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FOREIGN TRADE BARRIERS 1999 -
INDONESIA
INVESTMENT BARRIERS
The Indonesian
Government is committed to increasing foreign investment
and to reducing burdensome bureaucratic procedures and
substantive requirements for foreign investors.
Indonesian law provides for both 100 percent direct
foreign investment projects and joint ventures with a
minimum Indonesian equity of 5 percent. In 1998, the
government opened several previously restricted sectors
to foreign investment, including harbors, electricity
generation, telecommunications, shipping, airlines,
railways, roads, and water supply. Some sectors remain
restricted or closed to foreign investment and are
implemented through a "negative list." The most
recent negative list was issued in July 1998 and includes
television and radio broadcasting, theatrical exhibition,
both film and video distribution, and forest concessions.
Foreign capital
investment is primarily governed by the foreign capital
investment law, as well as by presidential and
ministerial decrees. The Capital Investment Coordinating
Board (BKPM) and other relevant agencies must approve all
proposed foreign-manufacturing investments in Indonesia.
The approval process is not used to block or restrict
foreign investment. Obtaining the required permits,
however, can be cumbersome
and
time-consuming. The most often heard complaint from
investors about the Capital Investment Coordinating Board
is that it is not a one stop investment shop. Investment
in petroleum extraction, mining, forestry,
telecommunications, and banking is covered by specific
laws and regulations and handled by relevant technical
agencies. Joint ventures with a majority Indonesian
share, or in which Indonesians own 45 percent of shares
and in which at least 20 percent of total stock is sold
through the Indonesian stock market, are treated as
domestic companies for certain purposes. This includes
the ability to borrow short-term working capital in
rupiah from state banks.
In 1996, the
Indonesian Government issued a regulation under which tax
exemptions may be provided to certain companies. This
"tax holiday" was originally conceived as a way
to attract large investments which Indonesia believed it
was losing to other countries in the region with better
tax incentives. The program was never fully implemented,
however, and the government is in the process of revising
it to target specific industries to stimulate both
domestic and foreign investment.
Indonesia has
notified the WTO regarding measures that are inconsistent
with its obligations under the WTO Agreement on
Trade-Related Investment Measures. The measures deal with
local content requirements for utility boilers. Proper
notification allows developing country WTO Members to
maintain such measures for a five-year transitional
period after entry into force of the WTO. Indonesia
therefore must eliminate these measures before January 1,
2000. The United States is working in the WTO Committee
on TRIMs to ensure that WTO Members meet these
obligations.
Auto Policies: the 1993
Measures and the 1996 Pioneer Program
By virtue of the
successful challenge by the United States, the EU and
Japan of the WTO consistency of Indonesia’s auto
policies, Indonesia must bring its auto policies into
compliance with the report of the WTO dispute settlement
panel examining Indonesia’s auto programs. The WTO
panel issued its final report in June 1998, finding that
the provision by Indonesia of local content subsidies
under both its 1993 Program and its National Car Program
violates Article III of the GATT and Article 2 of the
Agreement on TRIMs. The panel also found that the
extension of certain of these subsidies to automobiles
imported from Korea violates Article I of the GATT. When
this panel ruling is implemented by the Government of
Indonesia, the various policy elements that conferred the
benefits associated with " National Car" status
will be addressed and removed as a barrier to U.S.
exports.
The Government of
Indonesia indicated its intention to fully comply with
the recommendation and rulings of the DSB adopted on July
23, 1998. The GOI stated that the February 1996 car
program had been revoked on January 21, 1998 and that
Indonesia would meet its WTO obligations with regard to
the 1993 car program no later than October 23, 1999. The
Government of Indonesia has further specified in writing
that the Indonesia firm intended to be the producer of
the national car, PT Timor, will be required to reimburse
the Government of Indonesia for the import duties and
luxury taxes owed on the KIA sedans imported from Korea.
On October 6, the EU requested WTO arbitration to
determine the reasonable time period of implementation of
the DSB rulings on the 1993 program. The United States
participated in the arbitration process that resulted in
the ruling that Indonesia must implement fully by July
23, 1999, or twelve months from the date of the panel
report adoption.
OTHER BARRIERS
Transparency
A lack of
transparency and corruption are significant problems for
companies doing business in Indonesia, and the government
has stepped up efforts to address these concerns. Demands
for "facilitation fees" to obtain required
permits or licenses, government award of contracts and
concessions based on personal relations, and a legal
system that is often perceived as arbitrary are
frequently cited problems. A 1996 report from Bappenas
(the National Planning and Development Board) recognized
the judicial system's shortcomings and noted the
"need to reform judicial administration to ensure
the speedy resolution of conflicts and an effective
appeals system." It also called for improving "
the skills and performance of legal and judicial
personnel by strengthening ethical and professional
standards, transparency, and accountability." Much
of the substantial deregulation introduced since July
1997 and popular demands for investigations into corrupt,
collusive, and nepotistic practices are aimed at tackling
some of the problems which either countenance these
problems or which have arisen from them. The parliament
is in the process of considering a bill intended to
regulate anti-competitive behavior.
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