Fri, 26 Nov 2010

From: The Jakarta Globe

By A. Lin Neumann
US President Barack Obama’s quick trip to Indonesia last week helped cement warm ties between the two countries on a number of different levels, the new US ambassador said.

But trade and investment ties, while growing, may be held back by protectionist measures that could dampen the appetite of US investors, he conceded.

Ambassador Scott Marciel told the Jakarta Globe in an exclusive interview this week that while Washington was enthusiastic about stronger commercial ties with Jakarta, he was in discussions with local officials about measures that were seen to be hampering trade.

Obama “stressed that we have a huge stake in Indonesia’s success and that Indonesia is playing a bigger role not only in the region but globally,” Marciel said.

“On the commercial side, the two presidents talked about the importance of building stronger business ties ... as a way of creating jobs and wealth.”

Marciel, who has been in his post for three months, stressed the partnership between the two countries and the potential impact of $165 million in US grants for education programs and about $140 million in funding for environmental issues.

A US trade association source based in Washington, however, told the Globe last week that a number of US companies were worried that rising protectionism here could make long-term investments less attractive.

“There are concerns about a lot of technical issues,” the source said.

“Overall trade and investment [between the US and Indonesia] is growing but it could be growing more,” Marciel said.

Marciel, whose last posting was as US ambassador to the Association of Southeast Asian Nations, said the overall picture was bright.

He noted that the Overseas Private Investment Corporation, a US agency that assists companies invest abroad, will hold its annual conference in Indonesia next year.

Asked about the fact that during the week of the Obama visit, official Chinese visitors unveiled $6.6 billion in infrastructure financing deals, Marciel said there was no point in comparing dollar amounts.

“I would just note we are talking about grants from the United States. Not loans that have to be paid back,” he said.

In at least two key areas, pharmaceuticals and energy, “protectionist measures” taken by Indonesia, however are raising concerns for US business, he said.

Decree 1010, which went into effect this month, Marciel said, “prohibits [pharmaceutical] companies from importing medicines if they are not producing [medicines] in Indonesia.

“The trouble of course is that for a lot of companies ... it is not economically viable to produce in every country in which you sell. It erodes any benefits of scale. It is a protectionist provision that is harmful, I think.”

Marciel said US and Indonesian officials were discussing the issue “but so far the problem remains.”

A second issue going into effect next year is cabotage, which Indonesia has invoked to require all maritime vessels operating here to be registered as Indonesian flag vessels.

The highly technical and little reported measure also requires oil and gas exploration rigs to be registered in Indonesia, Marciel said, despite the fact that the country does not have any such maritime platforms of its own.

“The outcome [of the regulation] might be to prevent oil and gas companies from doing the drilling and production they want to do,” Marciel said. “That certainly was not the intent.”

He has discussed the matter at the “ministerial level,” Marciel said. “I have been told that senior authorities are aware of the problem and are looking at how to address it.”

Earlier this month, Hatta Rajasa, coordinating minister for the economy, said the government was seeking to revise the cabotage laws because they had potential to hurt next oil production.

Protectionist measures, Marciel said, have led to “unintended consequences” for Indonesia.

“Rules and regulations are drafted with the idea of bringing more business here or creating more jobs, but sometimes they can actually keep investors out,” Marciel said.

“We are talking to Indonesians about a range of things and it is something I am actually quite focused on myself,” Marciel said of regulatory issues that impact US investment.

“There are a lot of good things happening in this country,” Marciel concluded. “And there are a lot of opportunities on the business side that really could create jobs and help reduce poverty.”