Earlier this week, Obama signed legislation that provides a legal basis for the reduction of import tariffs for several products, including Indonesian products. This import tariff reduction falls under the generalized system of preference (GSP). This program, introduced in 1976, aims to support developing countries by reducing import duties and taxes for nearly 5000 products from 123 countries. Allegedly, Indonesia is the fourth-largest beneficiary of the GSP program after India, Thailand and Brazil. However, on 31 July 2013, the GSP program expired without being extended. It took a lengthy political process in US Congress before President Obama finally signed the new legislation which states that the US GSP program is slated to take effect on 29 July 2015 and is to last until 31 December 2017.

According to Indonesia’s Trade Ministry, Indonesian products that have benefited from the US GSP program are radial tires, wood products, rubber gloves, musical instruments, porcelain, tires, palm oil products, jewellery and footwear. Gusmardi Bustami, official at the Trade Ministry, expects that Indonesian manufactured goods exports to the USA may rise between 10 and 20 percent after the signing of the legislation. Last year, Indonesia exported USD $19.4 billion worth of products to the USA, up 0.8 percent from exports in 2013. In the first five months of 2015, Indonesian exports to the USA totalled USD $6.4 billion, 0.84 percent down from the same period last year.

According to the latest data from Statistics Indonesia (BPS), Indonesian exports fell 15.2 percent to USD $12.6 billion in May 2015, while the country’s imports fell 21.4 percent (y/y) to USD $11.6 billion, the eight straight month of falling imports and exports, signalling weak global and domestic demand. Bank Indonesia Governor Agus Martowardojo stated last month that Indonesian exports in 2015 are expected to fall 14 percent to USD $151.6 billion, a deeper plunge than the central bank’s earlier projection of negative export growth at 11 percent. In 2014, Indonesian exports fell 3.43 percent (y/y) to USD $176.3 billion.