U.S. Trade Representative (USTR) Ron Kirk has asked the Indonesian government for consultations under WTO rules concerning non-automatic import licenses and quotas imposed on imports from the U.S. of animals, animal products and horticultural products.  Consultations are the first step in formally bringing issues to the WTO dispute settlement process.

Under the WTO process the two countries will meet within 30 days to attempt to find a satisfactory resolution.  If none is found, 60 days after the request for consultations the U.S. can ask the WTO to establish a dispute settlement panel to examine the issues.  According to a USTR fact sheet, the U.S. has repeatedly raised these issues in discussions in Jakarta, Washington, Bali and Geneva.  WTO rules generally prohibit restrictions on imports of goods, including those made effective through quotas or import licenses.

Indonesia is a developing market with great long-term potential for imports.  With 249 million people, it is the world’s fourth largest country in population behind the U.S. at 314 million people and ahead of Brazil at 199 million.  It is the 15th largest in area at 733 thousand square miles, just a bit smaller than Mexico.  Lowlands are tropical and highlands are more moderate.  About 11 percent of the land is considered arable with another 7 percent in permanent crops like rubber and coffee.  Its major crops are rice, cassava, rubber, cocoa, coffee and palm oil.

It has the 16th largest economy at just over $1.1 trillion growing by over 6.0 percent in 2010, 2011 and 2012, with expectations of similar growth in 2013.  Its per capita GDP in 2011 was $4,700, ranked 157th globally, a little above Honduras and the Philippines.  Agriculture is 14.7 percent of GDP, with industry at 47.2 percent and services at 38.1 percent.  Like many developing countries, agriculture still accounts for 38.3 percent of the labor force, with industry at 12.8 percent and services at 48.9 percent. Major industries include petroleum, natural gas, textiles, apparel, footwear and mining.

For the first 11 months of calendar year 2012, U.S. agricultural exports were $2.4 billion, led by soybeans at $911 million, feed and fodders at $283 million, wheat at $230 million and cotton at $182 million. These are all ‘bulk’ commodities that are not widely grown in Indonesia and are needed for further economic development.  The largest imports from the U.S. among the products at issue in the consultations are dairy products at $173 million, fresh fruit at $108 million, processed fruits and vegetables at $59 million, live animals at $13 million and red meat at $10 million.

Indonesia’s import policies are typical of many developing countries with growing economies.  The immediate need is for increased feed supplies for use in livestock and poultry production and cotton for the apparel industry.  Tariffs for fruits and vegetables and animals and products are often kept high to protect domestic producers, but result in high costs for the expanding group of consumers that can afford a more varied diet with more animal products and fruits and vegetables.  Breaking down these barriers leads to more choice and value for consumers and more efficient domestic producers as they respond to pressure from high-quality, moderately-priced imported consumer products.

A horticultural importer must obtain a Horticulture Product Import Recommendation (“RIPH”) certificate from the Ministry of Agriculture.  The Ministry must consider the production and availability of similar products domestically, domestic consumption, and the potential of the imported product to distort the market. Second, an importer must apply to receive a designation as a Producer Importer for Horticultural Products or a Registered Importer for Horticultural Products from the Ministry of Trade. Third, for each imported product, the importer must apply to the Ministry of Trade for Import Consent/Approval by submitting the RIPH certificate.

Importers of animals and animal products must receive an Import Approval Recommendation (“RPP”) from the Ministry of Agriculture.  Quotas are set twice a year, and the Ministry allocates the quota, specifying the quantity of each animal or animal product allocated to each importer. After receiving the RPP, an importer must then apply for an import license with the Ministry of Trade.  It only allows the imports if domestic production and supply do not meet demand for consumption at reasonable prices.

According to the USTR, the licenses have significant trade-restrictive effects on imports and are used to implement WTO-inconsistent measures.  The licensing process is more burdensome than absolutely necessary.  The issuance of RIPH and RPP recommendations are delayed or refused on non-transparent grounds and traders are not informed of the basis for granting licenses.

Indonesia is also a major agricultural exporter of some products to the U.S. with exports of $4.5 billion in the first 11 months of 2012.  Most of them are products not produced in the U.S. including rubber and allied products at $1.9 billion, shrimp at $601 million, other fish and seafood at $498 million, unroasted coffee at $367 million, spices at $210 million, tropical oils at $188 million and cocoa paste and butter at $137 million.

Indonesia is not new to world trade issues; it joined the GATT (the General Agreement on Tariffs and Trade) in February 1950, two years after GATT was formed.  It is a member of the Cairns group of agricultural exporting countries formed in 1986 to push inclusion of agricultural trade issues in the Uruguay Round of GATT negotiations.  It is a founding-member of ASEAN (the Association of Southeast Asian Nations) and a founding-member of the Asia-Pacific Economic Cooperation group.  Through ASEAN, it has trade agreements with China, South Korea, Australia and New Zealand.  It has direct agreements with Japan and Pakistan.  According to the U.S. Agricultural Attaché in Indonesia, cumbersome custom procedures and non-tariff measures remain in place with those agreements.

This is a large market for U.S. farmers and worth the time to get a good resolution of the dispute to the benefit of U.S. exporters and Indonesian consumers.

Ross Korves is an Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org).