Indonesia And The United States On Verge Of Trade War

Indonesia And The United States On Verge Of Trade War

The United States and Indonesia are gearing up for a trade dispute. While the United States has been looking to Indonesia and its massive domestic population for a new and largely untapped market, the United States is now charging Indonesia with unfair practices. Indonesia is trying to reduce the import of some of the United States favorite products, including meat and horticultural products. This instigated domestic tensions in the United States, among a population growing weary of globalization, international demand, and the loss of jobs to overseas companies. This battle could turn out to be larger than similar fights in recent years.

The United States has found itself facing import bans and restrictions for its meat and agricultural products to numerous times in the past. The U.S. has gotten into high profile battles with European nations and numerous other countries over its agricultural practices. The reasons behind these on going battles stem from a wide variety of issues, ranging from uncompetitive practices to the use of growth hormones.

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At the heart of the battle is Indonesia’s system for import licenses and its system of quotas. The United States has charged that the import licensing system is far too complex and opaque. According to the U.S. government, these licenses amount to unjust market restrictions. To make matters worse, the Indonesia government has announced that it will dramatically reduce quotas for imported meat. So far the Indonesian government has offered few justifications for the new measures, though the Indonesian government has stated a desire to become self-sufficient in beef production by 2014.

Indonesia would appear to have the most to risk in this battle, however, as the current 26 billion dollars in trade conducted between the two nations sharply favors Indonesia. With tensions already running high among the American population, which has seen thousands of jobs shipped abroad, Indonesians may find themselves strung up in a hornet’s nest. Congress members from the so-called ‘Bread Basket countries of the U.S.A.’ are known to be fiercely protective of the U.S. agricultural sector. Now, with tough global economic conditions said Congress members are likely to drum up strong support from non agricultural states.

For one, the United States has come under fire for its massive subsides to corn and other agricultural operations. USA corn growers are given over 5 billion dollars a year in direct subsides, and total farm related subsides top 10 billion dollars per year, allowing U.S. farmers to sell corn and other products at far lower rates than the market would otherwise allow.

This corn is then used to feed livestock and in other operations which helps lower the costs of meat. Numerous countries have charged that these subsides create a market in which domestic farmers cannot compete. The United States has even been accused of “dumping” meat and agricultural products, referring to its sale of goods at a lower price than it costs to produce.

While countries may have legitimate reasons to complain, excuses are often used to protect markets at any costs. For example, the European Union gained infamy for trying to regulate the size and shape of bananas in a way that would have greatly favored European banana growers and all but excluded bananas imported from the Caribbean and elsewhere. These regulations would later be repealed due to intense international pressure. The case between the United States and Indonesia is now being brought up in the World Trade Organization, which will ultimately have to decide if Indonesia is violating international trade standards.

With relations now growing warmer and warmer between the United States and Indonesia, this trade snafu runs the risk of spiraling into a bigger confrontation. Still, there appears to be little risk as of yet that the current battle over agricultural goods will spill over into other sectors. There is a risk, however, that Australia and other agriculture exporters could be drawn into the fight. The case is now making its way to the World Trade Organization for review, though the outcome of the WTO’s intervention at this point is uncertain.