The reciprocal trade agreement between Indonesia and the United States has drawn scrutiny from civil society groups. The deal is seen as potentially undermining environmental protection standards and expanding the exploitation of natural resources. A study by the Indonesian Center for Environmental Law (ICEL) and Publish What You Pay (PWYP) Indonesia identified at least four provisions in the agreement that pose risks to the environment, domestic industry, and Indonesia’s energy transition agenda.
Environmental Regulations Feared to Become Trade Instruments
Attention is focused on Article 2.10 on Environment and Article 2.34 on Environmental Law. Although both provisions include principles of good environmental governance, they are considered overly general and fail to guarantee stronger environmental protection standards. Their formulation may encourage Indonesia to adjust its environmental policies to ensure smooth trade flows and supply chain security.
“Indonesia shall implement and maintain environmental protection, effectively enforce its environmental laws, strengthen or establish robust environmental governance structures as needed, and address environmental issues that contribute to non-reciprocal trade,” reads Article 2.10 of the agreement.
According to ICEL and PWYP, this approach risks triggering a “race to the bottom,” where environmental standards are lowered to maintain trade flows and mineral supply. This condition contradicts the principle of non-regression, which holds that environmental protection standards must not be weakened.
“This clearly contradicts the non-regression principle enshrined in the IUCN World Declaration on the Environmental Rule of Law,” ICEL and PWYP wrote in their report on Monday (March 16). In fact, this principle has been adopted in several other trade agreements involving Indonesia, such as the Comprehensive Economic Partnership Agreement (CEPA) with the European Free Trade Association (EFTA), which prohibits lowering environmental and labor standards for investment purposes.
Risks of Critical Mineral Mining Expansion
Under Article 6.1, Indonesia is required to allow, facilitate, and remove investment barriers for the United States in the exploration, mining, processing, and export of critical minerals, including rare earth elements. ICEL and PWYP argue that this provision lacks safeguards for areas with high conservation value, significant biodiversity, or high carbon stock.
“There is no guarantee that such activities will exclude areas with high conservation value, high carbon stock, or other essential ecosystems,” the report states.
In addition, the provisions on developing a critical-mineral recycling ecosystem—including battery waste—in Article 2.36 are seen as potentially positioning Indonesia as a global waste-recycling hub. Without strict management standards, this scheme could increase environmental burdens and negatively affect communities. It may also weaken corporate responsibility across the battery lifecycle, known as Extended Producer Responsibility (EPR).
Potential to Undermine Domestic Industry
ICEL and PWYP also highlight provisions that grant exemptions from Indonesia’s local content requirements (TKDN) to US products and companies. Indonesia currently enforces a minimum 25 percent local content requirement to promote domestic products, reduce imports, and strengthen national industry.
According to the two organizations, such exemptions could weaken protections for domestic industries and contradict government efforts to boost national industrial growth.
Risk of Hindering Energy Transition
Another concern is the energy procurement commitment in Annex IV, which obliges Indonesia to purchase fossil energy from the United States worth up to US$15 billion (approximately IDR 235 trillion). This commitment is viewed as inconsistent with Indonesia’s transition toward cleaner energy.
“It is ironic that while the National Energy Policy promotes a shift to clean energy, this agreement instead locks in large-scale dependence on imported fossil fuels,” the report states.
Furthermore, the commitment may constrain Indonesia’s fiscal space, which could otherwise be used to support a just energy transition and renewable energy development.
Overall, ICEL and PWYP conclude that the Indonesia–US trade agreement risks increasing environmental pressure while weakening natural resource governance.
“This agreement turns Indonesia’s policy instruments away from protecting the public interest and toward facilitating trade interests,” the report concludes.
Source: Kata Data