T

he government is preparing to lobby the United States Trade Representative (USTR) in a bid to maintain duty-free privileges under the Generalized System of Preferences (GSP) for exports to the world’s largest economy.

Coordinating Economic Minister Darmin Nasution said the government had been preparing material to lobby the US administration at an upcoming meeting in an effort to maintain the GSP.

“[The government’s goal] is to maintain the GSP because it has a considerable impact on our exports,” he said at his office in Jakarta on Wednesday.

Darmin estimated that Indonesia’s main commodity exports might drop around 30 to 40 percent if the GSP facility was lifted as Indonesian commodities to the US would be slapped with an increase in import duty of between 10 and 25 percent.

On April 12, the USTR announced on its website that it would review the GSP for Indonesia, India and Kazakhstan. Regarding Indonesia, the USTR said the concerns were over compliance with the GSP’s market access and services and investment critera.

The GSP gives preferential treatment in the form of tariff exemptions for imported products, and which is granted by developed to developing countries to promote economic development in the latter.

The USTR review emerged following a trade war between the US and China, which has been escalating recently.

Darmin said there would be a meeting between high-ranking government officials and the USTR in Singapore on July 17, which would be followed by another meeting between the two parties in the US on July 23.

Among the points of contention was the size of the trade deficit, Darmin said.

Aside from gaining benefits from the GSP, Indonesia also enjoys a similar scheme for its exports to Australia and the European Union, among others.

Indonesia was the fourth largest beneficiary of the GSP last year, booking US$2 billion of its exports to the US under the scheme, according to USTR data.

Meanwhile, India was the top beneficiary of the GSP over the same period with the scheme benefitting $5.6 billion of exports.

Indonesia posted a $9.67 billion surplus in its trade with the US last year, with exports booked at $17.77 billion and imports recorded at $8.12 billion, Trade Ministry data revealed. Indonesia’s major exports to the US last year included textiles, footwear and palm oil.

The US’ trade deficit with Indonesia, however, may be wider as the US Census Bureau recorded a $13.34 billion deficit in 2017, with US exports posted at $6.86 billion and imports recorded at $20.2 billion over the same period.

Shinta W. Kamdani, Indonesian Chamber of Commerce and Industry’s deputy chairwoman for international relations, said the government’s efforts to maintain the GSP was important in keeping bilateral trade relations mutually beneficial.

“In addition to improving the competitiveness of some exports to the US, we believe that the GSP is particularly important for US businesses and consumers,” Shinta said in a statement recently. “The GSP allows US businesses and consumers to get quality goods at affordable prices.”

Meanwhile, University of Indonesia economist Fithra Faisal Hastiadi argued that the evaluation of the GSP was more of an effort by the US administration to open bilateral communication channels with Indonesia.

“It [the US] wants more control [over trade relations] through bilateral rather than multilateral or regional means,” he said.

Fithra said the government’s move to lobby the US administration was important amid escalating trade tensions between the US and China, the two largest economies in the world.

“The revision [of the GSP] would reduce the possibility of posting a surplus in our trade with the US, therefore it would add more pressure to the current account deficit and strain the rupiah even further, which is something we do not want,” he said.