Indonesia and the US on Thursday finalized a trade deal to cut US levies to 19 percent from 32 percent on goods shipped from Southeast Asia’s biggest economy, with Jakarta securing tariff exemptions for its top export, palm oil, and several other commodities.
The agreement was signed in Washington by Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto and US Trade Representative Jamieson Greer after months of negotiations.
“This deal respects the sovereignty of both countries,” Airlangga said during an online news conference, describing the deal as a “win-win” for both countries.
Photo: EPA
Palm oil was a particularly important exemption, accounting for about 9 percent of Indonesia’s overall exports.
Indonesian coffee, cocoa, rubber and spices would also be tariff-free, Airlangga said.
The 19 percent rate is on par with US deals with Southeast Asian rivals such as Malaysia, Cambodia, Thailand and the Philippines. Vietnam has a slightly higher rate of 20 percent.
The deal comes after a rough start to the year for Indonesian markets. Setbacks include last month’s warning from index provider MSCI that the equity market risked a downgrade to “frontier” status over transparency issues, as well as Moody’s cutting of the country’s credit rating outlook two weeks ago that cited reduced predictability in policy making.
Investor confidence in Indonesia could improve if Jakarta uses the US deal as a springboard for further reform, CSIS Indonesia executive director Yose Rizal Damuri said.
Under the deal, textile products from Indonesia would be subject to zero tariffs under a quota mechanism that is still to be discussed. The quota is to be determined by the quantity of US materials such as cotton and manmade fiber used in textiles.
The US dropped requests to add non-economic provisions to the deal, including those related to nuclear reactor development and the South China Sea, Airlangga said.
In return, Indonesia would remove tariff barriers on most US products across all sectors and address a range of non-tariff barriers such as local content requirements, a White House fact sheet said.
It would also accept US product standards on vehicle safety, emissions, medical devices and pharmaceuticals.
The deal also appears to take aim at what analysts have said are concerns in Washington about China’s stranglehold on many critical minerals and the offshoring of Chinese companies’ operations to countries such as Indonesia.
Under the agreement, Indonesia would implement restrictions on “excess production” by foreign-owned mineral processing facilities by ensuring production conforms to Indonesian mining quotas. Such minerals include nickel, cobalt, bauxite, copper and manganese.
Jakarta has also agreed to take action against companies owned or controlled by foreign countries operating within its jurisdiction when their practices harm US trade interests.
Moreover, Indonesia would facilitate US investment in critical minerals and energy resources, as well as cooperate with US companies on expediting development of its rare-earth sector.
The deal is due to take effect 90 days after both sides complete related legal procedures, Airlangga said, adding that changes could still occur if both sides agree.
Indonesian President Prabowo Subianto and US President Donald Trump on Thursday signed a document titled “Implementation of the Agreement Toward a NEW GOLDEN AGE for the US-Indonesian Alliance,” which the White House said would help both countries to strengthen economic security and growth.
Earlier this week, Indonesian and US companies signed deals worth US$38.4 billion.
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