Indonesia expects export, investment boost after US extends trade privileges

Indonesian exports have been enjoying the GSP facility given by the US since 1980.
Indonesian exports have been enjoying the GSP facility given by the US since 1980.PHOTO: REUTERS

JAKARTA - Indonesia is expected to enjoy a boost in exports amid US-China tensions, after the US extended special tariff concessions to South-east Asia's largest economy.

The privilege, called the Generalised System of Preferences (GSP), covers more than 3,500 merchandise items ranging from electronic products and children's toys to sports equipment and wigs. Last year, about 700 Indonesian export products shipped to the US used this facility.

Indonesian exports have been enjoying the GSP facility given by the US since 1980. In 2019, Indonesian exports worth US$2.61 billion (S$3.56 billion), or 13 per cent of its total US$20.1 billion exports to the US, were eligible.

In 2018, the US said it reviewed the eligibility of Indonesia and several other developing countries, including India, for the GSP. On Oct 30, the US decided to close the review for Indonesia, making it the only country in Asia that did not see any change of terms in its GSP status.

The decision to close the review - taken only days after US Secretary of State Mike Pompeo visited Jakarta last week - would also place Indonesia in a better bargaining position to attract major companies wanting to shift their production base from China, or wanting to diversify their production base beyond just one or two locations, according to the Indonesian government.

In an Oct 30 letter to Coordinating Maritime Affairs and Investment Minister, Mr Luhut Pandjaitan, to inform the government of the decision, US trade representative Robert Lighthizer said he welcomed, among others, Indonesia's latest move in streamlining red tape intended to expedite increases in US imports of fruit to Indonesia.

"Closure of this review is a recognition of Indonesia's positive and productive engagement over the past 2½ years to strengthen the trade relationship between the US and Indonesia by addressing the market access concerns we raised," Mr Lighthizer said in the letter seen by The Straits Times.

The US is the fourth largest fruit exporter to Indonesia after China, Thailand and Australia. In 2019, the US shipped US$125 million (S$170 million) worth of fruit to Indonesia.

Meanwhile, the US is Indonesia's second largest export destination after China for non-oil and gas, with exports to the US totalling US$20.1 billion in 2019.

President Joko Widodo told his Cabinet on Monday (Nov 2) that Indonesia should use the GSP extension to attract investors to come into the country, noting that manufacturing plants were moving out of China to circumvent tariffs imposed by the US on Chinese goods in their trade war.

"It would be good if we can use this to attract investment… This facility would encourage investors to set up plants, companies in Indonesia," Mr Joko told his ministers on Monday.

Vice-Foreign Minister Mahendra Siregar added: "Not only Indonesia's export would increase, but investments would also increase. Investments from the US, other foreign countries, as well as domestic."

He added that Indonesia's growing digital business and information communications technology business would also attract further investment, citing a research report that forecast Indonesia's digital economy, currently valued at US$40 billion, would grow to US$133 billion in five years.

Indonesian ambassador to the US Muhammad Lutfi told reporters on Monday during a virtual briefing that the GSP extension given to Indonesia was based on the mutual gains of Indonesia's further opening up of its market to the US.

He cited the example of how Indonesia recently ended longstanding protectionism in the potato sector, allowing premium American-farmed potatoes to be supplied to the local snack industry.

"We used to focus on how we could import as little as possible and export as much as possible. This is an old mindset that we can no longer cling to. It is an era of collaboration now," Mr Lutfi said.

He added that among the parties that would benefit the most from the continued GSP facility in Indonesia are the small and medium-sized enterprises, especially those that make jewellery, travel goods (such as backpacks and camping tents), furniture, whose products sell very well in the US.