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December 14th, 2011 WW Staff | NikeLeaks Cables: Asia
 

NIKE COMMERCIAL DISPUTE RESOLVED

     
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Reference ID: 07JAKARTA2069    
Created: 2007-08-01 08:27    
Released: 2011-08-30 01:44    
Classification: CONFIDENTIAL//NOFORN    
Origin: Embassy Jakarta
                 

VZCZCXRO7766
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #2069/01 2130827
ZNY CCCCC ZZH
R 010827Z AUG 07
FM AMEMBASSY JAKARTA
TO RUEHJA/AMCONSUL SURABAYA 1856
RUEHC/SECSTATE WASHDC 5607
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBJ/AMEMBASSY BEIJING 4174
RUEHBY/AMEMBASSY CANBERRA 0952
RUEHUL/AMEMBASSY SEOUL 4112
RUEHKO/AMEMBASSY TOKYO 0618
RUEHHK/AMCONSUL HONG KONG 2361
RUEAIIA/CIA WASHDC
RUQODAZ/CARIBROC KEY WEST FL
RHHJJPI/PACOM IDHS HONOLULU HI
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 JAKARTA 002069
 
SIPDIS
 
NOFORN
SIPDIS
 
FOR EAP/MTS; EB/TPP/IPE; EAP/RSP; EB/TPP/BTA; EB/TPP,PA
COMMERCE FOR 4430/ BERLINGUETTE
COMMERCE PASS USPTO JNESS
DEPT PASS USTR FOR DKATZ, RBAE,
 
E.O. 12958: DECL: 08/01/2017
TAGS: KCASC ASEC EINV ECON KCOR KPAO PGOV ID
SUBJECT: NIKE COMMERCIAL DISPUTE RESOLVED
 
REF: JAKARTA 01957
 
Classified By: Econ Officer Jonathan Alan. Reason: 1.4 (b) and (d).
 
¶1.  (C) Summary:  Nike and Central Cipta Murdaya (CCM)
reached an agreement on July 31 to phase-out their business
relationship over the next 24 months.  The agreement includes
concessions by Nike to increase the phase-out time for one of
CCM,s factories to 24 months from 9 months, as well as
increase the second factory to 12 months from 9 months.
President Yudhoyono (SBY) thanked Ambassador Hume for his
role in resolving the commercial dispute between U.S.-based
Nike Corporation and their local partner CCM during the
Ambassador's credentialing ceremony at the Presidential
Palace on August 1.  End Summary.
 
Agreement Reached
-----------------
 
¶2. (C) Nike executives reached an agreement with CCM on July
¶31.  The agreement includes concessions by Nike to increase
the phase-out time for one of CCM,s factories to 24 months
from 9 months, as well as increase the second factory to 12
months from 9 months.  Nike also guaranteed orders of 100,000
shoes per week per factory for the phase-out period,
representing more than 80% factory capacity.  In exchange,
CCM would:
 
-- acknowledge financial responsibility for factory workers;
-- agree not to litigate;
-- cease all public disparagement of Nike; and
-- cease all illegal trade in Nike goods.
 
Ambassador's Statement
----------------------
 
¶3.  (U) The Ambassador issued the following statement on
August 1: "The U.S. Embassy welcomes the new agreement
between Nike and Central Cipta Murdaya (CCM), an agreement
consistent with rule of law and respect for contracts.  This
is a good agreement for both the Republic of Indonesia and
the United States, as well as for the overall investment
climate.  Nike's decision to extend the phase-out period of
CCM's contract is consistent with its long-term commitment to
Indonesia.  We thank the Government of Indonesia for its role
in facilitating this agreement, in particular Investment
Coordinating Board Chairman Muhammad Lutfi, who played an
active role in assisting both parties to reach a beneficial
outcome."
 
Background
-----------
 
¶4.  (SBU) Nike informed CCM on July 6 that Nike would end
it's 20 year business relationship with CCM at the end of
¶2007.  Nike executives explained the decision was based on
CCM's inability to meet the company's minimum contractual
product quality and delivery standards.  CCM responded by
ceasing all Nike factory production on July 16 and directing
disgruntled employees to Nike's downtown Jakarta offices.
The ensuing protest alarmed Nike executives, who received
Embassy assistance in obtaining protection from local police
and safe passage to the airport where they departed for
Singapore (reftel A).
 
Ambassador Meets Investment Chairman Lutfi
--------------------------------------------- --
 
¶5.  (C) On July 18, Ambassador Hume met with Muhammad Lutfi,
Chairman of the Government of Indonesia (GOI) Investment
Coordinating Board (BKPM) to discuss the dispute (reftel A).
Lutfi explained that SBY was engaged in the issue and had
designated Lutfi to coordinate GOI response.  Lutfi promised
GOI security for Nike executives if they return to Jakarta
and assured the Ambassador that Nike executives would not be
detained by authorities even in the event of civil
 
JAKARTA 00002069  002 OF 002
 
 
litigation.  Ambassador Hume offered to call Nike executives
but reminded Lutfi that security assurances must come from
the GOI directly.
 
Negotiations
------------
 
¶6.  (C) On July 24, U.S.-based Nike executives, accompanied
by Lutfi, flew to Jakarta from Singapore via private GOI
plane to re-negotiate the terms of the phase-out agreement
with CCM.  The negotiations were attended by Emboff and took
place at the Jakarta Ritz Carlton in rooms provided by the
GOI.  Lutfi mediated, moving back and forth between Nike
executives and CCM, each located in suites on different
floors of the hotel.  After four hours of negotiation both
parties met face-to-face in a hotel conference room to sign
the completed agreement.  However, CCM raised last minute
objections and refused to sign.
 
Ambassador Meets Lutfi (Again)
-------------------------------
 
¶7.  (C)  On July 26 Ambassador Hume met with Lutfi at his
BKPM office to discuss ways to resolve the impasse.  Lutfi
thanked Ambassador Hume for facilitating Nike's willingness
to negotiate and for the Embassy's presence at the July 24
negotiations.  Lutfi expressed surprise at Nike's generosity
in the terms of the phase-out and harshly criticized Hartati
Murdaya, owner of CCM, for her "nasty intentions."  Lutfi
conceded that GOI could not force Murdaya to sign the
agreement, but promised continued "informal" efforts to
encourage resolution.  The Ambassador assured Lutfi of
continued Embassy engagement and promised to issue a
statement if a successful outcome was reached.
HUME

 
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