USTR SCHWAB LEADS TRADE AND INVESTMENT DISCUSSIONS WITH

UNCLAS SECTION 01 OF 04 JAKARTA 000975 SIPDIS SENSITIVE DEPT FOR EAP/MTS, EEB/TPP/ABT/ATP and G/AIAG TREASURY FOR IA-SETH SEARLS AND JWEEKS SINGAPORE FOR SBAKER TOKYO FOR MGREWE COMMERCE FOR 4430/NADJMI AND BENDER USDA/FAS/OA YOST, MILLER, JACKSON USDA/FAS/OCRA CRIKER, HIGGISTON, RADLER USDA/FAS/OGA CHAUDRY, DWYER USTR FOR WEISEL, EHLERS, BAE E.O. 12598: N/A TAGS: ETRD EFIN EAGR ECON PGOV ECPS KFLU ID SUBJECT: USTR SCHWAB LEADS TRADE AND INVESTMENT DISCUSSIONS WITH INDONESIA AND ASEAN REFTEL: Jakarta 859 ¶1. (SBU) Summary. Ambassador Schwab held wide-ranging trade and investment discussions as part of an interagency delegation to Bali, Indonesia for negotiations under the U.S.-Indonesia Trade and Investment Framework Agreement (TIFA) on April 30-May 2 and for ASEAN-U.S. TIFA meetings on May 2-4. ¶2. (SBU) The U.S.-Indonesia TIFA meetings covered the full range of trade and investment issues, including Indonesia's problematic foreign investment restrictions, the need for Indonesia to recapture the momentum of its initiatives to protect and enforce intellectual property rights, the importance of greater involvement by Indonesia in helping to achieve a successful conclusion of the WTO negotiations, and global rice trade. Indonesia proposed several items for the agenda, including ongoing GSP investigations for rubber tires and carpets and also U.S. tobacco legislation. The two sides concluded the talks by agreeing on a general plan for increased engagement including more frequent meetings of the TIFA working groups via both video conferences and face to face meetings. Ambassador Schwab and Minister Pangestu also welcomed the beginning of exploratory BIT discussions on May 9 and as well as the productive meeting of the Working Group on Illegal Logging and Associated Trade, which took place in Jakarta in March. ¶3. (SBU) At the ASEAN-U.S. TIFA meeting, Ambassador Schwab emphasized that the Doha Development Agenda remains the highest U.S. trade priority and that the United States is doing everything it can to move the process forward, noting the outcome of the negotiations will be instrumental in shaping the trading system of 2015-2020. She asked what the ASEAN member countries were doing to help achieve an agreement. She also reviewed current and prospective initiatives under the TIFA work plan, emphasizing that we are waiting to hear back from the ASEAN countries on how they want to proceed. The ASEAN ministers had little to say in response, with only Minister Lim of Singapore and Minister Favila of the Philippines making short statements. END SUMMARY Rice Prices Artificially High -------------- ¶4. (SBU) Minister Pangestu told Ambassador Schwab in a bilateral meeting on May 2 that prices on the international rice market are artificially high, and she believes rice should sell for about $700 a metric ton. Pangestu argued the Philippines is fueling the problem by buying rice to add to stockpiles. Pangestu suggested that Japan and China, if they were each to sell off 0.5 million metric tons of rice, could calm the markets and reduce prices from their current peak. ¶5. (SBU) Unlike in her April 29 conversation with Ambassador Hume (reftel),Pangestu did not explicitly request that the U.S. approach Japan to ask it to sell some of its surplus stock. She did, however, seek U.S. assistance in approaching the Chinese to sell rice stores on the international market. Pangestu also suggested that Thailand, as the world's largest rice exporter, and Vietnam, which currently has an export ban in place, could be helpful. Ambassador Schwab made no specific commitments, but said she would ask Washington to evaluate Pangestu's requests. Indonesia's Poor Investment Climate -------------- ¶6. (SBU) Also in their bilateral meeting, Ambassador Schwab noted the growing concerns of US business about the uncertainty of doing business in Indonesia. She cited a large number of investment disputes, rising nationalism, and a lack of transparency as factors causing U.S. investors to question Indonesia as a business destination. Ambassador Schwab specifically mentioned Newmont, the Time libel case, and Minister of Health Supari's allegations of U.S. use of Indonesian avian influenza samples to develop biological weapons as examples of negative publicity that scare U.S. investors JAKARTA 00000975 002 OF 004 away. ¶7. (SBU) Pangestu replied that the string of nationalist comments and actions is election related, as candidates position themselves for the 2009 votes. She said that she herself justifies trade decisions by arguing Indonesia's self-interest, adding that references to globalization just don't sell in Indonesia. She said that many in the government believe that Minister Supari is a serious problem, but that they don't know what to do about it. Pangestu suggested that perhaps Foreign Minister Wirayuda could be helpful, but did not elaborate. ¶8. (SBU) Pangestu did highlight about a recent bureaucratic success. The 2007 Investment Law requires that any restrictions on foreign investment be issued via Presidential decree. The Ministry of Telecommunications recently issued a ministerial decree limiting foreign ownership in the telephone tower sector. Numerous investors, including American investors, complained to the National Team for Export Expansion and Investment Promotion (PEPI),which succeeded in overturning the proposed restriction. Pangestu used the case to highlight the benefits of the recent investment law. Deciding on a TIFA Roadmap -------------- ¶9. (SBU) The two ministers confirmed agreement, reached in discussions between AUSTR Weisel and Trade Ministry Special Advisor Miljani, to regularly convene the TIFA working groups in person or by video conference to improve engagement on trade and investment issues. The two sides also agreed on a series of specific follow up action items to help move the process forward. On investment, for instance, Indonesia asked the United States to provide more information about proposed changes to the negative investment list that could benefit both Indonesia and the United States, and on intellectual property, Indonesia agreed to provide a copy of its Action Plan once approved in early May. Investment -------------- ¶10. (SBU) The meeting of the investment working group confirmed key principles underlying Indonesia's ongoing investment reforms, including the grandfathering of foreign investments existing in Indonesia prior to the negative list and the fact that all sectors not on the negative list are open to foreign investment. The Indonesian delegation also confirmed that the National Team for the Enhancement of Export and Investment (PEPI) plays an influential role in advising on investment policy and recommending changes to the negative list. GOI officials pointed out that PEPI's policy recommendations are designed to ensure Indonesia's compliance with Indonesia's international commitments, and they directed U.S. officials and investors to PEPI as a first stop for informally mediating investment disputes. ¶11. (SBU) The U.S. underscored that the ongoing review of the negative list should result in an investment regime that is more open than the current regime. In addition, U.S. officials pointed to several sectors where the further liberalization of investment restrictions could significantly benefit Indonesia as well as the United States, including insurance, film distribution, hospitals and medical clinics, and power generation. The GOI took note of the U.S. comments and requested additional information in the form of a written communication. Both sides welcomed the beginning of exploratory BIT discussions in Washington, DC on May 9. They also agreed to hold a video conference on the issue of updating Indonesia's OPIC agreement. ¶12. (SBU) U.S. officials referred to a large number of investment disputes and explained the harm they cause to Indonesia's reputation as a potential destination for international investment. In one example, U.S. officials highlighted concern about Nike's upcoming termination of the first of two factory relationships with a local JAKARTA 00000975 003 OF 004 partner scheduled for July 2008. (The GOI brokered an agreement between Nike and its local partner in July 2007 that extended the relationship of one factory for twelve months and a second factory for eighteen months.) U.S. officials stressed the importance of the GOI validating the agreement publicly in the event the local partner undermines the accord (as they did in summer 2007) by threatening Nike with legal challenges and inciting worker protests. Intellectual Property Rights -------------- ¶13. (SBU) U.S. officials informed the GOI that Indonesia would remain on the Special 301 watch list for 2008. Miljani opened the discussion by expressing Indonesia's hope that it be removed from the watch list by 2009 "at the latest." The U.S. delegation, however, registered its disappointment that Indonesia's National IPR Task Force still had not produced an action plan and it requested an update on the process. Director-General for IPR Andy Sommeng replied that the action plan was awaiting final approval and would likely be approved on May 7. A copy would be provided, he said. ¶14. (SBU) U.S. officials pressed for continued efforts to improve enforcement in terms of raids, prosecutions, and convictions. The U.S. team questioned the apparent drop in some enforcement metrics, including the number of enforcement actions related to optical disk piracy from 2006 to 2007. Sommeng responded that the reduction in IPR enforcement from 1,516 to 705 cases was the result of Indonesia's recent success - a decrease in overall piracy and counterfeiting. U.S. officials requested further documentation to validate that assertion; the GOI promised to follow up on this and other issues in the IPR working group discussions. ¶15. (SBU) A lengthy discussion took place on data exclusivity, with the Indonesian delegation initially asserting that its legal system provided adequate protection of pharmaceutical test data from unfair commercial use consistent with Article 39.3 of the TRIPS Agreement. After some discussion, however, they clarified that such protection consisted only of an internal memorandum and not legislation. They promised to provide a copy of the internal memorandum to the US Government through the U.S. Embassy in Jakarta. Other Issues -------------- ¶16. (SBU) Issues raised by Indonesia included the Family Smoking Prevention and Tobacco Control Act, where Indonesia argued that draft U.S. legislation discriminating against clove cigarettes in favor of menthol flavored cigarettes could constitute a violation of U.S. WTO obligations, and the ongoing GSP investigations of rubber tires and carpet imports, where Indonesia asked when final decisions were scheduled to be made. Concerned by SPS requirements on its fish exports to the United States, Indonesia also asked for updates on the President's Action Plan for Import Safety and the FDA Food Protection Plan. ¶17. (SBU) The U.S. delegation encouraged Indonesia to implement an open and transparent halal approval process for U.S. beef processing plants and to coordinate future plant visits with USDA. Indonesia informed the United States that it is reinstating its import duty for raw and refined sugar and explained it is also reconsidering its sugar import policy to encourage the use of domestic sugar production over imports. ¶18. (SBU) Indonesia agreed to provide its rationale for requirements under Decree 37 on fruits in writing to the USDA-APHIS technical team during its meetings on May 13. The GOI remains concerned over the lack of natural barriers between exporting areas and infected areas in the United States, in addition to fruit-infesting pests found in 2006. Indonesia recalled that it submitted a draft of its most recent revision of Decree 32 to the United States and said it would consider comments from the United States and other trading partners both before and after notification to the WTO. JAKARTA 00000975 004 OF 004 ¶19. (SBU) Ministers noted the positive results and work plan of the Working Group on Illegal Logging and Associated Trade that took place in March. In addition, Indonesia proposed modifications to the Memorandum of Understanding on Textiles Transshipment, so that it could learn in advance the names and addresses of plants to be visited, and it announced that it would soon begin phasing out import licensing requirements on seven textile products, and eventually abolish import license requirements for all 81 products by 2010. ¶20. (SBU) The Indonesian delegation expressed appreciation for U.S. trade capacity building assistance, including IPR-related assistance provided by the Department of State funded/Department of Justice implemented ICITAP program and USAID's Indonesia Trade Assistance Project (ITAP). Indonesian officials welcomed an extension of the ICITAP program to address IPR enforcement issues, saying there is still a lack of capacity on the part of enforcement officials. Minister Pangestu said she valued ITAP support in building the Trade Ministry's "human resources capacity," notably through training and support for local Masters Degree programs in International Trade. U.S. officials acknowledged good cooperation with the Trade Ministry and informed the Indonesian side that USAID is currently developing its new long-term strategy and welcomed input. Meeting of U.S. and Indonesian Chambers of Commerce -------------- -------------- ¶21. (SBU) As part of the TIFA, Ambassador Schwab and Minister Pangestu met jointly with representatives of U.S. and Indonesian business associations to hear their concerns and priorities. The issues raised closely tracked with those in the government to government negotiations, with representatives of Amcham Indonesia and the U.S.-ASEAN Business Council raising investment and intellectual property issues and KADIN, the Indonesian Chamber of Commerce, discussing the GSP investigations and legislation affecting clove cigarettes. An Indonesian food importer also expressed concern about difficulties importing U.S. beef as well as the packaged food registration system administered by B-POM, the Indonesian equivalent to the FDA. U.S. express delivery companies expressed concern about Indonesian tax authorities seeking value-added tax payments on international deliveries vastly in excess of the actual tax liability. ASEAN-U.S. TIFA Meeting -------------- ¶22. (SBU) Ambassador Schwab met with ASEAN ministers on the afternoon of May 3. In that meeting, she emphasized that the Doha Development Agenda remains the Bush administration's highest trade priority and the United States is doing everything it can to move the process forward, noting the outcome of the negotiations will be instrumental in shaping the trading system of 2015-2020. She asked what the ASEAN member countries were doing to help move the overall negotiations to agreement. In addition, she reviewed current and prospective initiatives under the TIFA work plan, recalling that the United States is waiting to hear back from the ASEAN member countries on how they want to proceed. ¶23. (SBU) ASEAN ministers said little in response. Trade Minister Lim of Singapore gave a short statement about the importance of the ASEAN-U.S. TIFA agenda in supporting ASEAN's strategic goals and, at the very end of the meeting, Secretary Favila of the Philippines took the floor to thank the United States for USAID assistance and refer to a short statement by ASEAN leaders as evidence of their support for the Doha Round. HEFFERN