WORLD TRADE
ORGANIZATIONWT/TPR/M/51
27 January 1999
(99-0300)
Trade Policy Review Body
3-4 December 1998
TRADE POLICY REVIEW
INDONESIA
Minutes of Meeting
Chairperson:  H.E. Mr. Ali Said Mchumo (Tanzania)
Page
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON    3
II. OPENING STATEMENT BY THE REPRESENTATIVE OF INDONESIA    4
III. STATEMENT BY THE FIRST DISCUSSANT    6
IV. STATEMENT BY THE SECOND DISCUSSANT    7
V. STATEMENTS BY MEMBERS OF THE TRADE POLICY REVIEW BODY    9
VI. REPLIES BY THE REPRESENTATIVE OF INDONESIA
AND ADDITIONAL COMMENTS  13
VII. CONCLUDING REMARKS BY THE CHAIRPERSON  18
ANNEX I  21
ANNEX II  43WT/TPR/M/51
Page 3
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON
1. The Chairperson welcomed the delegation of Indonesia led by Ambassador Hilida Miljani,
the discussants (Ambassador Mounir Zahran, Egypt, and Mr. Peter Jenkins, United Kingdom) and
Members of the Trade Policy Review Body (TPRB).  As usual, both discussants would speak in their
personal capacities and not as representatives of their countries.
2. The Chairperson recalled the purpose of the Trade Policy Reviews and the main elements of
the procedures for the meeting.  The report by the Government of Indonesia was contained in
document WT/TPR/G/51 and that of the WTO Secretariat in document WT/TPR/S/51;  the main
issues to be raised by the discussants were contained in document WT/TPR/D/29.  Copies of advance
written questions, submitted by a number of delegations had been transmitted to the delegation of
Indonesia (Annex I).  Written responses by Indonesia are reproduced in Annex II.  The Chairperson
noted that if full replies to all questions could not be provided during the meeting, supplementary
written replies would be provided later.WT/TPR/M/51
Page 4
II. OPENING STATEMENT BY THE REPRESENTATIVE OF INDONESIA
3. The representative of Indonesia said that, since the last Trade Policy Review of Indonesia in
1994, the Government of Indonesia had continued to gradually reform its trade regime through the
implementation of a series of deregulation packages which encompassed both internal and border
measures.  This had resulted in a substantial opening up of the economy, which gave evidence ofIndonesia's commitment to the WTO.  In a number of areas, Indonesia had met its WTO commitments
at a faster pace than was called for, and had further deregulated trade and investment on a unilateral
basis, well beyond those commitments.
4. The representative emphasized the Government's effort to privatize and commercialize
State-owned enterprises and infrastructures.  Further pr ivatization is to be expected in the future.  She
pointed to the various deregulation packages adopted since the last TPR, in particular those of May
1995 and June 1996, which included:  an ambitious me dium-term programme of tariff reduction, to be
implemented by 2003;  the elimination of tariff surcharges and of certain non-tariff barriers;  the
simplification of import and export procedures;  and other improvements aimed at facilitating trade
and investment.
5. In the wake of financial crisis, Indonesia accelerated trade and investment reforms.  The
September 1997 deregulation package had further reduced tariffs on raw and auxiliary materials usedfor certain export-oriented products, accelerated the implementation of the 1995 tariff reduction
programme, and eliminated a number restrictive trade regulations affecting trade in commodities.
Bolder reforms had been taken in the context of the January 1998 Package, in response to the
deterioration of the economic situation.  The Government of Indonesia had put in place a
comprehensive set macroeconomic and structural re forms, effectively extending reforms to the most
protected sectors of the economy.  These measures had been agreed with the IMF, in its
"Memorandum of Economic and Financial Policies" of 15 January 1998, which was further amended
on 8 April, 24 June, 29 July, 11 September, 19 October, and 16 November 1998.
6. The main measures in the field of trade and investment included:  the reduction of tariffs on
most non-food products to a maximum of 10% by 2003;  the gradual phasing-out of remaining
quantitative import restrictions and other non-tariff barriers by the end of the programme period;  the
reduction to export taxes on wood and wood products to a maximum of 10% by December 2000;  the
replacement of export taxes by resource rent taxes;  and the replacement of the export ban on palm oil
by a low export tax.  In addition, the Government had abolished local content-requirement on dairy
products, import restrictions on new and used ships, and export taxes on certain industrial products
and monopolies on imports of food products.  The Government had further liberalized FDI, by lifting
foreign ownership restrictions in listed companies and allowing FDI in wholesale and retail trade as
well as in the oil palm plantation sector.  Finally, Indonesia had committed itself to phase-out
local-content requirements in the automobile sector by year 2000, and had abolished subsidies on food
imports except rice.
7. The representative reiterated Indonesia's commitment to multilateralism, as shown by its
timely (and in some cases advanced) implementation of its Uruguay Round obligations and additionalcommitments in recent WTO negotiations such as information technology, telecommunications
services and financial services.  Indonesia had abolished most of the non-tariff barriers it committed
to under Schedule XXI, and had eliminated all import surcharges and local-content requirements on
certain products.  Furthermore, it amended its legislation in the fields of customs and intellectual
property rights, to comply with the relevant WTO Ag reements.  It was also in the process of drafting
new laws for the protection of plant varieties, indu strial designs, and layout designs of integrated
circuits.  These measures provided ample evidence of Indonesia's support to the multilateral trading
system.  During the economic crisis, Indonesia had resisted using the flexibility allowed by the gap
between bound and applied tariffs to raise them later.  Instead, with the support of the international
community, Indonesia had captured the opportunity to further liberalize trade, unilaterally as well asWT/TPR/M/51
Page 5
through quicker implementation of existing WTO commitments.  It intended to use its newly-adopted
legislation on commercial defense in strict conformity with the requirements of the relevant WTO
agreements.
8. The representative emphasized that further liberalization had been implemented since the
completion of the Secretariat report.  This included in particular the introduction of a new Banking
Law in November 1998, containing several major improvements in respect of market access andforeign ownership.  Such progress had followed major concessions already made in the context of
GATS negotiations.  In addition, the representative confirmed the lifting of subsidies on major food
commodities.
9. Nevertheless, the representative felt that, despite the Government's quick reaction to the crisis,
recovery from the current economic crisis was likely to be slow and difficult.  In 1998, GDP was
projected to fall by nearly 14%, and inflation to rise up to 80%.  Economic recovery would therefore
depend much on Indonesia's necessary political and financial support from the internationalcommunity.  For the time being, the priority was to ensure macroeconomic stabilization and adequate
food supplies for the population.  Food prices, in particular that of rice had risen drastically since
May 1998, causing serious social hardship.  While distribution channels seemed to function well, the
Government had taken steps to ensure that basic commodities were supplied across the country.
Trade policies needed to be supported by competition-oriented internal policies, to restorecompetitiveness of domestic production.  Nevertheless, due consideration would also be given to the
interest of consumers, small farmers and traders, small-scale enterprises and economically weak
groups.
10. The representative said that, as a member AS EAN (Association of South East Asian Nations)
and APEC (Asia-Pacific Economic Cooperation),  Indonesia would continue regional cooperation
insofar as it contributed positively to the multilat eral trading system.  Indonesia remained committed
to intra-ASEAN cooperation in areas such as goods and services trade, intellectual property rights,
transportation and communication, investment, infrastructure development and industrial cooperation.
Since 1994, Indonesia had continued to lower its AFTA.  As agreed in the Bogor Declaration,
Indonesia was also committed to the APEC's objective of liberalizing trade and investment by theyear 2010 for industrialized economies and by 2020 for developing economy.
11. In conclusion, the representative reiterated that, despite the severity of the economic crisis,
Indonesia would continue to liberalize trade and in vestment, in line with its commitments in the
WTO.  She hoped that Indonesia's trading partners  would do likewise.  She felt that WTO members
should demonstrate their sensitivity to the economic turmoil experienced by members, such asIndonesia, and help them return to economic growth.  The financial crisis not only had a profound
impact on those Members’ economies, but it may have repercussions throughout the global economic
system.  The current crisis should therefore be considered as a subject of common interest and
protectionist pressures would have to be resisted on all parts.WT/TPR/M/51
Page 6
III. STATEMENT BY THE FIRST DISCUSSANT
12. The first discussant recalled that, when he concluded the previous Trade Policy Review of
Indonesia in 1994, he had already emphasized Indonesi a's good progress in achieving macroeconomic
stability and trade and investment reforms.  Since then, Indonesia had enjoyed strong economic
growth and further improvements had been made in the direction of trade liberalization.  However, the
El Nino phenomenon, followed by the financial crisis, has interrupted economic expansion and hadbrought the economy into recession in the second half of 1997.
13. The discussant noted that Indonesia had probably been the country most seriously affected by
the financial crisis in South-East Asia.  Despite th e Government's commitment to reform in the early
day of the crisis, it could not have prevented the large depreciation of the Rupiah.  The devaluation
seemed to have had strong effects on the Indonesian economy.  This ranged from higher import
prices, difficulties to finance trade, and a rise in external debt.  The later was potentially one of the
main impediment to recovery, since most private debt was denominated in U.S. dollar and therefore
its value increase proportionally to the depreciation of the Rupiah.  In this connection, he soughtgreater precision from the representative of Indonesia on the impact of the depreciation of the Rupiah.
14. The discussant then turned to the issue of macroeconomic performance and current
stabilization efforts.  Noting that Indonesia had entered the currency turmoil with relatively soundfundamentals, he observed that the crisis had led to a significant deterioration of macroeconomic
performance.  He highlighted Indonesia's positive reaction to this deterioration, but wondered when
measures recently taken by the Government, notably in the budgetary field, would be effective.  He
considered that the continuation of stabilization efforts was the key to recovery and encouraged the
Government to give its highest priority to its continuation.
15. He emphasized the impact of the crisis and of the devaluation on Indonesia's trade, notably
the difficulty to obtain imported inputs and trade finance.  He noted that, in response to the situation,
the Government of Indonesia had decided to accelerate trade liberalization, as a mean to boost trade.
Since all reforms were to be implemented on an MFN basis, this represented market access
improvements for all trading partners, which would reinvigorate trade.  He therefore asked the
representative of Indonesia what would be the imp act of these reforms on Indonesia's trade prospects.
He also pointed to the fall in intra-Asian trade, which in the past had been a major factor of growth in
the region.  He reminded that Indonesia had pleaded at the Geneva Ministerial Conference for openmarkets to products of export interest to crisis-stricken countries.  He asked the Indonesian delegationto further elaborate on this issue.
16. The discussant emphasized the regional dimension of the crisis in South-East Asia.  Fearing
that the devaluation of national currencies and the increased resort to incentives to attract foreign
investment would intensify competition among ASEAN Members, he suggested that greater
coordination of economic policies, rather than competition, was needed.  Given that progress hadalready been achieved in the field of trade and investment liberalization, he also suggested that
ASEAN could offer the appropriate framework for increased economic integration and cooperation.
However, it was necessary that such integration meant increased, and not reduced, market access for
non-members.  He asked the representative of Indonesia to explain her Government's policy in this
regard.
17. Turning to the role of FDI, the discussant sa id that Indonesia's liberal investment policy in
recent years had contributed to attract unprecedented amounts of foreign direct investment in
Indonesia.  A large majority of economic sectors was now open to limited, if not full, foreignparticipation.  However, he asked why Indonesia had excluded certain sectors from liberalization.
Suggesting that Indonesia's long-term attractiveness as a location for investment might depended
more on macroeconomic stability and long-term factors than on financial incentives, he asked
Indonesia about the latest FDI trends and the factor s which would contribute to restore the confidence
of international investors.WT/TPR/M/51
Page 7
IV. STATEMENT BY THE SECOND DISCUSSANT
18. The second discussant said that one of the striking aspects of Indonesia's reaction to the
financial crisis was that the authorities had made aggressive use of trade and investment liberalization
to restore confidence.  By the end of the century, Indonesia could have one of the most liberal trade
regimes of any developing country.  He praised Indonesia for having achieved substantial trade
liberalization but concentrated his remarks on remaining problems.
19. He commended Indonesia for the overall reduction in import tariffs and the elimination of
import surcharges.  However, high tariffs persisted on beverages and motor vehicles.  Significant
escalation remained in the manufacturing sector.  Therefore, he asked Indonesia about the rationale
for these measures, about its intention to integrate the high tariff items in its medium-term programme
of tariff reduction, and about a possible reduction in the gap between bound and applied rates.  He
commended Indonesia for its progress in removing import bans and licensing requirements, and
sought clarification on Indonesia's future commitments in this regard.
20. The discussant recalled that export measures (bans and taxes), a traditional feature of
Indonesia's trade policy, had principally been designed to promote downstream industries and protect
the environment.  However, in the light of thei r increasingly negative effects, the Government had
decided gradually to replace them by resource rent ta xes.  The discussant sought confirmation of these
changes.  Commending Indonesia for having discontinued most local-content programmes, thediscussant also sought precision on the scope of remaining measures.
21. The discussant noted that investors would greatly benefit from rules-based,
competition-oriented internal policies in Indonesia.  In this respect, he sought clarification on the tax
privileges and investment incentives available in the country and the criteria used for their allocation.
He wondered about the scope of remaining Government subsidies in the manufacturing sector.Noting that in the past Indonesia had many of the features of a cartelized economy, he sought
precision on recent measures aimed at creating a freer, more competitive market in the country.  In
this regard, he asked Indonesia about its intention to introduce a full-fledged competition framework.
Finally, he noted Indonesia's slow progress in privat izing State-owned enterprises and asked about the
Government's future intentions in this field.
22. Turning to sectoral policies, the discussant commended Indonesia for the recent liberalization
of the agricultural sector.  Tariffs had been cu t sharply, BULOG had lost its monopoly rights, quotas
had been eliminated and marketing arrangement dismantled.  However, noting that the depreciation of
the Rupiah was complicating the achievement of equilibrium prices, he asked whether the situation
had improved in recent weeks and whether the Government saw deregulation in the sector asirreversible.  Concerning forestry, he suggested that past policies may have encouraged
over-production and waste.  He commended Indonesia for the recent change in policy focus and asked
whether the Government faced any resistance to reforms.
23. Noting that Indonesia's policies towards manufacturing had protected certain sector more than
others, the discussant established a negative correl ation between growth in individual sectors and the
level of protection received.  He took stock of the recent measures to correct competitive distortions in
manufacturing and asked whether this reflected a new, wider policy aimed at exposing all industriesto competition.  Concerning services, the discussant commended Indonesia for gradually abandoning
its traditional reliance on government control and monopolies and emphasized recent deregulatory
measures, which included the increased participation of foreign investors.  He sought precision on the
remaining limits and restrictions to competition and foreign ownership in service sectors.WT/TPR/M/51
Page 8
24. In conclusion, the discussant commended Indonesia for all reforms already undertaken or in
the pipeline.  In turn, he called on Indonesia's pa rtners to draw the appropriate inferences:  as
Indonesia's recovery depended in part on a pick-up in exports, Indonesia's traditional markets must
remain open.WT/TPR/M/51
Page 9
V. STATEMENTS BY MEMBERS OF THE TRADE POLICY REVIEW BODY
25. The representative of Australia commended the Government of Indonesia for carrying out
difficult structural reforms and welcomed recent positive signs of recovery.  He felt that a
commitment to free trade was essential for the recovery of economies currently affected by the crisis
and supported Indonesia's calls for open markets.  He praised Indonesia for recent MFN trade
liberalization in response to the crisis, notably the reduction of tariffs and the extensive eradication ofnon-tariff barriers in the area of agriculture.  He also noted the importance of Indonesia's role in
promoting trade liberalization in regional fora.  He commended Indonesia for improvements in other
areas such as the protection of intellectual property rights, where Australia had been providing
technical assistance.  However, he sought clarification on Indonesia's intentions in respect of bound
tariffs and peaks on applied tariffs (notably on automobiles and alcoholic beverage).  He said that
import restrictions on alcoholic beverages were not an effective way of affecting consumption,
particularly as spirits were produced by Indonesia itself.  He highlighted the benefits of tradeliberalization in manufacturing and commended Indonesia for progress in this direction in services.
However, he sought precision on recent liberalization measures in banking.  In conclusion, it
reiterated Australia's support to current reform process.
26. The representative of Japan also showed appreciation for the recent trade and investment
liberalization initiatives and measures aimed at creating a more transparent and competition-oriented
business environment.  This included the reduction in the number of sectors contained in the Negative
Investment List and the introduction of a compe tition law.  Japan, Indonesia's main trade and
investment partner, had been strongly supporting Indonesia's reform programme, notably by
providing sector-programme-loans of 150 billion Japanese Yen.  Therefore, the representative
encouraged Indonesia to continue implementing IMF- sponsored reforms.  He looked forward to an
early recovery of the economy and urged Indonesia to strengthen its policy to encourage trade and
investment by ensuring stability and credibility of the trade and investment framework, as well as by
further reducing and eliminating barriers to trade and investment.  He also encouraged Indonesia, in
implementing its AFTA commitments in the ASE AN to fulfill the conditions provided for in
Article XXIV:8 of the GATT, taken into account AFTA's great impact on the multilateral tradingsystem.
27. He also raised a number of concerns.  He emphasized the lack of transparency in handling
administrative procedures, which left excessive room for discretion.  He also stressed the need to
improve the examination process for imports and exports, such as the issuance of certificates of
origin.  He stated that Japan had been providin g technical assistance to Indonesia in the field of
customs valuation and sought confirmation that Indonesia would implement the Customs Valuation
Agreement on 1 January 2000, as committed.  He asked about the prospects of eliminating
local-content schemes, and, in this respect, enco uraged Indonesia to apply the recommendation of the
National Car Panel ruling and sought clarification on the present status.  Despite recent progress, he
raised concerns about the effective implementation and proper enforcement of IPRs.  Japan being one
of the largest importer of agricultural products, he sought clarification on the removal of export bans
and restrictions on agricultural, forestry and fishery products as well as on Indonesia's intention toeliminate export taxes on certain products.  He commended Indonesia for its positive role in the WTO
negotiation on financial services despite the current turmoil and banking crisis, and encouraged it to
accept the Fifth Protocol of the GATS by the deadline.  Regarding telecommunications, it sought
clarification on Indonesia's intention in respect of the review of exclusive rights in
telecommunications, which has rather long transition periods compared to other Members.
28. The representative of Canada said that his Government had recognized the severity of
Indonesia's economic collapse and the hardship faced by its citizens.  As a result, his Government had
increased its bilateral assistance, re-scheduled Indonesia's sovereign obligations, and provided largeWT/TPR/M/51
Page 10
amounts of trade credits and humanitarian assistance to assist in economic recovery.  He highlighted
the growing bilateral relations betw een the two countries, and said that the change in the balance of
trade between the two countries (in favour of Indonesia) underscored the benefit of open trade.  He
recalled that Indonesia's economy, as those of othe r WTO Members, had in the past largely benefited
from the liberalization of trade and improved access to other markets.  He therefore commendedIndonesia for having chosen the path of trade liberalization, despite the current difficult economic and
social circumstances.  He pointed to efforts in the field of tariff reduction, going well beyond
Indonesia's WTO commitments.  Nevertheless, he raised concerns on specific areas of Indonesia's
trading regime, particularly with respect to the ro le of State-owned enterprises, competition policy,
financial services, telecommunications services and professional services.  Further questions had been
submitted in writing.
29. The representative of Hong Kong, China extended his sympathy to the people of Indonesia,
who were now suffering as a result of events beyond their individual control.  Against this very
difficult background, he commended Indonesia for not only maintaining its trade policy direction of
liberalization and opening, but for substantially increasing it, on a unilateral basis in many cases.  He
highlighted the large bilateral trade and investment relationship, which had nevertheless suffered as a
result of the crisis.  He showed appreciation for th e progress made since the last TPR in liberalizing
trade, in particular the reduction of subsidies and tariffs, the introduction of more competition in the
economy and the removal of non-tariff barriers.  He noted the recent strengthening of the Rupiah and
of the stock market and hoped this trend would continue.  He said that all economies have a duty to
keep their markets open, to allow those who have been badly hit to recover as quickly as possible.
Looking to the future, he believed that entering into broad-based and balanced negotiations for furthermultilateral trade liberalization would avert a slide into protectionism and ensure that the interests of
developing countries, including Indonesia, are take n into account.  He hoped that Indonesia, on its
part, would play an active role in the preparations for the Third Ministerial Conference.  He praised
Indonesia for not having backtracked on its APEC commitments.  In conclusion, he applauded
Indonesia's efforts and stance, and urged it to fully implement the reforms under way.
30. The representative of New Zealand also commended Indonesian authorities for having
accelerated and expanded trade liberalization as a response to the financial crisis.  He reviewed the
progress made since 1994, and commended Indonesia for its active involvement in promoting trade
liberalization in multilateral and regional fora.  He pointed to commendable progress in services,
intellectual property rights, TRIPS and customs valuation.  He said that many of the trade policy
issues raised by the New Zealand delegation in 1994 have since been resolved and others are
scheduled for resolution over the next two years.  Nevertheless, he said that the reform process couldnot yet be considered as complete.  He highlighted the need for rules-based, transparent and
competition-based internal policies, in particular more transparent government procurement practices
and better enforcement of business laws.  He noted remaining tariff escalation.  He raised concerns
about the increasing use of tax incentives to attract FDI.  He encouraged the Indonesian Government
to continue simplifying investment procedures , and, while acknowledging progress in opening up
services, he encouraged Indonesia to work towards an "open skies" policy in aviation.  In conclusion,
he further encouraged Indonesia to continue on the same course, and to resist the inevitable pressures
to revert to more interventionist policies.
31. The representative of the European Union, while expressing confidence about future
prospects for recovery in Indonesia, recognized the need for further strengthening of policies to
rebuild consumer and business confidence.  Present economic and financial reforms in Indonesia, if
properly enforced and implemented, should soon bear fruit.  He acknowledged the efforts already
made and Indonesia's willingness to accelerate the removal of trade restrictions.  He welcomed the
modernization of the Indonesian legal system, which needed to be complemented by the introduction
of competition rules.  He felt that good progresses had been registered in the area of investment, withthe extension of reforms to wholesale and retail trade.  He encouraged Indonesia to lower applied
tariffs to a maximum of 10% by the year 2003, including that of alcoholic beverages and automobiles,WT/TPR/M/51
Page 11
to abolish remaining non-tariff measures, and to lower export taxes.  With respect to standards and
conformity assessment, he encouraged Indonesia to  develop Mutual Recognition Agreements (MRAs)
with its partners, and to align its standards on electronics and food labelling while improving
calibration and testing facilities and capabilities.  He asked Indonesia to give greater attention to
customs procedures, law enforcement, and surveillan ce in order to preserve the interests of European
and foreign traders.  He noted with satisfaction the abolition of incentives for the National Car andsought clarification on the implementation of the WTO Panel recommendation.  In conclusion, he
reiterated EU's support to current economic reforms.
32. The representative of the Republic of Korea commended Indonesia for having accelerated
reforms and not having resorted to protectionism in face of severe difficulties imposed by the current
Asian crisis.  With full implementation of these reforms, together with existing WTO commitments,
he said he was confident that Indonesia would become one of the most open economies among
developing countries.  He pledged Korea's continued support and cooperation in pursuing theircommon objective of overcoming the crisis.  He commented on the good bilateral economic trade and
investment relations enjoyed by his country.  He  looked forward to receiving answers to advance
written questions, on macroeconomic balances, competition policy and the liberalization of
agriculture (Annex 1 and 2).
33. The representative of the Philippines, on behalf of ASEAN, said that the TPR came at an
opportune time as Indonesia redefined its policy framework.  While Indonesia had begun reforms
before the outbreak of the crisis, they had been accelerated since.  Efforts to restructure the banking
system, which have already been decisive, needed to be pursued.  On the trade policy side, she fully
supported recent measures taken by Indonesia.  In this regard, she highlighted the bold measures
which have already been taken.  More needed to be done, in particular in the areas of tariff escalation,licensing arrangements, and other restrictive industrial promotion policies.  However, Indonesia was
praised for having resisted protectionist temptations and having further liberalized its trade regime.
All reforms are to be implemented on an MFN ba sis, most of them being beyond Uruguay Round
commitments.  However, current reforms and austerity measures are painful and contribute to social
hardship.  Thus, she wished to send a message of caution, although a measured and financiallyprudent approach to subsidization was also important.  ASEAN Members had collectively and
individually been helping Indonesia to ease the pa in.  She urged WTO Members to do likewise.  In
conclusion, ASEAN strongly encouraged Indonesia to preserve in current reforms and called on WTO
Members to keep their markets open and refrain from taking measures against products of specific
interest to crisis-stricken countries.
34. The representative of the Czech Republic commended Indonesia for resisting protectionism,
and, instead, accelerating trade and investment reforms.  He hoped that these reforms would help
stimulate bilateral trade.  He sought clarification on Indonesia's plans to remove licensing
requirements on cars, to reduce dependence on the use of the U.S. dollar in intra-ASEAN trade, and to
introduce a competition Law.
35. The representative of Hungary joined the other Members in complimenting Indonesia for
their efforts to counter the effects of the Asian crisis and to remedy the underlying weaknesses of its
economy.  He saw the current process of unilateral MNF trade liberalization as exemplary.  He
expressed satisfaction over the expansion of bilateral trade, and wished all possible success to
Indonesia in stabilizing its economy, completing the reform and structural adjustment processes and
putting the economy on a path of sustainable growth.
36. The representative of Norway said that the Asian financial crisis had shown the need for
reforms to ensure higher efficiency in the allocation of employment and capital, and to limit the
potential for future crisis.  He commended Indonesia for recent reforms and said that Indonesia'sWT/TPR/M/51
Page 12
resistance to protectionism was indeed laudable.  However, he raised some issues and concerns, such
as:  the increasing resort to tax incentives for investments;  continued high tariffs on alcoholic
beverages, motor vehicles, certain basic chemicals, and the relatively high level of escalation in the
tariff structure;  the need to remove further restrictive licensing arrangements;  and the need to further
deregulate parts of the Indonesian economy.  He regretted that maritime transports had not beencovered by the Secretariat report.
37. The representative of the United States said that her country had been encouraged, in the last
eighteen months, by the steps taken by Indonesia to deal with its economic problems.  Indonesia's
trade policies have continued in the direction of trade liberalization despite difficult economic
circumstances.  The United States wholeheartedly supported Indonesia's efforts to reform and
modernize its economy in line with the principles of the WTO.  The representative mentioned recent
reforms, such as:  the restructuring of banking sect or;  the deregulation of trade in most agricultural
commodities;  the elimination of monopolies in key areas of the economy;  the gradual reduction of
tariffs on a variety of imported products, well beyond WTO bindings;  and the modernization of laws
and regulations.  She expressed confidence that these reforms would lead to growth and stability.  She
commended Indonesia for its positive contribution during recent trade liberalizing negotiations:  the
information technology agreement;  the basic telecommunications agreement;  and the agreement infinancial services.  She felt that these agreements would benefit both Indonesia and its trading
partners.  In conclusion, she noted that Indonesia had made meaningful progress since the last review
in many key aspects of its domestic economic and trade regime and expressed confidence that
Indonesia would undertake actions necessary to resolve its remaining trade impediments.
38. The representative of India recalled that, in the last review, Members had asked Indonesia to
liberalize its economy.  Through active participation in the Uruguay Round, subsequent WTO
negotiations and unilateral reforms, Indonesia had responded to this call.  Today, Indonesia found
itself in deep crisis, and India wished to show support and sympathy to Indonesia's far-reaching
reforms taken at difficult times.  He also commended Indonesia for having resisted protectionism and
felt, that in such circumstances, the multilater al trading system had a serious obligation towards
Indonesia: an obligation to provide a stable, favourable and non-discriminatory external trading
environment.  Since WTO Members had generally benefited from the opening of Indonesia's
economy, it was time for all Members to show support for the commendable economic reform being
undertaken by Indonesia.
39. The representative of Egypt said that the tw o countries shared an excellent relationship,
notably through participation and cooperation in various international fora.  The representative of
Egypt emphasized the excellent and growing bilate ral economic relations between his country and
Indonesia.  He expected these to be strengthened in the future through a common membership in the
WTO and the Group of Fifteen.  He commended the Indonesian Government for the reforms it had
conducted to overcome the financial crisis.  The increased liberalization of the Indonesian economy
was a clear indication of the Indonesian commitment to the principles of the multilateral trading
system.  Indonesia had to be commended for meeting its obligations to the WTO and not resorting toprotectionism.  He called on WTO Members to continue their support to Indonesia on its way to
economic recovery.WT/TPR/M/51
Page 13
VI. REPLIES BY THE REPRESENTATIVE OF INDONESIA AND ADDITIONAL 
COMMENTS
40. The representative of Indonesia offered replies both orally and in writing to the questions and
points raised during the first day.  Written responses are contained in Annex II.  She divided her oral
answers into the three themes on which the discussion had been structured in the previous day:
(i) economic environment and structural reforms;  (ii) trade policies and measures;  (iii) and sectoralissues.
(i) Economic environment and structural reforms
41. The representative first wished to avoid the perception that Indonesia had intentionally
devalued its currency in order to regain internatio nal competitiveness.  This depreciation was instead
the result of sharp and persistent market pressures on the Rupiah, which led Bank Indonesia to
abandon its managed floating policy for a free-floating policy in August 1997.  She insisted that the
sharp depreciation of the Rupiah, by contributing to deepen the economic and social crisis inIndonesia, had actually had very undesirable effects.
42. She further detailed the impact of the depr eciation of the Rupiah on the Indonesian economy.
She said that the depreciation had largely contributed to the contraction of GDP, which was estimated
at 15% in 1998.  It had also affected the inflation rate, which soared to 80%, and pushed interest rate
up to 70%.  This, altogether, had further weakened the banking sector.  While the current accountreversed from a deficit of 1.7% of GDP to a surplus of 1.4% of GDP, this stemmed mainly from a
contraction of imports rather than an increase in exports.  The very high interest rates have recently
helped the Rupiah to strengthen, from over Rp. 16,000 per dollar in mid-June 1998 to around
Rp. 7,500 per dollar at present, and to lower inflation.
43. She also provided further clarification on the stance of fiscal policy.  Current priorities were
to increase revenues and cut expenditures.  On the revenue side, the Government had taken steps to
remove tax exemptions and to improve tax collection.  On the spending side, the Government had
cancelled large infrastructure projects, and, in September 1998, has removed all subsidies on food,
except rice.  Nevertheless, in fiscal year 1998/99, the deficit was to increase to 8.5% of GDP, as a
result of a strong revenue shortfall, linked to the contraction of GDP, and an increase in socialspending.
44. Concerning the impact of current trade liber alization on Indonesia's trade prospects, the
representative explained that the implementation of trade reforms was expected to strengthen the
efficiency of Indonesia's economy, hence increasing potential economic growth.  However, economic
growth would only materialize if other countries, in particular developed countries, kept openmarkets.  With higher income, Indonesia would in turn have greater capacity to import from other
countries, which would contribute to expanding world trade.
45. Concerning foreign direct investment, the repres entative said that the number of FDI projects
approved by the Government had declined in 1998.  She explained that remaining restrictions to FDI
were essentially based on public morals, cultural considerations, and the protection of small-scale
domestic enterprises.  However, she confirmed the Government's readiness to continue liberalization
in this field, through yearly revisions of the Negative List of Investment.  She pointed to recentliberalization measures in the banking sector, resulting from the new Banking Law of November
1998.  The Government was preparing implementing regulations, to be released in the near future.
46. The first discussant said that current IMF-sponsored macroeconomic and structural reforms
were of great importance to overcome the difficulties faced by Indonesia.  He asked how far had theseWT/TPR/M/51
Page 14
measures helped to alleviate the crisis, to stabilize the economy and to ease the suffering of the
Indonesian population.  He also asked whether the remaining restrictions on FDI were justified on the
grounds of protecting local jobs.
47. The representative of Japan, while appreciating Indonesia's efforts in simplifying
administrative procedures in fields such as tax collection, reiterated its call for a simplification of
Indonesia's administrative procedures on imports  and exports.  While commending Indonesia for
ongoing reforms, he said that it was important to strike the right balance between structural reforms
and social policies such as poverty alleviation.  He also welcomed the planned annual reviews of
Indonesia's Negative List of Investment but further en couraged Indonesia to lift restrictions on FDI in
services such as advertising.
48. The representative of the United States encouraged Indonesia to accelerate current efforts to
reduce its budget deficit, in particular by eliminating the wide array of tax holidays and exemptions.
He welcomed Indonesia's current efforts in this field, but sought further clarifications on the timetable
and content of future measures.
49. The representative of Indonesia offered to respond to these additional questions in writing.
They are reproduced in Annex II.
(ii) Trade policies and measures
50. On tariffs, the representative of Indonesia said  that her aut horities had, for th e time being, no
intention to reduce tariff bindings, but were continuously reviewing trade barriers in order to increase
trade and investment flows.  She also said that the rationale for high tariffs in some sectors varied
from one sector to the other.  Regarding alcoholic beverages and spirits, the reason was to discourage
the consumption of alcohol for religious reasons.  High tariffs on textiles, clothing, woods andautomobiles aimed at protecting domestic industries.  However, significant steps had already been
taken to reduce some of these high tariffs, in particular on chemicals and metals, and further review
was planned in the future.
51. She highlighted the recent efforts made by her Government to reduce import licensing and
simplify procedures in this field, in accordance with the WTO Agreement on Import Licensing.Recent reforms had been notified to the relevant committee of the WTO on 27 October, 1998.
Basically all imports were now free of restrictive licensing procedures, except for reasons of public
health, safety, security, public moral, environmental protection.
52. Regarding export measures, she listed the recent liberalization measures undertaken by her
Government, notably the removal of export bans on logs and rattan, the elimination of export taxes on
leather, cork, ores and waste aluminium products, and the replacement of certain export taxes by
resource rent taxes.  This replacement was to be gr adual to facilitate the adjustment of the industries
concerned.
53. Regarding local-content requirement, she specified that her Government had abolished the
local-content requirements on dairy products on 1 January 1998, well ahead of Indonesia's
commitment in the Uruguay Round.  Therefore, th e only sector still subject to local-content
requirement was the automobile sector.  On Government procurement, she said that while Indonesiawas not a signatory of the Gove rnment Procurement Agreement, her Government was working on
making existing practices more transparent.  With respect to State-owned enterprises and State-trading
agencies, she said that her Government was still committed to privatization and a divestiture plan was
under preparation.  Indonesia had also recently notified to the WTO that BULOG was no longer a
State-trading agencies since all its monopoly rights on exports and imports had been removed.  Sheinsisted that the natural gas subsidy was the only subsidy currently provided by the Indonesian
Government to the manufacturing sector.WT/TPR/M/51
Page 15
54. Responding to a number of questions and concerns regarding the protection of intellectual
property rights, the representative said that Indonesia had made significant efforts to improve its
legislation.  Three new laws, on patent, copyrights and trademarks had recently been introduced.
Indonesia had made every effort to make it consistent with the TRIPS Agreement.  The Government
was preparing new implementing regulations, to be i ssued soon.  It was also being drafting new Laws
on the protection of integrated circuits, trade secrets, industrial designs and plant variety protection.These new legislations were expected to be introduced at the latest by 2000, so as to comply with the
TRIPS Agreement.
55. The second discussant further commented on the responses provided by the representative of
Indonesia.  With respect to tariffs, he understood the religious reasons for tariff peaks on alcoholic
beverages but wondered whether there were alternative ways of controlling consumption, which
wouldn't entail costs for both importers and consumers not bound by those religious considerations
(distributions arrangements, for example).  He encouraged the Indonesian authorities to start reducingtariffs, even gradually, on other items, so as to help producers adjust to inevitable competition and to
send them the message that protection would not last forever.  He hoped that the upcoming WTO
negotiations would provide Indonesia an opportunity to reduce the gap between bound and applied
tariffs.  On import licensing, export measures and local-content requirements, he noted Indonesia's
ongoing efforts to remove distortions.  He wished to have further clarification on Government plans to
reduce tax incentives.  He expressed appreciation for the introduction of a competition bill in
Parliament and asked whether this legislation covered the broad range of anti-competitive practices
(cartels, bid-rigging, price discrimination).  He welcomed Indonesia's privatization plans and asked
whether these implied a shift away from past industrial promotion policies.
56. The first discussant pointed to the fall in world commodity prices.  Although the share of oil
in Indonesia's exports had been reduced to 20% or less, the drop in prices was an unforeseen
development, which was likely to affect Indonesia's trade, current account and budget.  He therefore
sought further clarifications on the effects on this fall on the Indonesian economy and on the pace of
the reform programme, particularly in the field of trade.
57. The representative of Japan commended Indonesia's for the extent of recent liberalization
measures and encouraged it to pursue efforts in this direction.  He sought further clarification on the
draft competition bill and the decision of 13 November 1998 by the Indonesian Parliament regarding
economic policies.  While commending Indonesia for its progress in the field of IPR, he raised
concerns about the lack of respect of copyrights, the difficulties to access information on patents and
to obtain patent rights.  Implementation and enforcement of existing laws therefore needed to beimproved.
58. The representative of the Australia encouraged Indonesia to deepen trade reforms and
expressed appreciation for recent progress in the field of IPR legislation.  As in the past, Australia
would continue to provide the necessary technical as sistance on IPR.  Concerning high tariffs, the
representative agreed with the second discussant that tariffs were not the best way to reduce
consumption, particularly when local companies produced beverages such as beers and other spirits.
Tariffs on motor vehicles also needed to be reduced to improve the competitiveness of the localindustry.
59. The representative of the United States agreed that there were alternative ways to deal with
legitimate religious considerations than high tariffs.  He noted that acceding countries to the WTO
were directed to other instruments.  He expressed appreciation for Indonesia's efforts in the field of
IPR sought further information about enforcement measures and criminal proceedings in Indonesia.
He observed that without proper enforcement, the integrity of the TRIPS Agreement could not be
respected.WT/TPR/M/51
Page 16
60. The representative of Indonesia offered detailed answers in writing to those additional
questions (Annex II).  However, she further agr eed on the importance of the proper enforcement of
intellectual property rights, and said that her Government was doing its best in that direction.  For
example, it had introduced a special chapter on border enforcement in its new Customs Law, which
covered all IPR rights.  But the key issue was to increase the awareness and understanding on IPR inthe Indonesian society.  The Government had already taken important initiatives in this regard.  It had
been organizing lectures on IPR in law school, s ponsoring a series of workshop and training sessions
for enforcement authorities, pushing for the establis hment of professional associations in the field of
IPR, and establishing a special task force for IPR enforcement.
(iii) Sectoral issues
61. The representative of Indonesia covered some of the main issues raised during the first day.
As regards agriculture, sweeping reforms had been undertaken in the past year.  While agriculture
had, in the past, been the most regulated sector of the economy, since then the Government had been
cutting tariffs, removing BULOG's exclusive ri ghts and abolishing import subsidies on all
commodities except rice.  Marketing arrangements had been dismantled and private traders had been
given the freedom to buy, sell and transfer commodities.  She added that pressures on prices of
essential foodstuff had been eased in the recen t weeks, and that current reforms would not be
reversed.
62. The representative also described changes in Indonesia's forestry policy.  Measures against
exports were being gradually dismantled, and replaced by resource rent taxes.  Such taxes would
indeed respect the principle of national treatment.  The plywood export cartel had been eliminated.
This, altogether, helped rationalize production and achieve Indonesia's objectives in respect ofsustainable development of forestry resources.
63. Indonesia would continue taking the appropriate measures to create a more competitive
environment in industry.  Increased efficiency was a pre-condition for the strengthening of Indonesia's
competitiveness.  The representative also said that her Government was fully committed to conform
with the DSB Panel's recommendations on the National Car.  On textiles and industry, she said thatthe Government had no intention to reduce tariffs at the moment, but these products were under
constant review.
64. On services, she clarified the scope of remaining restrictions on FDI.  She focused on recent
liberalization measures, notably in wholesale and retail trade.  She described the broad objectives and
timing of the new Banking Law.  She highlighted the substantial unilateral liberalization of air
transport activities in the period under review, bene fiting to both scheduled and charter airlines.  She
informed members that regulations limiting foreign investment in tourism to four and five-star hotelshad recently been abolished.  As a consequence, foreign operators had been allowed to invest in all
categories of hotels.
65. The second discussant expressed satisfaction that reforms in agriculture would not be
reversed and that opposition of the plywood export cartel to new policies in forestry had been
overcome.  He welcomed Indonesia's commitment to sustainable development but noted in the pastthat such commitment had not fully translated into reality.  He commended Indonesia for deregulating
service sectors at a rapid pace.
66. The representative of Japan requested further clarifications on the prospects for acceptance of
the recent WTO Agreement on Financial Services.  He noted that Indonesia had scheduled in the
GATS long periods of exclusivity for PT Telkom and PT Indosat, in the telecommunications sector.He asked whether the Government intended to liberalize the sector faster.WT/TPR/M/51
Page 17
67. The representative of Indonesia replied that the acceptance of the Fifth Protocol was just a
matter of time.  Delays were explained by the substantial number of bills, linked to ongoing economic
and political reforms, already in Parliament.  She also confirmed that a revision of the 1989
Telecommunications Laws was considered, but so far the Government did not intend to advance the
date of the review of exclusivity rights.WT/TPR/M/51
Page 18
VII. CONCLUDING REMARKS BY THE CHAIRPERSON
68. 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.
69. The discussion developed under three main themes:  (i) economic environment and structural
reforms;  (ii) trade policies and measures;  and (iii) sectoral issues.
(i) Economic environment and structural reforms
70. 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
71. 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 and
trade reforms.  In addition, Members asked what other investment liberalization measures werecontemplated.
72. 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 andstrengthen 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 determined
to 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 investmentprocedures and a review of policies and regulations pertaining to investment.  Measures to liberalize
investment were also under consideration in ASEAN.
(ii) Trade policies and measures
73. 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 WTOcommitments;  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.
74. 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 andWT/TPR/M/51
Page 19
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 telecommunicationssectors.
75. 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 contentrules.  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.
76. 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 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 controlson 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 theGovernment'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.
(iii) Sectoral issues
77. 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 industryfocused 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 ontelecommunications and financial services and asked about plans to further open these sectors to
foreign investment.WT/TPR/M/51
Page 20
78. 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 berepaid 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.
Conclusions
79. 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.WT/TPR/M/51
Page 21
ANNEX I
ADVANCE WRITTEN QUESTIONS
QUESTIONS BY AUSTRALIA
Tariffs
The gap between Indonesia’s applied and bound tariffs is now very large. Bearing in mind the
advantages of certainty that a close correlation between low binding and low tariffs gives to traders
and investors, what is Indonesia’s intention in the future with regard to its tariff bindings?
Noting Indonesia’s high tariff peaks in the area of TCF, automotive  and alcoholic beverages,
what are Indonesia’s intentions in aligning these products to closer in line with  other tariffs?
FDI
In light of the laws recently passed by the Indonesian Parliament relating to the limitations on
foreign ownership of local banks, can Indonesia give an indication as to when laws will be
implemented and clarify whether any conditions at all be imposed on foreign companies seeking to
invest in local banks, including whether there would be any requirement for a local partner?
Agriculture
Can Indonesia confirm that BULOG’s import monopoly on all products other than rice eased
from 1 Feb 1998?
Can Indonesia confirm that there are no restrictions on the importation of soy beans, sugar,
wheat flour and garlic, other than applied tariffs.
QUESTIONS BY CANADA
General
FDI
Did the Asian financial crisis have an impact on the type of Foreign Direct Investment (FDI)
hosted by Indonesia?  Is the crisis associated with an increase in cross-border mergers and
acquisitions, in contrast to “greenfield” FDI?  Has the regional distribution of Indonesia’s inward FDI
changed in 1997 and 1998?  What are the factors behind changing patterns?
In 1997 around 66% of FDI approval located in Java Island and increased to 81% in 1998 due
to the availability of infrastructure and market proximity in Java Island.
From Secretariat’s Report (WT/TPR/S/51)
Financial Services (Chapter IV, Section 5, sub-section ii)
Para 64 noted the difficulty faced by state- owned banks with respect in new competition
while having to fulfil its policy objectives.  Para. 65 and Chart IV.2 show that state-owned banks wereWT/TPR/M/51
Page 22
particularly affected by bad loans.  Although Indonesian authorities have rapidly acted to restructure
the banking sector, to what extent have they addressed the issue of government-directed lending?
With respect to para. 73, what is the relative importance (i.e. share) of life and general
insurance (perhaps in terms of premium) in the total insurance market?  Has the share of life insuranceremained stable?  Has it risen or fallen over past years?
Competition Policy, Deregulation and Privatization
Chapter I footnote 1 states, “...(the 1994 Review) also pointed out the existence of a wide and
costly network of public enterprises (pp. 84-86) ”.  Chapter III; Section (4), sub section (vi), para. 110
states, “ Top ten enterprises account for the above a third of GDP ”.  Para. 113 states, " The
deregulation process and the emergence of the private sector have reduced the share of state-owned
enterprises in GDP (to about 15%) ”.  However, the economic crisis currently facing the Government
and its necessary policy response may likely nullify many of the gains the private sector had made in
its share of overall output.  Larger state ownership of productive assets may nullify or impair the
market access gains that foreign firms expect to realize.  In light of the on-going bank re-capitalizationeffort and the role being assumed by the Indonesia Bank Restructuring Agency (IBRA), we have the
following questions:
- How long does the Government expect to retain its equity position in banks it re-
capitalizes?  Will non-stated-owned Indonesian Banks in which the Government holdan equity stake be subject to any procurem ent regulations such as Presidential Decree
(Kepres) 16, 1994;  Presidential Decr ee (Kepres) 24, 1995 or a similar decree?
- When does the Government expect to divest itself of its equity stakes in banks it helps
re-capitalize?  How does the Government plan to divest itself of its equity stakes inbanks it helps to re-capitalize?
- The Secretariat Report noted that the ten largest Indonesian Firms account for around
one-third of Indonesia’s GDP.  May we request a list of the names of these firms?
- In compensation for outstanding liquidity credits to certain private banks, the
Government of Indonesia has accepted shares in sister companies from owners ofthose banks.  May we request a list of the firms in which the Indonesian Government
holds an equity stake in compensation of liquidity credits provided by Bank
Indonesia?  As result of the Government’s new equity position in these firms, are
these firms now subject to any Government procurement regulations?
Para. 116, states, “...(The Government of Indonesia) is committed to preparing twelve
enterprises for privatization during the first year of the IMF programme and plans to achieve full
instead of partial, privatization of the companies listed ".  Will the Privatization Board meet its target
of fully privatizing the twelve state-owned firm s within this fiscal year (ending 31 March 1999)?
State Trading
Chapter III, Section (2), sub-section (iii), para. 41 notes BULOG’s exclusive rights have been
limited to rice, effective 1 February 1998. May we be appraised as to when Indonesia expects to
notify the Working Party on State Trading Enterprises of the limitation of BULOG’s exclusive importright to rice only?WT/TPR/M/51
Page 23
Subsidies (Chapter III, Section 4, sub-section iii, para. 92)
We understand that there are currently three subsidies enjoyed by fertilizer manufacturers,
namely, on the price of gas purchased from the state oil and gas monopoly, Pertamina; on
transportation;  and on the selling price to the farmers.  According to the 15 November 1998 issue of
the mining, oil and gas trade magazine, Petromer, Indonesia’s Minister of Industry and Trade wasquoted as saying , “In the future, there will only be one subsidy, i.e. on the price of fertilizer.  The
price of gas ... will be left to the market ”.  When, and in what steps, will Indonesia phase out its
program of gas supply subsidies to domestic fertilizer manufacturers?  Will foreign supplies of
fertilizer benefit from the Government subsidy?
Financial Sector Restructuring (Chapter I, Annex I.1, Part II., Section B)
Para. 30 (c) indicates that restrictions regarding foreign investment in listed banks were to be
lifted in the near future.  What is the timetable for the lifting of such restrictions?
Financial Services-Banking
Para. 25 of the Executive Summary notes, “ As part of its efforts to restructure the financial
sector, the Government is currently considering relaxing the remaining limits on foreign ownership in
banking .”  We understand that the President of Indonesia signed the new Banking Law in November
but foreign investors await the necessary implem enting regulations from Bank Indonesia that will
govern issues such as composition of Boards of Commissioners and Boards of Directors.  Withoutthese implementing regulations, foreign investment in the banking industry will be delayed,
re-capitalization of banks postponed, and economic recovery pushed further into the future.  In this
respect, when does the Indonesian delegation expect the implementing regulations and or guidelines
governing newly liberalized foreign ownership of Indonesian banks to be in place?
Chapter IV, Section 5, sub-section ii, paras. 67, 71 and 72 outline certain additional
commitments made by Indonesia with respect to liberalization of financial services, and said
commitments are to be applied on an MFN basis.  These commitments were made under the auspices
of the IMF programme, and are said to reflected in the new draft banking law, which was to have
taken effect in late 1998.  Has the new banking law taken effect?  If not, when can one expect theseannounce commitments to take effect?
Telecommunications Services (Chapter IV, Section 5, sub-section iii)
Para. 80 states that further divestiture in the area of basic telecommunications is to be
expected in the coming months.  Please provide details with respect to the timetable and scope of
these impending divestitures.
Secretariat Report (para. 85) states that joint venture companies and private companies
engaging in the provision of non-basic telecom services need a licence from the Ministry of Tourism,
Posts and Telecommunications (MTPT) in order to operate.  Though the procedures are set forth in
footnote 57, could Indonesian authorities provide additional information regarding the criteria andprocedures required for obtaining such a licence?
Para. 88 indicates that the Government of I ndonesia, when awarding new concessions, for
future private-sector involvement in the telephone market, should give priority to small and
medium-size enterprises?  What criteria does the government intend to use to determine if a companyqualifies as a “small and medium-size enterprise”?WT/TPR/M/51
Page 24
Para. 95 mentions that, for all services, the number of foreign management and technical staff
in telecommunications companies is generally limited to 20 persons.  Does this restriction still exist?
If yes, please provide details.
Professional Services Sector
The Secretariat Report provides almost no information regarding the professional services
sector in Indonesia its size, structure, and regulatory framework.  Information in this regard would be
desirable.
From Government Report (WT/TPR/G/51)
1995 Deregulation Package
Para. 18 lists a number of deregulation measures announced in 1995, among which “domestic
trade support services” (item 6) are included.  What would “domestic trade support services”
comprise of?
1998 Programme on Economic and Financial Reform and Restructuring
The Secretariat Report (para. 33, also noted in para. 39 of Annex I.1), mentions that certain
sectors are currently closed for investment, including, inter alia, taxi and bus transportation, localshipping, private television and radio broadcasting, newspaper, magazines, cinemas, certain trade
services as well as medical services.  According to the WTO Secretariat the Indonesian government
has decided that this negative list of activities closed to foreign investors was to be shortened in
June 1998.  Has this occurred?  If yes, kindly provide details.  If no, when can a revised list be
expected?
QUESTIONS BY THE EUROPEAN UNION
1
Tariffs
An increase of import duties on luxury goods was announced in October 1997 in order to
decelerate imports of categories of products that are judged unnecessary for the country's
development. These measures have been announced as temporary.  When will these increases bephased out by Indonesia?
The EU is disappointed that Indonesia still has some high tariff peaks which serve to protect
certain sectors such as cars or to penalise other sectors such as alcoholic drinks.  Could Indonesia
provide an explanation on the high levels of import tariff, excise duty, luxury sales tax and VAT onimports of alcoholic spirit beverages; an important export for EU countries?
The EU is pleased that Indonesia has stuck to the trade and investment pledge that was agreed
at the ASEM2 summit and subsequently the WTO Ministerial, not to resort to protectionism as a
response to the global financial crisis.  But, as a result of Indonesia’s applied rate tariff reductions,bound tariff rates are significantly higher than its applied rates.  This creates a degree of uncertainty
for exporters and investors and could be seen to undermine the effects of the tariff reductions.  Will
Indonesia consider binding its tariffs at the lower applied rates?
                                                     
1All references between brackets are to Report by Secretariat – WT/TPR/S/51 – except where
otherwise specified.WT/TPR/M/51
Page 25
Why has Indonesia decided not to phase down the tariff rate for alcoholic spirit beverages
from 170% to 150% which was agreed in the GATT Uruguay Round?
Other measures affecting imports
Indonesia is applying a discriminatory VAT levy (of 10%) on the loading and unloading of
foreign ships at Indonesian ports.  Could Indonesi a explain the reasoning behind the discriminatory
nature of this tax and on what grounds Indonesia regards it as a WTO compatible measure?
Does Indonesia still apply import bans to certain chemicals, especially pesticides, and certain
plastic scraps of polymers and ethylene?
The Secretariat Report  indicates that Indonesia has committed itself to the removal of all
non-tariff and export restrictions (other than those justified by health, safety or environmental
conditions).  Can Indonesia confirm that the removal of these restrictions is a permanent measure, i.e.
one that will not be reversed?
Does Indonesia plan practical steps and administrative reforms to accelerate customs
inspection procedures and to improve the legal protection of exporters?  Could it provide the EU with
a description of such measures?
FDI, competition and regulatory issues
The EU welcomes the relaxation of geographical and branching restrictions for foreign banks
and joint ventures, and also the improvements reflected in the Second Letter of Intent, which
Indonesia intends to reflect in its new banking law.  Could Indonesia indicate whether and when it
intends to incorporate all these substantial improvements to its GATS schedule?
The Report by Secretariat mentions a new banking law on page 121 which would effectively
raise the ownership limits on foreign companies wishing to invest in Indonesian banks.  Has Indonesia
implemented this law yet?  And if not, what is the likely timetable?
Indonesia is perhaps the only major country which requires foreign news agencies to
distribute all their services through a local news agency (Antara) and pay a levy on the revenues
generated.  Could Indonesia therefore provide an explanation for the continuance of this outdated
regime which most other countries have dismantled and which only creates difficulties for the foreign
suppliers of news agency and associated services and inefficiencies and additional costs for
Indonesia’s financial services sector?
What further specific measures is Indonesia contemplating to liberalise the regulatory
environment for investment?  Could Indonesia provide an update on how the Indonesian Bank
Restructuring Agency (IBRA) is going to work? Could Indonesia also indicate what is its current
policy on privatisation and why this process appears to have come to a complete standstill?
Although Indonesia has reportedly undertaken a major review of the Bankruptcy Law, the
Central Bank Law, the Company Law and liquidation regulations, implementation appears to be
problematic.  Could Indonesia explain what it intends to do to ensure proper implementation of these
new regimes?
Although restrictions on FDI in domestic (wholes ale and retail) trade have reportedly been
removed in 1998, EU companies wanting to invest in Indonesia still face major problems.  CouldWT/TPR/M/51
Page 26
Indonesia indicate what steps it intends to take to implement the recent reforms and make the opening
of domestic trade to FDI a reality?
Could Indonesia indicate its intentions with respect to the liberalization of air transport
services?  Will such liberalization be restricted to charters and services provided to and fromdesignated airports?  Will such liberalization be notified under the GATS?
Could Indonesia provide an update on where it stands on the claim made to Timor Putra
Nasional to pay back the waived import duties and luxury taxes?  Apart from the request made to
TPN, are any steps being taken to actively pursue that money?  Could Indonesia also comment on the
sale of Timor cars (14.000 plus) to a Timor dealer in the country – allegedly without paying the duties
and taxes?
It is claimed in the report (page 19 – para. 13) that all budgetary and extra-budgetary support
and credit privileges granted to IPTN projects have been discontinued.  Could Indonesia therefore
explain where the money is now coming from to keep IPTN in business?
The report mentions that major changes in the status and operations of BULOG and BPPC
still remain to be notified to the WP on State Trading Enterprises.  Could Indonesia indicate when it
intends to make such notification?
The report indicates (page 89 – para. 110) that the top ten enterprises in Indonesia account for
about a third of GDP.  Could Indonesia provide more details on that statement, e.g. by providing the
list of the enterprises concerned, the economic sectors in which they operate and the turnover which
each of them generates?
Additional questions and comments from the European Union
2, transmitted during the TPRB
meeting
Could Indonesia provide details on the nature and operation of its system of judicial review of
anti-dumping actions in accordance with Article 13 of the Agreement on Implementation of
Article VI?
Could Indonesia indicate whether and when it will introduce a unified and consolidated
framework for competition as suggested in the Report by the Secretariat (page 88 – para. 108)?
Could Indonesia indicate what are its current plans to accelerate the achievement of
privatization objectives, also considering that this element is an essential part of Indonesia’s
adjustment programme as agreed with IMF?
What measures and administrative reforms are planned by the Indonesian authorities to
accelerate customs inspection procedures?  At present, customs performances remain slow, costly and
often cumbersome.  Clearance time (from 7 to 14 days), increased paperwork, storage costs and port
congestion are the most negative effects of the slow functioning of the system.  Faster and cheaper“underground imports” have therefore developed especially for spare parts and machinery.
Has any progress been made in the adoption of legislation on safeguard measures complying
with the relevant WTO Agreement?  Could the Indonesian authorities confirm that no safeguard
measures could be adopted under Indonesian legal system unless they are introduced further tolegislation providing for all the substantive and procedural requirements mentioned in the WTO
Agreement?
                                                     
2All references between brackets are to Report by Secretariat – WT/TPR/S/51 – except where
otherwise specified.WT/TPR/M/51
Page 27
What are the views of Indonesia concerning a new WTO negotiating round?  Does Indonesia
support the objective of the launching of comprehensive WTO negotiations in the year 2000?
QUESTIONS BY HONG KONG, CHINA
Investment regime (WT/TPR/S/51, pp. 41-42, para. 47 and Table II.3)
We note that the Indonesian Government issued a Negative Investment List in July 1998
outlining the sectors closed to foreign investors.   We would like to know whether the Indonesian
Government have any plans further to open up these sectors to foreign investors and if so, the details.
Customs procedures (WT/TPR/S/51, pp. 48-49, para. 14 and footnote 7)
It is mentioned that though EDI user has been growing among importers, exporters and
shipping companies, nearly half of all banks are not yet connected to the system.  We also noted that
the Indonesian customs authorities have shown readin ess to cover part of the EDI cost for individual
users.  Would Indonesian Government share with us  the details on how the EDI costs for individual
users are covered by its Customs ?
Tariffs and additional duties (WT/TPR/S/51, p. 51, para. 22)
We note that there are still some significant tariff peaks (e.g. automobiles, chemicals,
alcoholic beverages, etc.)  We would like to k now whether Indonesia has any plans to bring down
these tariff peaks.
Licensing requirements (WT/TPR/S/51, pp. 58-63, paras. 37-39 and footnote 21)
We are glad to note that as a result of both the implementation of Indonesia’s commitments
under the Uruguay Round and unilateral reform, the number of tariff lines subject to licensing fell by
nearly half, from 261 to 160.  Nevertheless, many sensitive products, which account for the bulk of
remaining licences, remained unreformed.  The economic significance of licensing thus remained
strong.  It is also mentioned that the combination of existing commitments (both in the WTO, with
respect to bound items, and the IMF regarding the other items) will ultimately result in the virtualdisappearance of the licensing policy at the turn of the century.  Would Indonesia share with us its
programme and timetable of phasing out the licensing requirements?
Regulated exports (WT/TPR/S/51, p. 75, para. 71)
We would be grateful for more details on this, including the coverage of the further
deregulation measures to be implemented during the IMF program period.  Specifically, wouldIndonesia consider removing exports control on the remaining items on its list of regulated exports,
such as plywood
3, during the IMF program period or in the near future?
Financial services (WT/TPR/S/51, p. 23, para. 30 (c) and pp. 119-120, para. 71)
It is mentioned that restrictions on branching of foreign banks and foreign ownership in listed
banks would be eliminated through a new Banking Law, and due to take effect by February 1998 and
                                                     
3Indonesia was the largest supplier of plywood to Hong Kong in 1997, accounting for HK$1.56 bln or
42.1% of Hong Kong’s total plywood imports.WT/TPR/M/51
Page 28
June 1998 respectively.  We would like to know if the law has already come into force, and if not,
what is the Indonesian Government’s plan for implementation?
Telecommunications (WT/TPR/S/51, p. 123, paras. 81-83 and p. 127, paras. 93-95)
Indonesia’s telecommunications market is dominated by two state-owned companies
PT Telkom and PT Indosat, PT.  Telkom holds exclusive rights in the provision of local services until2011, and long distance services until 2006.  International services are under the exclusive duopoly of
PT Indosat and PT Satelindo until 2005.  Also, commercial presence is limited to joint-venture,
joint-operation, or contract management, with foreign equity participation limited to 35%.  Although
Indonesia has committed to review the current policies upon expiry of the exclusive periods, we
would like to know if the government  would consider advancing the reviews.
Tourism services (WT/TPR/S/51, pp. 128-129, para. 102)
We note that foreign investors are subject to higher capital requirements, and they are
restricted to higher category hotel segments (3, 4 and 5 stars).  We would like to know whether the
Indonesian Government has any plans to relax such restrictions.
QUESTIONS BY JAPAN
General
The Decision by the People's Consultative Assembly for the Democratization of Economic
System adopted on the 13 November states that Indonesia will take an economic policy based on the
competition principle.  Please explain how Indonesia will reflect this Decision in its trade policy.
Administrative procedures
Even if new policies are announced, detailed procedures to operate such policies are not made
public.  This makes it difficult for outsiders to understand the concrete contents of the changes in the
policy framework.  In addition, when implementing laws, there is much discretion by governmentofficials and the problem of bribery is often at issue.  Please explain Indonesia's view for improving
these problems.
Regarding the procedures for approval and licensing, the period of time required for obtaining
an approval or a licence is claimed to be rath er long.  Please explain Indonesia's view towards
improving this point.
Balance-of-payments and external debt (paras. 23 & 24, p. 9, of the Secretariat Report)
What is the policy of Indonesia with regard to the short-term capital flows?  Please explain
the present situation of the external debt.
Structural Reform (para. 27 of p.11, paras.48 & 49 of p.26 of the Secretariat Report)
How does Indonesia intend to make a balance between structural reforms (further
liberalization) and social reforms (such as alleviating poverty)?WT/TPR/M/51
Page 29
ASEAN - AFTA
AFTA is a free-trade agreement whose members are all developing countries and the enabling
clause would apply to AFTA.  However, taking into account its great impact on multilateral trade
system, it is desirable to fulfill the conditions provided in Article XXIV:8 of the GATT.
It is reported that about 90% of Indonesia's tariff lines are currently subject to reduced tariff
rates.  Please explain how much percentage of Indonesia's tariff lines is expected to be covered at the
completion of AFTA.  (para. 29, p. 37)
It is reported that the discussions are going on among AFTA members, which indicates that
the liberalization of trade will not be mandatory but be left on a "best efforts basis".  Under such
circumstances, how AFTA can achieve the elimination of the duties and other restrictive regulationsof commerce with respect to substantially all the trade?  (para. 28, p. 36)
It is reported that the ASEAN also decided to expand the scope of regional cooperation to
services.  Can a services supplier of non ASEAN Member that is a juridical person constituted under
the laws of Indonesia be entitled to enjoy the same treatment as the one which will be granted to alocally owned juridical person under the expected regional agreement?  (para. 30, p. 37)
FDI
As a result of FDI liberalization, Negative List of activities closed to foreign investors was
reduced to 25 sectors as of July 1998.  Japan positively evaluates such trend.  In this regard, please
explain the reason for restricting investment on pulp production and local shipping.  (para. 47, p. 41)
Lifting restrictions on Indonesia's wholesale and retail markets are positive phenomena.  Yet,
the fields which support commercial activities, such as advertisement, and the management of cinemaare still on the list of foreign investment restriction.  Japan therefore would like to see further
liberalization efforts in these area.  (para. 47, p. 41)
Please explain the investment liberalization programmes to be carried out by ASEAN within
its region.
It is stated in paragraph 54 that a bilateral investment guarantee and protection agreement has
been signed between Indonesia and Japan. (p. 44 of the Secretariat Report)  However, no such
agreement has been signed between the two countries.  Japan would like therefore to ask the
Secretariat to make a correction before the publication of the Report.
Japan, together with the United States and the European Communities, brought the National
Car Programme to a dispute settlement panel.  The panel report was adopted by the DSB in July this
year, and Indonesia notified to the three complain ing parties that it would bring the matter into
conformity with the WTO Agreement.  Indonesia is encouraged to do so in an expeditious manner,
and in this regard Japan would like to hear from Indonesia the present status of implementation of the
recommendations, adopted by the DSB, with regard to the National Car Programme.
Foreign residents are imposed both departure tax and income tax.  Such double taxation
seems to discourage foreign investment.  Does Indonesia have any intention to improve this matter?
Due to the current economic crisis in the Asian economies, there has been delay in a number
of joint venture development projects with foreign investors in Indonesia, as a result of the shortage ofWT/TPR/M/51
Page 30
funds.  If foreign investors might suffer damage from these joint venture projects, how does the
Government of Indonesia envisage dealing with such problems?
Customs Valuation  (para. 15, p. 49)
Indonesia has invoked the special provisions available for developing countries for delayed
application.  Does Indonesia currently use minimum customs value system?  If so, please explain the
product coverage of such system and minimum customs values for each product.
Can Indonesia implement the Agreement on customs valuation on 1 January 2000 when the
transitional period ends?  As stated in paragraph 14 of the Secretariat Report, Japan has been
providing technical assistance to Indonesia in this field.  Please explain if there is any difficulty forimplementation.
Tariffs
It is appreciated that Indonesia bound 95% of its tariff lines and simple average applied MFN
tariff was reduced from 20% in 1994 to 9.5% in 1998.  However, the 5% of unbound tariff lines
include iron and steel, motor vehicles and parts, and ships.  Does Indonesia have any intention to bind
tariff rates of these products?  (para. 16 of p. 49, para. 50 of p. 19)
There exist tariff peaks in some products such as alcoholic beverages (110% on Average with
some as high as 170%) and motor vehicles (over 60% on average and as much as 200% on certain
types of car).  Does Indonesia have any intention to reduce these high applied tariff rates?
(para. 22, p. 51)
Non-tariff border measures
Indonesia has made non-tariff concessions in its schedule.  For example, "IT" which means
"approved importer" is marked on spades a nd shovels (HS820110000) and forks (HS820120000), and
these restrictions is to be eliminated within 10 years.
Does this mean that only an "approved importer" can import spades and shovels, or forks until
2005 and that as of 2005 any importer can import these goods?
It is reported that, from 1994 until the currency crisis, progress in reducing the number of
products subject to licensing was uneven and more selective than previously and that the most
sensitive products such as motor vehicles, certain chemicals, iron and steel products remained
unreformed.  Please explain the prospects for reviewing import licensing scheme on these products.(para. 37, p. 58)
Japanese industries have concerns on import procedures, such as need for expansion of EDI
or improvement of examination process.  Does  Indonesia have intention to review its import
procedures on the above aspects?
Japanese industries have concerns on export procedures, such as need for smooth
reimbursement of value added tax or quick issuance of  certificates of origin.  Does Indonesia intend to
review its export procedures on the above aspects?
Anti-dumping actions (para. 47, p. 66)
It is reported that the demands for anti-dumping investigations generally originate from
subsidiaries of foreign-owned firms, which seem to  show greater knowledge and international practiceWT/TPR/M/51
Page 31
of such procedures than Indonesian-based firms.  Are procedures for anti-dumping actions not
excessively influenced by such foreign-owned firms?
Local content requirements (para. 57, p. 69)
It is reported that the gradual elimination of local-content schemes is an important policy
development in a country.  Please explain the present situation and prospects of eliminating
local-content scheme.  Please also explain the difficulty in elimination, if any.
Agriculture
Does Indonesia intend to continue deregulation's and reforms in this sector which have been
implemented since late 1997?  (paras. 12-14, p. 99)
Is the minimum export price on sawn timber introduced in 1989 still in effect?Has Indonesia abolished all export bans or restrictions on agricultural, forestry and fishery
products?  Has there been no export bans or restrictions since the abolishment of the temporary exportban on palm oil?  (para. 66, p. 71)
The level of the tax will be reviewed regularly for possible reduction based on market prices
and the exchange rate.  It is reported that the temporary export ban on palm oil was replaced in
March 1998 by an ad valorem export tax of 40%.  Is this export tax rate also scheduled to be reducedby the end of 2000 as export taxes on other products such as logs? (para. 68, p. 72)
It is also reported that further reduction of export taxes imposed on forestry products and
some of the agricultural products is scheduled by the end of 2000.  Does Indonesia have any intention
to eliminate the export taxes on these products in or after 2000?  (para. 68, p. 72)
When were the procedures to calculate the rate of "resource rent tax" established?  Please
explain how the rate is being calculated.  Is the "resource rent tax" imposed in addition to the export
tax?  (para. 30, p. 105)
Please explain about any change in export trends of plywood since the elimination of the
export cartel and the marketing arrangement.  (para. 30, p. 105)
Subsidies
Please explain the objective and the scheme (including sources of the fund, sectors and
entities eligible for the funds, policy objective for each sector, conditions, procedures, and amount ofthe assistance given) of the Investment Fund and Reforestation Fund. (para. 90, p. 83)
Government procurement
Japan welcomes Indonesia for carefully considering the possibility of becoming a party to the
GPA in the future.  Please explain whether the national treatment principle, as well as MFN principle,
applies under Indonesia's new procurement system introduced in 1994. (para. 105, p. 87)
Competition policy (para. 112, p. 89)
It is reported that the Government has been  working on a draft competition law since 1996.WT/TPR/M/51
Page 32
Please outline the regulations listed below in the draft law:
- regulations on price control;
- regulations on entry into market;
- regulations on merger;- exemption system;  and
- regulations on the abuse of market-control power by dominant enterprises such as
conglomerates.
Please outline the mandate of the competition authority under the draft law.  Please explain
the specific plan and schedule for the enactment of the competition law.
IPR
Some concerns are raised regarding IPR, such as piracy of copyright products, difficulty to
access to patent information, and taking much time to grant patent.  Please explain how Indonesia is
going to implement IPR system effectively and enforce the IPR properly.
It is reported that the Government has in recent years increased efforts to prevent
infringements of IPR but that much remains to be done against the piracy of computer programs,
compact disks and video compact disks.  Please explain what actions Indonesia is taking to resolve
this problem.  (para. 127, p. 94)
Financial Services
It is appreciated that, despite the currency turmoil and banking crisis, Indonesia contributed to
the successful outcome of the WTO negotiations on financial services.  However, Indonesia has notyet accepted the Fifth Protocol.  Please explain the present situation of the domestic procedure and
prospect for the acceptance.  (para. 67, p. 119)
It is reported that the licensing of new banks takes place in two stages; an approval "in
principle" which allows the applicant to start the necessary preparations for the establishment of a
commercial bank, and an operational licence authorizes the bank to start its commercial operations.
(para. 69, p. 119).  Why Indonesia requires both an approval and a licence?  Has there been any casethat an applicant, with an approval in principle, prepare for the establishment of a commercial bank
but cannot acquire the licence for operation?  If any, please also explain by what reason it could not
acquire the licence for operation.
It is reported that all insurance products must be supplied through a locally-incorporated
insurance company, either Indonesian or foreign owned, except for products that are not available on
the Indonesian market.  (para. 74, p. 120).
- Has cross-border supply been permitted on any product on the ground that the
product is not available on the domestic market?  If any, please explain on whichproduct it was permitted.
- Please explain what are the products which are not available on the Indonesian
market.
- Will the cross-border supply of a certain product, which was once permitted for the
reason of non-availability on the domestic market, come to be prohibited if such
product become available on the domestic market?WT/TPR/M/51
Page 33
Telecommunications Services (para. 123, p. 83)
Exclusive rights of PT Telkom is to be expired in 2006 for long distance services and in 2011
for local services.  Exclusive rights of PT Indosat is to be expired in 2005.  Taking account of the
rapid development both in technology and services available in this field, such transitional period is
quite long compared with other Members.  Liberalization at an earlier stage is expected.  Pleaseexplain Indonesia's view on the necessity of such a long transitional period.
According to the Schedule of Specific Commitments, Indonesia comments, that the
Government will conduct a review of policy with respect to whether to permit additional suppliers of
such services upon the expiry of this period of exclusivity and does not commit to liberalize the
sector.  On the other hand, the Secretariat Report states that the Government is considering
introducing a new telecommunications law in the coming year, which would revise the 1989legislation and further open up the sector to competition.
- Does Indonesia intend to shorten the period of exclusivity of PT Telkom and PT
Indosat?
- Can Indonesia, at least, commit to liberaliz e its market after the expiry of the period
of exclusivity?
Tourism (para. 102, p. 128)
It is reported that for hotels and hotel resorts foreign investors may be subject to higher
capital requirements than Indonesia investors.  Please explain the content of the requirement
- In the Schedule of Specific Commitments, Indonesia commits that this measure will
be eliminated in the year 2020.  Please provide information on the schedule for theelimination.
QUESTIONS BY THE REPUBLIC OF KOREA
Macroeconomic issues
Indonesia has been pursuing a prudent macroeconomic policy for a long time.  And
macroeconomic imbalances have not been the source of market concern in the case of Indonesia as
the report of WTO Secretariat mentioned in paragraph 20, page 7 of the report.  Recently, according
to para. 15 of page 6 of the Government Report, the Indonesian Government is engaged in structural
adjustment measures, to curb the economic downfall in Indonesia.  These measures include increasing
domestic demand, lowering inflation, and increasing non-oil/gas exports.  Such efforts by the
government to encourage domestic demand for economic recovery are clearly understandable to us.In order to prop up domestic demand, the government will have to ease monetary policy.  But, by
doing so, it risks the exacerbation of the inflation problem that is expected to range between 80% and
100% in 1998.
How will the Indonesian Government deal with the contradictions between macroeconomic
objectives such as increasing domestic demand and lowering inflation?WT/TPR/M/51
Page 34
Competition policy
The current economic and financial crisis presses the government to take bold measures to
promote efficiency and establish a competitive environment in the protected industries.  In fact, the
absence or lack of enforcement of an effective competition policy can be an implicit assistance todomestic producers by sheltering them from domestic and foreign competition.  These
anti-competitive practices resulted in domestic end users or consumers paying higher than world
prices and enabled the large conglomerates operating in these sectors to enjoy strong growth in areas
such as agro-food, steel, basic chemicals, wood etc.
Conglomerates have in general accumulated considerable economic power and influence over
the country's economic policy.  Similarly to the Kore an case, they have been instrumental in enabling
the government to fulfill its industrialization objectives (para. 110 of the Secretariat report).  The role
played by conglomerates in terms of employment, industrialization, economy of scale, and positive
externalities is undeniable, in spite of their distortive impact on competition.  However, in this phase
of political transition, conglomerates need realignment and restructuring.
How will the Indonesian Government guarantee a better competitive environment in its
domestic economy without incurring high social cost to its population, taking into account that the
current structural reforms involve the restructuring of conglomerates?
Liberalization of agriculture
In the Letters of Intent with the IMF, Indonesia agreed to phase out, over three years, import
and marketing monopolies as well as price controls on all agricultural commodities except rice, sugar
and cloves.  Imports of agricultural items have been largely deregulated and export restrictions are
also being substantially relaxed.  (However, there are difficulties in liberalizing agriculture under thepresent difficult economic and social circumstances.  With the large depreciation of the rupiah already
increasing the cost of imported food, deregulation could trigger further price increases on essential
commodities.  In fact, it is very profitable for distributors or traders to buy food on the domestic
market and to make large profits by selling it on the international market, thereby putting further
pressure on domestic supplies as well as prices.
Can such a reform in agriculture restore equilibrium market prices in the face of a large
devaluation?  How does the government plan to accommodate this situation, while remaining
committed to take action to protect the poor.
Also, there were sharp shortage of rice and a foreign currency constraint for importation of
the basic staple.  This situation refers to the recurring problem of securing food supply, for example,constant supply of basic staple.
What is the position of the Indonesian government vis-à-vis food security matters?
QUESTIONS BY NEW ZEALAND
General
The Indonesian Government Report (WT/TPR/G/51) provides a good summary of the
policies implemented over the review period, but the section on “future direction of Indonesian
policies” is somewhat abbreviated.  We would welcome Indonesia’s further comments, particularly in
respect of future intentions regarding its trade policies.WT/TPR/M/51
Page 35
The Special Session of the People’s Consultative Assembly, convened in November 1998,
passed a decree on “people’s economy.”  Could Indonesia comment on whether this decree has any
implications for Indonesia’s trade and investment policies?
Memorandum on economic and financial policies
The Secretariat Report refers to Indonesia’s commitment to phase out import licences and all
other remaining quantitative restrictions and other non-tariff barriers that protect domestic production
during the period of its current agreement with IMF.   Could the Indonesian authorities, please provide
details of these phase out arrangements?
FDI
Under investment, the Secretariat’s Report not es that inward FDI flows have not so far
suffered a major decline (to the first quarter 1998).  Can Indonesia provide an update based on any
more recent data as to investment trends in 1998?  Does Indonesia have data on the percentage (or
dollar value) of investment application approved by  the Coordinating Investment Board as a portion
of overall applications?
Measures directly affecting imports
The Secretariat Report has noted that nearly half of potential tariffs are exempted from
payments under concessional arrangements.  Could Indonesia clarify the basis on which theseconcessionary arrangements are made, and whether details of the products and industries concerned
are publicly available?
Measures directly affecting exports
Could Indonesia provide details of the phasing arrangements for the elimination by the year
2000 of the local content program for motor vehicles?
Tax measures
The Secretariat’s Report indicates that indirect taxes are cumulative.  Could Indonesia explain
the rationale for such an approach (which  results in taxes being levied on taxes)?
Could Indonesia explain why  alcoholic beverages have been exempted from the overall trend
reducing levels of protection to agricultural products, with retention of high applied tariffs, quotas,
import monopolies and a prohibition against investment?
Price and distribution controls
The Secretariat’s Report (page 87) refers to the extension of subsidies, through the
Government’s provision of letters of credit at favourable exchange rate, to all import of agricultural
commodities.  Are these subsidies continuing, is there provision for phasing out these subsidies as thecurrency appreciates?
Government procurement
Are there any plans to review government procurement procedures given the comment in the
Secretariat Report that “much remains to be done to establish fair, reliable, timely and efficient
practices”?WT/TPR/M/51
Page 36
Competition policy
Could Indonesia provide a progress report on implementation of its draft competition law
(page 92 of the Secretariat Report)?
QUESTIONS BY THE UNITED STATES
I. Economic Environment:  St ructural and Trade Reforms
The United States understands that as a result of Indonesia’s Memoranda of Economic and
Financial Policy with the IMF that the GOI has committed to permit foreign direct investment in
domestic retail and wholesale trade.  The GOI mentions that it is in the process of deregulatingdomestic trade, and opening wholesale and retail trade to foreign investors.  Does this go beyond
GOI’s commitments in the latest MOU with the IMF?  The U.S. delegation would like to know if the
GOI has information describing the specific steps a foreigner may take now to invest in Indonesia’s
distribution system?
II. Institutional aspects of Indonesia’s Trade Policy:  Legal Framework
Workers Rights
We understand that the GOI is engaged in reform of a number of areas of its legal system
(point 10 Summary Observations).  One important area of reforms is the efforts by the Manpower
Ministry to bring labour laws and practices into greater conformity with internationally recognized
core labour standards as defined by the International Labour Organization (ILO).  In this respect, we
commend the GOI for its recent ratification of key ILO Conventions relating to those core standards.
We understand, however, that despite recent actions, labour organizations often encounter difficulty inobtaining recognition as labour unions or labo ur federations.  We commend the Government of
Indonesia for its efforts to work with the ILO and seek passage of new labour laws.  We ask that the
Government of Indonesia keep us informed concerning progress achieved in provision of core labour
standards to workers in the country.  We also would like to know the following:
- What further steps will be taken to assure widespread implementation of freedom of
association and the right to organize and when will these take place?  What particularsteps are being taken to increase the number of collective bargaining agreements in
force between management and labour groups?  What steps are being taken to
provide for improved enforcement of the labour law?
Investment regime
With regard to tax holidays, government regulation 45 of 1996 reinstituted these as an
investment incentive.  The implementation of the policy and process by which they have been
awarded has been confusing, inconsistent and opaque.  Does Indonesia have an update to share on the
latest plans regarding the use of tax holidays to attract investment and clarification on how decisionsare made to award tax holidays?WT/TPR/M/51
Page 37
III. Trade Policies and Practices by Measures
Measures affecting importsCustoms procedures
There is concern that there continues to be delays with customs clearances, particularly given
the Indonesian government’s recent switch over to  the EDI system.  Could the GOI provide comments
on future plans to increase usage and improve the efficiency of the EDI system?
Tariffs
We commend Indonesia for its significant reduction of applied tariffs, lowering rates well
beyond its WTO commitments.  In light of the financial crisis and the near collapse of the Indonesian
economy, these reduction have constituted an important achievement.  In the Secretariat
documentation, Section 17, page 50 states that si nce the Uruguay Round, Indonesia has made further
major tariff reductions on a unilateral basis, going far beyond its WTO commitments.  However, the
package maintained important exceptions, such as agriculture, automobiles, steel and chemicals,which were subject to separate timetables, and alcoholic beverages, for which no reduction was
planned.
In regards to chemicals, lowering tariffs on chemicals is a key factor in attracting investment.
What are you doing to remove tariff anomalies between upstream and downstream chemicalproducts?  Does the Government of Indonesia plan to include in its tariff reduction package those
products that have been currently exempted, namely agriculture, automobiles, steel and alcohol?
Greater certainty would be provided through binding the lower applied rates.  What is Indonesia's
intention in this regard?
Non-tariff border measures
Indonesia's policy to remove import licenses is a positive step.  The Secretariat's document
(para. 38) notes that the total number of tariff items currently subject to import licenses is 119, and
that existing commitments will "ultimately result in the virtual disappearance" of import licensing.
Can Indonesia provide a listing of the 119 items currently subject to import licensing?  Will
all remaining import licenses disappear by the year 2000?
Measures affecting Exports
Export and Trade Finance
Since its introduction in 1996, the "special exporter" status has been vague and potentially
troubling.
Please clarify this mechanism;  how do companies qualify, how many companies are
currently in the program, what industries are targeted?WT/TPR/M/51
Page 38
Internal Measures
Subsidies
The Secretariat document, section 24, page 55 states that the effective rate of duties collected
at the border is much lower that implied because of the scope and variety of exemptions.  Nearly half
of potential tariffs are exempted from payments under concessional arrangements.  These exemptions,
which are generally granted to specific firms or users, were recently extended to certain cable-makers
and producers of electronic products for imports of polyethylene.
Paragraph 90 of the Secretariat's Report states that Indonesia has traditionally provided
significant financial support to public enterprises in designated strategic industries such as fertilizers,cement, steel, shipbuilding, aircraft, and telecommunications equipment (GATT 1990 and 1994), but
adds that at present, Indonesia indicates it does not provide any direct financial grants to state-owned
enterprises.
Can Indonesia explain how these exemptions are granted, and how they are in accordance
with the WTO Agreement on Subsidies and Countervailing Measures?  Are such special exemptions
provided contingent upon any performance requirements, e.g. the use of local content or on condition
of exportation?  Please clarify the comment in paragraph 90 concerning the absence of direct financial
grants to state-owned enterprises.  Does this m ean that the government has discontinued providing
such grants, or is it Indonesia's position that such grants have not previously been provided.  Has thegovernment discontinued all other forms of "financial support" (including other than grants) to public
enterprises in the designated strategic sectors?
Government Procurement
We understand that Indonesia is reviewing its procurement laws and regulations.  Can
Indonesia report on the status of that review and provide an indication of changes that may be
forthcoming?
Production and distribution monopolies/Restrictive marketing arrangements/cartels
As part of its IMF reforms, Indonesia pledged to eliminate monopolies and cartels;  reform its
wood sector;  and eliminate many distortions in the agricultural and food marketing sectors.  Major
areas for reform included elimination of paper an d wood cartels and the clove monopoly.  Significant
progress was made toward the elimination of monopolies and cartels, including those for cloves,
paper and plywood.  Additional monopolies not addressed under the IMF program but which caused
significant economic inefficiencies were under review.
In October the Indonesian parliament completed a draft of a new anti-monopoly bill and
began hearings to study it further.  The bill would regulate and prohibit all kinds of business practices
or agreements which could distort market competition, establish a commission on business
competition to monitor the law's implementation and set both criminal and administrative chargesagainst violators.
The United States welcomes Indonesian effort to dismantle existing monopolies and we
encourage your parliament to complete hearings on anti-monopoly bill.  What are your plans for
reducing the palm oil export tax?  Can you provide any detail about how proposed changes in grantingforestry concessions would work?WT/TPR/M/51
Page 39
Competition policy, deregulation and privatization
We applaud Indonesia's efforts at launching an ambitious privatization programme given the
public's historical resistance, especially towards the so-called strategic industries (steel, fertilizer,
cement, oil and mining).  While there has not been the kind of progress expected regionally, as well as
internationally, the new privatization board that has been set up will hopefully push through thoseenterprises slated for privatization and others not currently listed.
The United States recognizes that Indonesia if focused on establishing systems and processes
to make privatization understandable, open and transparent.  We applaud your effort to improve
efficiency of state enterprises so that they will be worth more when sold and we understand Indonesia
has changed management in several large state companies.
Have "action plans" been completed for the privatization of each company listed.  Can
Indonesia provide a general overview of its intentions?  What steps is GOI taking to ensure public
support for the privatization?  Will the privatization also take place in a non-discriminatory manner?
That is, will foreign investors be able to participate on the same basis as nationals?
The "strategic companies" such as the producer of aeroplanes and aeroplane parts IPTN have
lost their government budget subsidies as a result of the letters of intent signed this year with the IMF.
What does this mean for their future direction?  Are the imports of products that compete with
the IPTN, including helicopters, still banned?  If so, where can trading partners obtain a complete andaccurate compilation of regulations that restrict trade such as trade in these products?
Many of the largest conglomerates in Indonesia have pledged assets to Indonesia as collateral
in repaying massive liquidity credits from the central bank.  The current plan is for a holding company
to be established to control and sell assets, subject to detailed agreements which have reportedly beenworked out with each conglomerate.
Will Indonesia government procurement regulations apply to purchases by these companies
while they are in the hands of the Indonesian Bank Restructuring Agency?
With regard to para. 112 in the WTO Secretariat Report, its is stated that since the recent
economic and financial crisis, the Government has taken bold measures to promote efficiency and
establish competitive conditions in protected indu stries and, to that end, the "Government has been
working on a draft competition law since 1996, which it intends to propose to the House of
representatives in the autumn of 1998".  We note that many commentators, including the IMF, have
suggested that absence of competition in the Indonesian economy harms market forces, distorts
incentives, and in some cases can block trade.
What is the current status of the competition bill?  What progress has been made since
Indonesia first introduced a draft competition law in 1996?
Intellectual Property Right Protection
While Indonesia has made progress in improving its intellectual property rights (IPR) regime,
the United States believes that there are several areas in which further work would be warranted.
These would include:
- improved market access for copyright works;
- enhanced enforcement of copyright and trademark laws;WT/TPR/M/51
Page 40
- enhanced border enforcement of copyrights, trademarks and patents;
- greater consistency of Indonesia statutes with TRIPS;
- legal acquisition and use of copyrighted software by GOI agencies;
- increase protection of trademarks, in particular well-known marks;  and
- more efficient trademark registration system to prevent the registration of well known
marks by trademark pirates.
The United States wishes to know if Indonesia has a schedule for amending the Indonesian
trademark and patent laws to comply with TRIPS along the line for comments provided at our TIFA
meeting 15 October, and for enactment of the TRIPS-required statutes concerning trade secrets,
semi-conductor layout design, industrial design and plant varieties?  If so, would Indonesia be willing
to share it?  The United States is also interested  to know if there have been any recent Indonesian
efforts to improve the internal and border enforcement of intellectual property rights?  If not, what are
Indonesia plans to improve enforcement in these ar eas to comply with TRIPS?  How often are the
raids conducted, are they unannounced and do prosecutions follow?  Does end user piracy contribute
to the rampant level of software theft, and if so what are your efforts in addressing this problem?
Regarding viii, para. 124:  we currently understand that there are no specific provisions
governing parallel imports of goods and services containing intellectual property.
What plans does the Government of Indonesia have in providing such protection?
Concerning viii, paragraph 125:
What is the status of your efforts, in cooperation with WIPO, to provide protection of trade
secrets, industrial designs, integrated circuits and plant varieties?
Regarding viii, 128:  we understand that no statistics on court proceedings and sentences in
IPR violations were made available to the Secretariat.
We would be interested in knowing the numbers of criminal court cases against IPR
violations and level of sentencing and penalties for violators.
Agriculture BULOG reform
While BULOG'S privileges have been curtailed as a result of the Letters of Intent as noted in
paragraph 12, it appears that certain privileges remained, at least during most of 1998.  For example,
our understanding is that most private companie s potentially competing with BULOG could not open
letters of credit during most of the year.  Furthermore, Indonesia continued to grant an exchange ratesubsidy only to BULOG until September 1998.  Finally, as of late November the actual decrees
allowing private sector trade in soybeans, wheat, wheat flour and sugar has not been issued.
Could Indonesia provide information on the availability of letters of credit and exchange rate
subsidies to BULOG and to other private sector companies between January and September 1998?What is the status of the decree allowing private sector trade in soybeans, wheat, wheat flour and
sugar?  Although policy changes have removed BULOG's monopoly control on importing these
commodities, how does Indonesia envision BULOG's role in food import and distribution in the
coming months?
Regarding para. 14 and (1) Decree SK16/KMK/01/1998 that cut agricultural tariffs to 5%
used the following language:
- "Over the past two months, it has become evident that the drought afflicting the
country is the most severs in half a century, and requires emergency measures.WT/TPR/M/51
Page 41
Accordingly, to ensure that adequate food supplies will be available to the population
at reasonable prices, the government has decided to go beyond the original program
strategy, and include agricultural goods in the general programme of tariff reductions
(leaving motor vehicles as the only exception).  As an immediate measure, tariffs on
all food items have been cut to a maximum of 5%, while local content regulations on
dairy products have been abolished, both effective 1 February 1998".
Does this imply that the duties could increase when the effect of the drought is mitigated?
What are Indonesia's intentions regarding tariffs on food items?
Paragraph 16 of the Secretariat's report states that BULOG will retain monopoly import rights
for rice.  Yet press reports suggest that private importers will be allowed to import and distribute high
valued rice.
What is the current status of importation and distribution rights on rice for BULOG and for
the private sector?  If the private sector indeed has importation rights on rice, when will the official
decree defining these rights be issued?
The Secretariat's report (footnote 14) indicates that flour mills now have the right to distribute
flour through any agent.  Our understanding is that the decree to this effect has not been issued and, as
a result BULOG is still distributing most flour.
When is the status of the decree with these details?  When will it be published?Paragraph 67 on export taxes effecting palm oil, neglects to detail the many changes (at least
11 between July 1997 and July 1998) affecting palm oil exports (including a three month ban).
Could Indonesia provide the details of the changes in the export tax on palm oil over this
time-period.
Services
Many major infrastructure projects, including 26 independent power projects sponsored by
the U.S. and other foreign investors, were put on hold because of the economic crisis.  Several IPPs
whose plants are operating are not being paid by the state utility PLN or are being paid at a rupiah rate
approximately one-fourth the market rate.  An electricity restructuring committee, headed by
Coordinating Minister Hartarto, has received the go-ahead from President Habibie to start discussions
with the IPPs.  Committee guidelines are expected in mid-November and actual negotiations are
scheduled to begin in December.
The United States appreciated Indonesia's willingness to set up a mechanism to conduct a
regular dialogue with IPPs.  Electricity restructuring committee should be a useful forum to discuss a
broad set of issues.  We believe that PLN's initiative to develop standard operating procedures for
dealing with IPPs on resolution of payment, tariff and project issues is also a constructive step.
Is the Indonesian government and the state utility able to confirm that the rates the electricity
utility PLN pays to IPPs will be market-based, such  that these companies have an incentive to invest
in Indonesia?  As not all of the previously planned power projects make economic sense given
forecast demand for electricity, does Indonesia and PLN plan to announce soon which projects will be
cancelled and which will proceed?WT/TPR/M/51
Page 42
Indonesia's schedule of services commitments includes horizontal limitations in the form of
required joint venture for foreign service providers, with not more than 49% of the capital share of the
enterprise to be owned by foreign partners (only 35% for telecom service providers).  The Secretariat
paper notes that "the expansion of services was driven by the overall development of the economy,
which generated needs for improved telecommunications and financial services, a growing demandfor transport, trade and business services, and with rising living standards, new demands for travel and
tourism".
Given the recognized importance of services in  Indonesia's development, what are Indonesia's
plans for eliminating or further relaxing current horizontal limitations on commercial presence?  Why
are the restrictions placed on telecom service providers more stringent than those placed on other
service providers?
For a number of services sectors, Indonesia limits to a total of five the number of foreign
service firms permitted access to Indonesia's market, except for telecom service providers, where the
quantitative restrictions are more stringent.  Expanding the number of foreign service providers will
permit greater competition in the provision of services, which will benefit consumers with greaterquality and choice at lower prices.  This is especially the case for telecom services which serve as the
infrastructure for other services.
When does Indonesia plan to remove these requirements?
For a number of service sectors, Indonesia cond itions its national treatment commitment with
the requirement that the "foreign company in th e joint operation shall guarantee effectiveness of
transfer of technology program, to local partner(s)."  This condition potentially creates a disincentive
for the investor to use the most efficient technology available, and thus reduces some of the benefits
that foreign investment could bring to the Indonesian economy.
When does Indonesia plan to remove this requirement?WT/TPR/M/51
Page 43
ANNEX II
RESPONSES TO QUESTIONS
FIRST DISCUSSANT, AMBASSADOR MOUNIR ZAHRAN
The depreciation of the rupiah
Before replying to the first question, at the outset I wish to clarify that the fall in the value of
the rupiah is not caused by a devaluation as mentioned repeatedly in the Secretariat report.  Rather, it
was the result of sharp and persistent depreciations because at the beginning of the crisis in August
1997, the central bank abandoned the managed floating exchange rate and began to adopt a free
floating exchange rate.  This is important in order to avoid a perception that Indonesia intentionally
devalued its currency in order to gain internationa l competitiveness, which is commonly referred to as
a “beggar thy neighbour policy”.  In fact, the sharp depreciation, which led to the worst economic
crisis over three decades of Indonesia’s development and subsequently followed by political and
social unrest, is not desirable.
The GOI’s evaluation of the depreciation and its impact on the economy
The sharp depreciation of the rupiah has resulted in the contraction of economic growth of
15% in 1998, mainly due to the fall in domestic demand.  The World Bank predicted that
unemployment could increase to 14 million (15.1% of the workforce) and poverty rose substantially.
Inflation soared to 80% mainly reflecting the pass through effect of the depreciation of the rupiah inaddition to the rapid expansion of money supply particularly in the beginning of the year following
the liquidity support extended by the central bank as an effort to rescue bank runs.  With a view to
curbing inflation and arresting the depreciation, interest rate on the Certificate of Bank Indonesia
(SBI) was raised reaching its peak of over 70%.  The extremely high interest rate has helped
strengthen the rupiah from over Rp 16,000 in mid-June to around Rp 7,500 per dollar and keep theinflation rate under control in November.  The high  inflation rate, however, has further weakened the
banking sector.  On the external sector, the current account reversed from a deficit of 1.7% to a
surplus of 1.4%.  However, this improvement ste mmed mainly from the contraction in imports rather
than an increase in exports.
The Government budget
The measures are part of the GOI’s efforts to cope with the economic crisis by accelerating
revenues and cutting expenditures.  To accelerate revenues, the Government has sought to remove tax
exemption and improved tax collection, such as providing a one-stop service in the payment of land
and building tax.  To cut expenditures, the Government has cancelled large infrastructure projects and
in September 1998 removed all food subsidies, except rice.  The fiscal operation of 1998/99 isestimated to record a lower fiscal deficit than  the previous program of 8.5% of GDP primarily
reflecting shortfalls in development spending and official disbursements that occurred in the first half
year when the programs were being redirected from infrastructure to the social sector.  The GOI are
confident are that the measures now put in place will accelerate expenditures, especially on health,
education and employment, imparting considerable stimulus in the second half.WT/TPR/M/51
Page 44
The impact of trade liberalization on Indonesia’s trade prospect
The implementation of Indonesia’s trade and investment reforms on an MFN basis - as is the
case with other IMF reform program - is expected to strengthen Indonesia’s economic efficiency,
hence increasing their potential economic growth.  However, this higher growth potential will only
materialize provided that other countries, especially its developed countries’ trading partners will also
keep their markets open, if not further liberalized.  With higher income, Indonesia will in turn have
greater capacity to import from other countries, which will contribute to expanding world trade.
The developed countries’ commitment to the WTO agreements
At the first inter sessional meeting of the General Council held on 26 October 1998, Indonesia
on behalf of ASEAN has delivered a lengthy statem ent on what we considered as full and faithful
implementation of the WTO Agreement.  We views the problems relating to implementation
consisting of two dimensions.  Firstly, problems arising from shortcomings of the Agreements
themselves.  And secondly, problems relating to the failure of members to implement the Agreements,
be it in letter or spirit.  The more serious cause of problems is the derogation of commitments arisingnot from inability but from the absence of political will of Members.  Examples abound, such as in the
implementations of the SPS and Subsidies Agreements. Beyond such derogation, some developed
country Members persist in implementing policies or measures which are inconsistent with the
underlying objectives and spirit of the Agreements, for example in the case of the implementation of
the Textile and Clothing Agreement, which is an example of a sector that is dear to developingcountries.  While only a few quantitative restrictions had been eliminated in this sector, measures have
been imposed by developed countries which amount to trade harassment.  These include repeated
anti-dumping actions, unsparing and unjustified use of transitional safeguards, and introduction of
burdensome customs and administrative formalities.  These have resulted in non-realization of
meaningful market access and of the benefits legitimately expected from the assistance promised inpursuit of further trade liberalization.  On this point, no prescription is more potent than the political
willingness of Members to take action.
The reasons behind the exclusion from foreign investment
The exclusion of certain sectors from foreign direct investment are based on public moral,
cultural, security, health and environmental considerations as well as protection of small-scaledomestic enterprises.
Inward FDI flows during the financial crisis
Until 15 October 1998, the GOI has approved 784 projects of FDI with the total investment
value of US$12.7 billion, a significant decline about 62% compared to the year 1997.
ASEAN efforts to regain the confidence of foreign investor
Indonesia is of the view that both the incentives and a stable macroeconomic and business
environment in the ASEAN countries are equally important to regain the confidence of foreign
investors.
In conclusion I should like to direct a point at Indonesia's trading partners.  The Secretariat
believes that recent reforms, and reforms still in the pipeline, will result in Indonesia having one of themost open developing country economies by the turn of the century.  Indonesia's partners, particularly
those in the developed world, should draw the appropriate inferences.  Indonesia's economic recovery
depends in part on a pick-up in exports, and on traditional markets remaining open.WT/TPR/M/51
Page 45
SECOND DISCUSSANT, MR PETER JENKINS
One of the striking aspects of Indonesian reactions to the currency crisis which engulfed it last year is
that the authorities have made aggressive use of trade and investment liberalization to restore
confidence.  They are very much to be commended for having done so.  By the end of this century the
WTO Secretariat expects Indonesia to have one of the most liberal trade regimes of any developingcountry.   If in what follows I concentrate on the exceptions to this liberalizing tendency, it is because
it seems to me to be the duty of a discussant to do so, and not because I have failed to notice the
admirable changes that have been and are taking place.
Tariffs
One of these admirable changes is the reduction of  applied tariffs from an unweighted average of
20% to 9.5%.  Nonetheless the tariff still comprises two very notable peaks, an average of 118.6% on
beverages, spirits and vinegar, and an average of 62.2% on motor vehicles.  A tariff escalation, which
tends to distort consumer and producer decisions, can still be found in the manufacturing sectors in
general, and in the textile and clothing and wood industries in particular.  It would be interesting to
hear from the Indonesian representatives what is the rationale for these peaks and for this escalation;it would also be useful if they could confirm that it is Indonesia’s intention to reduce the maximum
applied tariff for all products to 10% by 2003.
The rationale for high tariffs in certain sectors differs from one sector to the other. With
regard to alcoholic beverages and spirits, the reason for having high tariffs is to discourage theconsumption of alcoholic beverages due to religious consideration.  While in textile and clothing and
wood industries, the rationale is to protect the domestic industries.  However, the GOI plans to review
the tariff of these products time to time.
The rapid reduction of applied tariffs in recent years has widened the gap between applied and bound
rates.  This creates an element of uncertainty for importers and traders, given that in the past tariffs
on some items have been subject to sudden changes.  So I should like to ask what are the intentions of
the Indonesian authorities in relation to narrowing this gap between applied and bound rates.
At present, the GOI is not in a position to reduce the tariff binding.
Before I leave the issue of border duties, let me just say that Indonesia is to be commended for having
eliminated all import surcharges well ahead of schedule, in 1996.
Import Bans and Licensing
Indonesia maintains import bans or prohibitions la rgely for health, environmental and cultural
reason.   The number of tariff lines affected has been gradually reduced over the years, to a figure
close to 40.  Import licensing requirements have greater economic significance.  Although the number
of tariff lines subject to restrictive licensing has fallen during the period under review from 261 to
160, the remaining tariff lines include agricultural commodities, alcoholic beverages, motor vehicles,
certain chemicals, and iron and steel products.  It is noteworthy that the import of  at least two of these
groups of products, alcoholic beverages and motor vehicle s, is also inhibited by very high tariffs.  It
would be useful if Indonesia’s representatives could confirm that it is the intention further to reduce
import licensing requirements, with a view to their virtual disappearance at the turn of the century.
Import licensing has been reduced quite significantly and Indonesia has simplified its
licensing procedures in accordance with the time frame set forth the Agreement of Import Licensing.
We have also submitted notification on import licensing procedures on 27 October 1998. Moreover,WT/TPR/M/51
Page 46
basically all imports are no longer subject to import licensing, except for certain regulated goods, due
to reasons that are related to public health, safety, security, public moral, environmental protection.
Export Restrictions and Taxes
Export restrictions, in the form of bans, licensing requirements and taxes, have traditionally been an
important feature of Indonesian trade policy.  The bans and prohibitions are intended to protect
endangered species and to prevent the exportation of dangerous material.  But export taxes appear to
have been designed principally to promote downstrea m industries.   There is evidence that their
economic impact has been harmfu l.  For instance, export taxes on logs and timber have encouraged
inefficient logging practices by depressing domestic prices.  Other economic side effects include the
establishment of export cartels to capture the “economic rent” associated with restraints, anddiscouragement of investment in the production of raw materials in the sectors concerned.  I would be
grateful for confirmation that the Indonesian authorities have decided to reduce the anti-export bias
of their policy by converting export taxes into ad-valorem duties and gradually phasing out these
duties; and to prevent over-exploitation of natural resources and environmental damage by
introducing “resource rent taxes” - to be applied on an NT basis, presumably.  Could they alsoexplain why the substitution of resource rent taxes for export duties has to be gradual?
Substitution of resource rent taxes for export duty is implemented gradually in order to allow
industries concerned with sometime to adjust with new policies.
Local Content Programmes
For many years the Indonesian Government encouraged the use of locally produced components in
assembly operations, particularly in the transport equipment and industrial machinery sectors.  There
is evidence that these programmes resulted in the diversion of scarce capital resources to projectswhich might not have been competitive otherwise.  In recent years the policy has been largely
abandoned and investment in several sectors has been liberalized, with beneficial effect.  Electronics
is a good example.   Since the elimination of any local content requirem ent, investment in the
production of electronic goods has boomed and exports have soared.
What’s not clear to me from the Secretariat report is whether there are still sectors in which local
content schemes operate, for example the transport equipment sector.  I should be grateful forclarification.
The only sector subjected to a local content scheme is the automotive sector.  In accordance
with the DSB rulings and recommendations, Indonesia will abolish the local content requirements in
the automotive sector at the latest 23 July 1999.
Internal Measures
Removing restrictions on imports and exports has boosted business confidence.  Confidence can also
benefit from rules-based, competition-oriented internal policies.  I wish to say something about taxprivileges, subsidies, market arrangements, and privatization.
It is clear from the Secretariat report that tax privileges have been withdrawn from the National Car
Programme.  But paragraph 85 suggests that a number of other producers may still be getting
indirect tax concessions, e.g. producers of cigarettes, non-alcoholic beverages, motorcycles anddomestically assembled motor vehicles other than those covered by the National Car Programme.  It
would be helpful if Indonesia’s representatives could give a clear account of the extent to which
indirect and direct tax concessions and investment incentives are still being granted.WT/TPR/M/51
Page 47
With regard to investment incentives, all investments projects approved by the Investment
Coordinating Board will be granted, among others, the following facilities:
- exemption from import duty on the importation of capital goods;
- exemption from import duties on the importation of raw materials to be used in two years
full production;
- accelerated depreciation for certain industry and or location of projects which is
considered as a national priority in terms of export and the development of potential
remote area;
- restitution (drawback) of import duty, exemption from value-added tax and sales tax on
luxury goods and material purchased domestically for exporting manufacture products;
- reduction of 50% of land and building tax for investment located in the eastern part of
Indonesia;
- income tax will be borne by the Government for the maximum period of 10 years for
investment located in Java and maximum 12 years for investment located in other
islands.
The Secretariat report suggests that user of natural gas benefit from below market prices for that
input.   It is not clear whether any other forms of subsidies are going to the manufacturing sector.  I
note that the Indonesian government has said that “… it is not providing any direct financial grants to
state-owned enterprises".  That still leaves open whether other forms of subsidy are being provided,
and whether privately-owned enterprises might be  beneficiaries.  Clarification would be most
welcome.
There is no other form of subsidy provided for the private sector.
Until the currency crisis formal and informal joint marketing arrangements influenced internal and
external trade in major industries.  Indonesia had many of the features of a high cartelized market.The second letter of intent to the IMF suggests that the Indonesian Government is now determined to
establish more competitive conditions.  What has been done so far to create a freer, more competitive
markets and what remains to be done?  Are there plans to introduce a full-fledged competition law
covering practices such as cartels, bid-riggi ng, abuse of dominant power and price discrimination?
Indonesia is in the process of incepting a competition law which would promote a more
competitive market that would increase efficiency and welfare to the people  At present the parliament
is having the hearing on the draft competition law.
In 1989 there were 190 state-owned enterprises in Indonesia.  They were present in most sectors of
the economy, but were most dominants in designated st rategic sectors, eg steel, fertilizers, cement, oil
and mining.  The Indonesian Government started this decade with plans to privatise 52 of theseenterprises.  But progress appears to have been very limited;  the Secretariat report mentions only
two partial privatization.  Since mid-1997 the collapse of the Indonesian stock market has brought the
privatisation programme to a complete standstill.   Should we assume that the Indonesian authorities
are determined to press ahead with privatization as soon as market conditions permit?  And have they
abandoned the strategic industries philosophy which underpinned state-ownership and prompted arange of interventionist industrial policies?
The GOI is still committed to its privatization efforts.  A detailed state enterprise reform and
divestiture plan is being developed with the intention of improving efficiency of the enterprise sectors
as well as strengthening public finances.  Transparent procedures are being improved for the sale ofstate assets.  Over the longer term, at a minimum, all enterprises that operate in competitive marketsWT/TPR/M/51
Page 48
will be privatized, with the government retaining only selected public utilities and strategic
companies.
Agriculture
The Indonesian Government’s long standing policy in this sector has been to foster food production to
meet the needs of a growing population and attain self-s ufficiency in the main staple foods.  This was
for long one of the most tightly regulated of sectors.  The liberalization that has taken place over the
last year is therefore very remarkable.  Tariffs have been cut sharply, BULOG has lost its import
monopoly rights, other than for rice.  Traders have been given the freedom to buy, sell and transfer
commodities.  Quotas have been eliminated.  Marketing arrangements have been dismantled.
When the Secretariat were compiling their report, difficulties were being experienced.  The very large
depreciation of the rupiah was complicating the achievement of equilibrium market prices, and large
subsidies were required to stabilize the domestic prices of essential foods.  It would be interesting to
know whether the situation has improved in recent weeks, and whether the Indonesian Government
sees the recent deregulation as irreversible.
The market price of essential foods throughout the country has started to decline during the
last few weeks and expected to continue to decline further.  The GOI has no intention to reverse the
recent deregulation.
Indonesia’s forestry and logging sector is of great importance.  Indonesia’s natural forest area is one
of the largest in the world.  Past policies appear to have encouraged over-production.  In the
mid-1990's the output of logs was estimated to be almost 100% higher than a rate which could be
considered sustainable.  Recent measures, such as the introduction of resource rent taxes, greater
transparency in the use of the Reforestation Fund, and the elimination of the plywood export cartel,could bring output down to a more sustainable level.  But the Secretariat report suggests that there is
resistance to these from the wood producers association.  Is this continuing?  Is sustainability a policy
objective?  Do the Indonesian authorities experience difficulties in monitoring implementation of
logging policies in so vast a country?
The wood producer association no longer express its resistance to the reforms.  Indonesia has
always been committed to sustainable development and will continue to take into account sustainabledevelopment in developing its policies.  Although there are various mechanism to monitor
implementation of logging policies, we are cognizan t of the fact that difficulties still arise in
monitoring efforts due to the fact that Indonesia has more than 17.000 islands and logging operations
are situated in distant and remote places.
Manufacturing
In recent years industrial policy has been sharply varied.  Some manufacturing sectors have received
relatively little protection or assistance for instance, electronics, textiles and footwear.  Others, such
as wood processing, motor vehicles, iron and steel, and petrochemicals have been shielded fromcompetition.  The noteworthy thing is that on the whole there has been a negative correlation between
protection and growth.  The less protected have done  better.  Liberalizing measures taken by the
Government since the end of 1997 are therefore to be welcomed.  They include the integration of the
steel and chemical sectors in the general programme of tariff reductions, the termination of marketing
arrangements in the cement and paper industries,  the abolition of export taxes on waste aluminium
products, and the removal of the special customs and tax privileges granted to the National Car.  Is it
now a policy objective to foster growth thro ugh exposing manufacturers to competition?WT/TPR/M/51
Page 49
Indonesia always maintains the view that in creased competition would entails increased
efficiency and would lead to more welfare for the people.  The GOI will continue to take measures
towards creating a more competitive environment by adopting deregulation measures, as appropriate.
Services
The Secretariat report suggest that Indonesia is gradually abandoning its traditional reliance on
government control and public monopolies in services.  Infra structural services were largely opened
to foreign direct investment in 94-95.  Financial services were deregulated in the late 1980's and
early 1990's. Since 1994 competition has been introduced in certain segments of the telecom services
and air transport market.  And since the onset of the currency crisis very significant restrictions on
investment in wholesale and retail trade have been removed, it would be interesting to know which
sectors remain subject to investment restrictions and ownerships limits, and whether there are plansto eliminate these.
The services sectors in Indonesia which remain closed to foreign investment are:  taxi/bus
transportation, local shipping; private television and radio broadcasting, newspaper and magazine;
cinema operation;  spectrum management of radio frequency and satellite orbit;  medical services.While limitations on foreign ownership of the specific services sectors as specified in Indonesia’s
Schedule of Specific Commitments are still applicable, except those which have been amended by the
recent policy reforms i.e., in financial services.  Up till now, there is no plan of the GOI to eliminate
these restrictions.
Conclusion
In conclusion I should like to direct a point at Indonesia’s trading partners.  The Secretariat clearly
believes that recent reforms, and reforms still in th e pipeline, will result in Indonesia having one of
the most open developing country economies by the turn of the century.  Indonesia’s partners,particularly those in the developed world, should draw the appropriate inferences.  Indonesia’s
economic recovery depends in part on a pick-up in exports, and on traditional markets remaining
open.
AUSTRALIA
The gap between Indonesia’s applied and bound tariffs is now very large. Bearing in mind the
advantages of certainty that a close correlation between low binding and low tariffs gives to traders
and investors, what is Indonesia’s intention in the future with regard to its tariff bindings?
At this stage the Indonesian Government is not in a position to consider the reduction of its
tariff binding.
Noting Indonesia’s high tariff peaks in the area of TCF, automotive and alcoholic beverages, what
are Indonesia’s intentions in aligning these products to closer in line with other tariffs?
The GOI has no intention to reduce high tariff rates for motor vehicles.  With regard to
alcoholic beverages, there is no plan to reduce the tariff in the near future due to religiousconsideration.  Concerning TCF, tariffs has been reduced from time to time in line with our
deregulation measures.
In light of the laws recently passed by the Indonesian Parliament relating to the limitations on foreign
ownership of local banks, can Indonesia give an indication as to when laws will be implemented andWT/TPR/M/51
Page 50
clarify whether any conditions at all be imposed on foreign companies seeking to invest in local
banks, including whether there would be any requirement for a local partner?
The amendment to Banking Act of 1998 came into force on 10 November 1998.  The
requirement for a local partner still exist, however, the new Act does not stipulate the maximumownership of foreign service suppliers.  This is a new progress compared to the previous law which
set up the maximum ownership of foreign service suppliers up to 85%.
Can Indonesia confirm that BU LOG’s import monopoly on all products other than rice eased from
1 February 1998?
Indonesia has notified that BULOG is no longer considered as a State-trading enterprise
(STE).  Please refer to Indonesia’s notification to the Working Party on STEs (Doc: G/STR/N/4/IDN
dated 16 November 1998).
Can Indonesia confirm that there are no restrictions on the importation of soy beans, sugar, wheat
flour and garlic, other than applied tariffs?
Please refer to the above answer.
CANADA
GeneralFDI
Did the Asian financial crisis have an impact on th e type of Foreign Direct Investment (FDI) hosted
by Indonesia?
Asian financial crises have an impact on the flow of FDI to Indonesia.  Until 15 October 1998
the GOI has approved 784 projects of FDI with the total investment value of US$12.7 billion, a
decline about 62% compared to the previous year.
Is the crisis associated with an increase in cross-border mergers and acquisitions, in contrast to
“greenfield” FDI?
There is a tendency of increasing number of cross border mergers and acquisitions by FDI in
Indonesia, but the greenfield projects is still major part of FDI approval.
Has the regional distribution of Indonesia’s inward FDI changed in 1997 and 1998?  What are the
factors behind changing patterns?
The location of FDI in Indonesia during 1997-1998 is as follows:
Location/Island 1997  (US$ Million) 1998 *  (US$ Million)
Java 20,535.0 10,224.7
Sumatera 11,163.7 1,280.3
Kalimantan1 056.1 680.8
Sulawesi 426.1 167.4
Others 651.6 357.0
Total 3,832.5 12,710.3
*Up to 15 October 1998WT/TPR/M/51
Page 51
In 1997 around 66% of FDI approval located in Java Island and increased to 81% in 1998 due to the
availability of infrastructure and market proximity in Java Island.
Financial Services
Para. 64 noted the difficulty faced by state-owned banks with respect in new competition while having
to fulfil its policy objectives.  Para 65 and Chart IV.2 show that state-owned banks were particularly
affected by bad loans.  Although Indonesian authorities have rapidly acted to restructure the banking
sector, to what extent have they addressed the issue of government-directed lending?
Prior to the crisis, the Central Bank has scaled back the government directed lending
significantly in view of its inflationary impact.  During the crisis the Central Bank has introduced
program lending (on a temporary basis) mainly directed to the agricultural sector in order to increasefood products which will help easing the inflationary pressure and reduce unemployment in the rural
areas.
With respect to para. 73, what is the relative impor tance (i.e. share) of life and general insurance
(perhaps in terms of premium) in the total insu rance market?  Has the share of life insurance
remained stable?  Has it risen or fallen over past years?
The share of life and general insurance in term  of premium to the total insurance market is
74%, while the share of life insurance from the year 1993 to 1997 increased steadily.
Competition Policy, Deregulation and Privatization
Chapter I footnote 1 states, “...(the 1994 Review) al so pointed out the existence of a wide and costly
network of public enterprises (pp. 84-86).”  Chapter III; section (4), sub section (vi), para 110 states
“Top ten enterprises account for the above a third of GDP”.  Para 113 states, “The deregulationprocess and the emergence of the private sector have reduced the share of state-owned enterprises in
GDP (to about 15%).”  However, the economic crisis currently facing the Government and its
necessary policy response may likely nullify many of the gains the private sector had made in its share
of overall output.  Larger state-ownership of productive assets may nullify or impair the market access
gains that foreign firms expect to realize.  In light  of the on-going bank recapitalization effort and the
role being assumed by the Indonesia Bank Restructuring Agency (IBRA), we have the following
questions:
(a) How long does the Government expect to retain its equity position in banks it re-capitalizes?
(b) Will non-stated-owned Indonesian Banks in which the Government hold an equity stake be
subject to any procurement regulations such as Presidential Decree (Kepres) 16, 1994;
Presidential Decree (Kepres) 24, 1995 or a similar decree?
(c) When does the Government expect to divest itself of its equity stakes in banks it helps
recapitalize?  How does the Government plan to divest itself of its equity stakes in banks it
helps to recapitalize?
(d) The Secretariat Report noted that the ten largest Indonesian Firms  account for around
one-third of Indonesia’s GDP.  May we request a list of the names of these firms?
(e) In compensation for outstanding liquidity credits to certain private banks, the Government of
Indonesia has accepted shares in sister co mpanies from owners of those banks. May we
request a list of the firms in which the Indonesian Government holds an equity stake in
compensation of liquidity credits provided by Bank Indonesia?  As result of the Government’sWT/TPR/M/51
Page 52
new equity position in these firms, are these firms now subject to any Government
procurement regulations?
(a) The owners of recapitalized banks have the right at any time to repurchase in cash part or all
Government shares within three years, and also  have the right to sell their shares to new
investors.  The Government will divest the rest of the shares or all shares in recapitalized
banks after three years, or where possible within  two years.  Should the owners of the banks
refused or unable to repurchase their shares, the Government will sell its shares through the
market;
(b) The recapitalization program is still underway, the Government will certainly take a practical
approach in deciding whether to use Government procurement procedures for recapitalizedbanks.  Should the procedures hampers the process of recapitalization, the Government will
certainly rule out the use of such procedures;
(c) Please refer to answer (a).
(d) No data available.
(e) Since the scheme for Bank Indonesia Liquidity Credit repayment by banks has been modified,
the question is no longer relevant.
Para 116, states,  “...(The Government of Indonesia) is committed to preparing twelve enterprises for
privatization during the first year of the IMF programme and plans to achieve full instead of partial,
privatization of the companies listed ...”.   Will the Privatization Board meet its target of fully
privatizing the twelve state-owned firms within this fiscal year (ending 31 March 1999)?
Under the on-going programs, the privatization of the state own companies by 31 March 1999
only result in four or five enterprises likely to be divested.
State Trading
Chapter III, Section (2), sub-section (iii), para 41 notes BULOG’s exclusive rights have been limited
to rice, effective 1 February 1998.  May we be appraised as to when Indonesia expects to notify theWorking Party on State Trading Enterprises of the limitation of BULOG’s exclusive import right to
rice only?
On 16 November 1998 Indonesia notified the WTO that BULOG has no longer considered as
STEs.
Subsidies
We understand that there are currently three subsidies enjoyed by fertilizer manufacturers, namely,
on the price of gas purchased from the state oil and gas monopoly, Pertamina;  on transportation;and on the selling price to the farmers.  Accordin g to the 15 November 1998 issue of the mining, oil
and gas trade magazine, Petromer, Indonesia’s Minister of Industry and Trade was quoted as saying,
“In the future, there will only be one subsidy, i.e. on the price of fertilizer.  The price of gas will be
left to the market.”  When, and in what steps, will Indonesia phase out its program of gas supply
subsidies to domestic fertilizer manufacturers?  Will foreign supplies of fertilizer benefit from theGovernment subsidy?
The gas subsidy is provided only to domestic fertilizer industries who use gas as a feedstock.
Imported fertilizers will not benefit from the program. The scheme is under review by the
government.WT/TPR/M/51
Page 53
Financial Sector Restructuring
Para 30 (c) indicates that restrictions regarding foreign investment in listed banks were to be lifted in
the near future.  What is the timetable for the lifting of such restrictions?
With the issuance of the new Banking Act No. 10 of 1998, the government is now preparing
the implementing regulations in the form of government regulations and Bank Indonesia decrees.
This implementing regulations are expected to be released in the near future.
Other questions on Banking
Para 25 of the Executive Summary notes, “As part of its efforts to restructure the financial sector, the
Government is currently considering relaxing the remaining limits on foreign ownership in banking.”
We understand that the President of Indonesia signed the new Banking Law in November but foreign
investors await the necessary implementing regulati ons from Bank Indonesia that will govern issues
such as composition of Boards of Commissioners and Boards of Directors.  Without these
implementing regulations, foreign investment in the banking industry will be delayed, recapitalization
of banks postponed, and economic recovery pushed further into the future.  In this respect, when doesthe Indonesian delegation expect the implementing regulations and or guidelines governing newly
liberalized foreign ownership of Indonesian banks to be in place?
Please refer to the above answers.
Chapter IV, section 5, sub-section ii, paras. 67, 71 and 72 outline certain additional commitments
made by Indonesia with respect to liberalization of financial services, and said commitments are to be
applied on an MFN basis.  These commitments were made under the auspices of the IMF programme,
and are said to reflected in the new draft banking law, which was to have taken effect in late 1998.
Has the new banking law taken effect?  If not, when can one expect these announce commitments totake effect?
The amended Banking Act of 1992 came into force on 10 November 1998.
Telecommunications Services
Para 80 states that further divestiture in the area of  basic telecommunications is to be expected in the
coming months.  Please provide details with respect to the timetable and scope of these impending
divestitures.
Further divestiture of both PT. Telkom and PT. Indosat are still under process.  It is expected
that by the beginning of 1999 the time table and scope of further divestiture will be announced.
Para 85 of the Secretariat Report states that jo int venture companies and private companies engaging
in the provision of non-basic telecom services need a licence from the Ministry of Tourism, Posts and
Telecommunications (MTPT) in order to operate.  Though the procedures are set forth in footnote 57,
could Indonesian authorities provide additional information regarding the criteria and proceduresrequired for obtaining such a licence?
The criteria and procedure required for obtaining licence for non-Basic Telecommunication:
- applicant must be an Indonesian legal entity;
- letter of proposal, describing operational and business plan;
- the decision to accept or reject proposal will be maximum 14 days;WT/TPR/M/51
Page 54
- approval in principle will be issued to allow the firm to start the necessary preparation;
and
- when the firm considered ready for commercial activities, the operational license will be
issued by the Minister of Communication.
Para 88 indicates that the Government of Indonesia, when awarding new concessions, for future
private-sector involvement in the telephone market , should give priority to small and medium-size
enterprises?  What criteria does the government inte nd to use to determine if a company qualifies as a
“small and medium-size enterprise”?
There is no priority given to SMEs if the meaning of telephone market is basic
telecommunication.  Priority for SMEs is given on non-basic telecommunication such as value addedservices.  The criteria to determine SMEs will depend on value of assets, total sales and ownership.
Para 95 mentions that, for all services, the num ber of foreign management and technical staff in
telecommunications companies is generally limited to 20 persons.  Does this restriction still exist?  If
yes, please provide details.
The restriction still exists.  For the details, please refer to the Indonesia’s Schedule of Specific
Commitment.
Professional Services
The Secretariat’s Report provides almost no information regarding the professional services sector in
Indonesia - its size, structure, and regulatory fram ework.  Information in this regard would be
desirable.
Data concerning professional services in Indonesia is not available.
1995 Deregulation Package
Para. 18 lists a number of deregulation measures announced in 1995, among which “domestic trade
support services” (item 6) are included.  What would “domestic trade support services” comprise of?
“Domestic Trade Support Services” comprises among others, wholesale, retail, mall,
department store, shopping centre, surveyor, market research services and after sales services.
1998 Program on Economic and Financial Reform and Restructuring
Para. 33 (also noted in para. 39 of Annex I.1 of th e Secretariat Report) mentions that certain sectors
are currently closed for investment, including, inter alia, taxi and bus transportation, local shipping,
private television and radio broadcasting, newspaper, magazines, cinemas, certain trade services as
well as medical services.  According to the WTO Secretariat the Indonesian government has decided
that this negative list of activities closed to foreign investors was to be shortened in June 1998.  Hasthis occurred?  If yes, kindly provide details.  If no, when can a revised list be expected?
According to the new Negative Investment List issued on 2 July 1998, there are nine business
sectors closed only to FDI.  The other 16 business sectors closed to both FDI as well as domestic
investment.  For the details on those sectors, please refer to pages 11-12 of the Government Report.WT/TPR/M/51
Page 55
THE EUROPEAN UNION
An increase of import duties on luxury goods was announced in October 1997 in order to decelerate
imports of categories of products that are judged unnecessary for the country's development.  These
measures have been announced as temporary.  When will these increases be phased out by
Indonesia?
These measures will be phased out when Indonesia regains its sound economic condition.
The EU is disappointed that Indonesia still has some high tariff peaks which serve to protect certain
sectors such as cars or to penalize other sectors such as alcoholic drinks.  Could Indonesia provide
an explanation on the high levels of import tariff, excise duty, luxury sales tax and VAT on imports of
alcoholic spirit beverages; an important export for EU countries?
The imposition on the high levels of import tariff, excise duty, luxury sales tax and VAT on
import of alcoholic spirit beverages is intended to discourage the consumption of alcoholic beverages
due to religious consideration.
The EU is pleased that Indonesia has stuck to the trade and investment pledge that was agreed at the
ASEM2 summit and subsequently the WTO Ministerial, not to resort to protectionism as a response to
the global financial crisis.  But, as a result of Indonesia’s applied rate tariff reductions, bound tariff
rates are significantly higher than its applied rates.  This creates a degree of uncertainty for exporters
and investors and could be seen to undermine the effects of the tariff reductions.  Will Indonesiaconsider binding its tariffs at the lower applied rates?
At this stage the GOI is not in a position to consider to bind those tariffs.
Why has Indonesia decided not to phase down the tariff rate for alcoholic spirit beverages from 170%
to 150% which was agreed in the GATT Uruguay Round?
Indonesia will respect its commitment to reduce tariff of alcoholic spirit beverages from
170% to 150% to be implemented in 2004.  It is diffic ult for the GOI  to reduce the tariff at this stage
considering the sensitivity the products concerned due to the religious consideration.
Indonesia is applying a discriminatory VAT levy (o f 10%) on the loading and unloading of foreign
ships at Indonesian ports.  Could Indonesia explain the reasoning behind the discriminatory nature of
this tax and on what grounds Indonesia regards it as a WTO compatible measure?
There is no discrimination in the imposition of VAT on loading and unloading at Indonesian
ports.  Both domestic and foreign ships are subjected to the same VAT.
Does Indonesia still apply import bans to certain ch emicals, especially pesticides, and certain plastic
scraps of polymers and ethylene?
Indonesia still apply import restriction to certain chemicals especially pesticide, certain plastic
scraps of polymers and ethylene for environmental considerations.
The Report by Secretariat indicates that Indonesia has committed itself to the removal of all non-tariff
and export restrictions (other than those justified by health, safety or environmental conditions). Can
Indonesia confirm that the removal of these restrictions is a permanent measure, i.e. one that will notbe reversed?WT/TPR/M/51
Page 56
Indonesia has no intention to reverse its commitments to remove those restrictions. The GOI
is committed to review continuously tariffs and non-tariff barriers.
Does Indonesia plan practical steps and administr ative reforms to accelerate customs inspection
procedures and to improve the legal protection of  exporters? Could it provide the EU with a
description of such measures?
The GOI continuously takes measures to improve customs inspection procedures, such as the
implementation of early phase of EDI.  We expect the EC to clarify its question regarding “the legal
protection of exporters”.
The EU welcomes the relaxation of geographical and branching restrictions for foreign banks and
joint ventures, and also the improvements reflected in the Second Letter of Intent, which Indonesia
intends to reflect in its new banking law.  Could Indonesia indicate whether and when it intends to
incorporate all these substantial improvements to its GATS schedule?
Indonesia is of the opinion that the negotiation on financial services has been completed on
12 December 1997, and in this respect, Indonesia’s offer is final.  The improvements will be
considered to be incorporated in Indonesia’s Schedule at the next round of negotiation
The Report by Secretariat mentions a new banki ng law on page 121 which would effectively raise the
ownership limits on foreign companies wishing to invest in Indonesian banks.  Has Indonesia
implemented this law yet?  And if not, what is the likely timetable?
The New Act Number 10 of 1998, as an amendment to Act Number 7 of 1992 concerning
Banking Act came into force on 10 November 1998.  The new Act does not stipulate the maximumlimit of foreign ownership in the joint venture bank.
Indonesia is perhaps the only major country which requires foreign news agencies to distribute all
their services through a local news agency (Antara) and pay a levy on the revenues generated.  Could
Indonesia therefore provide an explanation for the continuance of this outdated regime which most
other countries have dismantled and which only creates difficulties for the foreign suppliers of news
agency and associated services and inefficiencies and additional costs for Indonesia’s financialservices sector?
- The intention of distributing foreign news agency services through Antara News Agency is
mainly to preserve the national social, cultural and religious identity.
- Reply to question on the levy on the revenues generated from foreign news agencies will be
provided after confirmation on the existence of such levy is completed.
What further specific measures is Indonesia contem plating to liberalize the regulatory environment
for investment?
Further measures that might be contemplated in investment liberalization:
- to review the existing Negative Investment List;
- to simplify the investment procedures;
- to introduce the competition law, the draft is now being discussed in the Parliament;
and
- to review the regulations and policies relating to investment.WT/TPR/M/51
Page 57
Could Indonesia provide an update on how the Indonesian Bank Restructuring Agency (IBRA) is
going to work?  Could Indonesia also indicate what is its current policy on privatization and why this
process appears to have come to a complete standstill?
The new Banking Act provided the legal basis for the activities of Indonesian Bank
Restructuring Agency (IBRA). IBRA is a temporary institution, its involvement in the restructuring of
trouble banks will be terminated by the end of this year.  Beginning of 1999, it is expected that IBRA
will only operated as an assets management unit (AMU).  The restructuring of State-Owned Banks is
still underway.  The privatization has been taken plac e for BNI.  As a further step in restructuring of
State-Owned Bank is the establishment of Bank Mandiri as the result of merger of four state-owned
banks (BDN, Bank EXIM, BBD and BAPINDO).  In due time, the new bank will be privatized.
Although Indonesia has reportedly undertaken a major review of the Bankruptcy Law, the Central
Bank Law, the Company Law and liquidation regula tions, implementation appears to be problematic.
Could Indonesia explain what it intends to do to en sure proper implementation of these new regimes?
All laws and regulations relating to exit procedures of bank will be implemented consistently.
Slight adjustment will be needed for the Government Regulation on Bank Liquidation to the as aresult of the transfer of authority from the Minister of Finance to Bank Indonesia, including the
authority in the liquidation of bank.  The centralization of authority in the banking affairs is expected
to improve the implementation of regulation on exit procedures for banks.
Although restrictions on FDI in domestic (wholesal e and retail) trade have reportedly been removed
in 1998, EU companies wanting to invest in I ndonesia still face major problems. Could Indonesia
indicate what steps it intends to take to im plement the recent reforms and make the opening of
domestic trade to FDI a reality?
Wholesaler and retailer activities are open to FDI, as long as the foreign investor concerned
meets the requirements to have a local partner.
Could Indonesia indicate its intentions with respect to the liberalization of air transport services?
Will such liberalization be restricted to charters and services provided to and from designated
airports?  Will such liberalization be notified under the GATS?
Unilaterally, Indonesia has liberalized air transport services particularly in the area of charters
and services provided to and from designated airports.  Since Indonesia has no commitment on air
transport services in the GATS, there is no such obligation for Indonesia to make notification.
Could Indonesia provide an update on where it stands on the claim made to Timor Putra Nasional to
pay back the waived import duties and luxury taxes?   Apart from the request made to TPN, are any
steps being taken to actively pursue that money?  Could Indonesia also comment on the sale of Timor
cars (14.000 plus) to a Timor dealer in the country – allegedly without paying the duties and taxes?
The internal process is being taken for that purpose in accordance with the provision on The
Payment of Import duty, Collection of Debts and Secu rity (Chapter VII) of the Custom Law No. 10 of
1995.
The GOI position in this case remain unchanged that PT. TPN has to repay the previously
foregone taxes and import duties for the sold Timor cars and import duties for the unsold Timor cars.WT/TPR/M/51
Page 58
It is claimed in the report (page 19, para. 13) that all budgetary and extra-budgetary support and
credit privileges granted to IPTN projects have be en discontinued.  Could Indonesia therefore explain
where the money is now coming fr om to keep IPTN in business?
Before replying to this question, Indonesia would appreciate if the EC could clarify the
relevance of the question with the Trade Policy Review.
The report mentions that major changes in the status and operations of BULOG and BPPC still
remain to be notified to the WP on State Trading Enterprises.  Could Indonesia indicate when it
intends to make such notification?
Indonesia has notified to the WTO that BULOG a nd BPPC are no longer considered as STEs.
Please refer to Indonesia’s notification to the Working Party on STEs No:  G/STR/N/4/IDN dated
16 November 1998.
The report indicates (page 89, para. 110) that the top ten enterprises in Indonesia account for about a
third of GDP.  Could Indonesia provide more details on that statement, e.g. by providing the list ofthe enterprises concerned, the economic sectors in which they operate and the turnover which each of
them generates?
The validity of the data regarding top ten enterprises in Indonesia need to be reconfirmed due
to the rapid changes in the Indonesian economy during the crisis.
Additional questions and comments from the European Union
4
Could Indonesia provide details on the nature and op eration of its system of judicial review of
anti-dumping actions in accordance with Arti cle 13 of the Agreement on Implementation of
Article VI?
Article 97 of Customs Law No. 10 of 1995 stipulates that an appeal institution shall be
established under the name of the Customs and Excise Appeal Institution.  The institution led by a
chairman and have members coming from the government, private entrepreneurs, and experts.
Could Indonesia indicate whether and when it will introduce a unified and consolidated framework
for competition as suggested in the Report by Secretariat (page 88, para. 108)?
Currently the Parliament of Indonesia is having a hearing on the draft on competition law.
Could Indonesia indicate what are its current plans to accelerate the achievement of privatization
objectives, also considering that this element is an essential part of Indonesia’s adjustment
programme as agreed with IMF?
Under the on-going programs, the privatiz ation of the state-owned companies by
31 March 1999, only result in four or five enterprises likely to be divested.
What measures and administrative reforms are planned by the Indonesian authorities to accelerate
customs inspection procedures?  At present, customs performances remain slow, costly and often
cumbersome.  Clearance time (from 7 to 14 days), increased paperwork, storage costs and port
congestion are the most negative effects of the slow  functioning of the system.  Faster and cheaper
“underground imports” have therefore developed especially for spare parts and machinery.
                                                     
4All references between brackets are to Report by Secretariat - WT/TPR/S/51 - except where otherwise
specified.WT/TPR/M/51
Page 59
To accelerate flow of goods, the GOI has applied fast release system procedure using EDI
with the purpose of simplifying and improving the import procedures including examination process.
Has any progress been made in the adoption of legislation on safeguard measures complying with the
relevant WTO Agreement?  Could the Indonesian authorities confirm that no safeguard measures
could be adopted under Indonesian legal system unless they are introduced further to legislationproviding for all the substantive and procedural requirements mentioned in the WTO Agreement?
So far, Indonesia has no specific legislation relating to safeguard measures but the GOI is
considering to have such kind of legislation.
What are the views of Indonesia concerning a new WTO negotiating round?  Does Indonesia support
the objective of the launching of comprehensive WTO negotiations in the year 2000?
At the present stage, Indonesia is of the view that discussion of new round is still premature
while the WTO is still engulfed with many remaining important issues as a result of the last round.
Nevertheless, in the event that a new round is going to take place, it should be conducted in the most
appropriate manner in which the interests of the developing countries in all sectors would beadequately taken into account.  A new WTO negotiating round should constitute a continuation of the
WTO undertakings to achieve its ultimate objectives.  Such round could be held only after satisfactory
implementations of various agreements and decisions have been carried out in a balanced manner to
the benefit of all members.
HONG KONG, CHINA
FDI
We note that the Indonesian Government issued a Ne gative Investment List in July 1998 outlining the
sectors closed to foreign investors.  We would like to know whether the Indonesian Government have
any plans further to open up these sectors to foreign investors and if so, the details.
The GOI has some plans to open-up more sectors to foreign investors.  In this regard, the
Negative Investment List will be reviewed annually.
Customs procedures
It is mentioned that though EDI user has been  growing among importers, exporters and shipping
companies, nearly half of all banks are not yet conn ected to the system.  We also noted that the
Indonesian customs authorities have shown readiness to cover part of the EDI cost for individual
users.  Would Indonesian Government share with us the details on how the EDI costs for individual
users are covered by its Customs?
The Customs only covers the EDI costs for authorized importers and other customs partners
i.e, forwarders, custom brokers, banks and cargo te rminals. For a more detailed information, a booklet
explaining how the EDI system operates in Indonesia is available.
Tariffs and additional duties
We note that there are still some significant ta riff peaks (e.g. automobiles, chemicals, alcoholic
beverages, etc.).  We would like to know whethe r Indonesia has any plans to bring down these tariff
peaks.WT/TPR/M/51
Page 60
In January 1998 the GOI has reduced the tariff of chemicals, steel and metal by 5% of the
existing tariff.  Under the Memoranda of Economic and Financial Policies, the GOI has committed to
further reduce the tariff of chemicals, steel and metal.   With regard to alcoholic beverages, there is no
plan to reduce the tariff in the near future due to religious consideration.
Licensing requirements
We are glad to note that as a result of both the implementation of Indonesia’s commitments under the
Uruguay Round and unilateral reform, the number of tariff lines subject to licensing fell by nearly
half, from 261 to 160.  Nevertheless, many sensitive pr oducts, which account for the bulk of remaining
licences, remained unreformed.  The economic significance of licensing thus remained strong.  It is
also mentioned that the combination of existing co mmitments (both in the WTO, with respect to bound
items, and the IMF regarding the other items) will ultimately result in the virtual disappearance of the
licensing policy at the turn of the century.  Would Indonesia share with us its programme and
timetable of phasing out the licensing requirements?
The latest simplification of import licensing was taken on 22 September 1998, in which, the
licensing on the importation of rice is no longer required.  Indonesia has already submitted
notification on import licensing procedures on 27 Oc tober 1998.  Basically, all imports are no longer
subject to import licensing.  Import licenses are only required for regulated goods, namely:
(i) alcoholic beverages and its immediate raw materials containing alcoholic beverages; (ii) industrial
salts;  (iii) ethylene and propylene; (iv) explosive and its immediate raw materials;  (v) motorvehicles;  (vi) wastes and scraps; (vii) hazardous goods;  (viii) synthetic lubricating oil;  (ix) artificial
sweeteners;  (x) agricultural hand tools.  The system applies globally on MFN basis.  Importers are
free to choose the source of goods.  Regulations on selected imported goods are intended to safeguard
public health, security, safety, public moral, environmental protections fulfilling obligations in
international agreements and other legitimate needs.
Regulated exports
We would be grateful for more details on this, including the coverage of the further deregulation
measures to be implemented during the IMF progra m period. Specifically, would Indonesia consider
removing exports control on the remaining items on its list of regulated exports, such as plywood
5
during the IMF program period or in the near future?
The GOI has taken several measures to relax export control on several products for example
the abolition of Joint Marketing Board on plywood, and reduction of export tax on logs.  Financial
services (WT/TPR/S/51, p. 23, para. 30 (c) and pp. 119-120, para 71)
It is mentioned that restrictions on branching of foreign banks and foreign ownership in listed banks
would be eliminated through a new Banking Law, and due to take effect by February 1998 and
June 1998 respectively.  We would like to know if the law has already come into force, and if not,
what is the Indonesian Governm ent’s plan for implementation?
With the issuance of the new Banking Act No. 10 of 1998, the Government is now preparing
the implementing regulations in the form of Government Regulations and Bank Indonesia decrees.
This implementing regulations are expected to be released in the near future.
                                                     
5Indonesia was the largest supplier of plywood to Hong Kong in 1997, accounting for HK$1.56 bln or
42.1% of Hong Kong’s total plywood imports.WT/TPR/M/51
Page 61
Telecommunications
Indonesia’s telecommunications market is dominated  by two state-owned companies, PT Telkom and
PT Indosat.  PT Telkom holds exclusive rights in  the provision of local services until 2011, and long
distance services until 2006.  International services are under the exclusive duopoly of PT Indosat
and PT Satelindo until 2005.  Also, commercial presence is limited to joint-venture, joint-operation,or contract management, with foreign equity par ticipation limited to 35%.  Although Indonesia has
committed to review the current policies upon expiry of the exclusive periods, we would like to know if
the government would consider advancing the reviews.
While a new law on telecommunication to revise the 1989 legislation is being considered, at
this point of time there is no intention of the GOI to advance the review.
- The decision on whether to liberalize the market after the expiry of the exclusivity period
would depend on the result of the review to be conducted at the end of the respective periods (see
para 81, p. 123).
Tourism services
We note that foreign investors are subject to higher capital requirements, and they are restricted to
higher category hotel segments (three, four and five stars). We would like to know whether the
Indonesian Government has any plans to relax such restrictions.
The policy to restrict foreign investors to higher category hotel segment has been revised.
Under the existing policy, foreign investors are allowed to invest in all starred-hotel.
JAPAN
General
The Decision by the People's Consultative Assembly for the Democratization of Economic System
adopted on 13 November states that Indonesia will take an economic policy based on the competition
principle.  Please explain how Indonesia will reflect this Decision in its trade policy.
The decision of the People’s Consultative Assembly clearly stipulates that close cooperation
and partnership between large enterprises and small-medium size enterprises should be established
with the objective to create an efficient national eco nomy that is competitive and take into account the
principle of fairness and more equitable distribution income.  In this regard, Indonesia’s economic
policy objectives will continue to be designed to accelerate the flows of goods and services in the
framework of sustaining increased production and competitiveness of domestically-produced goods,
raising income of producers, especially those of smallholder agricultural producers and traders,protecting the interest of consumers, expanding business and employment opportunities.  Trade
policies need to be supported by a more efficient business procedures as an effort to avoid monopoly
and other unhealthy competition.  Trade policies also directed toward encouraging and helping
small-scale enterprises and the economically weak group.  Import policies designed to meet the need
for goods and services especially capital goods, basic auxiliary materials for industries.  Thesepolicies are aimed at promoting domestic industrial development as to enable the production of goods
and services with a competitive quality and prices in the framework of underpinning exports and
domestically-made products, while taking the equilibrium of foreign trade into considerations.WT/TPR/M/51
Page 62
Administrative procedures
Even if new policies are announced, detailed procedures to operate such policies are not made public.
This makes it difficult for outsiders to understand the concrete contents of the changes in the policy
framework. In addition, when im plementing laws, there is much discretion by government officials
and the problem of bribery is often at issue.  Please explain Indonesia's view for improving these
problems.
As required by Indonesian law, all regulations and decrees are published in the State Gazette
promptly after their promulgation.  The GOI consid er that this official and readily accessible
publication fully satisfies the procedural requirement of enabling governments and traders to become
acquainted with Indonesia’s regulations and decrees.
The GOI is fully committed to eradicate all kinds of corruption including bribery.  We do not
agree with the assertion made in the Japanese questions pertaining to unpublished detailed procedures
by associating it with the issue of bribery.  Bribery is triggered by many other factors and simply not a
unique Indonesian phenomenon.  We would therefore be  grateful if the Japanese delegation would
specifically indicate cases which could support their assertion and report their claims to the competent
authorities, in order to facilitate the necessary follow up actions according to our law.
Regarding the procedures for approval and licensing, the period of time required for obtaining an
approval or a licence is claimed to be rather long.  Please explain Indonesia's view towardsimproving this point.
The Government of Indonesia has taken several steps to improve the rules and regulations on
the licensing.  Many new regulations stated clearly the maximum time needed for the Government
Authority to issue an approval or licensing.  S hould The Government of Indonesia failed to meet the
dead line, the party (parties) concerned may file a complain and bring the case to the Administrative
Court.
Balance-of-payments and external debt
What is the policy of Indonesia with regard to the short-term capital flows?
As mentioned in the last paragraph on page 4 of the Indonesian statement, the Government of
Indonesia has reaffirmed its policy to maintain an open capital account system, including the short
term capital flows.
Please explain the present situation of the external debt.
Total external debt amounted to $137.9 billion (as of April 1998).  Efforts to resolve the
external debt problems of the private sectors have been carried out through the conclusion of the
Frankfurt Agreement.  The Agreement includes inter-bank debt, trade credit facilities, and corporate
debt.  In addition, the Government has also launched the Jakarta Initiatives aimed at helping therecovery of heavily indebted companies by providing incentives to reach out-of-court negotiations
with their creditors so as to enable companies to regain access to working and new capital.
Structural Reform
How does Indonesia intend to make a balance between structural reforms (further liberalization) and
social reforms (such as alleviating poverty)?
The Government’s priority is to tackle immediate problems of basic economic reforms aimed
at stabilizing the economy and rekindle a recovery by improving the distribution system and ensuringWT/TPR/M/51
Page 63
adequate supplies of food and other essential items at affordable prices to the entire population.  At
the same time, it is also the Government’s objectives to restore sustainable economic growth by
among others financial and banking restructuring, liberalizing investment regulations, removing trade
impediments etc.
AFTA
AFTA is a free-trade agreement whose members are all developing countries and the enabling clause
would apply to AFTA.  However, taking into account its great impact on multilateral trade system, it
is desirable to fulfill the conditions provided in Article XXIV:8 of the GATT   It is reported that about
90% of Indonesia's tariff lines are currently subject to reduced tariff rates. Please explain how much
percentage of Indonesia's tariff lines is expected to be covered at the completion of AFTA. (para 29,
p.37)
By year end of AFTA in 2003, the percentage of Indonesia’s tariff lines apply to AFTA will
be around 76% of total tariff lines.
It is reported that the discussions are going on among AFTA members, which indicates that the
liberalization of trade will not be mandatory but be left on a "best efforts basis".  Under such
circumstances, how AFTA can achieve the elimina tion of the duties and other restrictive regulations
of commerce with respect to substantially all the trade?  (para 28, p.36)
ASEAN members have committed to maintain an open trade and investment environment in
the region, including through accelerated implementation of the ASEAN Free Trade Area (AFTA),
the ASEAN Investment Area (AIA), and the ASE AN Industrial Cooperation (AICO) scheme.  They
agreed that in view of the present situation, every effort should be made to remove barriers to trade
and to promote greater intra-ASEAN trade and investment.
It is reported that the ASEAN also decided to expand the scope of regional cooperation to services.
Can a services supplier of non ASEAN Member that is a juridical person constituted under the laws of
Indonesia be entitled to enjoy the same treatment as  the one which will be granted to a locally owned
juridical person under the expected regional agreement?  (para 30, p. 37)
Services supplier of non ASEAN member whic h is  established under the laws of Indonesia
would be entitled to enjoy the same treatment as long as the suppliers concerned has engaged in
substantial business in the territory.
FDI
As a result of FDI liberalization, Negative List of activities closed to foreign investors was reduced to
25 sectors as of July 1998.  Japan positively evaluates such trend. In this regard, please explain the
reason for restricting investment on pulp production and local shipping.  (para. 47, p. 41)
The pulp industry is open for investment activities, except those activities which use sulphite
processing and whitening chlor for environmental cons iderations  With regard to local shipping, it is
closed for foreign investment to protect local small shipping companies.
Lifting restrictions on Indonesia's wholesale and retail markets are positive phenomena.  Yet, the
fields which support commercial activities, such as advertisement, and the management of cinema are
still on the list of foreign investment restriction.  Japan therefore would like to see furtherliberalization efforts in these area. (para. 47, p. 41)WT/TPR/M/51
Page 64
It is the GOI policy to review continuously Negative Investment List, with the view to
achieve free flow of investment.
Please explain the investment liberalization programmes to be carried out by ASEAN within its
region.
Investment liberalization programmes to be carried out by ASEAN within its region, among
others are:
- to extend national treatment to all ASEAN investors by 2010 and to all investors by
2020, subject to country specific reservations;
- to open up all industries for investment to ASEAN investors by 2010 and to all
investors by 2020, subject to country specific reservations;  and
- to liberalize regulation relating to investment as well as licensing requirements.
It is stated in paragraph 54 that a bilateral investment guarantee and protection agreement has been
signed between Indonesia and Japan. (p. 44 of the Secretariat Report)  However, no such agreement
has been signed between the two countries.  Japan w ould like therefore to ask the Secretariat to make
a correction before the publication of the Report.
Indonesia confirms that there is no bilateral investment guarantee and protection agreement
between Japan and Indonesia.
Japan, together with the United States and the European Communities, brought the National Car
Programme to a dispute settlement panel.  The panel report was adopted by the DSB in July this year,
and Indonesia notified to the three complaining parties that it would bring the matter into conformity
with the WTO Agreement.  Indonesia is encouraged to  do so in an expeditious manner, and in this
regard Japan would like to hear from Indonesia the present status of implementation of the
recommendations, adopted by the DSB, with regard to the National Car Programme.
Indonesia fully respect the DSU provisions concerning the implementation of the DSB rulings
and recommendations with regard to the National Car program.  In addition to the statement made in
our communication to the DSB dated 21 August 1998, the GOI has taken the necessary steps to
recover the foregone taxes and import duties for the sold Timor cars and import duties for the unsold
cars from PT. TPN, in accordance with the provisions set forth in Chapter VII of the Law No. 5 of1995 on Customs.
Foreign residents are imposed both departure tax and income tax.  Such double taxation seems to
discourage foreign investment.  Does Indonesi a have any intention to improve this matter?
There is no such a departure tax imposed in Indonesia.  Indonesia imposes the so called
prepaid income tax.  There is an intention to improve this matter.
Due to the current economic crisis in the Asian ec onomies, there has been delay in a number of joint
venture development projects with foreign investors in Indonesia, as a result of the shortage of funds.If foreign investors might suffer damage from th ese joint venture projects, how does the Government
of Indonesia envisage dealing with such problems?
To deal with such problem, the GOI will refer to project agreement concerned, which
normally cover provisions dealing with such problems.WT/TPR/M/51
Page 65
Customs Valuation
Indonesia has invoked the special provisions available for developing countries for delayed
application. Does Indonesia currently use minimum customs value system?  If so, please explain the
product coverage of such system and minimum customs values for each product.
Since 1 April 1997 Indonesia has implemented customs valuation system on a trial basis, in
accordance with the WTO Agreement.  Minimum customs valuation system is no longer applied by
Indonesia.
Can Indonesia implement the Agreement on customs valuation on 1 January 2000 when the
transitional period ends?  As stated in paragraph 14 of the Secretariat Report, Japan has beenproviding technical assistance to Indonesia in this field.  Please explain if there is any difficulty for
implementation.
Since 1 April 1997 Indonesia has implemented customs valuation system on trial basis, in
accordance with the WTO Agreement.  Indonesia highly appreciates technical assistance provided byJapan on customs valuation system.  However, due to lack of awareness of importers on customs
valuation system, the system is not yet smoothly operated.  For this reason, it is Indonesia’s view that
some efforts should be done to increase the awareness.
Tariffs
It is appreciated that Indonesia bound  95% of its tariff lines and simple average applied MFN tariff
was reduced from 20% in 1994 to 9.5% in 1998.  However, the 5% of unbound tariff lines include
iron and steel, motor vehicles and parts, and ships.  Does Indonesia have any intention to bind tariff
rates of these products?  (para.16 of p. 49, para. 50 of p. 19)
At this stage, the GOI is not in the position to bind tariff rates of those products.
There exist tariff peaks in some products such as alcoholic beverages (110% on Average with some as
high as 170%) and motor vehicles (over 60% on average and as much as 200% on certain types ofcar). Does Indonesia have any intention to reduce these high applied tariff rates?  (para. 22, p. 51)
At present, the GOI has intention to reduce high  tariff rates for motor vehicles.  With regard
to alcoholic beverages, there is no plan to reduce the tariff in the near future due to religious
consideration.
Non-tariff border measures
Indonesia has made non-tariff concessions in its schedule.  For example, "IT" which means
"approved importer" is marked on spades and shovels (HS820110000) and forks (HS820120000), and
these restrictions is to be eliminated within 10 years.  Does this mean that only an "approved
importer" can import spades and shovels, or fork s until 2005 and that as of 2005 any importer can
import these goods?
Only approved importers can import those items and in accordance with our schedule, the
restrictions for these products will be eliminated on 2005.
It is reported that, from 1994 until the currency crisis, progress in reducing the number of products
subject to licensing was uneven and more selective than previously and that the most sensitiveWT/TPR/M/51
Page 66
products such as motor vehicles, certain chemicals, iron and steel products remained unreformed.
Please explain the prospects for reviewing import licensing scheme on these products. (para. 37,
p. 58)
Indonesia has simplified the licensing procedures in accordance with the time frame set forth
the Agreement of Import Licensing.  We have already submitted notification on import licensing
procedures on 27 October 1998.  Basically, all imports are no longer subject to import licensing.
Import licenses are required for regulated goods, namely:
(i) alcoholic beverages and its immediate raw materials containing alcoholic beverages;
(ii) industrial salts;
(iii) Ethylene and Propylene;(iv) Explosive and its immediate raw materials;
(v) Motor vehicles;
(vi) Wastes and scraps;
(vii) Hazardous goods;
(viii) Synthetic lubricating oil;(ix) Artificial sweeteners;  and
(x) Agricultural hand tools.
The system applies globally on MFN basis. Importers are free to choose the source of goods.
Regulations on selected imported goods are intended to safeguard public health, security, safety,public moral, environmental protections fulfilling obligations in international agreements and other
legitimate needs.
Japanese industries have concerns on import procedures, such as need for expansion of EDI or
improvement of examination process.  Does Indonesi a have intention to review its import procedures
on the above aspects?
To accelerate flow of goods, the GOI has applied Customs Fast Release System using EDI
system with the purpose of simplifying and improving the import procedures including examination
process.
Japanese industries have concerns on export procedures, such as need for smooth reimbursement of
value added tax or quick issuance of certificates of origin.  Does Indonesia intend to review its export
procedures on the above aspects?
As far as the above aspects are concerned, as stated earlier in our answer to question No. 2.2.
Any regulations that impede free flows of trade are continuously reviewed.
Anti-dumping actions
It is reported that the demands for anti-dumping in vestigations generally originate from subsidiaries
of foreign-owned firms, which s eem to show greater knowledge and international practice of such
procedures than Indonesian-based firms.  Are procedures for anti-dumping actions not excessively
influenced by such foreign-owned firms?
The GOI does not discriminate the source of application whether it is from subsidiaries of
foreign-owned firms operated in Indonesia or Indonesian based firms, as far as the applicantconcerned meets the requirements of anti dumping investigation.WT/TPR/M/51
Page 67
Local content requirements
It is reported that the gradual elimination of local-content schemes is an important policy
development in a country.  Please explain th e present situation and prospects of eliminating
local-content scheme.  Please also explain the difficulty in elimination, if any.
The general direction of the GOI policy concerning local content scheme is to gradually
eliminate the scheme.  As of 1 February 1998 GOI has abolished local content requirements on dairy
products.  As far as local content requirement in the automotive sector, Indonesia will abolish the
scheme at the latest 23 July 1999.
Agriculture
Does Indonesia intend to continue deregulations and reforms in this sector which have been
implemented since late 1997?  (paras. 12-14, p. 99)
It is the GOI’s policy objectives to continue reforms in all sectors in the area of trade
Is the minimum export price on sawn timber introduced in 1989 still in effect?
The minimum export price on sawn timber introduced in 1989 is no longer in effect.
Has Indonesia abolished all export bans or restrictions on agricultural, forestry and fishery
products?  Has there been no export bans or restrictions since the abolishment of the temporary
export ban on palm oil? (para. 66, p. 71)
The GOI has abolished export ban on palm oil, rattan and logs. As far as palm oil is
concerned, the export ban has been replaced with export tax. The level of the tax will be reviewedregularly for possible reduction based on market prices and the exchange rate.
It is reported that the temporary export ban on palm oil was replaced in March 1998 by an ad
valorem export tax of 40%.  Is this export tax rate also scheduled to be reduced by the end of 2000 as
export taxes on other products such as logs? (para. 68, p. 72)
The GOI will review continuously any trade barriers.
It is also reported that further reduction of export taxes imposed on forestry products and some of the
agricultural products is scheduled by the end of 2000.  Does Indonesia have any intention to eliminate
the export taxes on these products in or after 2000?  (para. 68, p. 72)
Please refer to the above answer.
When were the procedures to calculate the rate of "resource rent tax" established?  Please explain
how the rate is being calculated.  Is the "resour ce rent tax" imposed in addition to the export tax?
(para. 30, p. 105)
Replies to the above question will be submitted in writing as soon as possible.
Please explain about any change in export trends of plywood since the elimination of the export cartel
and the marketing arrangement. (para. 30, p. 105)WT/TPR/M/51
Page 68
It is difficult to indicate any change in export trend in plywood since the elimination of
marketing arrangement for plywood, because no data is available at this time.
Subsidies
Please explain the objective and the scheme (inc luding sources of the fund, sectors and entities
eligible for the funds, policy objective for each sector, conditions, procedures, and amount of the
assistance given) of the Investment Fund and Reforestation Fund.  (para. 90, p. 83)
The objective of the Funds is to support the Indonesian efforts to preserve and conserve forest
in line with environmental purposes and sustainable development.
Government procurement
Japan welcomes Indonesia for carefully considering the possibility of becoming a party to the GPA in
the future.  Please explain whether the national treatment principle, as well as MFN principle, applies
under Indonesia's new procurement system introduced in 1994. (para. 105, p. 87)
At present, Indonesia  is not a member of the GPA but is actively participating the discussion
at the Working Group on Transparency in Government Procurement.  The public procurement system
of 1994 does not provide national treatment and MFN principles.
Competition policy
It is reported that the Government has been working on a draft competition law since 1996.  Please
outline the regulations listed below in the draft law.
- regulations on price control- regulations on entry into market
- regulations on merger
- exemption system
- regulations on the abuse of market-control power by dominant enterprises such as
conglomerates.
Since the draft on Competition Law is in the process of hearing in the Parliament, it is
difficult at this stage to outline the regulations as requested by Japan in question no. 15.1, 2, and 3.
Please outline the mandate of the competition authority under the draft law.
Please refer to the above answer.
Please explain the specific plan and schedule for the enactment of the competition law.
Please refer to the above answer.
IPR
Some concerns are raised regarding IPR, such as piracy of copyright products, difficulty to access to
patent information, and taking much time to grant patent.  Please explain how Indonesia is going to
implement IPR system effectively and enforce the IPR properly.
(a) There are two sub issues involved in the questions, namely the administration and
enforcement of IPR.WT/TPR/M/51
Page 69
(b) Firstly, it is worth mentioning that there has been a new development regarding the
formulation of policies in the field of IPR in Indonesia.
(i) The formulation of policies in the field of IPR is now undertaken by the Ministry of
Justice Before, it was carried out by a special Presidential Commission of IPR ( also
known as Tim Keppres 34 )
(ii) With the above changes, it is expected that the formulation of such policies would
have a stronger and more permanent platform.
(iii) Meanwhile, the actual administration of IPR registration is still carried out by the
Directorate General of Intellectual Property Right of the Ministry of Justice (formerly
the Directorate of Copyright, Patent and Trademark)
(c) As to the administration of IPR, the ultimate goal of the GOI is to have a strong, modest and
accurate national IPR registration system, which has become the GOI’s high priority.
(i) The existing system has been under continuing improvement, from time-to-time.
Such improvement efforts involve the development of the automation of search and
registration system, improvement of procedures on registration, and enchancement of
the capability and skill of the human resources in particular those responsible in thesubstantive examination activities.
(ii) To support the above aim:
(iii) (a) in the Patent area, Indonesia has already acceded to the Patent Cooperation
Treaty.
(iv) (b) in the Trademark area, Indonesia has also acceded to the Trademark Law
Treaty, as of May 1997.
(v) In addition, staff training programs have been carried out by the Directorate General
on a continuing basis.
(d) As to the enforcement of IPR, systematic m easures have been carried out to improve the
effectiveness of enforcement of IPR, including among others, the establishment of a special
task forces to combat piracies.
(i) The GOI is of the opinion that the effectiveness of enforcement of IPR depend on the
level of awareness and understanding of IPR among law apparatus, business, industrysocieties, law practioners and academician.
(ii) Along the above line of thought, there have been series of workshop, seminars, and
training undertaken to that end.
(iii) In particular, series of specialized IPR training program for enforcement agencies
have been conducted under bilateral cooperation scheme.
(iv) The above training program also covers training for IPR law lecturers to enable them
to offer IPR courses in law schools.WT/TPR/M/51
Page 70
(v) Last but not the least, in accommodating provisions on the Special Requirement
Related to Border measures in the TRIPS Agreement, Indonesia has incorporated
such provisions in the new Customs Law of 1995.  For the time being, the related
provisions apply to suspected counterfeit trademark and pirated copyright goods.
It is reported that the Government has in recent years increased efforts to prevent infringements of
IPR but that much remains to be done against the piracy of computer programmes, compact disks and
video compact disks.  Please explain what actions Indonesia is taking to resolve this problem. (para.
127, p. 94)
In the long run, efforts to increase awareness and understanding of IPR among interested
parties, including law enforcement apparatus, are c onsidered to be the best alternative to solve the
problem.  In the short run, the establishment of a special task force to combat piracies on a continuingbasis is the best option available.
Financial Services
It is appreciated that, despite the currency turmoil and banking crisis, Indonesia contributed
to the successful outcome of the WTO negotiations on financial services. However, Indonesia has not
yet accepted the Fifth Protocol. Please explain the present situation of the domestic procedure and
prospect for the acceptance. (para 67, p.119).
Indonesia supported fully the result of negotiations on financial services on
12 December 1997.  A ratification of the Fifth Protocol by the Government of Indonesia is only a
matter of time.
It is reported that the licensing of new banks takes place in two stages; an approval "in principle"
which allows the applicant to start the necessary preparations for the establishment of a commercialbank, and an operational licence authorizes the bank to start its commercial operations.  (para. 69,
p. 119).  Why Indonesia requires both an approval and a licence?  And, has there been any case that
an applicant, with an approval in principle, prepare for the establishment of a commercial bank but
cannot acquire the licence for operation?  If any, please also explain by what reason it could not
acquire the licence for operation.
An approval “in principle”, as the Secretariat Report stated correctly, is to allow the applicant
to start the necessary preparations for the establishment of commercial bank, while at the same time
giving an opportunity for Bank Indonesia to consider the readiness of the applicant in term of human
resources, physical preparation and operational.  While an operational license authorizes the bank to
start its commercial operations.  There has not been any case that an applicant, with an approval in
principle being refused to have the license for operation.
It is reported that all insurance products must be supplied through a locally-incorporated insurance
company, either Indonesian or foreign owned, except for products that are not available on the
Indonesian market. (para. 74, p. 120).  Has cross-border supply been permitted on any product on the
ground that the product is not available on the domestic market? If any, please explain on whichproduct it was permitted  Please explain what are the products which are not available on the
Indonesian market.  Will the cross-border supply of a certain product, which was once permitted for
the reason of non-availability on the domestic market, come to be prohibited if such product become
available on the domestic market?
All insurance objects located in Indonesia should be covered by insurance companies
operating in Indonesia unless there is no insurance companies in Indonesia, either individually  or as a
group, prepare to carry out and/or able to handle it.WT/TPR/M/51
Page 71
Telecommunications Services
Exclusive rights of PT Telkom is to be expired in 2006 for long distance services and in 2011 for local
services. Exclusive rights of PT Indosat is to be expired in 2005.  Taking account of the rapid
development both in technology and services available in this field, such transitional period is quite
long compared with other Members.  Liberalization at an earlier stage is expected.  Please explainIndonesia's view on the necessity of such a long transitional period.
The main reason for the transitional period is to give sufficient time for the industries
concerned to recover the value of their investment.
According to the Schedule of Specific Commitm ents, Indonesia commits that the Government will
conduct a review of policy with respect to whether to permit additional suppliers of such servicesupon the expiry of this period of exclusivity and does not commit to liberalize the sector.  On the other
hand, the Secretariat Report states that the Government is considering introducing a new
telecommunications law in the coming year, which would revise the 1989 legislation and further open
up the sector to competition.
- Does Indonesia intend to shorten the period of exclusivity of PT Telkom and PT
Indosat?
- Can Indonesia, at least, commit to liberalize its market after the expiry of the period
of exclusivity?
While the revision on 1989 legislation is being considered, there is no intention of the GOI to
shorten period of exclusivity of PT Telkom and PT Indosat.
The decision on whether to liberalize the market after the expiry of the exclusivity period
would depend on the result of the review to be conducted at the end of the periods.  (see para. 81,p. 123)
Tourism
It is reported that for hotels and hotel resorts foreign investors may be subject to higher capital
requirements than Indonesia investors. Please explain the content of the requirement.  In the Schedule
of Specific Commitments, Indonesia commits that th is measure will be eliminated in the year 2020
Please provide information on the schedule for the elimination.
The policy to request foreign investors for high er capital requirement has been eliminated.
THE REPUBLIC OF KOREA
Macroeconomic issues
Indonesia has been pursuing a prudent macroeconomic policy for a long time, and macroeconomic
imbalances have not been the source of market concern in the case of Indonesia as the report of WTO
Secretariat mentioned in paragraph 20, page 7 of the report.  Recently, according to para. 15 of page6 of the government report, the Indonesian Governme nt is engaged in structural adjustment measures,
to curb the economic downfall in Indonesia.  These measures include increasing domestic demand,
lowering inflation, and increasing non-oil/gas exports.  Such efforts by the government to encourage
domestic demand for economic recovery are clearly understandable to us.  In order to prop up
domestic demand, the government will have to ease m onetary policy.  But, by doing so, it risks theWT/TPR/M/51
Page 72
exacerbation of the inflation problem that is expected to range between 80% and 100% in 1998
(para. 39 of page 15, Secretariat report).  How will the Indonesian Government deal with the
contradictions between macroeconomic objectives  such as increasing domestic demand and lowering
inflation?
To deal with the contradiction between macro economic objectives such as increasing
domestic demand and lowering inflation, the GOI has to set priorities.  The first priority set by the
GOI is to arrest the inflation rate.  Once the inflation rate is stabilized the GOI has to take measures to
induce domestic demand.  While certain measures have to be taken to increase domestic demand, to a
large extend, it also depends on Indonesia’s terms of trade, the growth of Indonesia’s export and
continued financial support from the international community.
Competition policy
The current economic and financial crisis presses th e government to take bold measures to promote
efficiency and establish a competitive environment in the protected industries. In fact, the absence or
lack of enforcement of an effective competition policy can be an implicit assistance to domesticproducers by sheltering them from domestic and fo reign competition. These anti-competitive practices
resulted in domestic end users or consumers paying higher than world prices and enabled the large
conglomerates operating in these sectors to enjoy strong growth in areas such as agro-food, steel,
basic chemicals, wood etc(para 108 through 112 of page 88, 89, Secretariat report).
Conglomerates have in general accumulated cons iderable economic power and influence over the
country's economic policy.  Similarly to the Korean  case, they have been instrumental in enabling the
government to fulfill its industrialization objectives (para. 110).  The role played by conglomerates in
terms of employment, industrializ ation, economy of scale, and positive externalities is undeniable, in
spite of their distortive impact on competition.  However, in this phase of political transition,conglomerates need realignment and restructuring.
How will the Indonesian Government guarantee a better competitive environment in its domestic
economy without incurring high social cost to its population, taking into account that the current
structural reforms involve the restructuring of conglomerates?
It is difficult for the GOI to guarantee a better competitive environment in its domestic
economy without incurring high social cost to its population.  However, the GOI will continue to take
the necessary measures toward a better competitive environment which we believe would result in a
situation where more products can be produced at a more competitive cost.  This condition will in turn
bring benefit to larger segment of consumers.
Liberalization of agriculture
In the Letters of Intent with the IMF, Indonesia agreed to phase out, over three years, import and
marketing monopolies as well as price controls on all agricultural commodities except rice, sugar and
cloves.  Imports of agricultural items have been la rgely deregulated and export restrictions are also
being substantially relaxed (para. 11 through 14 in pages 98, 99 of Secretariat report).
However, there are difficulties in liberalizing agriculture under the present difficult economic and
social circumstances.  With the large depreciation of the rupiah already increasing the cost of
imported food, deregulation could trigger further price increases on essential commodities.  In fact, itis very profitable for distributors or traders to buy food on the domestic market and to make large
profits by selling it on the international market, thereby putting further pressure on domestic supplies
as well as prices.WT/TPR/M/51
Page 73
Can such a reform in agriculture restore equilibrium  market prices in the face of a large devaluation?
How does the government plan to accommodate this situation, while remaining committed to take
action to protect the poor (para 46 of Government report)?
Also, there were sharp shortage of rice and a foreign currency constraint for importation of the basic
staple.  This situation refers to the recurring problem of securing food supply, for example, constantsupply of basic staple.
What is the position of the Indonesian government vis-à-vis food security matters?
Regarding food security, the GOI remain firm that the international community should jointly
renew their determination to ensure food security through cooperation based on partnership in order to
preserve hundreds of millions who suffer from hunger and malnutrition.  We are therefore remainconcern over the possible negative effects of the agricultural reform programme on net-food
importing countries, particularly in terms of th e availability of adequate food supplies of basic
foodstuffs, including short-term difficulties in financing normal levels of commercial import of basic
foodstuffs.
NEW ZEALAND
The Indonesian Government Report (WT/TPR/G/51)  provides a good summary of the policies
implemented over the review period, but the sect ion on “future direction of Indonesian policies” is
somewhat abbreviated.  We would welcome Indonesia’s further comments, particularly in respect of
future intentions regarding its trade policies.
Indonesia economic objectives will continue to be designed  to accelerate the flows of goods
and to accelerate the flows of goods and services in  the framework of sustaining increased production
and competitive power of domestically-produced goods, raising income of producers, especially those
of smallholder agricultural produce, and traders, protecting the interest of consumers, expandingbusiness and employment opportunities.  Trade policies need to be underpinned by a more efficient
communication system, system of various business procedures as an effort to avoid monopoly and
other unhealthy competition.
Trade policies are also directed toward encour aging and helping small-scale enterprises, the
economically weak group.  Import policies designed to meet the need for goods and services
especially capital goods, basic auxiliary materials for industries are aimed at promoting domestic
industrial development so as to be able to produce goods and services with a competitive quality and
prices in the framework of underpinning exports and domestically-made products, while taking the
equilibrium of foreign trade into consideration.
Despite the fact that the medium-term outlook of Indonesia’s economy remains uncertain
given the severity of the crisis, Indonesia will continue to take significant measures to liberalize its
trade and investment regimes consistent with its commitments in the WTO.
The Special Session of the People’s Consultative Assembly, convened in November 1998, passed a
decree on “people’s economy.”  Could Indonesia comment on whether this decree has anyimplications for Indonesia’s trade and investment policies?
The above referred Decree noted the important of foreign investment for Indonesian
economy.  It is stated that in order to accelerate the economic recovery, FDI is needed and at the same
time it is expected to encourage partnership with cooperatives and small medium enterprises.WT/TPR/M/51
Page 74
The decree No. X/MPR/1998 stipulated that among several agendas, Indonesia will continue
to adopt deregulation measures in the field of investment, production, distribution and trade.
Memorandum on Economic and Financial Policies
The Secretariat Report refers to Indonesia’s comm itment to phase out import licences and all other
remaining quantitative restrictions and other non-tariff barriers that protect domestic production
during the period of its current agreement with IMF.  Could the Indonesian authorities, please
provide details of these phase out arrangements?
Indonesia has simplified the licensing procedures in accordance with the time frame set forth
the Agreement of Import Licensing. We have already submitted notification on import licensing
procedures on 27 October 1998.  Basically, all imports are no longer subject to import licensing.
Import licenses are required for regulated goods, namely:  (i) alcoholic beverages and its immediate
raw materials containing alcoholic beverages;  (ii) industrial salts;  (iii) Ethylene and Propylene;
(iv) Explosive and its immediate raw materials;  (v) Motor vehicles;  (vi) Wastes and scraps;(vii) Hazardous goods;  (viii) Synthetic lubricating oil;  (ix) Artificial sweeteners;  (x) Agricultural
hand tools.  The system applies globally on MFN basis.  Importers are free to choose the source of
goods.  Regulations on selected imported goods are intended to safeguard public health, security,
safety, public moral, environmental protections fulfil ling obligations in international agreements and
other legitimate needs.
FDI
Under investment, the Secretariat’s Report notes that inward FDI flows have not so far suffered a
major decline (to the first quarter 1998).  Can Indonesia provide an update based on any more recentdata as to investment trends in 1998?  Does Indonesia have data on the percentage (or dollar value)
of investment application approved by the Coordi nating Investment Board as a portion of overall
applications?
- Until 15 October 1998, the GOI has approved 784 projects of FDI with the total
investment value of US12.7 billion, a decline of about 62% compared to the year of
1997.
- The data on the percentage of investment application approved as compared to
overall applications is not available.  Only data on approved FDI is available and
published.
Measures Directly affecting Imports
The Secretariat Report has noted that nearly half of potential tariffs are exempted from payments
under concessional arrangements.  Could Indonesia clarify the basis on which these concessionary
arrangements are made, and whether details of the products and industries concerned are publiclyavailable?
- The basis of concessionary arrangements is the Foreign Investment Law No. 1 of
1967 as amended by Law No. 11 of 1970, and the Domestic Investment Law No. 6 of
1968 as amended by Law No. 12 of 1970.
- Details of products and industries can be made publicly  available upon request.WT/TPR/M/51
Page 75
Measures Directly Affecting Exports
Could Indonesia provide details of the phasing arrangements for the elimination by the year 2000 of
the local content program for motor vehicles?
In line with the decision of the DSB on 23 July 1998, Indonesia is in the process of
considering the policy options to replace the exis ting by eliminating the local content requirement
The local content requirement will eliminate at the latest by 23 July 1998.
Tax Measures
The Secretariat’s Report indicates that indirect taxes are cumulative. Could Indonesia explain the
rationale for such an approach (which results in taxes being levied on taxes)?
The tax is applied to all products within the Indonesian territory regardless the origin of goods
(imported or domestic products).  The underlying rationale to impose accumulative indirect taxes on
top of VAT, in the form of either luxury tax or excise, on certain manufactured goods are:
- to discourage consumption for religious and/or public health consideration (e.g.,
alcoholic beverages and cigarettes);  and
- to increase government income in a progressive manner (e.g. luxury tax on apartments
and flats, motor vehicles, canned food and drink, and perfumes).
Could Indonesia explain why alcoholic beverages have been exempted from the overall trend
reducing levels of protection to agricultural products, with retention of high applied tariffs, quotas,
import monopolies and a prohibition against investment?
Due to religious consideration, Indonesia discourages the consumption of alcoholic
beverages.
Price and Distribution Controls
The Secretariat’s Report (page 87) refers to the extension of subsidies, through the Government’s
provision of letters of credit at favourable exchange rate, to all import of agricultural commodities.
Are these subsidies continuing, is there provision for phasing out these subsidies as the currency
appreciates?
Subsidies were eliminated in September 1998 on all food items except rice.  The exchange
rate subsidies for import of low quality rice will eliminated at the end of December 1998.
Government Procurement
Are there any plans to review government procurement procedures given the comment in the
Secretariat Report that “much remains to be done to establish fair, reliable, timely and efficient
practices”?
Indonesian Government established interdepar tmental team to review and improve the
existing government procurement procedures.WT/TPR/M/51
Page 76
Competition Policy
Could Indonesia provide a progress report on implementation of its draft competition law (page 92 of
the Secretariat’s Report)
Currently the Parliament of Indonesia is having a hearing on the draft on competition law.
THE UNITED STATES
Economic Environment, Structural and Trade Reforms
The United States understands that as a result of Indonesia’s Memoranda of Economic and Financial
Policy with the IMF that the GOI has committed to permit foreign direct investment in domestic retailand wholesale trade.
- The GOI mentions that it is in the process of deregulating domestic trade, and
opening wholesale and retail trade to foreign investors.  Does this go beyond GOI’s
commitments in the latest  MOU with the IMF?
- The U.S. delegation would like to know if the GOI has information describing the
specific steps a foreigner may take now to  invest in Indonesia’s distribution system?
- Deregulating domestic trade by opening wholesale and retail trade to foreign
investors is in line with GOI’s commitment in the latest MOU with the IMF.
- To invest in Indonesia’s wholesale and retail trade, foreign investor has to submit an
application to the Investment Coordinating Board in Jakarta.  The application form is
available in the Indonesian Embassies in many countries.
Investment Trends
Until 15 October 1998, the GOI has approved 784 projects of FDI with the total investment
value of US$12.7 billion, a decline about 62% compared to the year of 1997.
Institutional aspects of Indonesia’s Trade Policy
Improvements in th e Legal Framework
Revision of Bankruptcy, Banking Law, Central Ba nk Law, Company Law, Liquidation Regulations,
Commercial Court System.
Workers Rights
We understand that the GOI is engaged in reform of a number of areas of its legal system (point 10
Summary Observations).  One important area of re forms is the efforts by the Manpower Ministry to
bring labour laws and practices into greater conformity with internationally recognized core labour
standards as defined by the International Labour Organization (ILO).  In this respect, we commend
the GOI for its recent ratification of key ILO Conventions relating to those core standards.  We
understand, however, that despite recent actions, labour organizations often encounter difficulty in
obtaining recognition as labour unions or labo ur federations.  We commend that Government of
Indonesia for its efforts to work with the ILO and seek passage of new labour laws.  We ask that the
Government of Indonesia keep us informed concerning progress achieved in provision of core labour
standards to workers in the country.  We also would like to know the following:WT/TPR/M/51
Page 77
- What further steps will be taken to assu re widespread implementation of freedom of
association and the right to organize and when will these take place?
- What particular steps are being taken to increase the number of collective bargaining
agreements in force between management and labour groups?
- What steps are being taken to provide fo r improved enforcement of the labour law?
Indonesia believes that the U.S. questions concerning labour issue are not relevant because all
Members of the WTO have agreed during the Singapore Ministerial Conference that appropriate
forum to discuss labour issue is the ILO.
Trade Policies and Practices by Measures
Customs
There is concern that there continues to be delays with customs clearances, particularly given the
Indonesian government’s recent switch over to the EDI system.  Could the GOI provide comments on
future plans to increase usage and improve the efficiency of the EDI system?
In order to improve the efficiency of EDI system, technical assistance is being provided to
Indonesia by certain trading partners.
Tariffs
We commend Indonesia for its significant reduction of applied tariffs, lowering rates well beyond its
WTO commitments. In light of the financial crisis  and the near collapse of the Indonesian economy,
these reduction have constituted an important achievement.  In the Secretariat documentation,
Section 17, page 50 states that since the Uruguay Round, Indonesia has made further major tariff
reductions on a unilateral basis, going far beyond its WTO commitments.  However, the package
maintained important exceptions, such as agriculture, automobiles, steel and chemicals, which were
subject to separate timetables, and alcoholic be verages, for which no reduction was planned.
- In regards to chemicals, lowering tariffs on chemicals is a key factor in attracting
investment.
- What are you doing to remove tariff a nomalies between upstream and downstream
chemical products?
- Does the Government of Indonesia plan to include in its tariff reduction package
those products that have been currently exempted, namely agriculture, automobiles,steel and alcohol?
The GOI at present has no intention to remove tariffs anomalies between upstream and
downstream on chemical products.  At this stage the GOI has no intention to include alcoholic
beverages and automobile in its tariffs reduction packages.  As far as steel is concern there has beenreduction of 5% tariffs from the existing tariffs rate in January 1998, and will be further reduced
gradually.
NTMs/Restrictive Licensing
- Does the GOI have a list of specific areas for removal of all non-tariff import
measures and export restriction?WT/TPR/M/51
Page 78
- Please comment on the efforts made thus far to improve the licensing system.
- The GOI has reviewed ban on palm oil and replaced it with an export tax.
- The GOI has abolished:
- Local-content requirement on dairy products;
- import restrictions on new and used ships;
- export taxes on leather, cork, ores and waste aluminum products;
- quotas on the sale of livestock;  and
- monopoly on importation as well as sale and distribution of cloves, wheat,
wheat flour, soybeans, garlic, rice and sugar.  (In this regard, the GOI has
notified the WTO Working Party on State Trading Enterprises that BULOGand BPPC are no longer given privileges as stipulated under Article XVII of
the GATT 1994).
Indonesia has simplified the licensing procedures in accordance with the time frame set forth
the Agreement of Import Licensing.  We have already submitted notification on import licensingprocedures on 27 October 1998.  Basically, all imports are no longer subject to import licensing.
Import licenses are required for regulated goods, namely:  (i) alcoholic beverages and its immediate
raw materials containing alcoholic beverages;  (ii) industrial salts;  (iii) Ethylene and Propylene;  (iv)
Explosive and its immediate raw materials;  (v) Motor vehicles; (vi) Wastes and scraps;  (vii)
Hazardous goods;  (viii) Synthetic lubricating oil;  (ix) Artificial sweeteners;  (x) Agricultural handtools.  The system applies globally on MFN basis.  Importers are free to choose the source of goods.
Regulations on selected imported goods are intended to safeguard public health, security, safety,
public moral, environmental protections fulfilling obligations in international agreements and other
legitimate needs.
Tax incentives/exemptions and Subsidies
The Secretariat document, section 24, page 55 states that the effective rate of duties collected at the
border is much lower than implied because of the scope and variety of exemptions.  Nearly half of
potential tariffs are exempted fr om payments under concession arrangements.  These  exemptions,
which are generally granted to specific firms or users, were recently extended to certain cable-makers
and producers of electronic products for imports of polyethylene.
Section 90, page 85 states that the Government of Indonesia has traditionally provided significant
financial support to public enterprises in designated strategic industries such as fertilizers, cement,
steel, shipbuilding, aircraft, and telecommunications equipment (GATT 1990 and 1994), but at
present, does not provide any direct financial grants to state-owned enterprises.
Can Indonesia explain how these exemptions are gr anted, and how they are in accordance with the
WTO agreement on Subsidies and Countervailing Measures?  Please provide additional details
regarding the elimination of direct financial grants to state-owned enterprises.
These exemptions are granted under drawback system on inputs which are consumed in the
production process of the users.  The drawback sy stem is in accordance with Annex III.I. of the
Subsidies and Countervailing Measures Agreement and the footnote to Article I of the Subsidies and
Countervailing Measures Agreement.
Deregulation and privatization
We applaud Indonesia’s efforts at launching an ambitious privatization program given the public’s
historical resistance, especially towards the so-called strategic industries (steel, fertilizer, cement, oil,
and mining).  While there has not been the kind of progress expected regionally, as well asWT/TPR/M/51
Page 79
internationally, the new privatization board that has been set up will hopefully push through those
enterprises stated for privatization and others not currently listed.  Have “action plans” been
completed for the privatization of each company listed;  can the GOI provide a general overview of its
intentions?
There are 12 companies listed for the privati zation, so far, two companies have been
privatized. The GOI’s intention is to complete the privatization of the companies listed.
The “strategic companies” such as the producer of aeroplanes and aeroplane parts IPTN have lost
their government budget subsidies as a result of the letters of intent signed this year with the IMF.
What does this mean for their future direction ?
The GOI expects PT. IPTN will be able to self-finance its own activities.
Competition Policy
With regard to para 112 in the WTO secretariat repor t, it is stated that since the recent economic and
financial crisis, the Government has taken bold measures to promote efficiency and establishcompetitive conditions in protected industries and, to that end the “Government has been working on
a draft competition law since 1996, which is intends to propose to the House of Representative in the
autumn of 1998".  We note that many commentators,  including the IMF, have suggested that absence
of competition in the Indonesian economy harms market  forces, distorts incentives and in some cases
can block trade. The United States, therefore, would like to pose the following:
What is the current status of the competition bill ?
What progress has been made since Indonesia first introduced a draft competition law in 1996 ?
Currently, the Parliament of Indonesia is having a hearing on the draft on competition law.
Intellectual Property Right Protection
While the Government of Indonesia has made progress in improving its intellectual property rights
(IPR) regime, the United States believe that there are several areas in which further work would bewarranted.  These would include:
- improved market access for copyright works;
- enhanced enforcement of copyright and trademark laws;
- enhanced border enforcement of copyrights, trademarks and patents;
- greater consistency of Indonesia statutes with TRIPS;
- legal acquisition and use of copyrighted software by GOI agencies;  and- increase protection of trademarks, in particular well-known marks.
- More efficient trademark registration system to prevent the registration of well known
marks by trademark pirates.
The United States wishes to know if the Government of Indonesia has a schedule for amending the
Indonesian trademark and patent laws to achieve greater TRIPS consistency and for enactment of the
TRIPS-required statutes concerning trade secrets, semiconductor layout design, Industrial design and
plant varieties?  If so, would the GOI be willing to share it?
The United States is also interested to know if there have been any recent Indonesian efforts to
improve the internal and border enforcement of Intellectual property rights?WT/TPR/M/51
Page 80
Schedule for Amending Indonesian  Trademarks and Patent Laws
(a) On 7 May 1997, Indonesia has enacted three laws to amend:
- Copyright Law of 1982 to 1987
- Patent Law of 1989
- Trademark Law of 1992
(b) The enactment of those laws are based on consideration to fulfil her commitment under the
TRIPS Agreement and in line with efforts to improve the national IPR system.
(c) In general, the above amended laws are TRIPS consistent. At the time being, the GOI is
preparing new implementing regulation in line with the new amended laws.
Schedule to enact new laws as required by TRIPS Agreement
(a) The GOI is in the process of formulating new laws, respectively on Trade Secret, Integrated
Circuits and Industrial Design, as well as Plant Varieties Protection.
(b) Due to recent political condition, there is no fixed date on when the aforementioned Bills will
be submitted to the Parliament for hearing.
(c) Nonetheless, as far as the new Laws on Trade Secret, Integrated Circuits and Industrial
Design are concerned, it is expected that those laws will be enacted before the year 2000.
Efforts to improve internal and border enforcement of IPR
(a) As far as the border enforcement of IPR, there is a special Chapter in the New Customs Law
of 1995 incorporating the Special Requirement related to Border Measures as stipulated in the
TRIPs Agreement.
(b) For the time being, the related provisions apply to suspected counterfeit trademark and pirated
copyright goods.
(c) As to internal enforcement of IPR, like any other enforcement efforts of IPR, the GOI is of
the opinion that the effectiveness of such efforts depend on the level of awareness and
understanding concerning IPR among law apparatus, business/industry societies, law
practitioners and academician.
(i) Along the above line of thought, there have been series of workshop, seminars and
training undertaken to that end.
(ii) In particular, series of specialized IPR training program for enforcement agencies (i.e.
judges, public prosecutors, police, custom officials) have been conducted underbilateral cooperation scheme.
(iii) The above training programme also covers training for IPR law lecturers to enable
them to offer IPR courses in the law school.
As part of the enforcement effort, the GOI encourages the private sector to establish
associations, organizations, and other professional undertakings in the field of IPR.WT/TPR/M/51
Page 81
In addition to the above, systematic measures have been carried out to enhance the
effectiveness of enforcement of IPR, inter alia , the establishment of a special task force to combat
piracies.
__________