98-4919 MOREPRESS RELEASE
PRESS/TPRB/96
7 December 1998
 TRADE POLICY REVIEW
REVIEW OF INDONESIA
TPRB'S EVALUATION
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 oftrade 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 otherpreferential 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), Bang ladesh (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), Côte
d'Ivoire (1995), Cyprus (1997), the Czech Republi c (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 (1 998), 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 La nka (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).PRESS/TPRB/96
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MORETRADE POLICY REVIEW BODY
Review of Indonesia
Concluding remarks by the Chairperson
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 discussionwill 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 acomprehensive 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 wi th 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 andtrade 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 pr ices 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 re covery 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 determinedto restore the confidence of international investor s 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 andPRESS/TPRB/96
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MOREintellectual 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 privatiza tion 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 syst em.  Notwithstanding the recent cuts in applied
tariffs, bindings would be maintained in acco rdance with Indonesia's existing commitments (which
excluded automobiles and chemicals).  Whereas applied tariffs on chemicals and steel would bereduced 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 localcontent 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.  Onincentives, 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 peaksand 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 toforeign 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.PRESS/TPRB/96
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END 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, andreiterated 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 theirmarkets 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.