VZCZCXRO4983
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #0975/01 1360905
ZNR UUUUU ZZH
R 150905Z MAY 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 9016
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHKO/AMEMBASSY TOKYO 1969
RUEHBJ/AMEMBASSY BEIJING 5039
RUEHBY/AMEMBASSY CANBERRA 2498
RUEHUL/AMEMBASSY SEOUL 4592
RUEAIIA/CIA WASHDC
RHEHAAA/WHITE HOUSE WASHDC

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