JAKARTA: Indonesian products may lose their United States market to competitors with lower tariffs and a more favourable cost of doing business, according to the Indonesian Employers Association (Apindo).
The association said the competitiveness of Indonesian exports depends not only on tariffs imposed on Indonesia, but also on the treatment received by competing countries and Indonesia's own business costs.
"The key question is not only what tariff Indonesia gets, but what other countries get," Apindo chairwoman Shinta Kamdani told reporters on Tuesday, referring to Indonesia's competitors in labour-intensive industries such as textiles, garments and footwear.
Her remarks came after Indonesia was subjected to a 10 per cent tariff under Section 301 of the United States Trade Act of 1974, which targets countries deemed not to have effectively enforced prohibitions against imports produced using forced labour, while the country is still awaiting the outcome of a US investigation into alleged excess production capacity.
"Our main concern now is Cambodia. Cambodia may only get a 10 per cent tariff, with no additional duties. It's just the 10 per cent tariff for forced labour and may not be subject to excess-capacity tariffs. The Philippines is in the same position," she said.
Along with Indonesia, Cambodia is among 16 economies awaiting the outcome of an excess-capacity investigation by authorities in Washington, while the Philippines is not a target of the probe.
Shinta said Indonesia should focus on securing exemptions under its Agreement on Reciprocal Trade (ART) with the US, particularly for labour-intensive products.
"One thing we need to pay attention to is the exemptions under our ART with the US. For example, textiles and garments could qualify for exemptions through special import quotas under the tariff-rate quota (TRQ) scheme," she said.
"What we need to see is whether Indonesia will actually receive those exemptions, because if we do, the tariff would effectively be zero."
Shinta also emphasised that Indonesia's competitiveness ultimately depends on lowering its cost of doing business.
While Vietnam is subject to a higher 12.5 per cent tariff under the US forced labour measures, she said it remains more competitive because of its lower production and operating costs.
"If our products enter the US market with higher costs, then we simply cannot compete. When we compared production costs between Vietnam and Indonesia, we found that Vietnam is more competitive," she said.
University of Indonesia economist Telisa Falianty agreed that tariff differentials with competing countries would affect Indonesia's export competitiveness. However, she argued that tariffs are not the only significant factor.
"We can also use another approach, business-to-business negotiations. We can share the burden with businesses in the US, which also need our products," she told The Jakarta Post on Wednesday.
She also suggested the government improve Indonesia's overall investment climate to remain competitive against regional peers.
Among the reforms she proposed were strengthening the implementation of the risk-based Online Single Submission (OSS) system, eliminating illegal levies, improving regulatory certainty, lowering energy costs and creating a more predictable investment climate.
"Take tax policy, for example. The recent plan to involve the military's village supervisory officers (Babinsa) in tax collection, even though it was framed as merely an information-sharing initiative, still raised concerns among businesses and investors," she said.
"It creates the perception that Indonesia is becoming less market-friendly and more focused on punitive enforcement than on fostering a conducive business environment. That kind of approach can undermine investor confidence."
Similarly, Centre for Strategic and International Studies (CSIS) economics researcher Deni Friawan said trade negotiations and domestic reforms should proceed hand in hand.
"For labour-intensive industries with thin margins, such as textiles, garments and footwear, even a small tariff difference can significantly influence where companies place orders," Deni told The Jakarta Post on Wednesday.
"However, competitiveness is determined not only by tariffs but also by logistics, legal certainty and other business costs."
He said economic reforms such as lowering logistics costs, streamlining raw material imports and reducing regulatory burdens could help Indonesian companies make better use of any tariff they receive, unless tariff differentials become significantly wider and persist over time.
As Indonesia continues negotiations with Washington, Deni said the government's next agenda should become more targeted.
Rather than seeking across-the-board tariff reductions, he suggested prioritising efforts to preserve exemptions already granted to certain Indonesian products, securing preferential treatment for raw materials and intermediate goods needed by US industries, and preventing future excess-capacity tariffs from being broadly applied across Indonesian exports.
The Office of the Coordinating Economy Minister confirmed that discussions with the US Trade Representative (USTR) are still underway as Indonesia seeks to minimise the impact of the US tariff measures on its exports, particularly as the excess production capacity investigation remains ongoing.
The government is also seeking to preserve exemptions for several export products, including labour-intensive goods, from additional duties, with Coordinating Economy Minister Airlangga Hartarto saying on Monday that Indonesia was lobbying to expand exemptions for key export commodities, including palm oil and other natural resource-based products.
