Bracing for the Storm
The United States and the WTO are questioning Indonesia’s restrictive import policies. Our trade surplus with the US could soon be gone.
It’s time for the Indonesian Government to start taking seriously United States’ threats of a full-blown trade war. President Donald Trump’s administration seems ready to challenge not only trade-related issues through the World Trade Organization mechanism, but also revoking lower import duties known as the Generalized System of Preference for Indonesia.
Three years ago, the US and New Zealand complained to the WTO about Indonesia’s restrictive policies for the imports of horticultural products and animals and animal products from the two countries. On December 22, 2016, the dispute panel announced that 18 of Indonesia’s measures were not in line with WTO principles and asked Indonesia to revoke them.
Indonesia is clearly in the wrong because it did not fulfil its policy obligations as set by the WTO by the first deadline of July 22. America was angered, and asked for authorization from the WTO Dispute Resolution Panel to delay the granting of trade concessions to Indonesia in relation to the dispute the US had complained about. The US also asked Indonesia to make a retaliation payment of US$350 million, or almost Rp5 trillion.
At the same time, the US also threatened to revoke the Generalized System of Preferences (GSP) facility provided to Indonesia for 124 products. If this facility is ended, Indonesia will have to pay import taxes and other duties amounting to US$1.95 billion, or almost Rp128 trillion. This type of facility, which is allowed by the WTO, is provided by the US to 112 developing nations for around 5,000 export items to allow poorer countries to compete with developed nations.
It is this facility that the Trump administration wants to revoke, particularly for two countries, India and Indonesia. The US believes that the trade surpluses of these nations are too large. This removal is part of Trump’s strategy for the trade war, particularly with China. In 2017, Indonesia’s surplus with the US was US$9.7 billion, or around Rp139 trillion, or 46 percent of Indonesia’s 2017 total non-oil and gas trade surplus. But Indonesia has a huge deficit with China. This is about more than just a trade surplus: the threat to revoke the GSP is a US reaction to Indonesia’s restrictive trade policies that it raised with the WTO.
The US is one of Indonesia’s main trading partners, along with China and Japan. It is Indonesia’s export destination after China. Last year, Indonesia sent goods and products worth US$17 billion, or around Rp240 trillion, while goods sent from the US to Indonesia were worth less than half of that. Clearly Indonesia’s trade with the US is not only large, but very advantageous.
The problem is that the government is giving the impression that it is not speaking with one voice over this issue. While the Trade Ministry was lobbying the US, the Agriculture Ministry implemented policies that could cause problems. For example, the Agriculture Ministry allowed imports of apples from the US when that country was not harvesting apples, then stopped imports at harvest time.
It is very important that there is uniformity between ministries because many changes will be needed to ensure that Indonesia complies with the WTO Dispute Panel ruling. For example, many trade rules, up to the level of laws, will have to accommodate the WTO ruling. If Indonesia is not serious-including in controlling sectoral egos of different ministries-we will lose out. It is not a trivial matter: the US is not only questioning the apples issue, but also soybeans, oranges and even payment methods such as Visa and Master cards.