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Indonesia: December 1998

“ Despite extremely difficult economic and social circumstances, Indonesia had resisted protectionist pressures.”

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7 December 1998

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The Trade Policy Review Body of the World Trade Organization (WTO) concluded its third review of the trade policies of Indonesia on 3 and 4 December 1998. The text of the Chairperson's concluding remarks is attached as a summary of the salient points which emerged during the discussion. The review enables the TPRB to conduct a collective examination of the full range of trade policies and practices of each WTO member country at regular periodic intervals to monitor significant trends and developments which may have an impact on the global trading system.

The review is based on two reports which are prepared respectively by the WTO Secretariat and the government under review and which cover all aspects of the country's trade policies, including its domestic laws and regulations, the institutional framework, bilateral, regional and other preferential agreements, the wider economic needs and the external environment. A record of the discussion and the Chairperson's summing up together with the reports will be published in due course as the complete trade policy review of Indonesia and will be available from the WTO Secretariat, Center William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989, 1994 & 1998), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Botswana (1998), Brazil (1992 & 1996), Burkina Faso (1998), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), C˘te d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991 & 1998), Iceland (1994), India (1993 & 1998), Indonesia (1991, 1994 & 1998), Israel (1994), Jamaica (1998), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia (1993 & 1997), Mali (1998), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990 & 1996), Namibia (1998), Nigeria (1991 & 1998), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), the Solomon Islands (1998), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland (1998), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 & 1998), the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992 & 1998), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

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The third Trade Policy Review of Indonesia was conducted by the TPR Body on 3 and 4 December 1998. These remarks, prepared on my own responsibility, are intended to summarize the main points of the discussion; they are not intended as a full report. Further details of the discussion will be fully reflected in the minutes.

The discussion developed under three main themes: (i) economic environment and structural reforms; (ii) trade policies and measures; and (iii) sectoral issues.

Economic environment and structural reforms

Members noted that 25 years of continuous economic expansion had been abruptly interrupted by the Asian financial crisis. Despite extremely difficult economic and social circumstances, Indonesia had resisted protectionist pressures. Instead, it had adopted a comprehensive programme of macroeconomic and structural reforms, which included, inter alia, an acceleration of trade and investment liberalization, a major review of anti-competitive practices (such as monopolies and cartels) and a reform of the banking sector. Indonesia was commended for its steadfast implementation of these measures, which had already resulted in substantial liberalization of the economy and set the stage for a recovery of growth

Members also focused on the issue of macroeconomic stabilization and the effects of the depreciation of the Rupiah, stressing the need for macroeconomic stability while ensuring adequate social spending both to alleviate poverty and to achieve development objectives. They also pointed to the effects of the Rupiah's depreciation, together with a decline in trade finance, on trade flows and external debt, but viewed the recent recovery of the currency as a direct outcome of economic and trade reforms. In addition, Members asked what other investment liberalization measures were contemplated.

In response, the representative of Indonesia said that, in the face of economic urgency and rising poverty, the Government had focused on macroeconomic stabilization and measures aimed at providing adequate supplies of food at affordable prices to the population. It also aimed at extending reforms to the most protected sectors of its economy, in order to increase competitiveness and strengthen the export base. However, economic recovery was likely to be slow and difficult, and would depend on the implementation of a complex agenda of reforms and on the necessary support from the international community. The representative explained that the depreciation of the Rupiah had contributed to the sharp contraction of the economy. However, the Government was determined to restore the confidence of international investors and, in this regard, reaffirmed its commitment to maintain an open capital account. As regards further liberalization of its investment regime, among the measures envisaged were annual reviews of the negative list, simplification of investment procedures and a review of policies and regulations pertaining to investment. Measures to liberalize investment were also under consideration in ASEAN.

Trade policies and measures

Members commended Indonesia for having significantly liberalized its trade regime with: the reduction of MFN tariffs, from an average of 20% to 9.5%, well beyond Indonesia's WTO commitments; the phasing-out of all import surcharges; the reduction by half of restrictive licensing requirements and the commitment to remove all remaining measures by 2000; the phasing-out of local content programmes; and the conversion of restrictions and specific taxes on exports into low resource rent taxes, to remove the long-standing anti-export bias of Indonesia's trade policy.

Indonesia was commended for establishing a freer and more competitive market-orientated economy. This involved recent efforts to modernize legislation in the areas of customs, banking and intellectual property rights; the termination of a number of monopolies and restrictive marketing arrangements in sensitive sectors; and the removal of trade and tax privileges to specific groups. Members welcomed Indonesia's progress throughout the review period in liberalizing its investment regime, which is now one of the most open in the region. This contributed to attracting an unprecedented amount of foreign investment to the country. They pointed to recent liberalization of retail and wholesale trade and the possible further opening up of banking and telecommunications sectors.

Members raised questions and concerns in some specific areas on customs, including on the inspection and administration of imports. On tariffs, questions were raised on the possible binding of recent unilateral tariff reductions, which would reduce uncertainly for traders. Members pointed to remaining tariff peaks on motor vehicles, alcoholic beverages, and certain chemicals, and to tariff escalation in industry. Non-tariff barriers notably import licensing and bans, also attracted attention. Some Members raised questions concerning export restrictions and taxes as well as local content rules. They recommended further progress in creating a more competitive business environment, particularly by strengthening the competition framework and bankruptcy laws, introducing greater transparency in the attribution of government loans and subsidies and a better enforcement of laws and regulations in areas such as customs, intellectual property rights and government procurement. Members encouraged Indonesia to speed up privatization of state-owned enterprises, and cautioned on the excessive use of tax incentives to attract foreign direct investment.

In response, the representative of Indonesia stated that the Government was continuously taking steps to improve customs inspection and administration procedures, which included implementation of the early phase of the EDI system. Notwithstanding the recent cuts in applied tariffs, bindings would be maintained in accordance with Indonesia's existing commitments (which excluded automobiles and chemicals). Whereas applied tariffs on chemicals and steel would be reduced further, there were no plans to reduce high tariffs on alcoholic beverages, which were justified on social grounds. Import licensing had been significantly reduced and simplified, so that it now applied only for reasons involving public health and safety, security, public morals and environmental protection. As regards export measures, the Government had relaxed export controls on several products, including plywood, and cut export taxes on logs. The only sector subject to local content rules is the automobile sector. The representative outlined steps taken by the Government to foster competition, including the removal of exclusive or special privileges previously enjoyed by BULOG and implementation of a competition law, a draft of which is in Parliament. Measures were being taken to ensure protection of intellectual property rights. The representative stressed the Government's commitment to privatization, which would proceed in a transparent fashion. On incentives, the Government felt that such measures were necessary to help restore investors' confidence.

Sectoral issues

Members commended Indonesia for the extensive liberalization of its agricultural sector; some sought clarification on the use of import subsidies. Some Members stressed that social considerations should be fully taken into account when reforming the sector. Questions on industry focused on recent liberalization and de-monopolization measures, but also on remaining tariff peaks and escalation in textiles and clothing, motor vehicles and steel. Questions were also raised on the state of implementation of the recommendations of the WTO panel on the National Car Programme and on the continuation of government support to IPTN, the national aircraft manufacturer. On services, Members commended Indonesia for its contribution to the recent GATS negotiations on telecommunications and financial services and asked about plans to further open these sectors to foreign investment.

In response, the representative of Indonesia provided further clarification on the liberalization of agriculture but expressed concern about its effects on net-importing countries, including current difficulties financing imports of basic foodstuffs at the current exchange rate, to guarantee its supply to the population at affordable prices and to ensure food security. On industry, the representative confirmed that all customs and tax privileges obtained under the National Car Programme had to be repaid to the Government by the company concerned, and reiterated that Government had discontinued support to IPTN. On services, the representative confirmed that a new telecommunications law was under consideration. The representative confirmed the entry into force of a new Banking Law on 10 November 1998, which, among other improvements, removed foreign ownership limits in joint-venture banks.


In conclusion, it is my feeling that this Body strongly supported Indonesia's impressive reform programme and expressed confidence that it would ensure thorough implementation in the next few months. Delegations appreciated that these reforms were being implemented on an MFN basis. Members have also recognized that Indonesia had taken seriously the need for timely implementation of its WTO commitments, and had applied the principle of open regionalism in its relations with ASEAN and APEC. It is my sense that Members saw the importance of keeping their markets open and maintaining stable and predictable trading conditions, in order to support Indonesia's recovery from the current economic crisis. In turn, Members recognized that once Indonesia's reform had been fully implemented, it would have one of the most open economies among developing countries. It is my sense that the meeting also felt that the consolidation of this liberalization in the WTO would contribute to the strengthening of the multilateral trading system. Back to top