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Reference ID: 08JAKARTA853
Created: 2008-04-29 07:01
Released: 2011-08-30 01:44
Classification: CONFIDENTIAL
Origin: Embassy Jakarta
VZCZCXRO0402
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #0853/01 1200701
ZNY CCCCC ZZH
R 290701Z APR 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 8855
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBK/AMEMBASSY BANGKOK 8413
RUEHHI/AMEMBASSY HANOI 0596
RUEHKL/AMEMBASSY KUALA LUMPUR 2470
RUEHML/AMEMBASSY MANILA 3207
RUEHGP/AMEMBASSY SINGAPORE 6298
C O N F I D E N T I A L SECTION 01 OF 02 JAKARTA 000853
SIPDIS
SIPDIS
DEPT FOR EAP/MTS; EB/TPP; EV/TPP/BTA
DEPT PASS USTR FOR KELHERS
E.O. 12958: DECL: 04/28/2018
TAGS: ETRD EINV ECON PGOV ID
SUBJECT: SCENESETTER FOR USTR AMBASSADOR SCHWAB VISIT TO
INDONESIA
Classified By: Ambassador Cameron R. Hume for reasons 1.4 (b) and (d).
¶1. (C) Summary: Your trip to Indonesia comes at a time
when we are having difficulty finding traction in our
bilateral trade and investment relationship. The dual forces
of democratization and decentralization that have made
Indonesia a political success story have been accompanied by
a desegregation of power that confuses investors, inhibits
policy coordination and hinders Indonesia's ability to
formulate a cohesive vision on trade and investment issues.
Maintaining lines of communication through our Trade and
Investment Framework (TIFA) discussions is critical to
developing our economic engagement with Indonesia. However,
our success will also depend on strengthening our
relationships with institutions and constincuencies that can
help advance our trade and investment agenda. End summary.
Trade Policy: No Traction
-------------------------
¶2. (C) The Government of Indonesia (GOI) has been lukewarm
on advancing a trade agenda with the U.S. despite our
continued dialogue under the TIFA. Exploratory discussions on
the possibility of entering negotiations toward a Bilateral
Investment Treaty (BIT) have been scheduled, but the GOI's
seriousness and commitment remain unclear. The GOI has
expressed concerns that it is unable to meet the high
standards of a U.S. BIT. The GOI has however completed trade
agreements with other partners, including an Economic
Partnership Agreement (EPA) with Japan. It is also
negotiating an investment treaty with Canada. Ministry of
Trade officials pointedly note that trade capacity assistance
from Japan was included as part of the EPA and hint that
similar assistance may be expected from other trade partners
in future agreements.
Investment Policy: Lack of Coordination
----------------------------------------
¶3. (C) Investment policy in Indonesia is characterized by a
multitude of competing voices, a lack of institutional
coordination and the absence of an overall vision
articulating Indonesia's outlook on foreign investment.
Investment policy is more often shaped by interagency
negotiation and compromise among bureaucratic vested
interests than by economic theory or an organizing principle.
As a result, policy outcomes are often confusing and
investors receive mixed signals. An example is the 2007
negative list of sectors closed or limited to foreign
investment. While on the one hand it represents a step
toward greater transparency and legal certainty, it is widely
seen by the business community as a step backward in terms of
signaling Indonesia's openness to foreign investment.
Investment Climate: Disputes Outnumber New Investors
--------------------------------------------- -------
¶4. (C) At the same time Indonesia continues to be bedeviled
by a series of high profile investment disputes that damage
its reputation among international investors. Intel, Mars,
Kraft, Manulife, Newmont, Nike and General Electric are just
a few of the list of large international companies to
encounter problems with their investments in Indonesia. Many
of the issues can be traced to Indonesia's basket of
investment climate challenges, including the need for legal
reform, anti-corruption reform and labor law reform. The
lack of coordination and absence of a clear vision undermine
any systematic approach to addressing these issues.
Agenda: The Ball is in Our Court
--------------------------------
¶5. (C) Ministry of Trade officials tell us that they
"welcome ideas" on how to invigorate the bilateral trade and
investment relationship, but offer none of their own. Our
challenge: to find areas of mutual self-interest to engage
Indonesia and develop our trade and investment ties. We
should seek to support the positive steps made by Indonesia
to address some of these issues institutionally. For
example, the GOI's National Team for the Promotion of Exports
and Investment (PEPI) has the potential to serve as a
coordinating mechanism for investment policy while providing
objective analysis and sound policy recommendations to the
Indonesian Government. American business contacts report
positive experiences with PEPI in resolving investment
disputes. Despite PEPI's success it remains underfunded and
understaffed. For our own benefit, we should encourage
JAKARTA 00000853 002 OF 002
Indonesia to support this institution with proper staff and
funding.
HUME
WWeek 2015