Trade Regulations and Standards in Indonesia

A Hot Tip about Accounting in Indonesia

Posted on: 3 Mar 2010

Import Tariffs

Indonesia has reduced tariffs for all products included in its original commitment (7,206 tariff lines) to five percent or less for products having at least 65 percent Association of Southeast Asia Nations (ASEAN) origin. The new tariff reduction package categorizes tariffs into International non-ASEAN Tariffs and ASEAN Tariffs. Under the ASEAN Free Trade Agreement (FTA), tariffs on covered goods fall in three tiers: zero percent, two and a half percent, and five percent. In addition, Indonesia provides tariff preferences to Japan as part of an Economic Partnership Agreement that entered into force in 2008, and it extends tariff preferences to Korea and China following ASEAN agreements with those countries that entered into force in 2007 and 2005, respectively.

 

In the Uruguay Round of market access negotiations, Indonesia committed to binding 94.6 percent of its tariff schedule; most tariffs are bound at 40 percent. Products for which tariff bindings exceed 40 percent, or which remain unbound include automobiles, iron, steel, and some chemical products.

 

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 450 rupiah 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. 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. Following sharp increases of rice prices in 2007, GOI issued a regulation stating that Bulog may now decide to import and determine what type of rice needs to be imported with Ministry of Trade approval, rather than having to obtain approval from the entire cabinet. Bulog may also intervene in areas where rice shortages result in price fluctuations without having to wait for the Minister of Trade to issue an Instruction as before.

 

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.

 

The GOI continues to maintain a ban on imports of chicken parts originally imposed in September 2000 by the Directorate General of Livestock Services in the MOA. The USG has raised concerns about this issue, but the MOA continues to insist on the necessity to assure consumers that imports are produced in accordance with Islamic practices. U.S. imports must comply with Indonesia's established requirements for halal certification, and several ministries have sought to repeal the ban, so far without success. However, the MOA began allowing mechanically deboned poultry meat in August 2007.

 

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. 3/3/2009 Other quantitative limits apply to wines and distilled spirits. In addition to the regular import duty of 40-150 percent, a 10 percent VAT and 40-75 percent luxury tax, the GOI restricts imports of alcoholic beverages to only one state owned registered importer.

 

The Indonesian Customs Service uses a schedule of arbitrary “check prices” 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.

 

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 in a standardized format placed on a computer diskette, floppy disks and/or flash drives.

 

In order to improve the import process Indonesia has implemented a pilot project for online acceptance and monitoring of documents, the Indonesia National Single Window (NSW). The system allows regulatory document entry through the internet. The NSW also seeks to simplify license and permit issuance from multiple government agencies. At present five government agencies have begun to participate in the NSW, pilot. Early adopting agencies include Directorate General of Customs, National Agency of Food and Drug Control, Indonesia Agriculture Quarantine Agency, Indonesia Fishery Quarantine Agency and the Directorate General of International Trade.

 

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 government 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 Indonesian government (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).

 

All imported food products must be tested by BPOM. Some U.S. producers have expressed concerns that the extremely detailed information on product ingredients and processing they must provide may infringe upon proprietary business information. Recently the GOI is more actively seizing non-registered products from retailers. All imported products without ML numbers are confiscated from display areas and the actions are often televised.

 

The GOI also has 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. However, implementation of this regulation is subjective. 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.

 

Prohibited and Restricted Imports

On December 24, 2008, the Ministry of Trade (MOT) issued a regulation increasing the documentation requirements for certain imported products including food and beverages, textiles and related products, footwear, electronics, and toys. The regulation stipulates that importers of the products must obtain an Appointment of Registered Importer of Certain Products from the MOT. The importer must also submit to the MOT six documents including a one-year import plan that includes the entry ports for each shipment during the year. According to the regulation, the appointment will be valid for one year and can be extended. The regulation takes effect February 1, 2009 and will last until December 31, 2010.

 

Shipments of the selected products must be surveyed at the exporting port by a local appointee of PT Sucofindo (Persero) or PT Surveyor Indonesia, or in some cases there will be a local office representing both the Indonesian companies. The company will verify the contents of the shipments. The importer should submit a Surveyor Report to the Indonesian Custom’s officer for clearance. Products can only enter through five designated ports, Belawan in North Sumatera, Tanjung Priok in Jakarta, Tanjung Emas in Semarang (Central Java), Tanjung Perak in Surabaya (East Java), Soekarno Hatta in Makassar (South Sulawesi), or an international airport.

 

The Minister of Industry and Trade requires importers of certain product categories to apply for a special importer identity card, without which products can be detained at port. These goods include: corn, rice, soybeans, sugar, food and beverages, textiles & related products, shoes, electronics and toys.

 

On May 5, 2008, the Minister of Industry and Trade issued a decree concerning Textile Import Arrangements. Only companies that have production facilities to use imported fabrics as inputs for finished products, such as garments or furniture, may obtain textile import licenses. The United States has raised serious concerns that the import licensing requirements severely restrict and distort trade, violating Indonesia's WTO commitments. The GOI insists the regulations are designed to help curb smuggling. The USG has recommended that the decree be rescinded.

 

Customs Regulations and Contact Information

Since April 1997, the Customs Directorate of the Ministry of Finance has operated a post-entry audit system, which relies primarily on verification and auditing rather than inspection to monitor compliance. A paperless electronic data interchange system that links importers, banks, and Customs was also introduced and is slowly being adopted. Indonesia is in nominal compliance with the WTO Customs Valuation Agreement, but U.S. companies operating in Indonesia have reported problems with Customs procedures and valuations. Many complain of a host of irregular and non-transparent fees to get shipments released. The USG continues to monitor the situation, and assist as needed.

 

To curb corruption and expedite customs clearance, the GOI requires that Indonesian importers pay import duties and taxes at one of the 45 appointed state-owned and private-owned banks. The system enables an importer to make an online payment, and the corresponding bank automatically confirms the payment with the customs office. This payment system is a part of Indonesia’s reform program for the customs office to increase its performance as a trade facilitator and revenue collector.

 

The House of Representatives approved an amended Customs Law on October 18, 2006 that intended to cut red tape for importers and exporters and imposes stiffer sanctions on smugglers. The revision is part of the GOI’s effort to improve Indonesia’s business and investment climate by overhauling taxation, investment, and customs and excise statutes. Article 5 of the new law makes a potentially important change for importers and exporters by allowing them to submit customs clearance documents electronically. Article 102 increases the penalties for individuals convicted of smuggling up to a maximum of 20 years in prison and a fine of up to Rp.100 billion ($10.8 million). The law also increased by a third penalties for customs officials involved in smuggling.

 

Director General for Customs & Excise

Ministry of Finance

Jl. Jend. A. Yani 108, 2nd Floor

Jakarta 13230

Indonesia

Tel: (62-21) 489-0308, 483-2520

Fax: (62-21) 489-7512

 

Standards

Overview

Rapid growth of international trade has resulted in the development of product and service standardization in all industrial sectors. Products and services exported to a foreign market must meet standard requirements in order to be successful. Standards could also be used as a non-tariff barrier to protect a country’s domestic economy from the flow of foreign products and services.

 

At present, standards are commonly used in most Indonesian industries. The GOI and related industrial players have been very active in formulating standards for products and services, which are either locally manufactured or imported and exported.

 

Conformity Assessment

In line with the economic globalization and the WTO’s “Standard Code” on Technical Barriers to Trade (TBT), the role of standards and conformity assessment has become very crucial. In order to successfully compete in the global market, the GOI formulates its national standards with reference to regional and/or international standards.

 

In order to ensure that certain standards have been complied with a conformity assessment mechanism is required. Moreover, the available scheme of Mutual Recognition Arrangements (MRAs) in the area of standard and conformity assessment should be used as the basis of recognition on product certificates and/or test reports when trade transaction cross inter-country territories.

 

Product Certification

At present, product certification is required. According to the Government Regulation on National Standardization, the only national standards are Indonesian National Standards (SNIs). Institutionally, BSN is responsible for the formulation of the SNIs, whereas the task on accreditation is given to the National Accreditation Committee (KAN). SNIs are formulated in accordance with the nationally agreed mechanism of standard formulation and normally aligned with similar regional or international standards whenever possible.

 

Accreditation

The National Accreditation Committee (KAN) is the formal accreditation body. The main function of KAN is to establish an accreditation system in Indonesia and to grant accreditation in certain fields including testing and calibration laboratories, certification bodies and inspection bodies.

 

Currently, KAN has been operating an accreditation system for testing and calibration laboratories, certification bodies that consist of ISO 9000 quality system certification bodies, ISO 14000 series environmental quality system certification bodies, personnel certification bodies, product certification bodies, HACCP certification bodies, and inspection bodies.

 

Publication of Technical Regulations

There are two publications issued by BSN on technical regulations, namely “Sistem Standarisasi Nasional” (National Standard System) and “Info Standarisasi” (Standardization Information). Both publications are available at the BSN Library at the following address:

Library of the National Standardization Agency

Badan Standardisasi Nasional (BSN)

Manggala Wanabakti Blok IV, 3rd Floor

Jl. Jendral Gatot Subroto, Senayan

Jakarta 10270

Tel (62-21) 574-7043, 574-7044

Fax (62-21) 574-7045

 

Labeling and Marking

All imported consumer goods must identify the importing agents, typically accomplished by affixing a label after goods have cleared customs. The GOI requires that information on product labels be distinctly and clearly written or printed or shown so that it can be seen easily and understood. The information on product labels should be written or printed in the Indonesian language, Arabic numbers, and Latin letters. The use of language, numbers, and letters other than the Indonesian language will only be permitted when there are no matching terms, or in the event of trading abroad.

 

Labeling should not contain the following: claims on the effect of the product on health, whether preventative and/or curative; incorrect or misleading information; comparisons to other products; promotion of certain similar products; and any additional information that has not yet been approved.

 

Trade Agreements

Indonesia is a member of the World Trade Organization (WTO) and the Association of Southeast Asian Nations Free Trade Agreement (AFTA). As a member of AFTA, Indonesia committed to reduce tariff and non-tariff barriers and investment restrictions. Under AFTA, the six original ASEAN members (Indonesia, Malaysia, Singapore, Thailand, the Philippines and Brunei) agreed to reduce import duties to five percent or less by 2010, and by 2015 for the four newer members (Vietnam, Laos, Burma and Cambodia).

 

The United States and Indonesia signed a Trade and Investment Framework Agreement (TIFA) in 1996, which was designed to build stronger economic ties. Indonesia signed an Economic Partnership Agreement (EPA) with Japan in July 2008. Under EPA, Indonesia will be exempted from 90 percent of Japan’s 9,275 import duties, and Japan will be exempted from 93 percent of Indonesia’s 11,163 import duties.

 

As a member of ASEAN, Indonesia signed a trade agreement with China and South Korea. ASEAN is negotiating FTAs with the European Union, India, Australia and New Zealand. Indonesia is also exploring the feasibility of having a trade agreement with the European Free Trade Association (EFTA) which consists of Switzerland, Liechtenstein, Norway and Iceland.

 

 

 

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Posted: 03 March 2010