RECENT ECONOMIC REPORTS

6. Export Subsidies Policies

Indonesia joined the GATT Subsidies Code and eliminated export-loan interest subsidies as of April 1, 1990. As part of its drive to increase non-oil and gas exports, the government permits restitution of Value-Added Tax (VAT) paid by a producing exporter on purchases of materials for use in manufacturing export products. Exemption from or drawbacks of import duties are available for goods incorporated into exports. Free trade zones and industrial estates are combined in several bonded areas. Since 1998, the government has gradually increased the share of production that firms located in bonded zones are able to sell domestically, up to 100 percent.

7. Protection of U.S. Intellectual Property

Indonesia is a member of the World Intellectual Property Organization (WIPO) and in 1997 became a full party to the Paris Convention for the Protection of Intellectual Property, the Bern Convention for the Protection of Literary and Artistic Works, the Patent Cooperation Treaty, and the Trademark Law Treaty. Indonesia was the first country in the world to ratify the WIPO Copyright Treaty, but has not ratified the companion WIPO Performances and Phonograms Treaty. In April 2001, the U.S. Trade Representative placed Indonesia on the Special 301 Priority Watch List citing continued lack of effective enforcement of IP rights.

Piracy of software, books, and videos in Indonesia is rampant. U.S. rightholders are concerned about the rapid increase in pirate optical disc (OD) production facilities in Indonesia. The capacity of these facilities far exceeds Indonesia's domestic demand indicating Indonesia is a growing export base for pirated media and software. The U.S. government has urged Indonesia to take quick action to register and control OD production equipment.

As part of its efforts to comply with the WTO TRIPS agreement, Indonesia enacted new laws in December 2000 on protection of trade secrets, industrial design, integrated circuits, and plant varieties. In July 2001, Parliament passed amendments to existing laws on patent and trademarks. The government is also preparing amendments to the existing copyright law. Even with new laws in place, however, inadequate enforcement and a corrupt judicial system pose daunting problems for U.S. companies seeking enforcement of their rights in Indonesia. The Indonesian government has, at times, responded to U.S. companies bringing specific complaints about pirated goods or trademark abuse, but the Indonesian court system can be frustrating and unpredictable, and effective punishment of pirates of intellectual property is rare.

Indonesia's new Patent Law did not improve several areas of concern to U.S. companies, including compulsory licensing provisions, a relatively short term of protection, and a provision allowing importation of 50 pharmaceutical products by non-patent holders.

8. Worker Rights

a. The Right of Association: Private sector workers, including those in export processing zones, are by law free to form worker organizations provided there are at least ten workers who wish to do so. All unions must be registered with the government. In August 2000, the government enacted a new law governing trade unions that continued a trend since 1998 toward removing barriers to freedom of association. Some labor organizations criticized the new law for maintaining some existing restrictions on unions. There are currently 59 national unions registered. The courts may dissolve a union under the 2000 law if union members are convicted of crimes against the state and sentenced to at least five years in prison.

Civil servants are no longer required to belong to KORPRI, a nonunion association whose central development council is chaired by the Minister of Home Affairs. State enterprise employees, defined to include those working in enterprises in which the state has a five percent holding or greater, usually were KORPRI members in the past, but a small number of state enterprises have units of the Federation of All-Indonesian Trade Unions (SPSI). New unions are now seeking to organize employees in some state-owned enterprises. Teachers must belong to the teachers' association (PGRI). All organized workers, except those engaged in public service, have the legal right to strike. Private sector strikes are frequent.

b. The Right to Organize and Bargain Collectively: Registered unions can legally engage in collective bargaining and can collect dues from members through a checkoff system. In companies without unions, the government discourages workers from utilizing outside assistance, preferring that workers seek its assistance. By regulation, negotiations must be concluded within 30 days or be submitted to the Department of Manpower for mediation and conciliation or arbitration. Agreements are for two years and can be extended for one year. According to NGOs involved in labor issues, the provisions of these agreements rarely go beyond the legal minimum standards established by the government, and the agreements are often merely presented to worker representatives for signing rather than being negotiated.

Although government regulations prohibit employers from discriminating or harassing employees because of union membership, there are credible reports from union officials of employer retribution against union organizers, including firing, which is not effectively prevented or remedied in practice. Administrative tribunals adjudicate charges of antiunion discrimination. However, because many union members believe the tribunals generally side with employers, many workers reject or avoid the procedure and present their grievances directly to the national human rights commission, parliament and other agencies. Security forces continue to involve themselves in labor issues, despite the Minister of Manpower's revocation in 1994 of a 1986 regulation allowing the military to intervene in strikes and other labor actions.

c. Prohibition of Forced or Compulsory Labor: The law forbids forced labor, including forced and bonded labor by children. In 1999 the government ratified ILO Conventions 105 (Forced Labor) and began removing children from the fishing platforms.

d. Minimum Age for Employment of Children: Child labor exists in both industrial and rural areas, and in both the formal and informal sectors. According to ILO, over 3.4 million children (under 15 years of age) work ten hours or more per week. Some observers believe that number to be understated, because documents verifying age are easily falsified. The ILO ranks Indonesia as the third worst in Asia on child labor conditions. Indonesia was one of the first countries to be selected for participation in the ILO's International Program on the Elimination of Child Labor (IPEC) and the government and the ILO signed a Memorandum of Understanding in March 2001. The government followed this with Presidential decree No. 12 of 2001 creating a National Action Committee to Eliminate the Worst Forms of Child Labor. Although the ILO has sponsored training of labor inspectors on child labor matters under the IPEC program, enforcement remains lax. The government ratified ILO Convention 138, which establishes a minimum working age of 15, in April 1999 ILO Convention 182 on the Elimination of the Worst Forms of Child Labor in March 2000.

e. Acceptable Conditions of Work: Indonesia does not have a national minimum wage. Rather, area wage councils working under the supervision of the national wage council establish minimum wages for regions and basic needs figures for each province, a monetary amount considered sufficient to enable a single worker to meet the basic needs of nutrition, clothing, and shelter. In Jakarta, the minimum wage is about $35 (Rp. 344,000) per month at an exchange rate of Rp 10,000 to the dollar). There are no reliable statistics on the number of employers paying at least the minimum wage. Independent observers' estimates range between 30 and 60 percent.

Labor law and ministerial regulations provide workers with a variety of other benefits, such as social security, and workers in more modern facilities often receive health benefits, free meals, and transportation. The law establishes seven-hour workdays and 40-hour workweeks, with one 30-minute rest period for each 4 hours of work. The law also requires one day of rest weekly. The daily overtime rate is 1-1/2 times the normal hourly rate for the first hour, and twice the hourly rate for additional overtime. Observance of laws regulating benefits and labor standards varies from sector to sector and by region. Employer violations of legal requirements are fairly common and often result in strikes and employee protests. In general, government enforcement and supervision of labor standards are weak. Both law and regulations provide for minimum standards of industrial health and safety. In the largely western-operated oil sector, safety and health programs function reasonably well. However, in the country's 100,000 larger registered companies in the non-oil sector, the quality of occupational health and safety programs varies greatly. The enforcement of health and safety standards is severely hampered by corruption, by the limited number of qualified Department of Manpower inspectors and by the low level of employee appreciation for sound health and safety practices. Workers are obligated to report hazardous working conditions. Employers are forbidden by law from retaliating against those who do, but the law is not effectively enforced.

f. Rights in Sectors with U.S. Investment: Working conditions for direct-hire employees in firms with U.S. ownership are widely recognized as better than the norm for Indonesia. Contract labor, although widely used, does not receive the same benefits as direct hire employees. Application of legislation and practice governing worker rights is largely dependent upon whether a particular business or investment is characterized as private or public. U.S. investment in Indonesia is concentrated in the petroleum and related industries, primary and fabricated metals (mining), and pharmaceutical sectors.

Foreign participation in the petroleum sector is largely in the form of production sharing contracts between the foreign companies and the state oil and gas company, Pertamina, which retains control over all activities. All direct employees of foreign companies under this arrangement are considered state employees and thus all legislation and practice regarding state employees generally applies to them. Employees of foreign companies operating in the petroleum sector are organized in KORPRI. Employees of these state enterprises enjoy most of the protection of Indonesia labor laws including the right to strike, join labor organizations, or negotiate collective agreements. Contract workers in the petroleum sector do have the right to organize and have joined independent trade unions. A 1995 Minister of Manpower regulation exempts the petroleum sector from legislation requiring employers to give permanent worker status to workers who have worked for the company under short-term contracts for more than three years. Some companies operating under other contractual arrangements, such as contracts of work and, in the case of the mining sector, coal contracts of work, do have unions and collective bargaining agreements.

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