JAKARTA: The United States-Indonesia Agreement on Reciprocal Trade (ART) is likely to yield limited economic gains and face significant implementation hurdles, local think tanks say, after assessing the newly signed deal’s costs and benefits.
To secure the 19% US tariff rate under the agreement, which is yet to be ratified by lawmakers in the two countries, Indonesia will relinquish several long-standing national policies.
These include the policy on local content levels, an export ban for critical minerals and strict rules on halal certification, as well as its commitment to not imposing a digital services tax.
Given that the ART mandates ratification within 90 days, experts say Jakarta is compelled to enact regulatory changes that would be politically challenging and could leave affected industries with little room for compensation.
“This agreement is not about tariffs or market access.
“It is about defending US commercial interests and projecting security alignment and values,” Riandy Laksono, an economic researcher at the Centre for Strategic and International Studies (CSIS), Indonesia, told a media briefing last Friday.
The government has said the trade deal would secure lower tariffs and broader access to the US market for Indonesian goods, but CSIS research suggests the gains will be modest and that the case for broader market access is overstated.
The deal grants Indonesia zero-tariff treatment for 1,819 products, but these goods account for only 24% of all US-bound exports, according to CSIS.
Meanwhile the United States, which contributes just 10% of Indonesian exports, is not the primary market for most of those products.
“That translates into 2% of market access.
“I don’t think it makes sense to undertake all of those reforms just to secure that,” Riandy said.
CSIS data show that the United States is a major buyer of only two of Indonesia’s top 15 export commodities.
Across the tariff lines granted exemptions, only around 8% of the country’s commodities are shipped to the United States, compared with roughly 30% each to China and Europe.
The Jakarta-based think tank expects the government to proceed with the ART’s ratification, but this may prove politically challenging even though the administration of President Prabowo Subianto holds a majority in the House of Representatives.
“One option is to ratify and continue negotiating, especially on security alignment and subsidy provisions, to make the guardrails clearer,” Riandy said.
Furthermore, he added that uncertainty for businesses would remain high, particularly after the US Supreme Court ruled that President Donald Trump’s tariff policy was illegal.
The day after the US-Indonesia ART was signed on Feb 19 in Washington, the country’s top court ruled that Trump’s tariffs imposed under the International Emergency Economic Powers Act, which included a threatened 32% levy on Indonesian goods, were unconstitutional. — The Jakarta Post/ANN
