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FOREIGN TRADE BARRIERS 1999 -
INDONESIA
IMPORT POLICIES
In recent years,
Indonesia has liberalized its trade regime and taken a
number of important steps to reduce protection. The
Indonesian Government did so by issuing periodic
deregulation packages that have incrementally reduced
overall tariff levels, simplified the tariff structure,
removed restrictions, replaced nontariff barriers with
more transparent tariffs, and encouraged foreign and
domestic private investment. In conjunction with its IMF
stabilization program, the government has issued reform
decrees that stipulate the reduction of taxes, tariffs
and quantitative restrictions on exports and imports.
Tariffs
In 1998, Indonesia
continued to reduce tariffs. As part of its economic
reform program, the government has been implementing a
general program of tariff reduction in which it included
significant tariff reductions on food and agricultural
goods, an area previously heavily protected. In February
1998, the government reduced tariff rates on non-food
agricultural products by 5 percentage points and will cut
them to a maximum of 10 percent by 2003. Tariffs on all
food items were cut to a maximum of 5 percent effective
April 1, 1998. Indonesia's applied tariff rates range
from 5 to 30 percent. Major exceptions to this range are
the 170 percent duty applied to all imported distilled
spirits and the 125 percent duty assessed built up
passenger vehicles (subject also to a 75 percent import
surcharge equaling total import taxes of 200 percent on
these vehicles). Automobile complete knockdown kits (CKD)
are assessed import duties that range from zero to 65
percent, depending upon the vehicle category and local
content incorporated. All processed goods are subject to
a 10 percent value-added tax. A luxury tax ranging from
20 percent to 35 percent is also levied on certain
products. For example, the combination of tariff, VAT,
and luxury tax results in an applied tariff of 271
percent for imported wine. The auto luxury taxes are
assessed based on the net selling price, engine size and
local content levels. Despite Indonesia’s tariff
reductions as specified in their IMF Memoranda of
Economic and Financial Policy (MEFP), companies in
several sectors fear that non-competitive practices will
continue once the economic crisis has abated. Several
current tariff rates are temporary and unbound. These
rates are lower than
Indonesia’s
commitments under the Uruguay Round bound tariff rate,
and are therefore believed to be vulnerable to increases
by Indonesia.
In May 1995, the
Indonesian Government unveiled a comprehensive
tariff-reduction package covering roughly two thirds of
all traded goods, designed to reduce most tariffs to
under 5 percent by 2003. The package stipulated that all
tariff items with a rate of 20 percent or less would be
reduced to no greater than 5 percent by 2000, and items
with rates of more than 20 percent would be reduced to no
more than 20 percent by 1998, and 10 percent by 2003.
Exclusions from these tariff cuts for chemical, metal,
and agricultural products have been removed, leaving in
place the exclusion for automobiles. This tariff reform
generally extends Indonesia's commitments under the
Association of Southeast Asian Nations (ASEAN) Free Trade
Area (AFTA) on an MFN basis.
U. S. industries
have expressed concern over access to Indonesian markets
which remains restricted by various trade barriers. These
complaints cite arbitrary valuations for tariff
assessments, and tariffs and luxury taxes imposed on
imported products (in addition to a 10 percent VAT
applied to all processed goods): large motorcycles (150
percent import duty; 35 percent luxury tax), toys (10-20
percent import duty), wine (40 percent import tariff; 35
percent luxury tax; 2.5 percent local service tax),
distilled spirits (170 percent import tariff; 35 percent
luxury tax), air conditioning and refrigeration equipment
(10-15 percent tariff; some items subject to 20 percent
luxury tax), forest products (0-10 percent tariff), and
soda ash (5 percent tariff).
As of January
1999, 59.4 percent of Indonesia's tariff lines were
assessed import duties ranging between 0 and 5 percent.
Indonesia’s average unweighted tariff is 9.5
percent, compared to 20 percent in 1994. In the Uruguay
Round market access negotiations, Indonesia committed to
bind 94.6 percent of its tariff items, mostly at ceiling
bindings of 40 percent. Exceptions to the 40 percent
binding include automobiles, iron, steel, and some
chemical products. In accordance with the WTO Agreement
on Agriculture, Indonesia has agreed to tariffy its
nontariff barriers on agricultural products. Some of the
exceptions to the 40 percent tariff bindings are still
heavily protected. For example, when the Indonesian
Government lifted the import ban on completely built-up
cars in 1993, it replaced the ban with duties of up to
200 percent and import surcharges of 100 percent. The
import levies were decreased in a subsequent deregulation
package, but tariffs of up to 125 percent are still
compounded by import surcharges of up to 75 percent on
completely built-up models. Indonesia has committed to
remove import surcharges on items bound in the Uruguay
Round by the year 2005. Indonesia’s pioneer auto
program (see also "Investment Barriers"), was
found to be in violation of Indonesia’s WTO
commitments by the WTO dispute settlement Appellate Body
in July 1998, upholding the earlier Panel finding.
Quantitative
Restrictions
Before agreement
on Indonesia’s IMF program, the sole importer and
distributor of major bulk food commodities, such as
wheat, rice, sugar, and soybeans, was the National
Logistics Agency (BULOG), a state trading entity. Prices
of these commodities were often higher than world market
prices or heavily subsidized. As a result of the IMF
stabilization program, the role of the National Logistics
Agency (BULOG) has been sharply curtailed. Current
regulations now permit private companies to import and
distribute wheat, wheat flour, soybeans, garlic, and
sugar. BULOG retains the authority to maintain the
country’s rice stabilization program and therefore
continue imports as needed. At the present time, the
BULOG maintains the exclusive right to import rice. This
state trading of rice prevents U.S. rice exporters from
having direct access to the Indonesian market. BULOG no
longer imports any other commodities. Local content
regulations on dairy products were eliminated on February
1, 1998. Indonesia has agreed to phase out all
quantitative import restrictions other than those
justified for health, safety, environment, and security
reasons by the end of the IMF program period (November
2001). Also, there are quantitative restrictions on
imports of wines and distilled spirits, and industry
complains that only a small portion is allocated for
domestic sales with the majority going to duty-free
stores.
Import Licensing
The government
continues to reduce the number of items subject to import
restrictions and special licensing requirements.
Approximately 160 tariff lines still remain subject to
restrictive import licenses, down from 261 in 1994 and
1,112 lines in 1990. However, some U. S. industries
continue to express concern over Indonesia's license and
quota system that operates as a de facto ban on imports
such as motorcycles, wine, and films. For goods that
continue to be regulated, the following import license
categories exist (number of affected tariff lines
provided in parentheses): registered importers,--
alcoholic beverages {only 2 companies approved since
1983} (27), hand tools (6); producing importers --
artificial sweeteners (3), propylene granules (2),engines
and pumps (5), tractors (3), knocked-down electronic
keyboards (1), and scrap materials (57); approved
importers/sole agents -- motor vehicles (47); state oil
company PERTAMINA -- lube oil (3); PT Dahana --
explosives (4). In accordance with Indonesia's WTO
commitments, the nontariff barriers on items not
controlled by state trading agencies will be removed over
a ten-year period.
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