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View all search resultsIndonesia secures free palm oil tariffs, but has hands tied on textiles, mining
The deal 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 like Indonesia.
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A worker arranges fruit on a truck at an oil palm plantation in Pangkalan Bun, Central Kalimantan. (JP/Dhoni Setiawan)
I
ndonesia and the United States 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 Indonesia's senior economic minister 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 press conference, describing the deal as a "win-win" for both countries.
Palm oil was a particularly important exemption, accounting for around 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, however, has a slightly higher rate of 20 percent.
Malaysia, another major exporter of palm oil, also has a tariff exemption for that product, as well as for cocoa and rubber.
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, said Yose Rizal Damuri, executive director of CSIS Indonesia.
"If Indonesia could multilateralize some of its commitments to the United States and use them as a basis for deregulation, that would increase trust in Indonesia and that's something that should be taken advantage of, optimized," he added.
Under the deal, textile products from Indonesia will be subject to a 0 percent levy under a quota mechanism that is still to be discussed. The quota will be determined by the quantity of US materials such as cotton and man-made 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 will remove tariff barriers on most US products across all sectors and address a range of non-tariff barriers such as local content requirements, according to a White House fact sheet.
It will 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 like Indonesia.
Under the agreement, Indonesia will 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.
And Indonesia will 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.
President Prabowo Subianto has travelled to Washington for the deal and to attend the first leaders' meeting of US President Donald Trump's Board of Peace.
Prabowo and Trump on Friday 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 $38.4 billion.
