INDONESIA TRADE DIRECTORY ON DISK 1993 TITLE : INDONESIA - LIBERALIZED TRADE REGULATIONS - SUBJECT: TRADE REFORMS IN INDONESIA'S JULY - DEREGULATION PACKAGE 1. NOTE: THE FOLLOWING IS A DETAILED DESCRIPTION OF THE MEASURES IN THE JULY DEREGULATION PACKAGE WHICH ARE SPECIFIC TO TRADE. 2. SUMMARY: THE GOVERNMENT OF INDONESIA'S (GOI'S) JULY 6 1992 DEREGULATION PACKAGE LIFTED NON-TARIFF BARRIERS ON 241 HARMONIZED SCHEDULE (HS) CATEGORIES AND LOOSENED RESTRICTIONS ON 36 MORE. RESTRICTIONS ON THE IMPORT OF USED MACHINERY AND CAPITAL PLANT WERE ALSO LIFTED. THE PACKAGE REDUCED A NUMBER OF TARIFFS, AND LIFTED IMPORT SURCHARGES ON 184 CATEGORIES. END SUMMARY. ----------------------------- REPEAL OF NON-TARIFF BARRIERS ----------------------------- 3. BATIK: THE GOI'S JULY 6 1992 DEREGULATION PACKAGE (PAKJUL) LIFTED IMPORT RESTRICTIONS ON 241 TARIFF CATEGORIES. HOWEVER, THE VAST MAJORITY OF THE AFFECTED CATEGORIES WERE 226 TARIFF CLASSES OF BATIK CLOTH. THIS ACTION DOES REPRESENT SOME LIFTING OF PROTECTIONISM FOR THIS IMPORTANT DOMESTIC INDUSTRY. BATIK IS STILL WORN BY MOST INDONESIANS, AND SOME OBSERVERS BELIEVE THE DOMESTIC INDUSTRY "AY FACE STIFF COMPETITION FROM COUNTRIES SUCH AS CHINA, WHOSE LOWER LABOR COSTS COULD PROVIDE A COMPARATIVE ADVANTAGE IN THE PRODUCTION OF HANDMADE BATIKS. MACHINE MADE GOODS FROM DEVELOPED COUNTRIES COULD ALSO PUT PRESSURE ON DOMESTIC PRODUCTION AT THE LOWER END OF THE BATIK MARKET. 4. AGRICULTURAL COMMODITIES: PAKJUL ALSO FREED 12 AGRICULTURAL COMMODITY CATEGORIES (MESLIN, RYE, BARLEY, OATS, FOUR TYPES OF SORGHUM, MILLET, CANARY SEED, OTHER CEREALS, AND CORN FLOUR) FROM THE IMPORT MONOPOLY PREVIOUSLY HELD BY THE NATIONAL FOOD AGENCY, BULOG. IMPORTS OF THESE GOODS WILL NOW BE SUBJECT TO TARIFFS, BUT IMPORTERS WILL BE ALLOWED TO BRING THEM IN DIRECTLY. THE CURRENT AND POTENTIAL MARKET FOR THESE COMMODITIES IS QUITE LIMITED. BULOG CONTINUES TO HAVE A MONOPOLY ON THE IMPORT OF "STRATEGIC" AGRICULTURAL COMMODITIES, INCLUDING WHEAT, RICE, AND SUGAR. --------------------------------------------------- STEEL IMPORTS STILL CONTROLLED, BUT MONOPOLY LIFTED --------------------------------------------------- 5. PAKJUL LOOSENED NON-TARIFF BARRIERS ON 36 CATEGORIES OF STEEL PRODUCTS. PREVIOUSLY, STATE"OWNED PT KRAKATAU STEEL CONTROLLED ALL IMPORTS OF THESE PRODUCTS. UNDER THE NEW PACKAGE, IMPORTER/PRODUCERS (IPS) WILL BE ABLE TO IMPORT 35 OF THESE PRODUCTS DIRECTLY, WITHOUT INTERVENTION FROM THE STATE STEEL COMPANY OR THE DEPARTMENT OF INDUSTRY. IP'S ARE COMPANIES APPROVED TO IMPORT GOODS FOR THEIR OWN PRODUCTION PROCESSES. THE FINAL CATEGORY, ROTARY-FIRED MOTOR PISTONS, CAN NOW BE IMPORTED BY SOLE AGENTS (AT/IU). THE LIFTING OF THE MONOPOLY WAS ACCOMPANIED BY THE IMPOSITION OF A 10 PERCENT IMPORT SURCHARGE ON MOST OF THE AFFECTED CATEGORIES. 6. COMMENT: THE EXTENT OF THE IMPACT THIS CHANGE WILL HAVE ON THE ECONOMY IS STILL NOT CLEAR. SOME COMMENTATORS HAVE PREDICTED THAT THE LIFTING OF PT KRAKATAU STEEL'S MONOPOLY ON THESE PRODUCTS WILL HAVE VERY LITTLE IMPACT ON THE MARKET FOR STEEL IN INDONESIA, BUT THE COMPANY HAS ALREADY ANNOUNCED THAT IT IS ADJUSTING ITS PROFIT ESTIMATES FOR 1992 DOWNWARDS BECAUSE OF THE LIFTING OF THE MONOPOLY. IF THIS C"ANGE IS COMPLETELY IMPLEMENTED, AND LOWER PRODUCTION COSTS TO STEEL FABRICATORS ACTUALLY FLOW THROUGH TO CONSUMERS, THIS PORTION OF PAKJUL COULD HAVE LONGTERM, MEASURABLE, BENEFICIAL EFFECTS ON THE ECONOMY. END COMMENT. 7. NON-TARIFF IMPORT BARRIERS WERE ALSO LIFTED ON MINERAL WATER, ELECTRICITY TRANSFORMERS, AND ONE STILL UNIDENTIFIED CATEGORY OF METAL PRODUCTS. ---------------------------------------------------- USED MACHINERY AND CAPITAL PLANT RESTRICTIONS LIFTED ---------------------------------------------------- 8. ONE OF THE MOST IMPORTANT MEASURES IN THE NEW PACKAGE MAY PROVE TO BE THE EASING OF RESTRICTIONS ON THE IMPORT OF USED MACHINERY AND CAPITAL PLANT. PREVIOUSLY, ONLY SPECIALLY APPOINTED STATE ENTERPRISES OR PRODUCER/IMPORTERS WHICH WERE LICENSED BY BOTH THE MINISTRY OF INDUSTRY AND THE MINISTRY OF TRADE COULD IMPORT SUCH GOODS. UNDER THE NEW PACKAGE, COMPANIES WITH INDUSTRIAL LICENSES MAY IMPORT MACHINERY FOR THEIR OWN USE OR FOR RECONDITIONING, AND PRESUMABLY, RESALE. COMPANIES WITHOUT LICENSES SHOULD BE ABLE TO IMPORT USED MACHINERY AND CAPITAL PLANT THROUGH FIVE COMPANIES WHICH HAVE BEEN NAMED OFFICIAL AGENTS. HOWEVER, IMPORT BANS ARE STILL IN EFFECT ON SOME CATEGORIES OF USED EQUIPMENT. 9. COMMENT: CONTACTS FROM SEVERAL SECTORS HAVE SAID THIS MAY BE THE MOST FAR-REACHING SECTION OF THE JULY 1992 PACKAGE. THE TEXTILE INDUSTRY, IN PARTICULAR, MAY TAKE ADVANTAGE OF THIS OPENING TO EXPAND PLANTS WITH RELATIVELY LOW EXPENDITURE. FOOD PROCESSING OPERATIONS COULD ALSO BENEFIT. ACCORDING TO ONE SOURCE, SEVERAL INDONESIAN COMPANIES HAVE ALREADY EXPLORED OPPORTUNITIES OF BRINGING IN USED BUT COMPLETE INDUSTRIAL PLANTS FROM EASTERN EUROPE, PERHAPS UNDER COUNTER-TRADE ARRANGEMENTS. END COMMENT. ----------------------------- SOME IMPORT SURCHARGES LIFTED ----------------------------- 10. THE GOI IMPOSED IMPORT SURCHARGES IN THE DEREGULATION PACKAGE OF 1991, IMPLYING AT THAT TIME THAT THEY WOULD BE DROPPED WITHIN TWELVE MONTHS. HOWEVER, THE 1992 PACKAGE COMPLETELY DROPPED SURCHARGES ON ONLY 184 PRODUCTS, AND REDUCED SURCHARGES ON 81 OTHER PRODUCTS. THE PACKAGE ELIMINATED THE 10 PERCENT SURCHARGES ON 27 CATEGORIES OF FOOD AND DRINK, INCLUDING PRESERVED FRUITS AND NUTS, CHEWING GUM, CHOCOLATES AND COCO" PRODUCTS, CANDIES, AND TAPIOCA. THE 5 PERCENT IMPORT SURCHARGES ON EGG PASTA, BREAKFAST CEREALS, BISCUITS AND COOKIES, PICKLED VEGETABLES AND FRUITS, MIXED JUICE, MARMELADE, AND ROASTED NUTS WERE ALSO DROPPED. ALL THE ABOVE-LISTED PRODUCTS CONTINUE TO FACE 30 PERCENT IMPORT DUTIES. 11. THE PACKAGE REDUCED IMPORT SURCHARGES ON AMPICILLIN AND AMOXICILLIN FROM 10 PERCENT IN 1991 TO 5 PERCENT. TOILETRIES SUCH AS MAKEUP, HAIR PRODUCTS, SUN LOTION, AND TOOTHPASTE WILL NOW FACE SURCHARGES OF 10 PERCENT, RATHER THAN LAST YEAR'S 20 PERCENT. THE 10 PERCENT SURCHARGE ON SEVERAL HERBICIDES AND PESTICIDES WAS CUT TO 5 PERCENT. 12. THIS YEAR'S PACKAGE ALSO INTRODUCED OR RAISED THE SURCHARGES ON 80 TARIFF CATEGORIES, 36 OF WHICH ARE THE TARIFF GROUPS FREED FROM THE PT KRAKATAU STEEL MONOPOLY. TARIFF SURCHARGES WERE ALSO RAISED FROM 2.5 PERCENT TO 7.5 PERCENT ON A NUMBER OF OTHER STEEL AND METALS CATEGORIES, AND FROM 15 TO 25 PERCENT ON SOME RUBBER PRODUCTS. THE GOVERNMENT ALSO INTRODUCED A 5 PERCENT SURCHARGE ON THE IMPORT OF NEWSPRINT. SURCHARGES ARE NOW IN PLACE ON 255 TARIFF CATEGORIES, OR 3 PERCENT OF THE TOTAL. ------------------------------- TARIFF REDUCTIONS DISAPPOINTING ------------------------------- 13. THE 1992 PACKAGE IMPOSES IMPORT TARIFFS ON 9,222 PRODUCT CATEGORIES, AN INCREASE OF 2 OVER THE 1991 PACKAGE. THE GOVERNMENT REDUCED TARIFFS ON 44 CATEGORIES AND RAISED THEM ON 35 CATEGORIES. THE INCREASES AND THE NET ADDITION WERE AGAIN CAUSED IN PART BY THE INTRODUCTION OF PRODUCTS WHICH WERE PREVIOUSLY COVERED BY NON-TARIFF BARRIERS. UNDER THE NEW PACKAGE, 57 PERCENT OF DUTIABLE PRODUCTS ARE SUBJECT TO TARIFFS OF 0-20 PERCENT; 42 PERCENT OF ALL CATEGORIES ARE HIT BY TARIFFS WHICH RANGE FROM 25-40 PERCENT, AND 1 PERCENT OF TARIFF CATEGORIES ARE IN THE 50-200 PERCENT TARIFF CATEGORIES. MOST CATEGORIES WHICH ARE OF DIRECT INTEREST TO THE UNITED STATES REMAIN UNCHANGED. IMPORT DUTIES OF 35 PERCENT REAMIN IN PLACE ON SOYBEAN MEAL. PAKJUL ALSO FAILED TO ADDRESS TARIFFS ON VECHICLE IMPORTS. -------------------------------- THE PROOF WILL BE IN THE PUDDING -------------------------------- 14. COMMENT: ALTHOUGH THE PRESIDENTIAL AND MINIST"RIAL DECREES HAVE SKETCHED THE POLICY OUTLINES OF PAKJUL, THE GOI HAS YET TO ISSUE THE "ELUCIDATION" AND THE IMPLEMENTING REGULATIONS WHICH WILL MOVE THE POLICY FROM IDEAS TO PRACTICE. MOST OF THE CHANGES IN IMPORT SURCHARGES AND TARIFF LEVELS SHOULD BE FAIRLY STRAIGHT FORWARD. MANY OBSERVERS ARE WAITING, HOWEVER, TO SEE HOW THE POLICY IS IMPLEMENTED BEFORE PASSING JUDGMENT ON THE EFFECTIVENESS OF THE MEASURES TO DEREGULATE IMPORTS FROM NON-TARIFF BARRIERS AND MONOPOLISTIC CONTROL. THERE IS ALSO SOME SPECULATION/HOPE THAT THE GOI WILL "SSUE ANOTHER DEREGULATION PACKAGE, WHICH MIGHT INCLUDE THE AUTOMOTIVE SECTOR, LATER THIS YEAR. MOST CONTACTS AGREE THAT THIS WOULD BE PREFERABLE TO WAITING UNTIL 1993 TO ADDRESS THAT CRUCIAL SECTOR OF THE ECONOMY. WILSON