Strengthening Ties: A New Economic Framework Between the U.S. and Indonesia
In a move reminiscent of long-standing diplomatic efforts, the United States of America and the Republic of Indonesia have agreed on a Framework aimed at negotiating an Agreement on Reciprocal Trade. This agreement is intended to bolster the economic partnership between both nations, granting their exporters unparalleled access to each other’s markets. This initiative builds on historical ties, specifically the U.S.-Indonesia Trade and Investment Framework Agreement, which was established on July 16, 1996.
Key Provisions of the Reciprocal Trade Agreement
- Indonesia pledges to dismantle around 99 percent of tariff barriers affecting a comprehensive range of U.S. industrial and agricultural exports.
- The United States will lower reciprocal tariffs to 19 percent, following the guidelines of Executive Order 14257 of April 2, 2025, while also considering specific commodities that lack domestic availability for additional tariff reductions.
- Both nations will work towards establishing rules of origin that primarily benefit their respective economies.
- Addressing non-tariff barriers will be a priority, with commitments from Indonesia to exempt U.S. companies from local content requirements, recognize U.S. vehicle safety standards, and streamline regulations for medical devices and pharmaceuticals. Additionally, they will tackle longstanding intellectual property issues as identified in the USTR’s Special 301 Report.
- Indonesia commits to ensuring fair access for U.S. food and agricultural products by lifting import licensing regimes, ensuring transparency regarding geographical indications, and recognizing U.S. regulatory oversight in food safety.
- On digital trade, Indonesia has agreed to facilitate the transfer of personal data to the U.S., eliminate tariffs on intangible products, and support a moratorium on customs duties for electronic transmissions at the WTO.
- Indonesia will also engage with the Global Forum on Steel Excess Capacity to address global challenges within the steel industry.
- The agreement includes provisions to uphold internationally recognized labor rights, prohibiting imports of goods produced under forced labor and strengthening labor laws to protect workers’ rights.
- Indonesia is committed to high environmental protection standards, enforcing laws to combat illegal logging, and promoting sustainable practices in various sectors.
- Restrictions on exports of industrial commodities, including critical minerals, to the U.S. will be lifted by Indonesia.
- Furthermore, both countries aim to enhance economic and national security cooperation, focusing on supply chain resilience and addressing unfair trade practices from other nations.
- Notably, upcoming commercial transactions between U.S. and Indonesian companies include:
- A procurement deal for aircraft valued at $3.2 billion.
- Purchases of agricultural products, including soybeans and wheat, totaling approximately $4.5 billion.
- Energy product acquisitions, including liquefied petroleum gas and crude oil, estimated at $15 billion.
In the weeks ahead, negotiations will continue to finalize the Agreement on Reciprocal Trade, with preparations for formal signatures and domestic procedures before the agreement takes effect.
