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The trade deal between Indonesia and the U.S. is at risk of unravelling as Washington officials view that Jakarta is going back on the terms of the agreement, according to The Financial Times.
The report, citing people familiar with matter, said on Tuesday that U.S. trade representative Jamieson Greer believes Indonesia was “backtracking” on several commitments it had made.
Indonesian officials reportedly are averse to agreeing to some binding commitments made in the deal and have communicated that to the USTR.
Washington believes Indonesia is “backsliding” on removing non-tariff barriers to U.S. industrial and agricultural exports as well as its pledges on taking action on digital trade issues.
Reuters reported on Wednesday that an Indonesian official told the agency that tariff negotiations were ongoing, with no specific issues have arisen during the talks.
U.S. President Donald Trump U.S. had announced a deal with Indonesia in mid-July, slashing so-called “reciprocal” tariff rate on the Southeast Asian country to 19% from the 32% he had threatened in his “tariff letter” to the country earlier that month.
Trump had said that Indonesia had “committed” to purchasing $15 billion of U.S. Energy, $4.5 billion in American agricultural products, and 50 Boeing jets as part of the deal.
The U.S. president also said at the time that “U.S. Exports to Indonesia are to be Tariff and Non Tariff Barrier FREE.”
The USTR and Indonesia’s trade ministry did not immediately respond to CNBC’s request for comments.
Deal frictions
A person familiar with the matter told the FT that Indonesia was “outright saying they cannot implement what they agreed to and need to renegotiate the initial commitments to be nonbinding,” adding that the stance was “extremely problematic and is not being well-received from the United States. Indonesia may be at risk of losing its deal.”
This is not the first time that Washington and Jakarta are seeing some friction over a trade deal. In November, the FT reported that Indonesia had rejected a “poison pill” clause in its deal that other Southeast Asian economies such as Malaysia had agreed.
The “poison pill” clause threatens to revoke a trade agreement if the country signs any rival deal that the U.S. considers will compromise its key interests.
Trump’s trade deals with Asian countries have seen other economies in the region also push back, after these initial agreements were announced.
For example, Trump had said that South Korea would invest $350 billion in the country, but Seoul said that it could not simply hand over the amount in cash. South Korea eventually committed to investing $200 billion in cash over 10 years and a $150 billion fund to be spent on investments in shipbuilding.
Trump had also announced that Japan would invest $550 billion in the country, with the U.S. taking 90% of the profit from these investments. However, Tokyo later said that the profits would be split between Japan and the U.S., according to the degree of contributions by each side.