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Remarks by Ambassador Michael Froman to the U.S.-Indonesia Investment Summit

Remarks by Ambassador Michael Froman to the U.S.-Indonesia Investment Summit

October 26, 2015
Washington, D.C.

*As Delivered*

Thank you, Myron, for that introduction. I see you have taken up all the time for my speech, so I’m going to say thank you for being here. Thank you very much, and thanks to all the organizations who have been involved in setting this up – the Chamber, the American Chamber, Kadin, APINDO,  and Indonesia’s Investment Coordinating Board – BKPM; and thank you to all the business and stakeholders who are represented here.

Our history of commerce actually stretches back farther than our history as countries. When Christopher Columbus set sail in 1492, he was of course headed for the Spice Islands, now known as the Maluku Islands in modern day Indonesia. And as the record shows, he got somewhat lost.

Three hundred years later, Indonesia was still playing an important role in the discovery of modern America. When Lewis and Clark set out to map the American West in 1803, President Thomas Jefferson assured them that if they reached the West coast and needed to travel back by sea, they could count on America’s first official representative at Batavia, or what is today Jakarta, to resupply them. And then he charted out a return route for them, through Jakarta, to , Mauritius and finally to Cape Town on the way back to Washington. That seems like a rather circuitous route home from the State of Washington these days, but it just shows how central Indonesia was in the development of global trade at the time.

Of course, much has changed in that time. Indonesia’s economic potential has only grown stronger, as have our ties. Last year, we exceeded $30 billion in two-way trade, and we have an extensive investment relationship.

Indonesia cannot be ignored. It is big, it is young, and it is dynamic. It was, of course, a welcoming home for our President, during part of his childhood. With the fourth largest population in the world, it is among the world’s most successful new democracies. Indonesia’s working-age population could reach 280 million by 2030, and 135 million middle class consumers over that same period.

Indonesia is a country that understands technology. It’s home to over 150 million mobile subscribers and 80 million Internet users. I’m still getting used to using Twitter, but I’ve been told that more Tweets are sent from Jakarta than from any other city in the world.

For all these reasons, Indonesia commands our attention even more today than in years past. And this is an exciting day in the next chapter of our relations, as President Jokowi visits the United States.

I’ve had the pleasure to meet Indonesia’s impressive new Trade Minister, Thomas Lembong, and I think it’s clear that we have a common understanding, both of the progress we have made in recent years, but also the work that lies ahead.

Indonesia’s attraction is undeniable, but at the same time, it is true that foreign companies, including U.S. firms, have had serious concerns about the investment environment in recent years. To realize the full potential of our economic partnership, we need to be frank and address those concerns.

In that spirit, I’d like to touch on a few areas where taking action in the short run could have a significant impact over time.

I don’t need to go into a lot of detail with this group about the challenges that U.S. companies face in Indonesia. They range from localization barriers to import licensing, from restrictions on foreign equity to export restrictions.

While the intent of these measures might well be to promote domestic economic goals, in reality, they distort trade and investment. They hinder the private sector’s ability to reach its economic potential. And they can have long-term detrimental effects on economies by stifling competition and the innovations that competition provides.

The most recent winner of the Nobel Prize in Economic Sciences, Angus Deaton, underscored the importance of the business environment to economic growth in his book The Great Escape. As he explained, “Economic growth requires investment in things . . . . This will be difficult without the right institutions. Innovators need to be free from the risk of expropriation, functioning law courts are needed to settle disputes and protect patents, and tax rates cannot be too high. When all of these conditions come together . . . we get sustained economic growth and higher living standards.”

Creating a better business environment in Indonesia will require hard work. It will require improvements in the regulatory regime and more legal certainty. It will require maintaining policy stability and eliminating the complex web of approvals and red tape. And it will require addressing various localization barriers, including local content, local manufacturing, and local packaging requirements. Eliminating import and export restrictions, protecting intellectual property rights, and maintaining an open services market are also key.

Perhaps most important of all, a better business environment will requires improving the rule of law. According the World Bank’s 2015 Ease of Doing Business rankings, Indonesia was 172nd out of 189 economies in the area of contract enforcement. This is more than simply having the right laws on the books. Those laws also need to be efficiently and effectively enforced.

Both the academic literature and the historical record underscore the importance of rule of law to economic growth. Better rule of law effectively reduces the cost of doing business, and work by the WTO suggests these improvements are important for gaining opportunities to participate in global supply chains, attracting foreign investment, and improving productivity. Needless to say, companies need to know that their employees will be treated fairly under the law.

But this isn’t just about U.S. or even all the foreign companies. It is also in the interest of Indonesian companies and Indonesian society more broadly. As I mentioned earlier, Indonesians are top users globally of social media. Improving the innovation and investment environment will help this rising tech-savvy generation play a leading role in the world’s rapidly-expanding digital economy.

With these common goals in mind, let me describe a few of the tools we have and the efforts underway to address them.

Through the U.S.-Indonesia Trade and Investment Framework Agreement, or TIFA, our principle government-to-government mechanism for addressing trade and investment issues, we are working to address these issues and had a very productive meeting just last month, where I was encouraged by the constructive tone of the discussions. 

As you’re all aware, Indonesia intends to improve its business environment through its economic policy packages, which started in September and continued every couple weeks through today.

And earlier this month, Indonesia also began the process of reviewing its negative investment list. We hope this process will lead to removing restrictions on foreign investment - both in licensing requirements and equity caps. Along with other stakeholders, we’re evaluating these policies and providing input.

USTR is providing input to Indonesia to ensure that future tranches of economic policy packages and the revised negative investment list address priority outstanding issues. Whether the economic policy reforms meaningfully open up Indonesia’s economy will affect how U.S. businesses perceive the Indonesian market. I look forward to working with Pak Tom on this agenda.

Alongside these bilateral efforts, we’re also working with Indonesia in regional and multilateral fora – ASEAN, APEC, G20, and the WTO. We are working diligently toward the WTO’s Nairobi Ministerial in December, encouraging all our partners to ratify the WTO’s historic Trade Facilitation Agreement negotiated in Bali.

We are also working with Indonesia on its fulfillment of the APEC Leaders' agreement in Honolulu to reduce applied tariffs to below 5 percent on the APEC Environmental Goods List by the end of 2015. 

Having just concluded the Trans-Pacific Partnership negotiations, I know there is renewed interest in how TPP’s high standards might be expanded across more of the region. While our focus is on the domestic procedures for TPP approval, we will, of course, continue sharing information about TPP with Indonesia and other interested parties. 

As we’ve said from the beginning, TPP is intended to be an open platform to which other countries who are able and willing to meet its standards, can potentially accede. It’s a way of revitalizing trade liberalization and setting high standards, not just among the 12 countries, but more broadly, across the region and throughout the world.

And you can see the relevance of the TPP’s standards to many of the issues I’ve mentioned today. TPP has laid a foundation for opening markets for all its participants – including the four ASEAN members who have shaped its contents and who, by some estimates, appear likely to benefit disproportionately in growth and exports.  

TPP includes strong and enforceable labor and environmental standards that are compatible with the goals of protecting valuable fisheries, forests, and wildlife, and raising the incomes of workers. TPP will ensure a free and open Internet – and the benefits that generations of new Internet users will draw from it. It will promote innovation while ensuring that the fruits of that innovation are widely shared. And it will encourage transparency, accountability and good governance. Unique among modern trade agreements, it has full chapters dedicated to development, small and medium-sized enterprises, and capacity-building. 

In short, TPP will help create the environment that’s needed to promote sustainable growth and higher living standards, both here in the United States and across the region.

In closing, I want to emphasize that Indonesia and the U.S. have a strong mutual interest in one another’s economic success. We welcome the recent engagement by the Jokowi government in addressing impediments to trade and investment and in further strengthening our bilateral relationship. These issues are receiving the highest levels of attention in our government, as this afternoon’s meetings demonstrate.

Working together, the future of our partnership is ours to shape. As President Jefferson wrote nearly two hundred years ago, “I like the dreams of the future better than the history of the past.”

With that in mind, let me just say, Terima kasih. Thank you.