Southeast Asia in the WTO

5. Indonesia and WTO

5. Indonesia and WTO 55© 2004 Institute of Southeast Asian Studies, Singapore 55 Chapter 5 TRADE POLICY FRAMEWORK Indonesia has had a rolling programme of trade and investment liberalization since the late 1980s. By developing country standards, its trade policies have swung from high protection to openness in a comparatively short period. Its average unweighted tariff has come down to 7.3 per cent (Table I). About 70 per cent of tariff lines now have duties in the 0–5 per cent range. A threeband tariff structure (0–5–10 per cent) should be in place by 2003, albeit with higher tariffs and tariff escalation on some products (such as transport equipment, beverages, wood, furniture, and agriculture). Non-tariff barriers, however, are higher than in other ASEAN-5 countries, but have come down through the 1990s. Perhaps most visibly, tariff and non-tariff barriers on cars and car parts, previously very high due to the promotion of a National Car Programme, have been drastically reduced. Until recently, Indonesia hardly ever used anti-dumping measures or other trade remedies. However, it has resorted to anti-dumping actions in the last few years and has adopted new safeguards legislation. Indonesia was hardest hit by the Asian crisis and had to be rescued by an IMF bailout package. The Structural Adjustment Programme agreed with the Indonesian Government in 1998 significantly accelerated the pace of liberalization and domestic Indonesia and WTO 56 Southeast Asia in the WTO© 2004 Institute of Southeast Asian Studies, Singapore regulatory reform. Non-tariff barriers (especially discretionary import licensing arrangements) were substantially reduced. Entrenched domestic monopolies on plywood, cement, paper, cloves, and other products were abolished. All import-restricting local content measures were phased out. Tariff and non-tariff barriers on agricultural imports were brought down. Most noticeably, the state-owned National Logistics Agency (Bulog) had its monopoly on importing rice, wheat, sugar, and other bulk food products removed. Lastly, full foreign ownership was allowed in banking, insurance, securities, and in the retail and distribution sectors, with other sectors (telecommunications, the utilities, and transport) further opened to inward investment. Significant privatization in banking and telecoms kicked off in 2002, with more planned. A new investment law guaranteeing National Treatment was due to be enacted in 2003. A Competition Commission was established in 2000 to implement anti-monopoly legislation passed in 1999. However, there has been a return to protection in some sensitive sectors, especially steel, rice, and sugar. High specific duties, new discretionary import licenses, production subsidies, price supports, and price controls have all been used. Ownership, entry, establishment, and operating restrictions remain in several services sectors. They are especially prohibitive in professional services. A new Telecommunications Law was enacted in 2000. The state-owned operator, PT Telekom, has been partially privatized and lost its monopoly on domestic fixed-line services in 2002, eight years ahead of schedule. It was due to lose its monopoly on long-distance services by 2003, two years ahead of schedule. Clearly, formal barriers to market access have come down considerably, but the weakness and deterioration of domestic institutions are now bigger obstacles to trade and inward 5. Indonesia and WTO 57© 2004 Institute of Southeast Asian Studies, Singapore investment. Foreign investors complain inter alia of: arbitrary interpretation of laws and weak enforcement of contracts by a corrupt and incompetent judiciary; ineffective enforcement of intellectual property rights; opaque and arbitrary government procurement practices; and slow, cumbersome and unpredictable procedures for obtaining permits to operate locally. Generally speaking, corruption remains rife and public administration is probably weaker than it was pre-Asian crisis. Since the downfall of the Soeharto regime and the transition to political democracy, local and provincial authorities have gained powers at the expense of the central government. Overlapping competences and frequent regulatory changes have created extra uncertainty for foreign investors and raised the prospect of new protectionist barriers at local and provincial levels. Indonesia implemented all its Uruguay Round commitments in timely fashion, including the phase-out of local content measures. Unusually for developing countries (and other ASEAN members of the WTO), it bound about 93 per cent of its tariffs, although at a high rate of 40 per cent. The average bound tariff is 30.4 per cent, well above (declining) applied rates (Table I). GATS commitments are generally weak. The gap between commitments in the Annexes on financial services and basic telecommunications services, on one hand, and applied practice...