What Does Indonesia Get Out of the US-Indonesia Agreement on Reciprocal Trade? |
Pacific Money | Economy | Southeast Asia
What Does Indonesia Get Out of the US-Indonesia Agreement on Reciprocal Trade?
Jakarta has made numerous concessions in the agreement but there is little evidence of reciprocity from Washington.
In February, U.S. President Donald Trump and Indonesian President Prabowo Subianto signed an Agreement on Reciprocal Trade, the outline of which was agreed to during a phone call between the two leaders last year. Basically, after the United States threatened to levy a 32 percent tariff on Indonesia, negotiators brought it down to 19 percent by agreeing to buy more American products, particularly energy and agricultural commodities.
In a case of exceptionally poor timing, right after the deal was inked, the United States Supreme Court ruled that Trump’s use of tariffs in this manner was unconstitutional. This means the threatened 32 percent tariff used as leverage to negotiate the deal is no longer valid. Does that mean the 19 percent tariff agreed to under the deal still applies? Hard to say.
What we can say is that the deal, whether it is ultimately enforceable or not, appears to be quite one-sided, with Indonesia making numerous concessions and little evidence of reciprocity from the United States. The phrase “Indonesia shall” appears more than 200 times in the 45-page document. The phrase “United States shall” appears 9 times.
Among the many things Indonesia shall do under the terms of the deal are facilitate $10 billion of direct investment in the United States and import up to $33 billion worth of U.S. goods and services, mostly energy, aviation and agricultural products. Indonesia shall remove tariff barriers for most U.S. goods, exempt them from local content requirements and accept U.S. certification and standards.
The U.S. also expects Indonesia to join it in some kind of global trading bloc. Indonesia shall help “combat transshipment and other practices to evade or circumvent duties and other measures applied by the United States.” If Indonesia enters into a bilateral free trade agreement with another country that “jeopardizes essential U.S. interests,” the U.S. can reimpose the 32 percent tariff rate, which, you will remember, has now been ruled unconstitutional.
A remarkable clause states that if the United States takes trade-related action against a third country, “Indonesia shall adopt or maintain a measure with equivalent restrictive effect as the measure adopted by the United States.” Indonesia shall also set up a screening mechanism for foreign investment and “cooperate with the United States on matters related to investment security.” I wonder whose security they have in mind here. The text doesn’t say.
In return, the United States shall exempt certain Indonesian goods, particularly textiles, from tariffs. But much of this........