The implementation of the Local Currency Settlement (LCS) officially began in early September 2021, as initiated by Bank Indonesia and the People’s Bank of China (PBC). LCS is an agreement between Bank Indonesia and the PBC regarding bilateral transactions using the Rupiah and the Yuan. This agreement supports the strengthening of cooperation under the One Belt One Road (OBOR) initiative, a collaboration between the Indonesian and Chinese governments that has been in place since 2016.
OBOR is a program launched by Chinese President Xi Jinping aimed at opening trade routes that connect countries across Europe, Asia, and Africa. These trade routes have the potential to generate significant benefits by expanding markets, improving logistics, facilitating infrastructure assistance, and increasing investment opportunities for participating countries. International cooperation in the economic sector has become a growing trend, opening pathways for global trade.
On the other hand, the Trans-Pacific Partnership (TPP) is a trade agreement endorsed by 12 countries, promoting economic integration across the Asia-Pacific region. One of the strongest supporters of the TPP was the United States. However, in 2017, U.S. President Donald Trump decided to withdraw from the agreement, reflecting a shift in his administration’s perspective on the TPP.
Initially, both the TPP and OBOR served as instruments of oversight and influence among nations—particularly for the United States and China, the two largest economic powers in the world. The fundamental differences between these two international trade agreements are as follows:
Parameter
Trans Pacific Partnership (TPP)
One Belt One Road (OBOR)
Definition
A partnership in free trade that covers the goods, services, and investment sectors, positioning the Pacific Ocean as a hub for international trade.
China’s economic openness program utilizes a trade route development scheme that connects the continents of Europe, Asia, and Africa.
Member
Originally, there were 12 member countries involved in this agreement: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States (which withdrew from the TPP in 2017).
As of now, the Belt and Road Initiative (OBOR) has involved 68 participating countries. Indonesia is one of the countries that supports and participates in the OBOR initiative.
Goals
Stimulate economic growth and create job opportunities
Enhance innovation, productivity, and competitiveness;
Improve living standards and reduce poverty;
Promote transparency in good governance;
Create protection for workers and the environment.
The main focus of the OBOR initiative is to connect the economies of Europe, Asia, and Africa through infrastructure development, financing, and/or investment
The Impact Caused
As of now, Indonesia has not yet joined the TPP. However, in a study released by the Australia Indonesia Partnership for Economic Governance (AIPEG), the TPP is expected to create opportunities for cheaper imports of raw materials and capital goods On the other hand, there is a potential risk of becoming overly dependent on foreign countries for continuous imports. This could also impact the creation of local job opportunities, as Indonesia may rely on imports from abroad rather than fostering domestic production.
The positive aspect of OBOR is that it drives economic development and infrastructure in Indonesia. This can be seen in the collaborative project for the Jakarta-Bandung high-speed railway development. However, the OBOR project may also have an impact on the labor conditions in Indonesia, including the potential large-scale recruitment of foreign workers. Additionally, the ease of investment financing could lead to an increase in Indonesia's foreign debt.
International trade policies certainly offer specific benefits for Indonesia, particularly in promoting economic development. Both the TPP and OBOR can bring positive impacts as well as other potential consequences. Therefore, it is essential for the government to play a more selective and strategic role in assessing which international agreements are most capable of driving Indonesia’s economic growth.
*Disclaimer: This article is for general information only and does not constitute legal advice. We accept no liability for any consequences arising from its use. Unauthorized use or reproduction is prohibited and may result in legal action.
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Source: Peter Cai, Understanding China's Belt And Road Initiative, Lowy Institute For International Policy, March 2017. Thomas Velk, A Trans Pacific-Partnership, The Antitrust Bulletin Vol. 60, 2015
Authors :
1. Sarah Caroline Arissanty
2. Auda Anniza S.
