Trade Regulations, Customs and Standards

Import Tariffs

Indonesia’s simple average bound tariff remained at 37 percent in 2010, while its simple average applied tariffs are around seven to eight percent. Most tariffs are bound at 40 percent, although tariff bindings exceed 40 percent or remain unbound on automobiles, iron, steel, and some chemical products. U.S. motorcycle exports are severely restricted by the combined effect of a 60 percent tariff, a luxury tax of 75 percent, a ten-percent value-added tax, and the prohibition on motorcycle traffic on Indonesian highways.

In the agricultural sector, tariffs on more than 1,300 products have bindings at or above 40 percent. Tariffs on fresh potatoes, for instance, are bound at 50 percent, although applied rates are 25 percent. Local agriculture interests continue to lobby the government to increase tariff rates above bound WTO levels on sensitive agricultural products, such as sugar, soybeans, and corn.

Under the ASEAN Free Trade Agreement, import duties from ASEAN countries are bound at zero to five percent, except for products included in the Exclusion List. Indonesia has lowered 1,571 (60.5 percent) of its tariff lines to zero percent for ASEAN countries in line with its commitments.

Trade Barriers

– Tariffs

In accordance with the WTO Agreement on Agriculture, Indonesia agreed to eliminate non-tariff barriers on agricultural products, and replace them with tariffs. In the agricultural sector, 1,341 tariff lines have bindings at or above 40 percent, including the most sensitive and heavily protected sectors. Local content regulations on dairy products were eliminated. In the current Doha round of negotiations, Indonesia has been advocating special product exemptions from tariff reductions for rice, sugar, soybeans, and corn.

Domestic agricultural interests put pressure on the GOI for protection from international competition. However, with some notable exceptions, the GOI has resisted such pressure. Since December 2007, rice imports have been subject to a specific tariff of Rp450 per kilogram. The Ministry of Agriculture (MOA) continues to propose increasing the tariff further in order to protect local farmers, but the GOI has not implemented this measure. However, in an attempt to provide higher levels of imports rice to the domestic market, in December 2010 the GOI eliminated the import duty for rice. This regulation will reportedly remain in effect until March 31, 2011. Local agricultural interests also have lobbied the government to increase bound tariff rates on sensitive agricultural products, such as sugar and soybeans.

There remains a large gap between the letter of a particular regulation and the reality. Domestic interests often take advantage of the non-transparency of the legal and judicial systems to undermine regulations or law enforcement to the detriment of foreign parties. New laws on regional autonomy and fiscal decentralization have granted significant new powers to the provincial and sub-provincial governments. The potential exists that local governments will impose tax or non-tax barriers on inter-regional trade as they seek new sources of local revenue.

– Non-Tariff Barriers

The National Food Logistics Agency’s (Bulog) main duties are procuring domestic husked paddy rice during the harvest period at the Government Purchasing Price (HPP = Harga Pembelian Pemerintah), distributing rice to the poor under the Rice for the Poor program, distributing rice during emergencies, natural disasters, and managing government rice reserves. Furthermore, Bulog has a license to import rice to meet the government rice reserve secure level, and to maintain price stability should domestic rice production not be sufficient to meet demand.

In April 2008, the Indonesian government announced that the National Logistics Agency (BULOG) would have exclusive authority to import rice for purposes of food security and price management. Imports are not permitted before, during, and immediately after the main harvest period, effectively the first quarter of the year. Private firms can import rice for special purposes only, such as for seed and specialty rice, but they must obtain a special importer identification number issued by the MOA.

Domestic rice producers continue to receive government protection from imports through a quota and licensing scheme. This effectively limits rice imports to remote markets and has the effect of keeping rice prices artificially high for domestic producers.

Indonesia continues to enforce a ban on imports of chicken parts, which has been in place since 2000. U.S. industry estimates the value of lost exports at $10 million or more per year. In the October 2009 Indonesia declared that U.S. Islamic centers are no longer authorized to certify any U.S. poultry as halal, including ducks or turkeys. This measure effectively bans all U.S. poultry exports to Indonesia.

The GOI agreed to allow full market access for imports of all U.S. beef and beef products in 2008; however the government requires pre-approval of each individual U.S.-based exporter’s halal processes prior to exporting to Indonesia. U.S. exporters complain Indonesia’s halal approval process is slow, burdensome and lacking in transparency. The United States continues to work with Indonesia to ensure that that the approval process is conducted in a fair, indiscriminate and transparent manner.

The GOI also imposes de facto quantitative restrictions on imports of meat and poultry products by requiring an Importer Letter of Recommendation (“Surat Rekomendasi Importir”). In approving requests for such letters the GOI can arbitrarily alter the quantity allowed to enter, raising concerns that these Letters of Recommendation are being used to limit imports.

A new Indonesian Ministry of Finance regulation imposed new import duties on alcoholic beverages containing ethyl alcohol as of April 7, 2010. This regulation effectively changed the tariff from an ad valorem tariff to a specific tariff. Previous import duties were based on the percentage of the CIF. The new tariff is from Indonesian rupiah (Rp.) 14,000/liter to Rp. 125,000/liter. However The Indonesian Ministry of Finance recently eliminated the luxury tax on alcoholic beverages, and increased the excise tax and it range from Rp 11,000 to Rp. 130,000 per liter.

A new Indonesian Ministry of Trade regulation will allow registered importers of alcoholic beverages to import duty-paid alcoholic beverage products as of January 2010. Previously, duty-paid and duty-free alcoholic beverages were imported only through a state owned company, as was directed by the Ministry of Trade. The regulation states that the companies that import duty paid alcoholic beverages must apply for an imported-alcoholic beverages permit (IT-MB) through the Directorate General of Foreign Trade. To apply for an IT-MB, each importer must obtain an appointment letter from at least 20 manufacturers or brands, and purchase a minimum of 3,000
carton/brand/year. This letter of appointment must be notarized by public notary of the country of origin. The permit is valid for three years and can be extended. There is a total of eight licensed importers and one is a state-owned company.

The Indonesian Customs Service uses a schedule of arbitrary “price checks” rather than actual transaction prices on importation documents for assessing duties on food product imports. While Indonesian government officials defend this practice on the basis of combating “under invoicing,” they do not publicize the list or the methods used to arrive at those prices. As a result, although most food product import tariffs remain at five percent, the effective level of duties can be much higher. In addition, the USG has received complaints from importers about costly delays in customs processing and requests for unofficial payments to customs officers. The United States will continue to raise its concerns on these issues with the GOI.

As of November 19, 2009, the Ministry of Agriculture’s Quarantine Agency recognized the U.S. Fresh Food of Plant Origin (FFPO) Safety Control, per the requirement under Ministry of Agriculture Regulation No. 27/2009 and 38/2009. Through this recognition, eligible FFPO products do not require certificates of analysis documents to be able to enter Indonesian points of entry.

Indonesia has established policies on biotechnology, but it does not appear to have a unified science-based framework to implement its regulations and has made little progress on biotech policy development. While some field testing is underway, there are no transgenic seed crops approved for release and Indonesia does not produce any biotech crops. With the exception of certain soybean products (soy flour), no trade constraints based on biotechnology content have been introduced or enforced. The Indonesian government’s Biosafety Committee for Transgenic Products is responsible for implementing regulations for biotechnology and initiating assessments for product approvals. The committee has completed biosafety assessments for biotech corn and cotton, and herbicide tolerant corn and soybeans. These products cannot be released into the market until a food safety assessment is completed. Indonesia issued its Guidelines of Food Safety Assessment on Genetically Modified Product in July 2008. Currently the Biosafety Committee for Transgenic Products declared that corn NK603 and corn MON89034 are safe for food consumption. Therefore, it’s expected these two transgenic products will be fully commercialized this year. The United States will continue to highlight the value of biotechnology to Indonesia officials.

In May 2005, Indonesia notified the WTO of its intention to establish fresh fruit and vegetable import requirements. Implemented in 2006, this decree fails to recognize pest-free areas in the United States for all fruits with the exception of grapes. The GOI currently recognizes in-transit cold treatment for apples, cherries, pears, stone fruit, and other U.S. fresh fruits.

– Other Barriers

U.S. industry reports that illegal logging activity in Indonesia results in lost trade opportunities for U.S. producers in Indonesia and third-country markets. In addition, the illegal activity results in lost revenue to the Indonesian government as well as significant environmental damage. Indonesia recognizes the seriousness of the issue and is taking steps to address it, including by working with the United States under the auspices of a 2006 Memorandum of Understanding on Combating Illegal Logging and Associated Trade. Under this agreement, the two governments held three meetings last year and are developing a multi-year action plan to address the trade aspects of the illegal logging problem.

Import Requirements and Documentation

The GOI requires extensive documentation prior to allowing import of goods. Local customs brokers are acquainted with the procedures and required format of the documentation. At minimum, the U.S. exporter or his agent must provide a pro-forma invoice, commercial invoice, certificate of origin, bill of lading, packing list, and insurance certificate. In addition to those documents additional certificates are often required by technical agencies with an interest in the content and conformance of the imported product such as food, pharmaceutical, seeds, or chemicals.

The process of providing the documentation includes a requirement that the importer notify the Customs Office prior to arrival of goods and submit import documents electronically through the electronic data interchange (EDI) in a standardized format placed on flash drives.

U.S. Export Controls

On November 16, 2005 the Executive Branch, in accordance with the provisions of Section 599(b) of the Fiscal Year 2006 Foreign Operations, Export Financing, and Related Programs Appropriation Act, waived restrictions placed on the export of lethal defense articles and related defense services for end use by the Indonesian Armed Forces. Applications are processed on a case-by-case basis, in accordance with standard practice.

Temporary Entry

The GOI encourages foreign investors who export to locate their operations in bonded or export processing zones (EPZ). There are a number of EPZs in Indonesia, the most well known being Batam Island, located 20 kilometers south of Singapore. Indonesia also has several bonded zones or areas that are designated as entry ports for export destined production (EPTE). Companies are encouraged to locate in bonded zones or industrial estates whenever possible. Other free trade zones include a facility near Tanjung Priok, Jakarta’s main port, and a bonded warehouse in Cakung, also near Jakarta.

There is a duty drawback facility (BAPEKSTA) for exports located outside the zones. Foreign and domestic investors wishing to establish projects in a bonded area must apply to the Capital Investment Coordinating Board (see Chapter VI, Investment Climate.)

Labeling and Marking Requirements

The GOI implements the Consumer Protection Law by requiring registration of imported food products. Importers must apply for a registration number (ML) from the Agency for Drug and Food Control (BPOM).

Indonesia’s food and drug agency (BPOM) must individually approve every shipment of processed food, food raw materials, and other food-related ingredients imported into Indonesia. The resulting bureaucratic requirements are inefficient, burdensome and costly to U.S. exporters. U.S. industry also expresses concern that the testing, ingredient and processing requirements for imported packaged food products sometimes require companies to reveal proprietary business information. Some companies have discontinued or reduced sales to Indonesia as a result of BPOM’s enforcement of this requirement.

Indonesia issued a regulation in 1999 requiring a label and a special logo on packaging of food containing transgenic ingredients, but has not yet enforced this requirement due to implementation concerns, including Indonesia’s limited testing capabilities. The GOI has also been gradually implementing a strict food labeling law that requires labels written only in the Indonesian language on all consumer products. Labels may include any other languages, but the main part of the label should be in the Indonesian language. The BPOM officer determines whether to accept the label or applied sticker. U.S. companies, who generally design labels to accommodate several export markets (often in several languages), have concerns about this requirement, which makes it cost ineffective to export smaller volume products.

Indonesian regulations require labels identifying food containing “genetically engineered” ingredients and “irradiated” ingredients. However, the GOI has just started to implement these requirements.

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