Trade Agreement: US Asks Indonesia to Limit Outsourcing, Maximum Contract Period of 1 Year

JAKARTA, KOMPAS.com - The United States is requiring the Indonesian government to limit the use of outsourced workers and fixed-term employees to a maximum of one year.

This requirement is outlined in the Reciprocal Trade Agreement (RTA) signed by President Prabowo Subianto and US President Donald Trump.

The agreement states that the Indonesian government will issue implementing regulations for the 2023 Job Creation Omnibus Law.

These regulations will “significantly limit the use of labour outsourcing companies,” as quoted from the document on Thursday (26/2/2026).

Furthermore, the new Labour Law must also limit fixed-term employment contracts to a maximum of one year.

“It will only allow fixed-term contracts for temporary tasks and a maximum of one year,” the document states.

In addition, provisions in the Labour Law that restrict workers and unions from exercising their rights to organise must be removed.

Workers and unions must have full rights to exercise their freedom of association and collective bargaining.

“To fully exercise their rights to freedom of association and collective bargaining,” as quoted from the statement.

If these provisions are implemented, the Job Creation Law, which states that fixed-term contracts can be extended up to one year, will be limited to just one year.

After one year, a company must either hire the new employee as a permanent employee or replace them if they are not suitable.

“What this means is that the flexibility of the business world in absorbing labour will be reduced,” said Tauhid when contacted by Kompas.com on Thursday.

However, Tauhid acknowledged that this labour provision is a breath of fresh air for workers in Indonesia.

According to him, US companies tend to be more supportive of the labour sector, human rights, and the environment.