Pence softens Trump’s trade talk during Indonesia visit – Nikkei Asian Review

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U.S. Vice President Mike Pence addresses American CEOs in Jakarta on April 21 2016, flanked by Indonesian counterpart Jusuf Kalla (Photo: Simon Roughneen)

U.S. Vice President Mike Pence addresses American CEOs in Jakarta on April 21 2016, flanked by Indonesian counterpart Jusuf Kalla (Photo: Simon Roughneen)

JAKARTA — During a visit to Jakarta on April 21, U.S. Vice President Mike Pence diluted some of the anti-trade rhetoric espoused by his recently-elected boss, President Donald Trump, saying that his country and Indonesia “can and will do more to expand commerce.”

“We seek trade with Indonesia that is free and fair,” Pence said, adding that “we seek to create a win-win trading relationship for both of our nations and all of our people.”

His comments mark a change in tone from the zero-sum views on trade coming from the White House under President Trump, rhetoric that prompted Washington to compile a list of 16 countries — including Indonesia — that have trade deficits with the U.S.

Pence, who was on the second day of a visit to Indonesia after stopovers in South Korea and Japan and before heading on to Australia, announced that American companies, including ExxonMobil, General Electric and Lockheed Martin, would sign “11 major deals worth more than $10 billion” in Indonesia.

ExxonMobil has signed a contract to sell 1 million tons per year of liquid natural gas to Pertamina, Indonesia’s state oil company, commencing in 2025, according to a U.S. embassy press release. The release went on to say that, among other deals, General Electric and partners “have been selected as the technology provider” for an additional 2,650MW to be added to Indonesia’s electricity grid.

Pence acknowledged that commerce between the world’s third and fourth most populous nations could be improved, saying that last year’s U.S.-Indonesia trade amounted to $30 billion. That is a low figure, given that Indonesia’s economy is by far the biggest in Southeast Asia — amounting to around a third of the 10-country Association of Southeast Asian Nations’ total gross domestic product — and also given that total U.S. trade with ASEAN was $241.7 billion in 2013, according to U.S. trade figures. A 2016 report by the U.S. Chamber of Commerce put the total value of the bilateral economic relationship at $90 billion per year — around 10% of Indonesia’s GDP.

Immediately before addressing an audience of American chief executives, Pence told Indonesian business lobby leaders in Jakarta that he had had a “frank” discussion with President Joko Widodo “about how we might further reduce the barriers on trade and investment.”

“We think there are opportunities,” Pence said. His Indonesian counterpart, Vice President Jusuf Kalla, echoed some of those exhortations, telling America business leaders, “we need more investment in oil and gas, in agriculture.”

Call for foreign investment

Indonesia’s Industry Minister Airlangga Hartarto went further, telling the Nikkei Asian Review that his country would like to see more manufacturing investment. “I think American investment has not been major in Indonesia in the last five years but we hope that the new government can enhance investment beyond oil and gas,” he said.

Airlangga Hartarto, Indonesia's minister of industry, speaking at a conference staged by The Economist in Jakarta on April 20 2016 (Photo: Simon Roughneen)

Airlangga Hartarto, Indonesia’s minister of industry, speaking at a conference staged by The Economist in Jakarta on April 20 2016 (Photo: Simon Roughneen)

Pence cautioned however that Indonesia needs to do more “to create a level playing field” for foreign businesses, citing intellectual property challenges, a “lack of transparency” and local content requirements that mean some vendors in certain sectors have to make certain proportions of a product in Indonesia before being allowed to resume selling in the country’s vast market, composed of 260 million people. U.S. tech group Apple recently opened a factory in Indonesia to meet such requirements, as a prelude to being allowed resuming selling iPhones in the country.

Indonesia has been embroiled in a dispute with mining behemoth Freeport McMoran, trying to force the U.S. company to divest 51% of its shares in a huge gold and copper mine in the restive Papua region in Indonesia’s east. Indonesia has also sought more than $400 million in what it says are unpaid taxes and fines from U.S. tech group Google.

Although the U.S. vice president did not address any specific dispute involving American companies in Indonesia, he said to the audience — which also included Indonesian Foreign Minister Retno Marsudi: “I say respectfully there is much more that must be done to improve the business and investment climate in Indonesia.”

Some U.S. businesses in Indonesia appear more sanguine about the operating conditions there. Brian Caffyn, chief executive of UPC Renewables, which is constructing wind turbines in South Sulawesi province as part of Indonesia’s electricity supply overhaul, said that the ease of operating in the country “very much depends on [the] kind of business.”

“Some things are very open, some things are not as open, there are some domestic content rules,” Caffyn said, adding that the government was pushing hard to expand the country’s electricity supply, meaning that there were opportunities for willing investors.

Modernizing and expanding the far flung archipelago’s power supply and transport infrastructure is a priority for the Indonesian government — a costly overhaul entailing thousands of kilometers of new roads and railways, an revamp of the country’s ports and the construction of dozens of new power stations — that should mean ample investment opportunities for foreign businesses. British bank HSBC projected in 2016 that Indonesia’s infrastructure spending needs could amount to around $1,160 billion up to 2030, slightly more than the country’s GDP.

The government cannot meet those costs alone, but analysts said that even amid such opportunity, attracting foreign investment is not a given. “The world’s best infrastructure companies don’t even try here,” said Douglas Ramage, managing director of consultancy Bower Group Asia’s Indonesia wing, speaking at a Jakarta conference on April 20 organized by The Economist, citing a lack of “commercially viable tenders.”

Business-friendly reforms

In an effort to get foreign investors onside, Indonesian government officials say that the Widodo administration is trying to advance business-friendly reforms, acknowledging that some of the gripes raised by foreign governments are valid.

“We need a more level playing field, not just for American investors, but for everyone. President Jokowi has committed on many occasions to make our economy open and competitive,” Thomas Lembong, chairman of the Indonesian Investment Co-ordinating Board, told the Nikkei Asian Review.

Indonesia moved up 15 places to 91st in the 2017 World Bank’s Doing Business report, a league table of the ease of doing business in 190 countries.

Ridwan Kamil, the mayor of Bandung, a city of 3 million people to the east of Jakarta, said that some of the central government’s economic reforms were filtering down to municipalities such as his.

“The president asked the home affairs ministry to review local laws [for inconsistencies with national laws that hindered investment]. In Bandung three local laws were removed,” Kamil said.

Bandung mayor Ridwan Kamil speaking to reporters on the fringes of a conference staged by The Economist in Jakarta on April 20 2016 (Photo: Simon Roughneen)

Bandung mayor Ridwan Kamil speaking to reporters on the fringes of a conference staged by The Economist in Jakarta on April 20 2016 (Photo: Simon Roughneen)

The reforms are seemingly being emulated in the U.S., with Pence saying in Jakarta that Trump, a former businessman like Widodo, has instructed all government agencies to find two regulations that could be cut, in an effort to make doing business easier.

“It will benefit America first, but will in turn benefit all of America’s trading partners including Indonesia,” Pence said, mentioning Trump’s pledge to cut U.S. corporate tax from the current rate of 35%.

In the meantime, the Indonesian government’s efforts are starting to have an impact, spreading investment outside the vast and clogged capital, Jakarta, with America’s UTC Aerospace set to establish operations in Bandung “a couple of months from now,” according to Kamil.

“It is a big vote of confidence that a big American company can open in Bandung,” Kamil said.

The Pence visit comes as the 11 other signatories of the Trans-Pacific Partnership — a far reaching trade agreement that was one of former U.S. President Barack Obama’s main economic and foreign policy priorities — discuss proceeding with the deal without the U.S. after Trump confirmed his vociferous opposition to multilateral trade deals.

During a visit to the U.S. in 2015, Widodo said that Indonesia was interested in joining the TPP. Now, however, with the TPP’s future uncertain at best, Jakarta appears content to proceed bilaterally with the world’s biggest economy.

Industry minister Airlangga said that the demise of the TPP could benefit Indonesia as regional rivals such as Vietnam would not have the advantage of better access to markets such as the U.S. and Japan that the TPP entailed. Bambang Brodjonegoro, Indonesia’s planning minister, told the Nikkei Asian Review prior to Pence’s visit that “what is more important for us is getting access, for labor intensive manufacturing products, and that is through bilateralism, not multilateralism.”

Indonesia is currently in the early stages of negotiating a free trade deal with the European Union, though talks have hit a roadblock over recent European parliamentarian demands that the EU reduce imports of palm oil, of which Indonesia is the world’s biggest supplier.

That rift could provide an opening to the U.S. Some in Indonesia are hopeful that just as the Trump administration has dialed back some of the hostile rhetoric of the volatile presidential election campaign — some of which targeted China’s economy and trade practices — the new U.S. government could in the end prove more open to trade deals.

“I think the Trump administration is more globally minded and more trade and investment oriented than it would suggest on Twitter, and I think that Indonesia is a great and huge market,” said John Riady, director of investment company the Lippo Group and a prominent Indonesian businessman.

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