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

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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.

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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