AEC is an incentive for Indonesia to improve its competitiveness and efficiency due to the facts that extra-ASEAN export competition will be intensified at the completion of AEC and the high level of export similarity between ASEAN members. With the largest population and the largest GDP, abundance in terms of natural resources, and large potential in agriculture and fisheries, Indonesia is well equipped to gain the largest benefits from AEC in comparison to other countries. However, challenges in industrial development, infrastructure, bureaucracy and human resources impede Indonesia’s competitiveness, especially in ASEAN.
The issue of competitiveness is all the more important as Indonesia also needs to take more active part in the East Asia supply chain, especially in electronic component and automotive sector, which require strong manufacturing base. In this short paper, description of Indonesia’s trade with ASEAN at a glance is provided through trade and value-added trade statistics. The paper will delve deeper into the issue of competitiveness by looking at Real Effective Exchange Rate, Total Factor Productivity and Unit Labor Cost, as well as at the Constant Market Share Analysis.