Indonesia Approves State Enterprise Subsidy Transparency in Trade Agreement with United States

In strengthening economic diplomatic relations, Indonesia and the United States have agreed upon reciprocal trade policies regarding the management of State-Owned Enterprises (SOEs) under the Agreement on Reciprocal Trade. A key provision established in this agreement is the prohibition on Indonesian SOEs from providing subsidies to domestic goods producers, particularly in commercial activities, thereby creating fair competition conditions (level playing field).

Article 6.2: Commercial Considerations states: “… refrain from subsidizing domestic goods producers, except to fulfil any public service mandate. Indonesia shall refrain from providing non-commercial assistance or otherwise subsidizing its goods-producing SOEs, except for the achievement of their public service mandate. Indonesia shall ensure a level playing field for U.S. companies in Indonesia’s market with regard to SOEs of non-Parties,” as cited from the Agreement on Reciprocal Trade between Indonesia and the United States.

In the same agreement, the U.S. government has also emphasised the obligation for the Indonesian government to ensure that SOEs engaged in commercial activities must act on the basis of reasonable and transparent business considerations, particularly regarding disclosure of information concerning non-commercial assistance or subsidies provided.

The agreement also emphasises equal treatment. Pursuant to the Agreement on Reciprocal Trade between Indonesia and the United States, the Indonesian government must ensure that SOEs act cooperatively or transparently to minimise potential unfair competition arising from subsidy provision.

Furthermore, upon written request from the United States, Indonesia is obliged to provide information regarding all forms of non-commercial assistance or subsidies provided to domestic manufacturing enterprises. Beyond information disclosure, the government is also required to take corrective measures to address the distortive impacts of subsidies and support mechanisms at the central level on trade and investment with the United States.

“… Indonesia shall provide information regarding all forms of non-commercial assistance or subsidies that it provides to a manufacturing enterprise in its territory and shall take action to address the distortive impacts of those subsidies and support mechanisms at the central level on trade and investment with the United States,” as stated in Article 6.2 of the Agreement on Reciprocal Trade. For the United States, this is important to ensure that products and/or services from its country are not treated discriminatorily in the Indonesian market.