JAKARTA, Feb 20 (Reuters): Indonesia and the United States finalised a trade deal to cut US levies to 19 per cent from 32 per cent on goods shipped from Southeast Asia's biggest economy, with Jakarta securing tariff exemptions for its top export, palm oil, and several other commodities.
The agreement was signed in Washington by Indonesia's senior economic minister Airlangga Hartarto and US Trade Representative Jamieson Greer after months of negotiations.
"This deal respects the sovereignty of both countries," Airlangga said during an online press conference, describing the deal as a "win-win" for both countries.
Palm oil was a particularly important exemption, accounting for around 9 per cent of Indonesia's overall exports.
Indonesian coffee, cocoa, rubber and spices would also be tariff-free, Airlangga said.
The 19 per cent rate is on par with US deals with Southeast Asian rivals such as Malaysia, Cambodia, Thailand and the Philippines. Vietnam, however, has a slightly higher rate of 20 per cent.
Malaysia, another major exporter of palm oil, also has a tariff exemption for that product, as well as for cocoa and rubber.
The deal comes after a rough start to the year for Indonesian markets. Setbacks include last month's warning from index provider MSCI that the equity market risked a downgrade to "frontier" status over transparency issues, as well as Moody's cutting of the country's credit rating outlook two weeks ago that cited reduced predictability in policy making.
Investor confidence in Indonesia could improve if Jakarta uses the US deal as a springboard for further reform, said Yose Rizal Damuri, executive director of CSIS Indonesia.
"If Indonesia could multilateralize some of its commitments to the United States and use them as a basis for deregulation, that would increase trust in Indonesia and that's something that should be taken advantage of, optimized," he added.
Under the deal, textile products from Indonesia will be subject to a 0 per cent levy under a quota mechanism that is still to be discussed. The quota will be determined by the quantity of US materials such as cotton and man-made fibre used in textiles.
