleh Indonesia. Tesis ini kemudian menganalisis strategi Jepang dalam melakukan diplomasi ekonomi mereka menuju pembentukan Japan-Indonesia Economic Partnership Agreement. Kata Kunci: Perjanjian Kemitraan Ekonomi, diplomasi ekonomi, kepentingan nasional, Investasi Langsung Asing.

ACKNOWLEDGEMENT

All praise and gratitude dedicated only for Allah SWT, I cannot be grateful enough for Your guidance. Alhamdulillah, during these harsh periods of time I could use the opportunity to get closer to You rather than being stressed out.

To the most precious treasure in my life that I could never find the replacement with anything, Mamah Papah I love you so much. Thank you for everything you have done, I know both of you have prayed for me over and over, tried your best to sacrifice everything for me, and loved me since I was just the size of a bean. And to my little brother who already became a man, Adnan, thank you for your support and my triplet little brothers who are always be my mood- booster every time I felt blue, Ake, Anji, and Be.

My greatest respect and gratitude would be delivered to my supervisor Mr. Teuku Rezasyah, for sharing your knowledge, your jokes, and your precious time. For my second supervisor, Mrs. Witri Elvianti, thank you miss I could not finish this thesis without any of your help, critics, and suggestions. And also for Prof. Banyu, thank you so much for giving me your precious knowledge towards the better of my thesis. Without any help from all of you, it would impossible for me to finish this thesis.

For my special buddies, Dwitiya Ayu, Dyah Windasari, Siska Indriyani and Tulus Budiadji Syam, thank you guys for always accompany me whenever I need a time-out from working in my thesis and for all the stories, jokes, and silly moments we had. Thank you Yu, for always be there and our silly conversations, although sometimes we got apart by distance and time but I always knew you are just at the other side of the line. Thank you Diy, for your advices on how to face this period of time and shared your experience when you were on this period of time. Thank you Sis and Tul, for your concerns towards me and always shared jokes and things that made me laugh hysterically and made me forget about the stress I got from the thesis.

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For my closest ones during these harsh periods of time, Adiya Fedziyasti Bandi, Aulia Rahma Fadilla, Corry Faby Amanda, and Windasari Gayuh Mardatillah thank you for your existence. Thankyou Ay, for being my “dinding” and your kindness on letting me to a refugee at your place, I will cherish the moments, especially the silly ones we had during these times, do not ever forget me yah. Thankyou Le, for those “life-wise” conversations we have spoken, you are literally the best to talk about those kind of things and certainly for being my first friend in Presuniv up until now, and don’t worry now is my time to help you. Thankyou Cor, for being my “teman-seperjuangan” since the very beginning, I cannot thank you enough for everything and all those things we have been through together, I assure you we are going to laugh on these things in the future, and see you in Makkah with our husband! Thankyou Win, for those chats and phone calls while sharing your stories that divert my focus from being too stressed out and thank you for always believing in me that I could finish my thesis this year, and please hang in there win.

For my Cikarang sisters, Anisa Faza, Izzati Robbi Hamiyya, Jihan Dja’far Sidik, Lathifatus Syifa, and Liddiini Haniifa who always remind me constantly to be a better person, particularly a better muslimah. You guys are the reasons I am who I am today, in terms of being a muslimah. Without you guys, I may have not found the right path. And of course I thank you guys for all of your supports, prayers, and guidance during my thesis and my university life. Literally, I could not go through my university life without you guys. I owe big time from you all.

Lastly, I would like to deliver a special gratitude towards kak A. Ghozali Rachman, who guides me indirectly through chats and your thesis files. Thank you kak, without you my thesis could also be impossible to get finished.

Cikarang, Indonesia, May 29, 2017

Nurul Ilmi Jamila

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TABLE OF CONTENT Contents THESIS ADVISER RECOMMENDATION LETTER ...... ii PANEL OF EXAMINER APPROVAL SHEET ...... iii DECLARATION OF ORIGINALITY ...... iv ABSTRACT ...... v ABSTRAK ...... vi ACKNOWLEDGEMENT ...... vii TABLE OF CONTENT ...... ix LIST OF TABLES ...... xii LIST OF FIGURES ...... xiii LIST OF ACRONYMS ...... xiv CHAPTER I ...... 1 INTRODUCTION ...... 1 I.1. Background of Study ...... 1 I.2. Problem Identification ...... 4 I.3. Statement of the Problem ...... 6 I.4. Research Objectives ...... 7 I.5. Significance of Study ...... 7 I.6. Theoretical Framework ...... 7 I.6.1 Economic Foreign Policy ...... 7 I.6.2 EPA/FTA ...... 8 I. 6.3. National Interest ...... 10 I.7. Scope and Limitation ...... 11 I.8. Definition of Terms ...... 12 I.8.1. Economic Partnership Agreement ...... 12 I.8.2. Japan-Indonesia Economic Partnership Agreement (JIEPA) ...... 12 I.9. Thesis Outline ...... 12 CHAPTER II ...... 14 LITERATURE REVIEW ...... 14 II.1. Background ...... 14 II.2. Books and Journals ...... 14

II.3. Review ...... 15 1. The New Economic Diplomacy: Decision-Making and Negotiation in International Economic Relations ...... 15 2. The Japan-Indonesia Economic Partnership: Agreement between Equals? ...... 15 3. Japan’s Economic Diplomacy towards East Asia: Fragmented Realism and Naïve Liberalism ...... 17 4. East Asian Integration and Japan’s Regional Policy ...... 19 5. Economic Diplomacy in National Security ...... 21 6. Japan’s Foreign Policy and East Asian Regionalism ...... 22 CHAPTER III ...... 24 RESEARCH METHODOLOGY...... 24 III.1. Research Method ...... 24 III.2. Research Framework ...... 25 III.3. Research Time and Place ...... 25 III.3.1. Research Time ...... 26 III.3.2. Research Place...... 27 III.4. Research Instrument ...... 28 CHAPTER IV ...... 29 THE OVERVIEW OF JAPAN’S NATIONAL INTEREST AND JAPAN-INDONESIA RELATIONS .. 29 IV.1. Introduction ...... 29 IV.2. Japan’s National Interest in Asia ...... 30 IV.2.1. Security ...... 31 IV.2.2. Economy ...... 33 IV.3. Bilateral Relations of Japan and Indonesia in Economic Sector ...... 35 IV.3.1. Japan Overview ...... 36 IV.3.2. Indonesia Overview ...... 39 IV.3.3. Japan-Indonesia Economic and Trade Relations Overview ...... 41 CHAPTER V ...... 46 JAPAN’S ECONOMIC DIPLOMACY TOWARDS THE ESTABLISHMENT OF JIEPA (2003-2008) ...... 46 V.1. Introduction ...... 46 V.2. Japan’s Economic Foreign Policy...... 46

V.3. Japan’s Economic Diplomacy towards the Establishment of JIEPA (2003- 2008) 49 V.3.1 Japan-Indonesia EPA Negotiation Process Timeline ...... 49 V.3.2 Japan’s Negotiation Process towards the Substance of JIEPA ...... 53 V.4. Outcomes of the JIEPA for Japan ...... 62 V.4.1. Trade Liberalization ...... 62 V.4.2. Energy ...... 64 V.4.3. Investment ...... 66 V.4.4.Movement of Natural Persons ...... 68 CHAPTER VI CONCLUSION ...... 69 BIBLIOGRAPHY ...... 71 Books and Journals ...... 71 Official Government Data ...... 73 Websites ...... 76 Newspaper ...... 78 Appendices ...... 80

LIST OF TABLES

Table 1: Research Framework constructed by the researcher ...... 25

Table 2: JIEPA Negotiation Process Timeline ...... 49

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LIST OF FIGURES

Figure １Conceptual Diagrams of FTA and EPA ...... 9

Figure ２Relationship between WTO and FTAs ...... 10

Figure ３Seas around Japan ...... 32

Figure ４: Japan Export and Import Statistics ...... 34

Figure ６Trade Values of Japan ...... 64

Figure ７Energy Exports of Indonesia to Japan ...... 66

Figure ８: Japan Outward FDI to Indonesia ...... 67

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LIST OF ACRONYMS

APEC : Asia-Pacific Economic Cooperation

ECI : Economic Complexity Index

EPA : Economic Partnership Agreement

FTA : Free Trade Agreement

FDI : Foreign Direct Investment

GATT : General Agreement on Tariffs and Trade

GDP : Gross Domestic Product

LNG : Liquefied Natural Gas

MOFA : Ministry of Foreign Affairs

ODA : Official Development Assistance

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CHAPTER I INTRODUCTION

I.1. Background of Study In the study of international relations, states is a critical actor due to their nature of power, in which the power is enabling states to not only influence but also control any outcomes so that the results that were produced would not have happened naturally. States use its power to gain its national interest, and each state has their own national interest whether similar or totally different, which could trigger conflict between states. States are able to perform any type of power because power itself is multi-dimensional. 1 As rational actors, states also constantly pursue ways to widen their influence so that they could withstand the anarchy system of the global world.

During the World War era, having war with other states was included as an option to gain national interests. As time goes by, the world cannot work like that anymore, in which war seems to be the very last option that states could choose in order to pursue their national interest. The world is affected by globalization which influences how states should behave nowadays. An interdependence between states has emerged due to globalization. This requires states to do trade eminently such as in import and export of goods and services.2 Kapstein argued that “war is economics by other means”, in which he claimed that in this post-war era economy hold a significant role due to the trade that states do will increase the wealth of states with the lowest cost instead of going to war and trade is better in strengthening the relationship between states.3 Moreover, trade is highly important between states in surviving and gaining national interests as interdependence is growing more between them. Although international trade has

1 Mingst, Karen A., and Ivan M. Arreguin-Thoft. (2010). Essentials of International Relations. http://www.wwnorton.com/college/polisci/essentials-of-international- relations5/ch/05/summary.aspx (accessed 2017) 2 What is global interdpendence? Definition and meaning. Business Dictionary. http://www.businessdictionary.com/definition/global-interdependence.html (accessed March 2017) 3 Papadimitriou, Pyrros, and Victoria Pristikou. (2015). "Economic Diplomacy in National Security. Procedia Economics and Finance, 2015: 130.

1 been done even before the World War era, the necessity of doing international trade nowadays is highly important as globalization affected states being interdependent towards another.

Japan, as a state which involve in the World War era has now become the fourth largest export economy in the world and according to the Economic Complexity Index (ECI), it has become the most complex economy. Japan has exported and imported around $670B and $589B which resulted in the country to have a positive trade balance of $81.6B in 2015. Moreover, the Gross Domestic Product (GDP) of Japan was $4.38T in 2015 and the GDP per capita was $40.8k.4 After the World War era, Japan has been involved in international trade and partnered up with their biggest trading partner now, such as, United States of America (USA), People’s Republic of China (PRC), Republic of Korea (ROK), United Arab Emirates (UAE), and ASEAN countries.5

The international trade has affected not only Japan but also other states especially the major ones, to have a rapid growth for economic development. The successful trade made states to get into a more committed agreement such as, Economic Partnership Agreement (EPA) or Free Trade Agreement (FTA). EPA is a bilateral or multilateral agreement among states to eliminate customs and domestic regulations or import/export regulations, to harmonize economic system, and to facilitate the free movement of natural persons, goods, and capital within a region.

There are sixteen EPAs that Japan has been signed on up until now with other states multilaterally or bilaterally, such as, Japan-Singapore EPA, Japan- Australia EPA, Japan-ASEAN Comprehensive EPA, Japan-Indonesia EPA, Japan-Switzerland EPA, and so on and so forth. Currently, there are six EPA still under negotiations, such as, Japan-Canada EPA, Japan-Colombia EPA, Japan-

4 The Observatory of Economic Complexity. (2015). http://atlas.media.mit.edu/en/profile/country/jpn/ (accessed March 2017). 5 World Bank. (2015). http://wits.worldbank.org/CountrySnapshot/en/JPN (accessed March 2017).

PRC-ROK FTA, Japan-EU EPA, Japan-GCC FTA, and Japan-ROK EPA. 6 However, Japan has neither joined on any of regional agreement nor concluded a bilateral FTA with any country until after it signed the Japan-Singapore EPA in January 2002. The reason behind this was because Japan had always considered that doing EPA was going to violate the spirit of GATT due to the discrimination that other non-members will faced.7

The signed agreement between Japan and Singapore showed the first commitment of Japan in entering the EPA arena and step up its game on international trade. In today’s globalization era, the fear of being excluded from the global EPA/FTA game has led Japan to have rearrangement on its policies of international economic.8 In 2002, the Ministry of Foreign Affairs (MOFA) of Japan captured a key aspect of the Japanese international economic policies towards EPA/FTA which summarized as “FTAs increase Japan’s bargaining power in WTO negotiations.”9

The main target of the EPA policy of Japan is not the credibility in multilateral institutions. The desire of Japan which could be derived from the MOFA of Japan is to facilitate community building, stability and prosperity in East Asia.10 This means that for the first time after the World War era, Japan is being serious in their struggle of modifying its economic prowess into political and diplomatic capital in which the enzymes of the transforming process is the EPA/FTA.11 Furthermore, the model of EPA is advantageous for Japan as it is

6 Free Trade Agreement and Economic Partnership Agreement. (2016). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/policy/economy/fta/ (accessed March 2017). 7 Rodriguez, Ronald A. (2004). Understanding the Political Motivations Behind Japan's Pursuit of an EPA with The Philippines: Considerations for the Philippine Side. Philippine Institute for Development Studies. 8 Pekkanen, Saadia M. (2005). Bilateralism, Multilateralism, or Regionalism? Japan's Trade Forum Choices. Journal of East Asian Studies, 2005: 77-103. 9 Japan's FTA Strategy (Summary). (2002). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/policy/economy/fta/strategy0210.html (accessed March 2017). 10 “Basic Policy towards further promotion of Economic Partnership Agreement (EPAs).(2004). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/policy/economy/fta/policy0412.html 11 Webster, Timothy. (2007). Bilateral Regionalism: Paradoxes of East Asian Integration. Berkely Journal of International Law, 2007: 435-458.

3 easier for the policy-makers to reserve some accounts in protecting certain economic sector while in the same time negotiating on the liberalization of specific sector that feels the need to be more competitive in a larger scale and reform the structures.12

I.2. Problem Identification In promoting EPAs, Japan has to pay attention to secure the political and economic stability within the larger context of the regional system construction. Japan has to take into account regarding the countries they want to have EPA with. The strategic priorities for Japan in finding partners in doing EPA are being judged from the country’s economic, geographic, feasibility, time-related, and political and diplomatic criteria. Priority should be given to countries and regions where high trade barrier exists in which become troubles for Japan to expand their economy despite the close economic partnership with the country or region. From this point of view, the region with the most promising partner for negotiations is East Asia and regarding the feasibility, political and diplomatic criteria that become Japan’s criteria for judgment, the Republic of Korea and ASEAN are the most probable country and region to partner up with. The liberalization of trade with the region is going to help Japan in easing the Japanese business activities abroad.13

As the two actors, Japan and ASEAN, are very close due to their mutual cooperation for the last forty-four years, their cooperation has been covered in various areas such as, political-security, economic, and socio-cultural. In political- security area, Japan has kept their respect on the centrality and unity of ASEAN. Both of them are partners that share universal value such as the rule of law. In economic area, Japan has consistently supported the integration, stronger connectivity, and efforts on decreasing the gaps of development in ASEAN region. For Japan, ASEAN is the second largest trading partner, and there are an

12 Hook, Glenn D., Julie Gilson, Christopher W. Hughes, and Hugo Dobson. (2001). Japan's International Relations: Politics, Economics, and Security. New York: Routledge,. 13 Japan's FTA Strategy (Summary). The Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/policy/economy/fta/strategy0210.html (accessed March 2017).

4 increased number of Japanese-affiliated companies in ASEAN region from 5,994 in 2005 to 9,658 in 2015. In socio-cultural area, Japan has done cultural exchanges and promoted people-to-people with ASEAN in which it increased the number of visitors to Japan from 500,000 in 2006 to 2,500,000 in 2016 for the past ten years and the number of students from ASEAN increased by six fold between 2005 and 2015.14

Since the first EPA has been signed with Singapore, Japan has initiated to form an EPA with ASEAN namely “Initiative for Japan-ASEAN comprehensive Economic Partnership”. Japan believed that over the last fifty years, ASEAN has acted a main role in Southeast Asia’s progress through their facilitation on regional integration in the area of politic, economy, security, and as a socio- cultural community.15 Japan firmly stated their desire to have a partnership in two- track approach, bilaterally and regionally through ASEAN-Japan summit at Phnom Penh on November 2002 by Prime Minister Junichi Koizumi. 16 The “Tokyo Declaration for the Dynamic and Enduring Japan-ASEAN Partnership in the new Millennium” in Bali on 2003, marked both sides, Japan and ASEAN, to have two-track approach partnership and there might be a special and different treatment towards each of ASEAN member countries by determining the economic level on each member countries.17 Along with the negotiation process on regional economic partnership with ASEAN, Japan started working on doing EPA bilaterally with ASEAN member countries, particularly Indonesia.

The relationship between Japan and Indonesia has been somewhat complementary and both have enjoyed a close interdependent economy ties. Following that, when the topic of having economic partnership is being raised, the

14 Message from Ambassador Kazuo Sunaga: Mission of Japan to ASEAN. http://www.asean.emb- japan.go.jp/itpr_en/b_000014.html (accessed March 2017). 15 ibid 16 Yue, Chia Siow. (2003). East Asian Regionalism and the ASEAN-Japan Economic Partnership Agreement. In ASEAN-Japan Cooperation: A Foundation for East Asian Community, by Narongchai Aksaranee, 86. Tokyo: Japan Center for International Exchange,. 17 Tokyo Declaration for the Dynamic and Enduring Japan-ASEAN Partnership in the New Millennium. (2003). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/region/asia- paci/asean/year2003/summit/tokyo_dec.pdf (accessed March 2017).

5 leaders of both countries, President Susilo Bambang Yudhoyono and Prime Minister Abe, further state their beliefs in the successfulness the JIEPA will give:

“We believe that a closer economic partnership between Indonesia and Japan will promote mutually beneficial economic ties between the two countries, and contribute to realizing multi-layered cooperation for capacity building in various ways. (…) (…) We express confidence that the IJEPA will create a climate that will greatly facilitate the boost of Japan’s investment and the establishment of its production bases in Indonesia.”(Shinzo Abe and Susilo Bambang Yudhoyono, 2007) 18 The EPA that Japan and Indonesia have is going to affect tariff-free trade reaching 92% under the terms of agreement. Indonesia is committed to eliminating about 93%of its 11,163 tariffs on Japanese goods, with 58% of these cut immediately upon implementation. Japan on the other hand, will cut more than 90% of its 9,275 tariffs on Indonesian goods, with 80% of these having disappeared with implementation on July 2008. For Indonesia, the biggest immediate beneficiaries of the Agreement will be the automotive, electronics and construction sectors. For Japan, the importance of Indonesia through the establishment of this economic partnership is raising because Japan will gain their national interest through the economic partnership with Indonesia.

I.3. Statement of the Problem This thesis will analyze the strategy of Japan in performing their economic diplomacy towards the establishment of Japan–Indonesia Economic Partnership Agreement (JIEPA). Moreover, this thesis will also analyze the reason behind the establishment of the economic partnership with Indonesia from the perspective of Japan. The following is the research question that will be answered concerning the topic mentioned beforehand:

“How did Japan execute its economic diplomacy towards the establishment of Japan-Indonesia Economic Partnership Agreement? (2003-2008)”

18 "Joint Statement at the Signing of the Agreement between the Republic of Indonesia and Japan for an Economic Partnership." (2007).

I.4. Research Objectives 1. To understand how Japan sees the importance of having Economic Partnership Agreements with Asian countries, particularly Indonesia. 2. To describe the strategy of Japan in establishing Economic Partnership Agreement with Indonesia.

I.5. Significance of Study 1. To enhance the researcher’s knowledge regarding the economic diplomacy of Japan. 2. To contribute for another research regarding the action of Japan in having Economic Partnership Agreement, particularly with ASEAN countries.

I.6. Theoretical Framework

I.6.1 Economic Foreign Policy Economic policy plays a key role in foreign policy. Economic foreign policy is an action or economic policy undertaken by the government that directly or indirectly affects all forms of trade and international payments whether in terms of composition, direction and others. It should be underlined that this policy does not focus on tariffs, quotas, but also covers domestic government policies that will indirectly affect the wheels of trade and international payments, such as the role of fiscal policy and the role of monetary policy. One of the tools in economic foreign policy is economic diplomacy.19

Economic diplomacy is a form of diplomacy in which explains about the way a state achieve its national interest using the full spectrum economic tools. The activities of economic diplomacy are related to cross- border activities done by state and non-state actors which includes but not limited to export, import, investment, aid, and free trade agreements

19 Fearon, J. D. (1998). Domestic politics, foreign policy, and theories of international relations. Annual Review of Political Science, 1(1), 289-313.

activities. 20 There are three level of functions of economic diplomacy; bilateral, regional, and multilateral. The one which plays a major role in economic relations between states is bilateral cooperation, while regional cooperation is growing more importance as the globalization influence is rising and multilateral cooperation takes place within the WTO framework and numerous international economic and financial organizations.21

Strengthening economic diplomacy has been on Japan’s focus to develop the Japanese economy in which it regarded as one of the three pillars of their foreign policy. Japan performed their economic diplomacy from three aspects, contributing to the growth of the Japanese economy, building an attractive country where people can have peace of mind in life, and making international rules. As one of their aspects is to make international rules, Japan has been pursuing on strengthening economic partnership on a bilateral, intra-regional, and inter-regional basis. EPA/FTA is their tool on performing their economic diplomacy. It is believed to give prosperity to Japan’s economy and easing their way to make international rules. Japan has always centered its economic policy around the GATT and WTO since they decided to agree on the GATT in 1955. The foundation of their external economic policy is maintaining and reinforcing the multilateral trading system.22 Thus, promoting EPA/FTA is increasing Japan’s bargaining power in WTO negotiations.23

I.6.2 EPA/FTA EPA is a bilateral or multilateral agreement among states to eliminate customs and domestic regulations or import/export regulations, to harmonize economic system, and to facilitate the free movement of

20 "New Frontiers for Economic Diplomacy." (2009). In Economic Diplomacy and Economic Security, by Peter A. G. van Bergeijk and Selwyn Moons, 37-54. 21 Economic Diplomacy. Minister of Foreign Affairs of the Republic of Albania. http://www.punetejashtme.gov.al/en/mission/economic-diplomacy (accessed March 2017). 22 Japan's Foreign Policy in Major Diplomatic Fields. (2002). Ministry of Foreign Affairs of Japan. (accessed 2017 March). 23 Japan's FTA Strategy (Summary). The Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/policy/economy/fta/strategy0210.html (accessed March 2017).

natural persons, goods, and capital within a region. Meanwhile, FTA is an agreement within a region or states to reduce or to eliminate tariffs in goods and other barriers on trade in services. EPA and FTA is basically similar which is committing on trade liberalization, however the difference lies that FTA is a part of an EPA, in which EPA is revolves around FTA but there may be other agreements on free movement of goods/people or transfer of innovation, intellectual property rights, investment mechanisms, educational and scientific exchange.24 In other words, while FTA is only

aiming to eliminate tariffs on goods and services only, EPA on the other hand is more ambitious in which it seeks a deeper integration between the states involved.25 Figure １Conceptual Diagrams of FTA and EPA

Source: Ministry of Economy, Trade and Industry - Japan’s Policy on FTAs/EPAs To some extent, the World Trade Organization (WTO) has discussed about issues on goods and services trade and had it institutionalized in General

24 Japan's Policy on FTAs/EPAs. (2005). Ministry of Economy, Trade and Industry. http://www.meti.go.jp/policy/trade_policy/epa/english.html (accessed March 2017). 25 Webster, Timothy. (2007). Bilateral Regionalism: Paradoxes of East Asian Integration. Berkely Journal of International Law, 2007: 435-458.

Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS). The consistency of WTO towards EPA/FTA can be seen on GATT Article XXIV which covered about the prohibition against raising barriers to non-EPA/FTA members, notification regarding the agreement to the WTO, a reasonable length of time implementation, and the elimination of tariff on substantially all the trade between the parties and other restrictive regulations of commerce.26 Figure ２Relationship between WTO and FTAs

Source: Ministry of Economy, Trade and Industry - Japan’s Policy on FTAs/EPAs I. 6.3. National Interest The concept of national interest is used as an analytic tool to understand about the sources of the foreign policy of a country. National

26 Japan's Economic Partnership Agreement. (2008). Ministry of Finance Japan. http://www.mof.go.jp/english/customs_tariff/index.html (accessed March 2017).

interest is served to see how policies work. The way of understanding national interest of a country is depend and vary from one user to another. This is due to the inadequacy of standards that should be use a general application or definition of the concept of national interest.27

The use of "national interest" in the world of international relations beside as a form of political behavior, is used as an analytical tool to describe, explain and assess the foreign policy which is implemented by a country. 28 There are four categories of national interest according to specific standards, such as, economy, politic, security, and cultural interest.29 Each country has different national interests towards another, it all depends on the country’s needs and what issues they want to tackle with. Mainly, the national interest that each country may have is to survive in the game of international politics With Japan, there lays their own economic interest to do trade with Indonesia. The researcher will be using the concept of national interests to be a nation’s decision maker to discuss about the importance of JIEPA for Japan.

I.7. Scope and Limitation The scope and limitation of this research will be in line with the statement of the problem that will be analyzed which is analyzing Japan’s interest in cooperating with Indonesia through the establishment of Japan-Indonesia Economic Partnership Agreement (JIEPA). The research will also analyze the strategy of Japan in performing their economic diplomacy towards the establishment of JIEPA. Regarding the time frame that was chosen, it is following from the year when Japan started to initiate the EPA with Indonesia until the year of the EPA has established and in force, which is the period of 2003-2008.

27 Xue-Tong, Y. (2002). Analysis of China's National Interests. The James Martin Center for Nonproliferation Studies. Retrieved 10 March 2016, from http://www.isn.ethz.ch/Digital- Library/Publications/Detail/?lang=en&id=145296 28 Burchill, S. (2005). The national interest in international relations theory. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan. 29 Ibid,

I.8. Definition of Terms

I.8.1. Economic Partnership Agreement EPA is a bilateral or multilateral agreement among states to eliminate customs and domestic regulations or import/export regulations, to harmonize economic system, and to facilitate the free movement of natural persons, goods, and capital within a region. EPA and FTA is basically similar which is committing on trade liberalization, however the difference lies that FTA is a part of an EPA, in which EPA is revolves around FTA but there may be other agreements on free movement of goods/people or transfer of innovation, intellectual property rights, investment mechanisms, educational and scientific exchange.30

I.8.2. Japan-Indonesia Economic Partnership Agreement (JIEPA) JIEPA is the short term of Japan-Indonesia Economic Partnership Agreement. It is an agreement where Indonesia and Japan decided to be in cooperation to not only remove or reduce tariff or non-tariff trade barriers but also cooperate in free movement of goods/people or transfer of innovation, intellectual property rights, investment mechanisms, educational and scientific exchange. The agreement gives opportunity for the business industry to conduct export-import trade with low tariff even to the point of zero tariffs. It is also aimed to enhance the economic partnership between countries.

I.9. Thesis Outline Chapter I This chapter will consists of the background of the study, problem identification, statement of problem research objective, the significance of the study, theoretical framework and Scope and Limitations of the study. This chapter, is aimed to give the reader of this thesis snapshot of the main thesis discussion. By reading this chapter, the readers will figure out what

30 Japan's Policy on FTAs/EPAs. (2005). Ministry of Economy, Trade and Industry. http://www.meti.go.jp/policy/trade_policy/epa/english.html (accessed March 2017).

12 kind of research they are going to read without finding excruciate details which they will find in the following chapters.

Chapter II This chapter will consists of the literature that is reviewed and being used by the researcher as the guidance or reference during the writing process of this thesis. Several kinds of literature are going to discuss, and the researcher tries to explain in details about relevant information and/or data which significantly influencing this thesis.

Chapter III This chapter will consist about the research methodology used by the researcher. In this chapter the writer explain what kind of analysis is used in this thesis and how the research was conducted. Chapter IV In this chapter, the writer will begin with the explanation of Japan’s national interests in East Asia region. In this chapter, there will also be a brief description about Japan’s relation with Indonesia. Especially in the economic sector, the writer will elaborate the data from the current situation of Japan and Indonesia economic before the JIEPA come into force. Chapter V In this chapter, the Japan’s interests towards Indonesia will be analyzed and the process of how the negotiation between Japan and Indonesia in the establishment of Japan-Indonesia Economic Partnership Agreement (JIEPA). The researcher would like to give the explanation about the key outcomes of the result of JIEPA negotiations process. And the researcher will analyze the obstacles that become challenges for JIEPA to be entered into force sooner.

CHAPTER II LITERATURE REVIEW

II.1. Background This chapter is going to have reviews on literatures use by the researcher to accommodate necessary information for the thesis, as the thesis is using qualitative research. Generally, the researcher will discuss about the main point of each literatures that gives contribution to the researcher in writing this research. This chapter aims to sharpen the research focus by showing various perspectives from other works that is related to this research topic. Learning from the fundamental knowledge by other scholars, the researcher hopes that the reader will be able to get a clear perspective towards this research topic from other related books and journals that are reviewed in this chapter.

II.2. Books and Journals In order to provide the reader of a broader vision and better understanding towards the research topic, the researcher is using various sources that relate to the research topic as follows: Books: 1. The New Economic Diplomacy: Decision-Making and Negotiation in International Economic Relations by Nicholas Bayne and Stephen Woolcock Journals: 1. The Japan-Indonesia Economic Partnership: Agreement between Equals? by David Adam Stott 2. Japan’s Economic Diplomacy towards East Asia: Fragmented Realism and Naïve Liberalism by Hidetaka Yoshimatsu 3. East Asian Integration and Japan’s Regional Policy by Yuan Chong 4. Economic Diplomacy in National Security by Pyros Papadimitriou and Victoria Pistikou 5. Japan’s Foreign Policy and East Asian Regionalism by Hitoshi Tanaka

II.3. Review

1. The New Economic Diplomacy: Decision-Making and Negotiation in International Economic Relations This book which edited by Nicholas Bayne and Stephen Woolcock is divided into twenty chapters. There are four chapters that is useful for this thesis topic; What is Economic Diplomacy?, Factors Shaping Economic Diplomacy, and Economic Diplomacy in Practice. The book is adopting a new treatment of the aspects in theoretical concepts of economic diplomacy. They argued that there is no single theory that can reflect the complexities of economic diplomacy. In the first chapter, it basically gives the reader the overview of what economic diplomacy is. Economic diplomacy is the conduct of relations between states involving the activities surround economic field. It has full range of tools embracing from informal negotiations to the creation and enforcement of binding rules. One distinguish feature of it is its sensitivity towards market development. This is what distinct it from political diplomacy and foreign policy analysis. Move forwards to chapter two, it gives the explanation on theoretical aspects of economic diplomacy. This is necessary to point out the certainty on no single theory of economic diplomacy can deliver the answers on how states will perform their policy under given circumstances. Three systemic factors derive from the international system could be used as an analytical tool to explain it; relative economic power, international organizations and regimes, and markets. And the third chapter, examines the practice of economic diplomacy by seeing the decision making process that the national governments has done for their domestic decision making. There are seven stages of decision making process in domestic issues by the government; identifying the lead department, external consultation, internal consultation, political authority, democratic legitimation, international negotiation and ratification of agreement.

2. The Japan-Indonesia Economic Partnership: Agreement between Equals? The journal paper that is written by David Adam Scott, an associate professor at the University of Kitakyushu, started by examining the economic

15 partnership between Japan and other countries that is similar with the JIEPA, while also looking at the current bilateral economic relations before further analyzing the agreement’s content. The article then evaluates the perception towards the JIEPA from Japan and Indonesia and outlines some of the projects detailed in the agreement. Divided into six sub-titles, the article is basically tries to evaluate the economic agreement between Japan and Indonesia whether both countries would have the same benefit or only one of the parties get better benefit. Japan has referred to its free trade agreement (FTA) as economic partnership agreement (EPA) supposedly intended to gain a more bonded and integrated partnership in overcoming issues in trade. After knowing that such bilateral agreement could bring in advantages for Japan’s development, the country then tried in promoting EPA with countries and the first country they committed to have partnered with is Singapore and eventually widening the agreement with other countries in the Asia region, particularly Indonesia. Both countries, Japan and Indonesia, already have a complementary and interdependent relationship in terms of economic. Indonesia has been aided financially by Japan since the 1970s and became the largest recipient of Japan’s ODA in between the years of 2000-2001. As for Japan, Indonesia has played a key role in supplying a stable supply of energy for it nearly reached 70%. Big firms from Japan also invested in Indonesia in which they have invested more Indonesia than any other Southeast Asian country. 31 JIEPA could be a stepping stone for Indonesia where it should boost the confidence for them to be a destination for investment. The agreement could play as a key role in promoting Indonesia as place where it is good and safe to play business there. However, the implementation of the agreement should be implemented properly in which Indonesia have to improve mainly their infrastructure. From this point, it could already be seen that Indonesia might be

31 Stott, David Adam. "The Japan-Indonesia Economic Partnership: Agreement between Equals?" The Asia-Pacific Journal, 2008.

16 the winner party or the loser party. 32 Japan on the other hand, has strongly promoted in the concept of capacity building in areas particularly, the auto parts industry. While Japan has exported cheap price on the industry, it became difficult for Indonesia to compete with it. The article then explained that the major reason of Japan in proposing the agreement is merely to secure a stable supply of energy. When it comes to resource extraction, both parties of the agreement should be benefited. Yet, it seems that Japan is care only with the rich natural resources of Indonesia. The conglomerates of Japan are pressing ahead the projects regarding oil and gas output being stimulated. However, the agreement is believed to still be benefited both the parties, it is just that it will certainly happened in the long run. And for Indonesia, it is certainly not benefited enough if it is in the long run. Despite the fact that Indonesia seemed to be the losing party from the agreement, the article recommended that Indonesia should be focused in taking big advantages of what Japan offers in investment, capacity building, and technology transfer and expertise. As Japan is one of the leading countries as process innovator, Indonesia should be proactive in trying to replicate the efficiency and quality control of Japan in the production cycle. Japan may have the power to exploit Indonesia’s potential benefits, however Indonesia could copy the secret of the Japanese success in which it creates a win-win solution for both countries.

3. Japan’s Economic Diplomacy towards East Asia: Fragmented Realism and Naïve Liberalism In this journal paper that is written by Hidetaka Yoshimatsu, a professor of International Relations at Ritsumekan Asia Pacific University, Japan. This article tries to examine Japan’s economic diplomacy towards East Asia. It aims to articulate the major characteristics in Japan’s economic diplomacy. There are three part of arguments presented in the article. The first one is the argument of Japan’s economic diplomacy being incorporated in strategic and benign

32 Yoshimatsu, Hidetaka. "Japan's Economic Diplomacy towards East Asia: Fragmented Realism and Naive Liberalism." S. Rajaratnam School of International Studies, 2007: No. 146.

17 cooperation in which the two are the distinctive orientation of it. The second one is the argument of stating that Japan’s strategic reaction is defined by fragmented realism which means that Japan has not devised the reaction construct by the government agencies. The last one is the argument of the characterization of Japan’s benign cooperation as naïve liberalism in which the country has failed to grow the regional institutions and apply certain norms as the bond to keep their influence in the region. Furthermore, the article enunciates a strategic orientation in Japan’s economic diplomacy and assesses the challenge in the orientation. There is also a highlight on benign nature in functional cooperation and followed by the analysis on Japan adhesion towards liberal norms. Japan had a strategic orientation in some of their regional policy in which it attempted to oppose the growing influence of China in the East Asia region. This orientation has been exposed more precisely in the millennium’s trade policy of Japan. The strategy has been targeting on economic partnership with other countries whether bilaterally or multilaterally. Japan has been focused on promoting EPAs with ASEAN and also each of the member countries. Japan has aimed on fitting the realist perspective towards their trade policy in which they use it to oppose another big power of East Asia which is PRC. Through naïve liberalism, Japan did efforts on putting agricultural and IT fields in their cooperative program. In the IT field, Japan has their IT policy on Asia Broadband Program (ABP). The ABP was aimed to facilitate the digital gap between respective Asian countries and rural with urban areas in which it will ease them to benefit from IT and boost the socio-economic and cultural development in the region. Meanwhile in the agricultural field, there has been no implementation as it was only reached the Track II collaboration between Japan, PRC, and ROK. The collaboration has not been made further towards regular talks at the Track I level. However, the naivety lies in the reality of the progress on achieving the objective was slow and the outcomes were stingy in both fields despite the fact that it objectives was to develop the economy.33

33 Yoshimatsu, Hidetaka.(2007) "Japan's Economic Diplomacy towards East Asia: Fragmented Realism and Naive Liberalism." S. Rajaratnam School of International Studies, 2007: No. 146.

In conclusion, the government of Japan began to apply liberal norms as their means to strengthen their influence in the East Asia region, in which they believed that having the title of an economic great power with strong financial and technological capabilities, assured them to keep up with various regional projects. They believed that with the two fields it would guide to formation of institutional in functional areas. However, some of the countries in East Asia region adopt different political system which goes incompatible with these liberal norms that Japan used. Yet, Japan is stubborn in applying the norms which is a worry because it might form cracks among the countries in the region that adopt different political systems.

4. East Asian Integration and Japan’s Regional Policy The growing important role of East Asia region draws the attention to Japan in strengthening their policy towards the region. For the sake of the region’s economic and political significance, the supports from East Asian countries are needed more than ever since Japan failed on keeping the seat in United Nations Security Council (UNSC). The government then tried to rebalance the country’s alliances with United States and East Asian countries. This journal paper will tries to explain about the regional cooperation in East Asian countries which leads to the integration of the region and its relations with the regional policy that issued for the region. East Asia region has been facing some changing situations and it certainly affect Japan as a leading power in the region in which any changing situation will be taken as consideration for the policy-maker of Japan in constructing policies for the region. After the financial crises that happened in 2008, the region took less effect compared to the rest of the world in which it made them easier in recovering from the crisis. The region secured its place as the motor of world economic development and continued to do so. The countries in the region then committed to develop the Asian internal market while they also reflected on the market model of the European and American countries.34

34 Chong, Yuan. "East Asian Integration and Japan's Regional Policy." The Japan Forum on International , 2010.

Japan has been taken interest with the region since a long time, whereas the phenomena in the East Asian countries only made Japan to see the region as increasingly important. For Japanese economy, the model of intra-regional trade becomes more important, while the market of East Asia also an important factor as well. There will be strong demands in infrastructure as it affected by the development of East Asia region. It will be a big chance for the Japan investors and enterprises to invest as the local economic development is heated. The thing that shown the most of Japan’s regional policy towards the region is they promoted EPAs with East Asian countries. Japan also consistently aids the countries through ODA and other projects. Along with the growing economic development of East Asia, the closer ties of the East Asian countries’ economic relations also increasing. However, it also followed with security problems. The security problems will greatly affect the regional institutional building. The closeness could also turned into political trust and intimacy which brings Japan to a question of what kind of order does Japan wants for the regional security that is fitted the regional development in the future. Issues that should tackled by Japan in the meantime would be the rising power of China, Japan and US alliances, and the future national identity of Japan. Japan should watch closely on the growing power of China, both are rising in the region while having South China Sea as their current security issue. Therefore, the paper recommends that Japan and China should establish more diplomatic dialogue and exchange mechanism in the future. As for the alliance with the US, Japan should strengthen their ties even more. The twenty years of reformation on the alliance of both countries shown that the US is using the alliance with Japan as their tool to keep their primacy in the East Asia region in which also used as to keep the balance between the US and Soviet Union in the East Asia Region. National identity is somewhat important for Japan in facing the current global politics. The article recommends that Japan should joined hand-in- hand with the US to govern the regional community building process.

5. Economic Diplomacy in National Security Pyrros Papadimitriou and Victoria Pistikou has written a journal paper where they examine the connection of economic diplomacy in national security. They aimed to contribute the paper to the theory of how states use economic diplomacy for the sake of national security in which is a theory from R. Gilpin. The theory stated that what the realist said about security is a main objective for states in achieve others is right, however state still willing to sacrifice their financial resource for them to achieve national prosperity. The paper tries to examine the concept of the theory by focusing on conflict between states case study. State as a rational actor always pursues the ways on how to widen their influence in their relations with other states. For states to survive in the global politics, they must think of the ways to do it. Especially, in this globalized era, going to war with other states is not the best option to achieve national interest. Besides it is going to cost much, it is hard to predict the result from a war. Therefore, economic diplomacy is a good way for states to achieve their national interest and secure their influence towards others. However, the question raise to whether economic diplomacy could be enough in preventing states desire in going to war or not.35 Papadimitriou and Pistikou consider there are three determinants towards the theoretical framework; commercial relations, relative gains, and alliance. From this, it could be examined that whether the three determinants support the theory on how economic diplomacy contribute to national security. Using the case study of Gibraltar case and the British-Spanish conflict, the writers tried to prove it. However, in many cases states use economic diplomacy as their first step on sending a warning message towards the opponent or boosting the status-quo so that the opponent would know by going to war will have the consequences on the costs of any potential threat. The result shows that economic diplomacy does not settle the security of a

35 Papadimitriou, Pyrros, and Victoria Pistikou. "Economic Diplomacy in National Security." Procedia Economics and Finance, 2015: 129-145.

21 state. Economic diplomacy rather acted as the illustration of the state’s security and determined by it. In regards to the three determinants, the contribution of them is not confirmed on state’s security that is under conflict. The study cases show that alliances did not intensify the existing relationship through economic trade. Economic diplomacy is rather act as the pressure in threatening the opponent and cannot work alone in changing the power relations of high policy.

6. Japan’s Foreign Policy and East Asian Regionalism The journal paper presents about an overview of Japan’s policies towards East Asia region which is written by Hitoshi Tanaka and Adam P. Liff. The approach that Japan does towards the concept of regionalism filled with their desire on cooperation and community-building for the region. New era of Japan’s foreign policy marked when the Liberal Democratic Party being defeated by the Democratic Party of Japan in August 2009. Hence, this paper is discussing the contribution of Japan into regionalism and give portrays on the vision of Japan towards the future of the region. The origin of Japan’s interest in regionalism of East Asia was when Japan started joins the United Nations. It was 1956 when Japan centered its policy towards the region. As a leading power in the region, it is only natural for Japan to feel that they somehow had to take the lead and spread their influence even more in the region. However, Japan is not the only country that has power in the region, there is also PRC. So this will be an issue for Japan to be the supreme leading power in the region. And not to mention that Japan’s foreign policy towards the region will be heavily influenced by their alliance with the US.36 The concept of regionalism has developed to include multilateral politic and security and Japan has believed that regionalism will bring the region to be more stable and prosperous in which it directly serves Japan’s economic and security interest. With regionalism, Japan believed they could exercise leadership without being a threat. However, the existence of China in the region could bring Japanese policy-makers to reexamine the current approach towards the region.

36 Tanaka, Hitoshi, and Adam P. Liff. "Japan's Foreign Policy and East Asian Regionalism." New Regional Security Architecture for Asia, 2009.

They should reconstruct their policy strategy if China were to use regionalism as their pretext to sneakily acquire regional hegemony. In the economic field, Japan has performed their strategy through ODA and EPA. Even so, the number of common interest that the countries in East Asia shared does bode good enough for continuing the integration. In security field, Japan has taken the leadership role in countering the proliferation of WMD, while in the environmental field Japan pledged to cut their gas emission of greenhouse by twenty-five percent by the year of 2020. To conclude, the writers of the book believe that to have regionalism in the East Asia region must have embrace the concept of multilayered and functional cooperation. There will be a largely market-driven when the region perform economic and financial cooperation, yet when it comes to security cooperation the region will demand something that acquire strong political leadership.

CHAPTER III RESEARCH METHODOLOGY Research methodology is described as the way to solve a research problem by doing it systemically. It could also be perceived as the science of learning how a research is scientifically done. 37 This chapter is going to inform the readers about what type of research the researcher use in writing this research topic. There will be explanations on how the research is done, what method does the researcher use, and so on and so forth. Moreover, this chapter of research methodology is intended to give a clear understanding of devising the effort which finally reaches into the research objective. Hence, this chapter is a necessary part of the research since it tells the guidance on how to do the research and keep the researcher on track of reaching the research objective.

III.1. Research Method The research method that will be used by the researcher to reach the research objective is by using qualitative method. Generally, the purpose of qualitative method is to gain deeper understanding on a specific topic, event, or organization.38 The following are the characteristics of qualitative method as a type of scientific research39:

1. Seek answer to a question 2. Use a predefined set of procedures in answering question systemically and 3. Collect evidence

Hence, analyzing the data by using qualitative method could help to understand any intangible factors better such as, religion, socio-economic status, role of organization, social norms, and ethnicity. 40 This is clearly the best approach in gaining information and constructing analysis of the behavior of India towards Nigeria as it way of ensuring energy security.

37 Kothari, C.R.(1990). Research Methodology: method and technique. New age: New Delhi p.8 38 Retrieved from http://www.csulb.edu/~msaintg/ppa696/696quali.htm on January 11, 2017 39 Qualitative Research Methods: A Data Collector’s Guide, retrieved from http://www.ccs.neu.edu/course/is4800sp12/respurces/qualmethods,pdf on January 11, 2017 40 Qualitative Research Methods: A Data Collector’s Guide, retrieved from http://www.ccs.neu.edu/course/is4800sp12/respurces/qualmethods,pdf on January 11, 2017

III.2. Research Framework

Table 1: Research Framework constructed by the researcher

Japan Japan-

National Indonesia JIEPA JIEPA into Interest in Bilateral Negotiations force in ASEAN Relations Process 2007

The one important part of research framework is to give guidance for the researcher in pursuing righteousness constructed by logical consideration in carrying the research. There are two actors that played a role in this research, Japan and Indonesia. Based on this topic research question the specific actor which will be analyzed is the strategy of the government of Japan towards Indonesia for establishing the Japan-Indonesia Economic Partnership Agreement. This means that the research will do the analysis on a state level. It examines the behavior of Japan towards Indonesia in executing actions.

Furthermore, the research starts from analyzing the national interest of Japan in ASEAN region. The national interest of Japan towards the region will brings the research to the next thing which is, giving brief explanation regarding the bilateral relations between Japan and Indonesia. The main part is when the researcher is going to explain about the strategy of Japan during the JIEPA negotiation process with Indonesia. The purpose of the research is to see how the government of Japan executes its actions towards Indonesia in order to achieve their national interest on Indonesia by establishing the economic partnership agreement. Moreover, this research will show the outcomes of the negotiation process after both countries signed the economic partnership agreement.

III.3. Research Time and Place The researcher started the research in the first week of September 2016 up to January 2016. It was started by searching necessary data and collecting reliable information from various sources such as, books, websites, journals, articles, videos, press-releases, and so on and so forth.

III.3.1. Research Time  September 2016 In the time of this month, the researcher started the research on what topic should be use for the research. On June, the university announced that the students need to submit their thesis topic and the researcher tried to have a research topic which had been discussed in the class before, therefore the topic of Millennium Development Goals (MDG) was came to mind. The researcher then tried to have a research topic of Indonesian implementation on MDG. After submitted it, the advisor was announced on September and the researcher started to write chapter I. However, after two consultations with the advisors, the researcher found that the thesis topic was not good enough. Hence, the researcher tried to research on another topic which came to this research topic. The advisors then agreed that the researcher may continue to write on this research topic.  October 2016 This month is being used by the researcher to consult on constructing the chapter I of the research topic. There were always still some errors in constructing the chapter I whenever the researcher consulted it with the advisors. This month was filled with revision on chapter I.  November 2016 This month, the researcher was still consulting on chapter I in order to have a solid one. After having a solid base on chapter I, the advisors granted the researcher permission to continue on chapter II and III, which are literature review and research methodology.  December 2016 The researcher was still writing on chapter II and III. After finishing chapter II and III, the researcher consulted again with the advisors, and the advisors granted the researcher permission to write on chapter IV.

 January 2017 The researcher was struggling on finishing the thesis before January 27, as it is the deadline of thesis submission. The researcher still experience many revisions here and there. There were also some parts that needs to be added and fixed.  February 2017 The researcher changed the topic once again from MDG to energy security and now to economic partnership agreement. This month is filled by doing research and gaining data regarding the new topic.  March 2017 The researcher constructed the first chapter of the research.  April 2017 The researcher in the process of writing on the thesis  May 2017 The researcher finished the thesis.

III.3.2. Research Place Furthermore, the venue that this research has taken place is at various places. The following are the places that the researcher has done the research at:

1. Adam Kurniawan Library Address: Jalan Ki Hajar Dewantara, Jababeka Education Park, Cikarang, West Java 17550, Indonesia 2. University of Indonesia Library Address: Gedung Crystal of Knowledge Kampus UI, Pd. Cina, Beji, Kota Depok, Jawa Barat 16424 3. Bina University Kijang Library Address: Jl. Kemanggisan Ilir III No. 45. Kemanggisan – Palmerah Jakarta Barat 11480 4. The researcher’s house Address: Jl. Cendrawasih A3/11 Cipayung, Ciputat, Tangerang Selatan

III.4. Research Instrument The data that is collected by the researcher is divided into two categories which are primary data and secondary data.

Primary Data

The primary data include as – the official documents from the government of Japan and Indonesia in the form of, such as, reports, text agreements, speeches, and document gathered from the websites of each country’s Ministry of Foreign Affairs.

Secondary Data

Aside of primary data, secondary data is needed to support the primary data. The secondary data includes in this research are from books, articles, journals, and so on and so forth.

CHAPTER IV THE OVERVIEW OF JAPAN’S NATIONAL INTEREST AND JAPAN-INDONESIA RELATIONS

IV.1. Introduction As one of the major powers in the world, Japan is surely has national interest they need to achieve. One of the fields that they have taken interest in is raising more of their economic power. They have been taking interest in widening its power economically through promoting economic partnership agreements (EPAs), since their commitment with Singapore for establishing the first EPA. As Japan believed in East Asia for its potential in doing EPAs, ASEAN is moving towards a rising region, thus Japan is trying to have EPAs with ASEAN as a whole and its member countries.

Indonesia is one of the top trading partners for Japan in ASEAN and both countries have been in a good relationship for long.41 It means that Japan has to maintain the existed relations with Indonesia as the country is valuable for Japan. Establishing EPA with Indonesia will bring benefits for both countries in which Japan is going to assist Indonesia in developing their economy and Japan can perform its economic diplomacy meanwhile raising their already powerful economic sector. Hence, in this chapter the researcher will discuss about the elaboration on Japan’s national interest towards the East Asia region. Furthermore, there will be an elaboration regarding Japan’s relations with Indonesia and the establishment of the Japan-Indonesia Economic Partnership Agreement (JIEPA) between the two countries.

41 Japan Trade at a Glance: Most Recent Values. (2017) World Integrated Trade Solutions. http://wits.worldbank.org/CountrySnapshot/en/JPN (accessed March 2017).

IV.2. Japan’s National Interest in Asia As it is only natural for countries to have national interest, the interest may be varied within each country. The same thing applied for Japan where they have domestic and international level of national interest. The main reason of Japan to put such interest in the Asia region is:

“It is essential to ensure stability and prosperity of the Asia-Pacific region surrounding Japan for the security and prosperity of the country itself, and therefore, strengthening Japan’s relations with the countries of this region is an important task.” (Diplomatic Bluebook of Japan)

The region of Asia is essential for Japan as they believed that ensuring the stability and prosperity of the region hold major key for the security and prosperity of Japan itself. Asia region is now the core of economic potential and dynamism in the world as the countries in the region are rapidly developing. Japan sees that relations of interdependence among countries are rising including in the region, particularly in East Asia.42

Focusing on the region will bring positive development because as Japan tried to develop the region, the region become more stable and prosperous which results is directly serves Japan’s security and economic interest. Japan loved to play as a leader in the East Asia region in which they have long sought to play as it. Since the “Fukuda Doctrine” that was delivered by PM Takeo Fukuda at his ASEAN tour speech in 1977, Japan has acted as a leading role in assisting East Asia to counter financial crises, human rights abuse, nuclear proliferation, energy security, and environmental issues. 43 Following that, the minister for foreign affairs, Taro Aso, delivered in his speech44:

“First and foremost, Japan is, for the countries of Asia, a "thought leader," and, indeed, it must be one.”(Taro Aso, 2005)

42 Diplomatic Bluebook 2005. Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/policy/other/bluebook/2005/index.html (accessed March 2017). 43 Tanaka, Hitoshi, and Adam P. Liff. (2009). Japan's Foreign Policy and East Asia Regionalism. 44 Speech by Foreign Minister Taro Aso at the Foreign Correspondents' Club of Japan - Asian Strategy As I See it: Japan as the :Thought Leader of Asia. (2005). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/announce/fm/aso/speech0512.html (accessed 2017 March).

Playing a role as a leader make Japan has to think of great strategies in gaining their national interests in East Asia. In terms of its economic, political, security, and socio-cultural impact, the East Asia region has become one of the most noteworthy regions in the world.45 As stated in the Diplomatic Bluebook, strengthening relations between the countries of the region is a necessary task to be done by Japan. Hence, having a strong relation with countries in the region will give advantages for Japan in performing their strategy. Fortunately, there are some countries that Japan has had good relations with, particularly the ASEAN member countries.

IV.2.1. Security Japan is a country which location surrounded by the East China Sea, Sea of Okhotsk, Sea of Japan, and Pacific Ocean. The closest neighbors surround Japan are the Democratic People’s Republic of Korea, Republic of Korea, People’s Republic of China, and Russian Federation. As one of the countries in East Asia, Japan finds the territory they were surrounded with is vital for the country’s security and development. The vital national interest of Japan is for them to make sure the security of lanes is safe, which is their route for transporting oil and food that goes through the Indian Ocean, Malacca Strait, and South China Sea. 46 Therefore, Japan has to ensure the security of the region in order to protect pathway of trade.

45 Dent, Christopher M. (2008). China, Japan and Regional Leadership in East Asia. Massachusetts: Edward Elgar Publishing, Inc, 46 Hiwatari, Yumi. (2006). Recreating Japan's National Defense Strategy.

Figure ３Seas around Japan

Source: Website of Ministry of Foreign Affairs of Japan

Asia region has always been important for Japan, because they believed that it is necessary to ensure the stability and prosperity of the Asia-Pacific region surrounding Japan for the sake of their national security and prosperity.47 Japan is in effort to contribute more proactively to the peace and prosperity of the region and also the world. Indeed, the national interest of Japan is lying on the notion of keeping the seas in the region open, free, and stable. In order to do so, Japan’s approach on their territorial integrity lies on strengthening the regional community in Asia.48

47 Diplomatic Bluebook 2005. Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/policy/other/bluebook/2005/index.html (accessed March 2017). 48 Speech by Minister for Ocean Policy and Territorial Integrity, Ichita Yamamoto, at the Fullerton Lecture - Asia's Prosperity and the Importance of Open Seas. Ministry of Foreign Affairs. 2014. (accessed 2017 March ).

Based on these matters, Japan has worked on their diplomacy towards the region under the three basic principles. Firstly, for Japan to build stable international relations in the region, they will make diplomatic efforts to resolve any issues that could unbalance the stability of Asia- Pacific region. Secondly, Japan is going to be actively taking the lead of functional cooperation in wide variety of areas, such as, finance, economic partnership, and transnational issues in order to support the entire region achieve further development. Thirdly, Japan is determined on working to make the region be an “open” region through strengthening and continuing cooperation not only between the Asia-Pacific countries but also with countries outside the region that have necessary roles in ensuring the stability and prosperity of Asia and the Pacific. Under these principles, Japan has focused on promoting regional cooperation through bilateral meetings with leaders and ministers as well as joining multilateral conferences.49

IV.2.2. Economy As the economic development of the world began to grow more interdependent towards each other, securing the world’s prosperity cannot be achieved without international cooperation. Global economic frameworks started to get established like World Trade Organization (WTO) or regional frameworks like Asia-Pacific Economic Cooperation (APEC) in which Japan joined in being used as the way to ensure global prosperity. Japan knows well that their economic prosperity relies heavily on how active Japan would take role into the global economic arena such as putting efforts in international cooperation.50 Economic relations need to be developed particularly with the East Asia region. Japan has always

49 Diplomatic Bluebook 2005. Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/policy/other/bluebook/2005/index.html (accessed March 2017). 50 Diplomatic Bluebook 1996: Sectoral Analysis of the International Situation and Japan's Foreign Policy. Ministry of Foreign Affairs of Japan.. http://www.mofa.go.jp/policy/other/bluebook/1996/II-b.html (accessed 2017 March).

believed in the region of East Asia, which supported by the statement of PM Junichiro Koizumi:51

“Ladies and gentlemen, if you took a poll of the world's economists and asked them what region of the world they believe to have the greatest potential in the immediate future, I have no doubt of their answer. They would say East Asia. By cooperating, I believe we can gain the critical mass to advance this potential.” ( Junichiro Koizumi, 2002) To determine whether the economy of Japan is experiencing a steady growth, it is important to tap into other countries’ economic growth, not only the developed countries but also the emerging ones. East Asia region is full of developing countries that started to be an emerging power in the region, such as, PRC, ROK, and the ASEAN member countries. The region has always been Japan’s biggest region as trading partners and the number of export kept increasing over the years (see figure 4).52

Figure ４: Japan Export and Import Statistics

600 400 Export

200 Import 0 Trade Balance 2003 2004 2005 2006

Strengthening economic partnership between the countries will be an important challenge in the region. Other than cooperate in multilateral negotiations ruled by the WTO, Japan needs the countries in the region to strengthen wide range of economic partnership.53 The partnership should

51 Speech by PM of Japan Junichiro Koizumi: Japan-ASEAN in East Asia "A Sincere and Open Partnership". (2002). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/region/asia- paci/pmv0201/speech.html (accessed March 2017). 52 Japan exports, imports, and trade balance by country and region. World Integrated Trade Sokution of World Bank. http://wits.worldbank.org/CountryProfile/en/Country/JPN/Year/2002/TradeFlow/EXPIMP (accessed March 2017). 53 Speech by PM of Japan Junichiro Koizumi: Japan-ASEAN in East Asia "A Sincere and Open Partnership". (2002). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/region/asia- paci/pmv0201/speech.html (accessed March 2017).

expand more than just trade and investment but also tourism, science and technology, and human resource development. Hence, Japan is strategically promoting economic partnership and intends to promote economic partnership negotiations with the countries in the East Asia region.54

IV.3. Bilateral Relations of Japan and Indonesia in Economic Sector Diplomatic relations is the basic condition that states should have in order to get acknowledged that the two countries are agreed to deal with each other formally. Sending diplomats to each other is a part of diplomatic relations. Japan and Indonesia established their diplomatic relations in April 1958, a decade after Indonesia declared their independency from Japan, and did the signing on the Treaty of Peace at the same time. Since then, the relations between the countries are in a good state and both enjoyed their complementary relations. Both citizens even live in each other country, the amount of Japanese that live in Indonesia has been counted to the number of 18,463 and as many as 42,850 Indonesian live in Japan.55

Both countries have a good relations and respect for each other. From Indonesian side, although they were colonized by Japan before, they sees Japan as their important partner. As Bambang Susilo Yudhoyona, President of Indonesia has stated:

“Indonesia truly respects Japan, which is a country known for its hard work, dedication, and perseverance. For Indonesia, Japan has always been the most important partner and, as our main trading partner and source of investment, Japan has played an important role in the

54 "Diplomatic Bluebook 1996: Sectoral Analysis of the International Situation and Japan's Foreign Policy. Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/policy/other/bluebook/1996/II-b.html (accessed 2017 March). 55 The number of Japanese lived in Indonesia counted in October 2015 and the Indonesian that lived in Japan counted in December 2016 "Japan-Indonesia Relations (basic data)." Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/region/asia-paci/indonesia/data.html (accessed March 2017).

development of Indonesia’s economy.” 56 (Susilo Bambang Yudhoyono, 2006) Indonesia knows well, that cooperating with Japan will give benefit for the national development despite their bad history during the colonization by Japan. High-level official visits done by both of the countries since their diplomatic relations established has helped their relationship closer and tighter. Besides sharing the same respect, both countries also share a strong interest in increasing the focus on and mutual interest to gain each of their national interest through cooperating with each other, particularly in economic field.

IV.3.1. Japan Overview Japan has been keen on developing their economy since 1960, where they ignored their needs on spending defense budget to focus on economic growth.57 The economy of Japan has turned remarkably in their performance that began in the last quarter of 19th century and it has been continued to do so since then. In 1960s their average growth rates of 10%, in the 1970s it was 5%, and 4% in the 1980s. It leads to enable Japan from 1978 until 2010 as the world’s second largest economy. The PRC has surpassed Japan in 2010, made Japan rank of economy below PRC.58

Market model of Japan has always been an opened one. They were the first nation to thoughtfully set out to transform themselves in fundamental ways for the express intention of modernizing the economy and society along Western lines. Japan knows the way to develop their economy is through investment, both on physical capital and human capital. Through investment, there have several important effects, which

56 Speech by H.E. Dr. Susilo Bambang Yudhoyono. (2006). Imperial Household Agency. https://www.google.co.id/url?sa=t&rct=j&q=&esrc=s&source=web&cd=6&ved=0ahUKEwiNpO_ Rl_LTAhUMRI8KHd4fCHIQFghEMAU&url=http%3A%2F%2Fwww.kunaicho.go.jp%2Fokotob a%2F01%2Fokotoba%2Fpdf%2Fokotoba-h18-kokuhin-3.pdf&usg=AFQjCNECEKgunqB- k81Ye7TNlZ2LgVRQxA&sig2=nfhrB (accessed March 2017). 57 Alexander, Arthur J. (2000). Japan's Economy in the 20th Century. Japan Economic Institute, 2000. 58 Nakamura, Toshihiro. (2002). A Declining Technocratic Regime. United Nations Research Institute for Social Development. December 2002. (accessed March 2017).

not only it expand the productive capacity but also increasing the productivity of the capital itself as well as other input. Furthermore, the productivity level from the labors rises following the increasing capital stock.59

Since then, Japan has become one of the major economic powers in the world which leads them to believe that they could not be the only one that is developed but also the other countries, particularly in the East Asia region, also need to be developed. As they believed that the condition of the countries surrounds them, particularly in the region, will affect them thus they need to strategize on how to ensure the stability and prosperity of the region.60 As an active member of WTO, APEC, G20 and other trade forums, Japan have tried bilateral and multilateral agreements with other countries.

As globalization has spread towards every aspect of human’s life, relationship between states has become more interdependent than ever. Japan realized that by doing the common cooperation with other countries will not be enough for their national economic stability and prosperity. That is why they come up with EPA, which is the same with FTA but cover more areas than FTA. However, Japan is not just merely decided to do that, because they have to consider the GATT from the WTO. 61 Nevertheless, they still decided to do FTA because it is a must for them as a major economic power. Hence, Japan decided to perform their economic diplomacy through FTA, or specifically EPA.

Japan decided to use EPA rather than FTA because it is not only opportunities to trade freely across borders but rather a dialogue of

59 Alexander, Arthur J. (2000). Japan's Economy in the 20th Century. Japan Economic Institute, 2000. 60 Diplomatic Bluebook 2005. Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/policy/other/bluebook/2005/index.html (accessed March 2017). 61 Rodriguez, Ronald A. (2004). Understanding the Political Motivations Behind Japan's Pursuit of an EPA with The Philippines: Considerations for the Philippine Side. Philippine Institute for Development Studies.

involved parties to develop the economic systems and in many cases EPA involves assistance in advancing the human resources. As Minister of Foreign Affairs, Taro Aso, explained about EPA:

“in EPAs, which Japan is working to advance, the countries involved in the negotiations venture into the next stage together. What happens as a result is a development of supply-chain networks in the manufacturing industry and a reinvigoration of the flow of investment in both directions. In addition, as you can see by the example of facilitating the exchange of licensed workers in specialized fields, such as nurses or caregivers, it becomes clear that EPAs are based on the premise that from the perspective of economics, national borders no longer exist. The EPAs that Japan is now entering into are aimed at using these connections between people and working together to bring about a more prosperous world by deepening cooperative relationships which fortify each side. In other words, EPAs are characterized by breadth of coverage and also by depth of quality, an aspect that FTAs can't even hold a candle to.”62 (Taro Aso, 2006)

Finding the perfect partners to have EPA, comes with some requirements. There are sixteen EPAs that Japan has been signed on up until now with other states multilaterally or bilaterally, such as, Japan- Singapore EPA, Japan-Australia EPA, Japan-ASEAN Comprehensive EPA, Japan-Indonesia EPA, Japan-Switzerland EPA, and so on and so forth. Currently, there are six EPA still under negotiations, such as, Japan-Canada EPA, Japan-Colombia EPA, Japan-PRC-ROK FTA, Japan-EU EPA, Japan-GCC FTA, and Japan-ROK EPA.63 The fact that Japan and Indonesia signed the agreement of JIEPA in 2007, means that Japan believed that Indonesia fulfill all the requirements which had to be beneficial for the international environment and attain Japan’s economic interest.64 Through EPA, which constitutes Japan’s economic diplomacy,

62 The Hallmarks of Economic Diplomacy for Japan: Speech by Minister of Foregin Affairs Taro Aso at the Japan National Press Club. (2006). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/announce/fm/aso/speech0603.html (accessed March 2017). 63 Free Trade Agreement and Economic Partnership Agreement. (2006). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/policy/economy/fta/ (accessed March 2017). 64 Basic Policy towards further promotion of Economic Partnership Agreement (EPAs), on December 21, 2004. (2004). Ministry of Foreign Affairs of Japan. 2004. http://www.mofa.go.jp/policy/economy/fta/policy0412.html (accessed March 2017).

Japan is trying to promote the interest of Japan and survive with the reality of the rapidly developing global economy.65

IV.3.2. Indonesia Overview Indonesia is the largest economy power in Southeast Asia, in which counted from the steadily rising GDP per capita from $857 in 2000 to $3,603 in 2016.66 The country is an archipelago and known for its rich natural resources, such as, crude oil, natural gas, mining, and forestry. Indonesia has decided to focus on encouraging the economic growth since 1980s. The economic growth was mainly financed through foreign and domestic private investment.

The market model of Indonesia has always been opened since the Dutch still colonized Indonesia in 1870s. Since then, Indonesia is opened for foreign investment, especially in plantation area.67 Indonesia is also active in the international issue as they follow their Constitution of the Republic of Indonesia in 1945 which stated in the opening of the constitution:

“Later than it is to form a national Government that will protect the whole nation of Indonesia and all the spilled blood of Indonesia and to promote the general welfare, the intellectual life of the nation, and carry out the order of the world which is based on freedom, eternal peace and social justice,…” (The Constitution of Republic of Indonesia, 194568)

65 The Hallmarks of Economic Diplomacy for Japan: Speech by Minister of Foregin Affairs Taro Aso at the Japan National Press Club. (2006). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/announce/fm/aso/speech0603.html (accessed March 2017). 66 Indonesia Overview. The World Bank. http://www.worldbank.org/en/country/indonesia/overview#1 (accessed March 2017). 67 Notosusanto, Nugroho, and Marwati Djoenod Poesponegoro. (2008). Sejarah Nasional Indonesia: Zaman Kebangkitan Nasional dan Masa Republik Indonesia (+1900-1942). Jakarta: Balai Pustaka. 68 The 1945 Constitution of the Republic of Indonesia – ILO. International Labor Organization. https://www.google.co.id/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved= 0ahUKEwjcu5fd7ZPUAhWILY8KHfB8AT4QFggnMAA&url=http%3A%2F%2Fwww.ilo.org%2Fwcmsp 5%2Fgroups%2Fpublic%2F---ed_protect%2F---protrav%2F--- ilo_aids%2Fdocuments%2Flegaldocument%2Fwcms_174556.pdf&usg=AFQjCNEbsfTt8taZdNZTyN PE4Lwxx2wCYw&sig2=77WxdO1_D_0AoCfqeBsyRA

To partake in the global politics, Indonesia joined United Nations in 1950 however, decided to withdraw in 1965 and joined again in September, 1966. 69 In economic area, Indonesia has been active by participating as a member of GATT in February 1950 and joining the WTO in January 1 1995.70 Indonesia has four engines for their economic growth, such as, sustainable consumption, improvement on government spending, market expansion and export commodities, and raising private investment.71 To achieve market expansion and export commodities, and raising private investment, cooperating with other countries would help.

Joining WTO opened many opportunities for Indonesia to tie some economic agreements with other countries bilaterally or multilaterally, and indeed many agreements have been tied through WTO. However, doing economic agreements through WTO proved to be not secure enough in giving guarantee to match the global competitiveness. To solve the matter, Indonesia finds other way through regional and bilateral agreements outside the WTO, particularly FTA. There has been 5 FTAs that Indonesia done with other countries which is signed and is in force such as, ASEAN Free Trade Area, ASEAN-Australia and New Zealand FTA, ASEAN-India CEPA, ASEAN-China CECA, ASEAN-Korea CECA, ASEAN-Japan FTA, and Indonesia-Japan EPA.72

JIEPA is one of the FTAs that is used to improve the global competitiveness of Indonesia in which the agreement is done with a country that is potentially beneficial to help boost economic growth of

69 United Nations Member States. United Nations. https://www.un.org/en/member- states/index.html (accessed March 2017). 70 Indonesia and the WTO. World Trade Organization. https://www.wto.org/english/thewto_e/countries_e/indonesia_e.htm (accessed 2017 March). 71 Diplomasi Ekonomi untuk Kemajuan Perekonomian Indonesia. Kementerian Koordinator Bidang Perkekonomian Republik Indonesia. 2017. https://www.ekon.go.id/berita/view/diplomasi- ekonomi-untuk.3061.html (accessed 2017 March). 72 Free Trade Agreements. Asia Regional Integration Center of Asian Development Bank. 2017. https://aric.adb.org/fta-country (accessed 2017 March).

Indonesia, which is Japan.73 The relationship of Indonesia and Japan has been good and both enjoyed the benefits of each other’s cooperation. Japan is the biggest ODA donor for Indonesia, and Indonesia is biggest recipient of ODA donor from Japan in 2005 and now is the third biggest recipient.74 For Indonesia, Japan is clearly an important trade and investment partner, thus with EPA, Indonesia has a chance to get closer with Japan and could learn a thing or two from the agreement while at the same time develop their economic growth. Former President of Indonesia, Susilo Bambang Yudhoyono, expressed his perception towards Japan:

“Japan is an important partner for Indonesia, especially in economic partnership in the last forty years of relations from 1967 to 2007. Japan is the biggest investor and also the biggest trading partners for Indonesia. in the last five years, our economic growth grown into 14,4%. The economic growth returns to 6% more than the crisis period in which the Indonesian market becomes stronger, and the labors are more productive. Through EPA, Indonesia tries to improve domestic investment sector, which I believe that the partnership of Japan and Indonesia will expand widely in investment sector as well as energy sector and other kind of partnership.”75 (Susilo Bambang Yudhoyono, 2007)

IV.3.3. Japan-Indonesia Economic and Trade Relations Overview For decades, Japan and Indonesia has forged their diplomatic relations. It leads them to get closer than ever in terms of being a partner, particularly in economic area. Since the Treaty of Peace has been signed on January 1958, both countries started their brand new relations of peace through the payment of compensation during war era. The treaty required Japan to pay around US$ 223 million as well as relieving Indonesia from

73 Tambunan, Tulus. (2009). Arah Kebijakan Ekonomi Indonesia dalam Perdagangan dan Investasi Riil. Pusat Studi Industri dan UKM, Universitas Trisakti. 74 Aid at a Glance Charts. Organizaion for Economic Co-operation and Development. http://www.oecd.org/dac/stats/aid-at-a-glance.htm (accessed March 2017). 75 Pidato Presiden SBY: Jepang adalah Mitra Penting Indonesia. Kementerian Sekretariat Negara Republik Indonesia. (2007). http://www.setneg.go.id/index.php?Itemid(accessed March 2017).

their debt of US$ 176 million, followed with economic aid in the amount of US$ 400 million.76

The commitment of Japan in economic sector towards Indonesia was getting stronger during the New Order era. During the era, Japan positioned their selves as a country which assisted the economic development of a new regime that is anti communist. 77 For Indonesia, Japan is the largest import-export partner in which Indonesia has enjoyed the continued surplus revenue from being in partnership with Japan. Japan’s commitment to be in partnership with Indonesia was being proven through giving economic recovery funding which later played a key role for Indonesia by partaking in economic development of Indonesia by using ODA and FDI.

The ODA composition of Japan towards Indonesia is dominated by debt. In 1997, 43% of the ODA that Indonesia received from Japan was in the form of temporary grant while 57% of it was in the form of loan.78 Besides ODA, assistance is also provided in the form of yen loans, technical cooperation, and grant aid.. The yen loan is a loan with a mild, long-term and low-interest requirement, which any developing country needs for them to set their socio-economic foundation, which will be the foundation of development. From the chart it can be seen that the largest proportion is allocated in the energy and transportation sectors, which reflects Japanese interests in both sectors.79

76 Hadi, Syamsul. (2005). Strategi Pembangunan Mahathir dan Soekarno: Politik Industrialisasi dan Modal Jepang di Malaysia dan Indonesia. Jakarta: Pelangi Cendekia & Japan Foundation. 77 Ibid. 78 Bakce, Djaimi, Moch. Rum Alim, and Eko Wahyudi Nugrahadi. (2006). Bagaimana Bentuk Hubungan Perdangan antara Indonesia dan Jepang: Komplementer atau Kompetitif? a paper presented in the seminar of "Onko Chishin: Hubungan Kerjasama Indonesia-Jepang Dilihat dari Hubungan Kerjasama Indonesia-Jepang", 2006: 6. 79 Perbandingan Bantuan ODA Jepang di Indonesia terhadap Bantuan Pemerintah Asing dan LSM Asing. Japan ODA. http://www.id.emb-japan.go.jp/oda/id/datastat_02.htm (accessed March 2017).

Japan's ODA

Health

IT&Communication

Bank and Financial services

Table 2: Japan's ODA Value in Indonesia (in million US$)80

Reference Yen Grant Technical Year Total APBN of GDP of Loan Aid Cooperation Indonesia Indonesia 2000 945,66 52,07 144,60 1.1.42,33 23.395,29 165.020,93 2001 702,83 45,16 117,27 865,26 30.772,74 164.145,45 2002 441,59 63,54 126,46 631,59 36.945,76 200.110,83 2003 946,77 82,36 120,66 1.149,79 43.206,99 237.416,25 2004 452,52 25,47 105,96 583,95 41.879,10 256.837,29 2005 1.071,18 172,21 98,40 1.342,79 40.987,08 286.969,05 2006 882,83 60,67 91,11 1.034,61 70.711,36 364.459,37

The trade relations between Japan and Indonesia have contained not only the benefit from doing trade but there was also debt, grant aid, and loans. The vast development of trade relations between the two countries was increasing as the ODA and FDI also increased. For Indonesia, Japan has been a very important trade partner as they were also help Indonesia through ODA and FDI.

Furthermore, both also have an interdependent kind of trade relations. The trade relations between Japan and Indonesia also built from being interdependent with each other. Japan has been imported mostly on energy and raw material, such as crude oil, petroleum oil, and Liquefied Natural

80 The data was derived and compiled from Japan's ODA Value in Indonesia .OECD/DAC, Japan's ODA White Paper 2007, IMF, Biro Pusat Statistik Indonesia, . http://www.id.emb- japan.go.jp/oda/id/datastat_01.htm (accessed March 2017).

Gas (LNG) and rubber, plywood, and copper ore.81 Meanwhile, Indonesia has been imported mostly on machinery, transportation, and infrastructure vehicles, such as, cars, vehicle and engine parts, and cranes.82As the figure shows below, each of the necessary sectors for trade between both countries have always been stabile and even increased over the years.

Figure ５Indonesia Import Values with Japan (in million US$)

800 700 600

500 Machinery 400 Telecommunication 300 Vehicle 200 100

0 2002 2003 2004 2005 2006

Figure ６Japan Import Values with Indonesia (in million US$)

25000

20000

15000 Oil and Gas Rubber 10000 Plywood 5000

0 2002 2003 2004 2005 2006

81 What does Japan import from Indonesia?. (2014). Observatory of Economic Complexity. http://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/jpn/idn/show/2014/ (accessed March 2017). 82 What does Indonesia import from Japan? (2015). The Observatory of Economic Complexity. http://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/idn/jpn/show/2015/ (accessed March 2017).

Both Japan and Indonesia are interdependent towards each other in various kind of sectors. For Japan, they are depending on Indonesia’s oil and gas product where the figure shows that the trade values in this sector keeps increasing. For Indonesia, they are depending on Japan’s machinery, vehicle, and telecommunication. The trade values of each of both countries’ dependant sector keeps increasing over the year, in which an EPA agreement would help a lot for both of them to have an elimination of tariffs.

Japan and Indonesia trade relations, has somewhat proved that Japan has more influence than Indonesia. Indonesia is more dependants towards Japan rather than Japan towards Indonesia. Although Japan is dependants on Indonesia’s oil and gas products, Indonesia is more dependant towards Japan ODA and FDI, in which to enter a negotiation towards EPA, Japan would be more influential in negotiating their way.

CHAPTER V JAPAN’S ECONOMIC DIPLOMACY TOWARDS THE ESTABLISHMENT OF JIEPA (2003-2008)

V.1. Introduction JIEPA was signed on August 20, 2007 in Jakarta four years after Japan and Indonesia decided to initiate the economic partnership agreement. The provisions of the JIEPA cover wide areas of discussion which are not only goods, services and investment, but also procedural and regulatory controls, including such areas as Sanitary and Phytosanitary Measures (SPS), Technical Barriers to Trade (TBT), Rules of Origin (ROO) and Intellectual Property (IP). The agreement finally entered into force on July 1, 2008 in Tokyo after facing numbers of preparation and round of negotiations from both countries.83

During the negotiation, Japan and Indonesia would have prepared and strategizing their actions towards the establishment of the EPA for the sake of gaining benefits to the utmost. Hence, in this chapter, the researcher will give further elaboration from the perspective of Japan regarding the Japan-Indonesia EPA negotiations process and the key outcomes of the result of JIEPA. There will also be the explanation on the obstacles that become challenges for JIEPA to be entered into force sooner. From the negotiations process, the researcher will see how Japan performed their strategies which will be shown from it.

V.2. Japan’s Economic Foreign Policy The first four decades after the Second World War saw Japan effect a remarkable and successful trade and industrial transformation that allowed the economy not only to recover from the disastrous waste of war but also to catch up to the per capita income levels and living standards in the advanced industrial world. Postwar, the GATT (General Agreement on Tariffs and Trade) - later the

83 Joint Press Statement on the Occasion of the entry into force of the Agreement between Japan and the Republic of Indonesia for an Economic Partnership”. (2008). Ministry of Foreign Affairs. http://www.mofa.go.jp/region/asia-paci/indonesia/joint0807.html (accessed March 2017).

WTO (World Trade Organization) - along with the global international institutions underpinning the Bretton Woods arrangements, put in place by the United States and its Allies, were critical to renewing confidence in global economic engagement.84 Japanese trade policy strategy over this forty-five year postwar period was directed at establishing access to global markets. Market access was a prerequisite to acquiring the low cost capital goods, technologies, industrial raw materials and international food supplies that could bring industrial success and prosperity to a population-dense, resource-deficient economy such as that of Japan.85 Japan’s trade growth and industrial development, which sustained higher than average growth in Japanese manufacturing productivity and put a safety net under Japanese economic performance even through the lost decades, was facilitated by three major initiatives in international economic policy in the 1980s. The first was commitment to liberalization of the international capital account and allowing the yen to appreciate strongly. The second was early commitment to the Uruguay Round of trade negotiations and becoming a collective player in broadening the GATT agenda to embrace dismantling the restrictions that had constrained exports of labor-intensive commodities (importantly textiles and clothing) from emerging economies, mainly Japan’s neighbors in Asia. The third was a commitment to join with Australia in shaping the Asia Pacific Economic Cooperation (APEC) process that entrenched open trade and investment regimes across the region,7 including ultimately in China. These commitments were the pillars of the foreign economic policy strategy that fostered remarkable Asian economic growth, collective commitment to economic reform and liberalization, and captured the gains from deeper integration in the East Asian and Pacific economies.86

From the beginning, Asia’s integration into the regional and global economy and its approach to regional cooperation was organized around a

84 McKinnon, Ronald I., (1996). The Rules of the Game: International Money and Exchange Rates. MIT Press. 85 Yoshimatsu, Hidetaka. (2003). Japan and East Asia in Transition. Palgrave Macmillam. 86 Drysdale, Peter. (2010). Japan’s Foreign Economic Policy Strategies and Economic Performance. East Asia Bureau of Economic Research.

47 strategy of inclusiveness, born of the interest in continuing economic, political and social change in East Asia. That interest is where the idea of open regionalism originated. It was important in this part of the world that regional cooperation be open in terms of the principles informing economic policy strategy, to realize the continuing inclusion of new players in the process and new opportunities for regional growth, trade and development.

Japan’s advocacy and the priority it attached to the multilateral trading system began to end in favor of preferential trade agreements in 1998.87 This occurred not because of any purposeful decision that had been debated in Japanese policy making circles or because of a strategic leadership decision but in the lead-up to South Korean President Kim Dae Jung’s visit to Japan. The context was the Asian financial crisis, Japan and East Asia’s quest for stronger institutional ties, the desire for stronger political ties within Asia, and a search for Korea-Japan rapprochement. The White Paper on International Trade that MITI (the Ministry of International Trade and Industry) issued in 1998 still espoused the supremacy of the multilateral system for Japanese trade, and the only mention that FTAs received in it was negative.88 Yet, the trade and investment diverted away from non-FTA members have not been as damaging to economic relations, and therefore have not significantly undermined political relations in Asia as much as many studies had predicted.29 The reason is not because FTAs took into account the interests of third parties and the multilateral system, but rather because they were not comprehensive enough and had no real economic bite.89

87 Ogita (2002) reviews the policy announcements and White Papers from METI and MOFA indicating the shift in policy position towards FTAs during 1998/1999. 88 Ogita Tatsushi. (2002). An Approach towards Japan’s FTA Policy. (IDE APEC Study Center Working Paper Series 01/02 – No. 4, 2002). 89 Drysdale, Peter. (2010). Japan’s Foreign Economic Policy Strategies and Economic Performance. East Asia Bureau of Economic Research.

V.3. Japan’s Economic Diplomacy towards the Establishment of JIEPA (2003-2008)

V.3.1 Japan-Indonesia EPA Negotiation Process Timeline JIEPA was signed on August 20, 2007 in Jakarta by each of the representative of the country, Prime Minister of Japan and President of Indonesia, Shinzo Abe and Susilo Bambang Yudhoyono.90 The process of the agreement took four years and seven rounds of negotiation which completed in a year before the signing takes place. During the negotiation process, both countries led by either of department or ministry that is related with FTA issues. Japan’s delegations were represented and led by Ministry of Foreign Affairs and Indonesia’s delegations were represented by Ministry of Trade.

Table 3: JIEPA Negotiation Process Timeline

90"Joint Statement at the Signing of the Agreement between the Republic of Indonesia and Japan for an Economic Partnership." (2007) Ministry of Foreign Affairs of Japan. July 2007. (accessed March 2017).

V.3.1.1. Stages of Drafting and Producing Framework Agreement: Establishing a Joint Study Group (2003- 2005) Before the signing takes place, both countries have already decided to task the officials from the two governments to preliminary explore the possibility of a bilateral economic partnership agreement between Japan and Indonesia on June 24, 2003. The officials from both countries will discuss the architecture including the scope of a possible EPA, the requirement for such an EPA would have to meet under WTO rules, the flexibility, and the strategic and economic benefits that both countries could gain from the establishment of the EPA. 91 In discussing the issues, both countries would examine the areas of trade liberalization in goods and services, and of investment as well as bilateral cooperation in other areas. Hence, both countries decided to form a Joint Study Group.

The forming of Joint Study Group was decided on December 16, 2004 by the Minister of Economy, Trade and Industry Shoichi Nakagawa of Japan and Minister of Trade Mari Elka Pangestu of Indonesia. They shared the same thought on the need to form a Joint Study Group to probe on the outcomes of the economic partnership between Japan and Indonesia. Both countries decided to hold three rounds of meetings by April 2005 to produce recommendations towards issues as well as the issue of whether to begin negotiations on a bilateral EPA.92

91 Joint Announcement by the Prime Minister of Japan and the President of the Republic of Indonesia on the Possibility of the Economic Partnership Agreement between Japan and Indonesia. (2003). Ministry of Foreign Affairs. 2003. (accessed March 2017). 92 "Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report."(2005). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/region/asia- paci/indonesia/summit0506/joint-3-2.pdf (accessed March 2017).

The meeting was started a year after the decision of both countries to form a Joint Study Group which was held on January 31, and February 1, 2005 and took place in Jakarta. The second round of meeting was also held in Indonesia which is in Bali on March 4 and 5, while the last round of meeting held in Tokyo on April 11 and 12. The report was then finished and publicly released on May 2005. During the meetings, both countries send their representatives of relevant ministries and agencies as well as representatives from academic and private sectors.93

Inside the report, the Joint Study Group concluded the results of scope and modality for negotiations on the JIEPA from the meeting. Based on the three rounds meeting, both countries provisionally wrapped up that the scope of the negotiations should be followed in five points. Firstly, the scope of the negotiations should covered the matter of (i) Trade in Goods, (ii) Customs Procedures, (iii) Trade in Services, (iv) Investment, (v) Movement of Natural Persons, (vi) Government Procurement, (vii) Intellectual Property Rights, (viii) Competition Policy, (ix) Standard and Conformance, (x) Improvement of Business Environment, (xi) Cooperation, (xii) and Dispute Avoidance and Settlement. Secondly, the matter of energy and mineral issue will be discussed under the EPA. Thirdly, the first meeting should involve the discussion on modality for negotiations. Last but not least, both countries shared the same thought that each of them should begin the EPA negotiations soon and conclude them within a reasonable period of time.94

93 Ibid 94 Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report. (2005). Ministry of Foreign Affairs of Japan. May 2005. http://www.mofa.go.jp/region/asia- paci/indonesia/summit0506/joint-3-2.pdf (accessed March 2017).

Based on the discussion, it could be seen that both countries were optimist towards the successfulness of JIEPA. They were convinced by the JIEPA which covered wide range of areas will contribute towards the development of closer economic ties for Japan and Indonesia. Hence, both countries were agreed to move into the next stage of negotiation, which is the negotiation for drafting the agreement which they were surely tried to get the best out of it.

V.3.1.2 Stages of Agreement on the Negotiations of Drafting the JIEPA (2005-2007) Japan constructed its EPA to be based on three main pillars; trade liberalization, trade facilitation, and investment, as well as capacity building to improve industrial competitiveness. 95 Moreover, EPA also included some of the issues that have not been approved in the WTO, such as in the field of services, investment, and government procurement. Inside the broad scope, there are some issues that were standing out during the JIEPA negotiation process, which reflect both countries’ interest that wanted to be achieved, especially Japan. There are seven rounds of negotiations before the JIEPA was finalized. First negotiation round was started in July 2005 and ended in June 2007. 96 There were not many information regarding the negotiation process of JIEPA being publicly released, it is only the sixth and seventh negotiation process being released in the MOFA of Japan website.

95 Japan's Policy on FTAs/EPAs. (2005). Ministry of Economy, Trade and Industry. March 2005. (accessed March 2017). 96 Joint Press Statement on the Occasion of the entry into force of the Agreement between Japan and the Republic of Indonesia for an Economic Partnership. (2008). Ministry of Foreign Affairs. July 2008. http://www.mofa.go.jp/region/asia-paci/indonesia/joint0807.html (accessed March 2017).

The sixth round of negotiations was held in Tokyo from October 10 to 13, 2006. Japan sent their representative from MOFA a Deputy Minister, Mitoji Yabunaka, and from Indonesia the Ambassador Soemadi Djoko Moerdjono Brotodiningrat, along with other relevant officials. During the negotiation, they conducted the plenary meeting and discussed the trade in goods and services, investment, and cooperation sector as well as consultations regarding the sectors. The participants were also getting closer in finalizing the agreement.97

The seventh negotiation also took place in Tokyo on June 21 and 22, 2007. The meeting led by Japanese representative, Masaharu Kohno, a Deputy Minister for Foreign Affairs and Indonesian representative still with Ambassador Soemadi Brotodiningrat. Surely the last round of negotiation were discussing and seeking to finalize the texts for all of the sectors that were put in the agreement.98

V.3.2 Japan’s Negotiation Process towards the Substance of JIEPA Japan as one of the major powers in the global politics, has the power on achieving national interests through diplomacy, even if they have to use their military power they are also capable to do so. Japan is able to choose what kind of tools they want to choose to perform diplomacy, and of their many tools there is one that they are powerful enough to use, which is their economic diplomacy. They have been promoting EPA throughout the globe to perform their economic diplomacy. Japan believed that EPA will bring positive impacts and certainly Japan could gain their national interest through EPA. Hence, Japan has to

97 The Sixth Round of Negotiations on Japan-Indonesia Economic Partnership Agreement. (2006). Ministry of Foreign Affairs of Japan. October 2006. http://www.mofa.go.jp/announce/event/2006/10/1006-2.html (accessed March 2017). 98 The Seventh Round of Negotiations for the Japan-Indonesia Economic Partnership Agreement. (2007). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/announce/event/2007/6/1174159_850.html (accessed March 2017).

calculate thoroughly on what is best for them and how they could gain the benefits to the utmost during the negotiation. As Japan and Indonesia decided to go further on realizing the EPA, Japan need to come up with the strategy during the negotiation rounds so that they would be getting damage as little as possible and ascertain that they could achieve their national interest, particularly from the EPA with Indonesia.

V.3.2.1. Japan’s Interests towards the Substances of JIEPA Negotiation During the negotiations, Japan and Indonesia have to execute their actions towards the process of establishing an agreement that both have agreed. With the forming of Joint Study Group to discuss the matters that should be included in the agreement, both sides have decided on what matters should be included in the agreement, such as, Trade in Goods, Customs Procedures, (iii) Trade in Services, Investment, and so on and so forth.99 This becomes a chance for both countries to propose on what they are interested at, particularly towards the sectors that will be negotiated. 1. Trade in Goods Trade in goods described as exchanging material resources between one parties to another, particularly for countries.100 In this sector, both Japan and Indonesia decided to include elements of FTA which in accordance to Article XXIV of the GATT. 101 By including it in the agreement, it would be an important element for them to strengthen their economic ties, in which it improves market access for trade in goods as well as

99 Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report. (2005). Ministry of Foreign Affairs of Japan. May 2005. http://www.mofa.go.jp/region/asia- paci/indonesia/summit0506/joint-3-2.pdf (accessed March 2017). 100Trade in Goods and Services. (2017). Organization for Economic Co-operation and Development. 2017. https://data.oecd.org/trade/trade-in-goods-and-services.htm (accessed April 2017). 101 Agreement between Japan and the Republic of Indonesia for an Economic Partnership. (2007). Ministry of Foreign Affairs of Japan. 2007. www.mofa.go.jp/region/asia- paci/indonesia/epa0708/agreement.pdf (accessed March 2017).

tariff elimination and reduction. There are two main sectors which are being discussed, which are, industrial goods and agriculture, forestry and fisheries. In the discussion of industrial goods, Japan expressed that they have particular interest towards eliminating the tariffs on goods, such as, automotive, steels, and textiles because Indonesia had a relatively high tariffs for these goods. Japan claimed that it is necessary to eliminate the tariffs because it would bring a more strengthened ties between Indonesia’s local partners and Japan automotive, steel, and textile industry companies.102 Reaction towards the proposal from Japan was received as something that should be researched further by Indonesia, in which the three sectors remain sensitive products for Indonesia’s economy. Japan further emphasized that such elimination should be implemented as they were producing the goods with high quality materials. In the end, the tariff elimination towards these goods was put in the JIEPA agreement on Chapter 2 Article 20.103 Meanwhile, in the agriculture, forestry and fisheries sector, Japan requested there should be elimination by the government of Indonesia on the subsidies, duties, and restrictions of export in the sectors. Japan emphasized the fact that the negotiation on these sectors should be in line with each of the country’s effort in ensuring food security, which Indonesia also shared the same view. In the forestry matters, Japan requested Indonesia to pursue further actions in tackling the illegal logging issues,

102 Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report. (2005). Ministry of Foreign Affairs of Japan. May 2005. http://www.mofa.go.jp/region/asia- paci/indonesia/summit0506/joint-3-2.pdf (accessed March 2017). 103 Elimination of Tariffs. (2017). Japan Customs. http://www.customs.go.jp/english/c- answer_e/customsanswer_e.htm (accessed March 2017).

which Indonesia responded by stating that they were indeed in progress of combating illegal logging. In the fisheries sector, Japan shared the same view with Indonesia in which the two countries should study the possibility of promotion of cooperation in the broad range of fishery sector.104 2. Customs Procedures Customs procedure is the practice to ease goods in entering the country and conscribe tariffs done by the customs officers. It also involving the activities of clearance procedures like documentation and examination, determining the classification of goods and authorizing the good’s value as the base for an ad valorem tariff. 105 Within this field, Japan denoted that it is necessary to even the trade facilitation with ensuring security. Japan requested for an enhancement on this field by having further development of transparency during the procedures. Hence, Japan highlight some points that should be done during customs procedures, such as, ensuring transparency, cooperation and information exchange, and demonstrate proper mechanism. Indonesia stated that they were sharing the same view and continued to improve their customs procedures. 106 What Japan has requested ended up to be the structure of customs procedures in the agreement which listed in chapter 4 article 51 to 56.107 3. Intellectual Property

104 Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report. (2005). Ministry of Foreign Affairs of Japan. May 2005. http://www.mofa.go.jp/region/asia- paci/indonesia/summit0506/joint-3-2.pdf (accessed March 2017). 105 Definition of Customs Procedures. Dictionary Central. http://www.dictionarycentral.com/definition/customs-procedure.html (accessed March 2017). 106 Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report. (2005). Ministry of Foreign Affairs of Japan. May 2005. http://www.mofa.go.jp/region/asia- paci/indonesia/summit0506/joint-3-2.pdf (accessed March 2017). 107 Agreement between Japan and the Republic of Indonesia for an Economic Partnership. (2007). Ministry of Foreign Affairs of Japan. 2007. www.mofa.go.jp/region/asia- paci/indonesia/epa0708/agreement.pdf (accessed March 2017).

Intellectual property is in referred to the creation that comes from the human’s mind. It is something that need to be protected in law in which used to allow people who creates it getting the proper recognition and financial benefit.108 Towards this field, Japan and Indonesia shared the same view on the necessity of reinforcing their partnership in intellectual property (IP) field that already existed and promoting the establishment of systems that is sufficient and effective. The request that is made by Japan is for them to have IP protection particularly in the new varieties of plants in agriculture, forestry, and fisheries.109 In which the request is in aligned with the UPOV91 Convention, an international convention for the protection of new varieties of plants which later established an intergovernmental organization of UPOV.110 It was a certain thing for Japan to bring this matter as their efforts in IP protection towards the agriculture, forestry, and fisheries sectors is not so successful compared to their IP protection in the field of information technology, electronics, machinery, and chemistry.111 The request was then made into the agreement listed in chapter 9 article 116.112 4. Competition Policy Japan and Indonesia shared the view of the necessity in addressing about the importance of efforts in competition policy in the agreement. From Japan perspective, the necessity

108 What is Intellectual Property?. World Intellectual Property Organization. http://www.wipo.int/about-ip/en/ (accessed March 2017). 109 Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report. (2005). Op Cit. 110 UPOV Convention. The International Union for the Protection of New Varieties of Plants. http://www.upov.int/overview/en/upov.html (accessed March 2017). 111 Akihiko, Okuno. (2016). Strategy for Protecting Intellectual Property Rights (IPRs) Related to Invention and Research Results in Fisheries in Japan. FFTC Agricultural Policy Platform. http://ap.fftc.agnet.org/ap_db.php?id=697&print=1 (accessed March 2017). 112 Agreement between Japan and the Republic of Indonesia for an Economic Partnership. (2007). Ministry of Foreign Affairs of Japan. www.mofa.go.jp/region/asia- paci/indonesia/epa0708/agreement.pdf (accessed March 2017).

to address this was due to forestall anticompetitive activities within both countries’ territories from impeding the advantages of trade and investment liberalization. So that, both countries should take efforts in enforcement and technical cooperation which would be done under the agreement.113 Japan sees that Indonesia is the perfect partner as Indonesia is one of the most developed countries amidst the other ASEAN countries in regards to Indonesia’s effort in policy of competition. The emphasized points that were expressed by Japan to be put in the agreement are notification, cooperation, coordination, and positive and negative comity. The points were indeed put in the agreement chapter 11 article 126 and 127.114 5. Investment/Trade in Services Investment is the activity of committing money or acquiring property that is aimed for future income.115 Along with trade in services, this field is being emphasized by Japan as the greatest importance sector negotiated under the agreement. In the area of investment, Japan was interested in national treatment, most favored nation treatment and forbidding on performance requirements. They were also interested in liberalizing the service sectors, such as, manufacturing, construction, information and communication, transportation and tourism, financial, distribution, and legal services. Regarding this matter, Indonesia agreed to what Japan

113 Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report. (2005). Ministry of Foreign Affairs of Japan. May 2005. http://www.mofa.go.jp/region/asia- paci/indonesia/summit0506/joint-3-2.pdf (accessed March 2017). 114 Agreement between Japan and the Republic of Indonesia for an Economic Partnership. (2007). Op Cit 115 Investment Definition. Business Dictionary. http://www.businessdictionary.com/definition/investment.html (accessed March 2017).

has interested at and will further make progress on the liberalization beyond the WTO levels.116 6. Mineral Resources/Energy This sector is as important as the investment sector, in which it gives impact towards Japan’s energy security. Japan stated that it is an important pillar in the agreement and they were willing to keep the negotiation in regards to this matter as constructive as possible in which Indonesia stated that they agreed to this. Japan is known for its dependant on Indonesia’s natural resources. They requested Indonesia to deregulate the matters on market participation limitation for the Japanese companies, increase the investment towards the environment, and secure a stable energy and mineral resources even in an emergency. 117 The deregulation was then listed in chapter 8 article 99 until 101, while the issue on environment issue listed in 102, and regarding the emergency stable energy supply it did not listed in the agreement.118 7. Movement of Natural Persons Movement of Natural Persons is one of the ways a trade in services can be done in international trade. It covers about the person who is acted either as the supplier of services, or the worker for the supplier, and the one that is exist among the WTO member to supply the service.119 Japan stated that they will accept the workers that are already a professional or technical to work in Japan yet to accept unskilled workers it

116 Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report. (2005). Ministry of Foreign Affairs of Japan. May 2005. http://www.mofa.go.jp/region/asia- paci/indonesia/summit0506/joint-3-2.pdf (accessed March 2017). 117 ibid 118 Agreement between Japan and the Republic of Indonesia for an Economic Partnership. MInistry of Foreign Affairs of Japan. 2007. www.mofa.go.jp/region/asia- paci/indonesia/epa0708/agreement.pdf (accessed March 2017). 119 Movement of Natural Persons. World Trade Organization. https://www.wto.org/english/tratop_e/serv_e/mouvement_persons_e/mouvement_persons_e.htm (accessed March 2017).

would difficult. They explained their interests in the impunity of short-term visitor to give payment for the skill development funds, equal treatment like the ASEAN countries treatment in short-term visa. Japan also wanted a fiscal tax exemption and elimination on a manager for personnel division requirement of its nationality. However, Indonesia cannot granted Japan’s request on the exemption of fiscal tax due to the purpose of it is to gain tax credit from the residents that wants to go abroad and nationality requirement cannot be eliminated due to Law no. 13/2003.120 8. Government Procurement Government procurement is a regulation that is made with the view that the contribution of government spending to the purchase of goods and services contributes greatly to GDP which has a significant share in the international economy. Therefore, according to the WTO, it is important to ensure that the government's decision to buy goods and services does not depend on where the goods are produced or services is being donated, nor depend on affiliation with foreign providers. 121 Hence, Japan was stressed the point on the necessity to discuss transparency of procedures on this sector and also the market access. In return, Indonesia explained that they were currently in progress towards reforming the enactment of Presidential Decree No.80/2003 which beyond certain brink permits foreign companies in market participation.122

120 Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report. (2005). Ministry of Foreign Affairs of Japan. May 2005. http://www.mofa.go.jp/region/asia- paci/indonesia/summit0506/joint-3-2.pdf (accessed March 2017). 121 Sandrey, Roy. (2006). WTO and the Singapore Issues. Working Paper No.128, 2006. 122 Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report. (2005). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/region/asia- paci/indonesia/summit0506/joint-3-2.pdf (accessed March 2017).

9. Improvement of Business Environment Japan stated that there is a strong correlation between the advancement of investment environment and the advancement of business environment in Indonesia, in which there should be a stable mechanism under the agreement. Both countries confirmed they shared the same interest in establishing a more favorable business environment so that it could facilitate the promotion of the confidence in business between companies of each country.123 Japan stressed out the needs to produce a stable mechanism where problems and its solution could be found in the same time, in which the request has been granted and listed in chapter 12 article 131.124 10. Cooperation In the cooperation sector, Japan expressed their view on the necessity to have a balance between cooperation and market access particularly in agriculture, forestry, and fishery field. Japan found it difficult to respond Indonesia’s request on providing technical support and human resources development in regards to advance the fishery resources management system, technical assistance to handle fruit flies, and cooperation to preserve the mangrove forest. Japan stated that the requests could give negative impact for food security and ongoing structural reforms of agricultural field of Japan. Instead, Japan negotiated to be agreed on a small scale engagement towards the fields.125 After discussing and negotiating each other’s interest towards the JIEPA, Japan and Indonesia officially signed the

123 Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report. (2005). Op Cit. 124 Agreement between Japan and the Republic of Indonesia for an Economic Partnership. (2007). Ministry of Foreign Affairs of Japan. www.mofa.go.jp/region/asia- paci/indonesia/epa0708/agreement.pdf (accessed March 2017). 125 Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report. (2005). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/region/asia- paci/indonesia/summit0506/joint-3-2.pdf (accessed March 2017).

agreement on August 20, 2007 by Prime Minister Shinzo Abe from Japanese side and President Susilo Bambang Yudhoyono from Indonesian side which later followed by an exchange of diplomatic notes regarding the entry into force of JIEPA. The cabinet decided to have an exchange of notes in Tokyo on June 1, 2008 and JIEPA was entered into force on July 1, 2008. The EPA believed to further vitalize and tightened the bilateral relations of Japan and Indonesia through an economic partnership.126

V.4. Outcomes of the JIEPA for Japan

JIEPA has officially entered into force on 2008 after Japan and Indonesia has so much to be prepared in establishing the agreement. From the ten issues that were discussed to be put as the substance of JIEPA, there are four main issues that became the focus on JIEPA negotiation, which are, trade liberalization, energy, investment, and movement of natural persons. Both countries has shared their belief towards the successfulness of the agreement, especially for Japan that initiate the partnership and has been in efforts to promote EPA with countries they believed would give benefits for the prosperity of Japan.

V.4.1. Trade Liberalization

Committing on establishing an EPA is the beginning on revitalizing the economic relations between Japan and Indonesia after the economic crisis of Indonesia in 1997. During the period of 1958 until 1998, Japan has a close tie relations with Japan which was shown by the increasing volume of trade between the two countries. 127 As the two countries have stated in numerous occasion, both have enjoyed a

126 Exchange of Diplomatic Notes concerning the Entry into Force of the Economic Partnership Agreement between Japan and Indonesia. (2008). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/announce/announce/2008/5/1180458_1010.html (accessed March 2017). 127 Bakce, Djaimi, Moch. Rum Alim, and Eko Wahyudi. (2006). Bagaimana Bentuk Hubungan Perdangan Antara Indonesia dan Jepang: Komplementer atau Kompetitif. Presented on seminar "Onko Chishin: Hubungan Kerjasama Indonesia-Jepang". Jakarta, 2006. 6.

complementary relations. And with the EPA that is enforced now, it should give both countries the chance to gain benefits. Inside the agreement on trade liberalization, Indonesia agreed to give zero percent tariffs from 58% tariffs when the EPA is enforced, and around 35% of other customs tariff will be lowered gradually during three to ten years after the agreement. 128 Moreover, Indonesia had an exceptional towards the opening of market access around 7% from their 11.163 post tariffs. The trade liberalization will give impact towards the increasing activities on export of the two countries. The export values expected from Indonesia to Japan increased to 9.5% while the export values of Japan to Indonesia expected to increase to a number 26.5%.129 However, an economic crisis stroke the world in 2008 which affected by the Lehman Brothers bankruptcy that impacted the world economy.130 Japan and Indonesia was not an exceptional to be affected as shown in the graphic on the year of 2009. Yet, it did not stop them to keep being optimistic towards the successfulness of JIEPA and it proved in the graphic on the year of 2010, where Japan has increased their export values which continued to do so in the next year. As shown from the graphic, the trade liberalization under the JIEPA indeed brings benefits towards the export values of Japan. The export value has proved to be steadily increased over the years after the JIEPA is enforced.

128 Agreement between Japan and the Republic of Indonesia for an Economic Partnership. (2007). Ministry of Foreign Affairs of Japan. www.mofa.go.jp/region/asia- paci/indonesia/epa0708/agreement.pdf (accessed March 2017). 129 Sadewa, Prubaya Yudhi. (2007). Mencermati EPA RI-Jepang. Analisis Reksadana. 130 The Origins of the Financial Crises. (2013). The Economist. http://www.economist.com/news/schoolsbrief/21584534-effects-financial-crisis-are-still-being- felt-five-years-article (accessed March 2017).

Figure ７Trade Values of Japan131

35 30 25 20 Export 15 Import 10 Trade Balance 5 0 2004 2005 2006 2007 2008 2009 2010 2011

V.4.2. Energy

The issue on energy has since been proposed by Japan in the Joint Study Group to be put in the agreement.132 Japan has been a consumer of natural gas, particularly on Liquefied Natural Gas (LNG) from Indonesia since in the mid of 1970s. Japan has been invested on natural gas sector in Indonesia and would continue to do so. Energy security is one of the most important purposes for Japan to establish EPA/FTA with other countries. “In order to build "win-win relationship" with other countries, and to establish foundation for shared prosperity, we are promoting Economic Partnership Agreements and Free Trade Agreements. It is also important to promote foreign policy to secure stable supply of resources, energy and food that are necessary for economic growth from a comprehensive perspective.” (Seiji Maehara, 2010)133

Through the JIEPA, Japan is able to invest more in energy sector and creates equitable and transparent conditions for Japanese investors.

131 Japan Trade Statistics. Japan External Trade Organization. https://www.jetro.go.jp/ext_images/en/reports/statistics/data/country1_e_15cy.xls (accessed March 2017). 132 Japan-Indonesia Eocnomic Partnership Agreement: Joint Study Group Report. (2005). Ministry of Foreign Affairs of Japan. May 2005. http://www.mofa.go.jp/region/asia- paci/indonesia/summit0506/joint-3-2.pdf (accessed March 2017). 133 Speech by H.E. Mr. Seiji Maehara, Minister for Foreign Affairs of Japan at the Third Bali Democracy Forum. (2010). Ministry of Foreign Affairs of Japan. http://www.mofa.go.jp/region/asia-paci/indonesia/bdf/speech1012.html (accessed March 2017).

Japan invests several billion dollars in energy deals inked on the sidelines of the JIEPA, such as, investment on refinery expansion in Balikpapan and Balongan by Itochu around US$3.2BB, LNG infrastructure in Senoro by Mitsubishi-Pertamina-Medco with the amount of investment around US$1.4BB, and refinery expansion in Cilacap by Mitsui around US$1.9BB.134 Energy cooperation that is constructed under the JIEPA, was important for Japan to be able to keep getting energy resources from Japan as it was difficult to import energy from Indonesia at the time. Indonesia was started to become a net importer crude oil in 2004. 135 It affected Indonesia to take actions by shifting their export on LNG to focus on domestic use as it was used for being an alternative energy substitution of the costly oil. This came as an obstacle for Japan as they already insist on putting energy import issues in the JIEPA. However, that did not stop Japan to urge Indonesia in giving their energy supplies. Japan found their way to turn the declined request by instead proposed to invest on energy exploration which Indonesia has agreed to. 136 Since then, Japan has been able to secure energy supply, particularly LNG, from Indonesia under the JIEPA, and on the other hand Japan has always been the biggest country of Indonesia’s energy export.

134 Boyd, Michael.(2009). Energy in the Japan-Indonesia Economic Partnership Agreement. The Institute of Energy Economics Japan. eneken.ieej.or.jp/data/2928.pdf (accessed March 2017). 135 Oil and Gas in Indonesia. (2014). PricewaterhouseCoopers. May 2014. https://www.pwc.com/id/en/publications/assets/oil_and_gas_guide_2014.pdf (accessed March 2017). 136 Stott, David Adam. (2008). The Japan-Indonesia Economic Partnership: Agreement between Equals? The Asia-Pacific Journal.

Figure ８Energy Exports of Indonesia to Japan137

20 18 16 14 12 LNG 10 Crude Oil 8 Petroleum Oil 6 4 2 0 2004 2005 2006 2007 2008 2009 2010 2011

V.4.3. Investment

Japan strongly emphasizes that the Indonesian government should improve the investment climate. Japan's seriousness in terms of economic relations was demonstrated by Abe's Prime Minister, bringing about 200 Japanese businessmen delegates, the largest delegation in the history of Japan's overseas visit to Indonesia by the end of August 2007. 138 Abe specifically stated that this demonstrates the strong enthusiasm of Japanese businesspeople Indonesia. There is an emphasizing on relations in the economic sector with the hope that cooperation in the field can be more concrete and progressive.139 In his visit on 20 August 2007 to sign the EPA

137 Compiled by the researcher from “Ekspor Gas, Minyak Bumi, dan Hasil Minyak Bumi Menurut Negara Tujuan Utama . Badan Pusat Statistik. 2017. https://www.bps.go.id/linkTabelStatis/view/id/1013, https://www.bps.go.id/linkTabelStatis/view/id/1011, https://www.bps.go.id/linkTabelStatis/view/id/1012 (accessed March 2017). 138 Susilo, Richard. (2007). EPA RI-Jepang: Ada yang Menggantung. Kompas. Agustus 27, 2007. (accessed March 2017). 139 Pertajam Strategi Industri RI. Kompas. August 21, 2007. https://www.google.co.id/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahUKEwjn5JO zmYzUAhVBO48KHTk_AIUQFggrMAE&url=http%3A%2F%2Fperpustakaan.bappenas.go.id%

with Indonesia, Prime Minister Shinzo Abe is also scheduled to sign a number of economic and investment cooperation agreements with President Susilo Bambang Yudhoyono. The economic and investment cooperation agreement covers the inauguration of a number of projects in the field of energy and energy. The investment will be focused more on providing a better infrastructure to support a better production and distribution. “In order to realize sustained, robust and high-quality growth that benefits each and every one of the people, it is necessary to appropriately and effectively respond to these infrastructure needs. Japan will continue to contribute to infrastructure development in Asia and Africa through “high-quality infrastructure investment” by utilizing various channels of economic cooperation Japan has and also by mobilizing private-sector funds and knowhow under partnerships with international institutions such as the World Bank, the Asian Development Bank and the African Development Bank” (Shinzo Abe, 2015)140

Figure ９: Japan Outward FDI to Indonesia141

10 FDI 5

0 2004 2005 2006 2007 2008 2009 2010 2011

2Flontar%2Ffile%3Ffile%3Ddigital%2Fkliping%2FPertajam%2520strategi%2520Industri.pdf&us g=AFQjCNFLO1o (accessed March 2017). 140 "Prime Minister Shinzo Abe's Interview with Jakarta Post." (2015)Ministry of Foreign Affairs of Japan. April 22, 2015. http://www.mofa.go.jp/p_pd/ip/page4e_000242.html (accessed March 2017). 141 "Japan Outward FDI Flow by Country and Region." (2015).Japan External Trade Organization. https://www.jetro.go.jp/ext_images/en/reports/statistics/data/country1_e_15cy.xls (accessed March 2017).

Indonesia is in need of FDI guarantee from Japan and very much hopeful of the Japanese FDI to help restore Indonesia's post-crisis economy by increasing the number and capacity of industries in Indonesia. It could be concluded that Japan has a focus on what they want to improve from doing investment in Indonesia. In conjunction with the enforced JIEPA, Japan believed Indonesia is truly suit the vision that Japan had as their investment kept increased over the years.

V.4.4. Movement of Natural Persons

Japan has the highest rates of elderly people in the world, as many as 40% of the population will be 65 years and older by 2055.142 One of the problems posed by this elderly issue is the decline in the labor force, one of them in the health sector. The Japanese government provided labor quotas for 1,000 people in two years under the JSG recommendations and the results of the Indonesia-Japan negotiations on the placement of nursing workers and elderly caregivers. Under the JIEPA framework, the delivery of nurses and caregivers will be done as many as 200 nurses and 300 nursing caregivers each year. In 2008 the numbers of placements are realized as much as 208 people nurses. After a 2-3 year contract, these workers are welcome to continue working in Japan indefinitely. As has been seen in the JIEPA sub-section, Japan previously refused to accept nurses from Indonesia. The reason was that Japan has made the same agreement to receive labor from the Philippines. However, Japan changed its decision by prioritizing workers from Indonesia compared to Filipinos.143 This change is due in part to Japan's demand for Indonesia regarding the stability of energy supply and improvement of the investment climate.

142 Reynolds, Isabel. (2008). Ageing Japan to get first foreign nurses-report. http://www.bilaterals.org/article.php3?idarticle=12140 (accessed March 2017). 143 Jepang siap terima perawat asal Indonesia. Kompas. June 20, 2008.

CHAPTER VI CONCLUSION

The world is affected by globalization which influences how states should behave nowadays. Interdependency between states has emerged due to globalization, in which made states to take more effort in their diplomacy capability particularly in doing trades with other countries. Trade is highly important between states in surviving and gaining national interests as interdependence is growing more between them. Although international trade has been done even before the World War era, the necessity of doing international trade nowadays is highly important as globalization affected states being interdependent towards another.

The traditional way of doing trade is through the WTO negotiations, however states have realized that in order to survive in the global politic, states cannot do trades in a traditional way anymore, which resulted in the emerge of FTA. FTA allows the parties that agreeed on it to have a zero tariff trade between each other. The emergence of FTA have affected how states do trade nowadays as more and more of them tried to establish the agreement with countries they want to have partnerred with.

Japan is a country which have obeyed the sprit of GATT where they do not want to do FTA because it will make them to discriminate the countries they have not FTA with. However, the fear of being excluded from the global EPA/FTA game has led Japan to have rearrangement on its policies of international economic. The signed agreement between Japan and Singapore showed the first commitment of Japan in entering the EPA arena and step up its game on international trade.

Since the first EPA that Japan has established with Singapore, they become focused on promoting EPA with other countries which they have criteria for the countries to establish an EPA with Japan. As they were searching for the perfect partner, Indonesia has became their interest to establish an EPA with. Japan and Indonesia relations have been somewhat complementary so it was not that difficult for Japan to propose the EPA with Indonesia. Japan is also the biggest

69 donor of ODA and FDI towards Indonesia, so they are certainly have more influence towards Indonesia rather than Indonesia towards Japan. Meanwhile Indonesia is the one of Japan’s biggest supplier of LNG. So both countries have an interdependent kind of relations. However, the process of negotiations was not that easy due to some of the substance of the negotiation that Japan has interested to discuss yet the Indonesian side have to respond negativelyin guaranteeing Japan’s request, particularly in energy sector.

Thus, Japan has to negotiate their way with Indonesia so that Japan could still gain their interest and the agreement will continue to do so. As the negotiation is in progress, Japan slowly execute their strategy to get a win-win solution. Hence, in the end Japan is able to propose an alternative way to gain their interest which Indonesia agreed to. In particular Japan needed to find alternative way to negotiate regarding the energy sector, which was what Japan urged to be negotiated in the JIEPA.

Japan certainly calculated throughly for making Indonesia as their partner for EPA, in which they need Indonesia for their resource particularly in energy sector. Indonesia on the other hand have to carefully made decision upon granting Japan’ s demand or not, because Indonesia could not just granted every request Japan has stated. Yet, the side that would gain the most advantages is certainly Japan due to their powerful nature in terms of economy, and that Indonesia is still in debt with Japan.

In conclusion, this thesis has analyzed the reasons behind Japan’s commitment to promote EPA, which is for the purpose of level their game up in the international trade and by establishing with countries surround the region is one of the proper way to sustain the prosperity and security for Japan. Regarding the reasons, this thesis has also analyzed why Japan wanted to establish an EPA with Indonesia, in which for the reason of Indonesia fitted well to be a partner in an EPA and that they have gone through such a strong bilateral relations. Finally, Japan has successfully executed their economic diplomacy towards the establishment of an EPA with Indonesia.

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Appendices