Indonesia braces for looming US trade war, local industry players calling for govt help

Coils of steel in storage at a port authority facility in Hamilton, Ontario, Canada, on March 9, 2018.

JAKARTA (THE JAKARTA POST/ASIA NEWS NETWORK) - Indonesia is preparing for heightened trade barriers in the United States as the world's biggest economy steps up its fight against a trade deficit and enforces what it claims to be fair trade.

US President Donald Trump set import duties of 25 per cent on steel and 10 per cent on aluminium last Thursday (March 8). The new arrangement is scheduled to take effect 15 days following the announcement and will affect all of its trade partners, excluding Canada, Mexico and Australia.

The European Union, for instance, has revealed its intention to retaliate, targeting a set of key US products, from whiskey to motorcycles.

Indonesian Iron and Steel Industry Association executive director Hidayat Triseputro said the local industry might soon feel the impact of the US policy and, therefore, metal manufacturers would rely heavily on the government to help them contain the diverted steel exports from other manufacturing countries, especially China.

Such a condition might also be worsened by the recently passed Trade Ministerial Decree No. 22/2018, which exempts imported steel from technical supervision by the Industry Ministry and allows post-border inspection instead of thorough checks prior to the entry of imports to the country.

"This condition can overturn our production improvement in 2017, which is our first time seeing improved production capacity in five years," Mr Hidayat told The Jakarta Post on Sunday.

In response to the development, the group demanded that the government address a loophole in steel's classification under a harmonised system, which would relieve import duties on steel if more alloy and other particles were added to them.

Indonesian Chamber of Commerce and Industry (Kadin) deputy chairman Shinta Kamdani highlighted lobbying as key to overcoming the matter.

"We should lobby the US government through all means, such as through the Trade and Investment Framework Agreement, so we can be exempted from the rules just like Canada and Mexico," Ms Shinta told the Post by text message.

On the other hand, domestic steel manufacturers, along with iron and aluminium, should be able to reap more opportunities from the situation by further diversifying their products, even though high production costs still pose challenges, she added.

The EU and Japan are in talks with the US for exemptions from the newly passed import tariffs.

However, Trade Ministry's foreign trade director general Oke Nurwan told the Post that Indonesia would not be affected much by US metal tariffs as the former did not export a significant amount of such products to the US.

Indonesia's iron and steel exports amounted to US$1.83 billion in 2016, while overseas shipment to the US totalled only US$26.26 million, according to the latest data from the Geneva-based Trade Map.

However, Mr Oke was aware of the indirect impact of the policy that may come in the form of an influx of metal imports from other countries.

"What will bother us is when key metal producers try to find other markets to sell their products (outside the US)," he said, referring to Asian manufacturers, such as from China.

Mr Oke further said that for now, the government's focus was to balance Indonesia's need for metal products to support massive infrastructure projects and the interests of local manufacturers.

Industry Minister Airlangga Hartarto said the government would observe the development and anticipate a surge in imports.

"We need to monitor imports from other countries, particularly China. If that (influx) happens, we can use safeguards," he said, referring to additional import duties and import quotas under the trade rules set by the World Trade Organisation.

Prior to the US' latest move to enact trade barriers, Indonesia faced allegations of unfair trade practices in the former, affecting products such as biodiesel.

In April 2017, the US administration put Indonesia on its trade watch list along with 15 countries as the former had suffered a significant deficit and aimed to step up its measures against trade imbalance.

Indonesia posted a US$9.67 billion (S$12.7 billion) surplus from its trade with the US in 2017, widening by 9.3 per cent year-on-year, according to data from the Trade Ministry.

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