RESTRICTED
WORLD TRADE G/SCM/Q2/IDN/8
14May 1997
ORGANIZATION(97-2013)
Original: English Committee onSubsidies andCountervailing Measures
SUBSIDIES
Replies toQuestions from JAPAN1,KOREA2,theEUROPEAN COMMUNITY3,
THAILAND4andtheUNITED STATES5Regarding
theUpdating Notification ofINDONESIA6
Thefollowing communication, dated 28April 1997, hasbeen received from thePermanent
Mission ofIndonesia.
_______________
Replies toQuestions from Japan
Q. Tax-Holiday Scheme
Reportedly, Indonesia hasdetermined tore-introduce theexemption ofcorporate income tax
(Tax-Holiday Scheme) thisJuly. Inthisconnection, could Indonesia answer thefollowing questions?
- What measures constitute thisscheme? (Please explain indetail.)
- Which industry willbedesignated asabeneficiary ofthisscheme?
- Will Indonesia notify thisscheme totheSCM Committee? Ifso,under which Article
oftheSCM Agreement?
Reply
InJuly 1996, theGovernment ofIndonesia introduced ataxincentive scheme forqualified
industries. Thescheme constitutes corporate anddividend taxes paidbytheGovernment foraspecific
period. Thequalified industries willbedesignated asbeneficiaries ofthescheme. However, the
provisions determining forwhat constitutes qualified industries arebeing prepared.
Indonesia schedules tonotify thescheme totheSCM Committee assoon asitiscompleted.
1G/SCM/Q2/IDN/3+Rev.1,2G/SCM/Q2/IDN/1,3G/SCM/Q2/IDN/4 +G/SCM/Q2/IDN/6,4G/SCM/Q2/IDN/2,
5G/SCM/Q2/IDN/5.
6G/SCM/N/16/IDN.G/SCM/Q2/IDN/8
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Replies toQuestions from Korea
Q. Article 25oftheAgreement onSubsidies andCountervailing Measures prescribes Members
toannually notify allspecific subsidies, andtheJuly1995 Committee Decision requires Members to
submit newandfullnotifications every three years (from 1995) andtosubmit updating notifications
intheintervening years.
However, Indonesia submitted only updated information concerning subsidies maintained by
itsGovernment inJuly 1995.
DoesIndonesiahaveanyscheduletosubmitnewandfullnotificationspursuanttotheAgreement?
Reply
Indonesia schedules tosubmit new andfullnotifications pursuant totheAgreement assoon
asthey arecompleted.
Replies toQuestions from theEuropean Community
Thepresent analysis constitutes theCommunity 'srequest toIndonesia forclarification onthe
notified programmes andexplanation ofreasons whyanumber ofmeasures have notbeen notified as
required byArticle 25.8oftheSubsidies Agreement. Indonesia isrequested torespond attheforthcoming
meeting oftheSubsidies Committee toreview notifications inaccordance with Article 25.1.
Indonesia submitted on30June 1995 itsnotification ofsubsidy programmes totheWTO pursuant
toArticle XVI:1 GATT 1947 andArticle 25oftheWTO Subsidies Agreement. Inthisrespect, the
European Communities would liketoobtain clarification onanumber ofissues onthenotified schemes
asdescribed below. Moreover, theCommunity obtained information ondifferent subsidy schemes which
were notnotified totheWTO although their notification seemed toberequired pursuant toArticle 25.2
Subsidies Agreement. Furthermore, theCommunity would likeIndonesia tocomment foreach specific
programmehowitwillimplementoriscurrentlyimplementingitsobligationsunderArticle27.4Subsidies
Agreement.
I. NOTIFIED SUBSIDY PROGRAMMES
Q.(a) Government Intervention forRice Production
TheCommunity considers thatIndonesia didnotprovide anotification which complies with
thequestionnaire format. TheCommunity requests Indonesia toprovide theinformation as
setoutinthequestionnaire format.
Could Indonesia clarify ifthere areanyplans tophase outthese subsidies?
Reply
With regard toIndonesian intervention forriceproduction, Indonesia submitted thelatest subsidy
notification on30June 1995 (document G/SCM/N/3/IDN, 19July1995) andthenotification therefore
was notyetmade inaccordance with thequestionnaire format asadopted bytheCommittee on
21July 1995. Theobjectives ofthepolicy aretoimprove thevery lowstandard ofliving ofthefarmers
intherural areaandtopromote self-sufficiency inriceproduction. Nevertheless, theintervention has
been significantly reduced since 1992 which could beseen from ournotifications.G/SCM/Q2/IDN/8
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II. SUBSIDY PROGRAMMES NOT NOTIFIED TOWTO
TheCommunity examined thedifferent policies oftheIndonesian authorities with respect to
incentives tothelocal industry. Inthisrespect, anumber ofprogrammes areavailable inIndonesia
andwere notnotified totheWTO.
Q.(a) Pennaman Model Asing Benefits (PMA)
Pursuant totheForeign Capital Investment Law, foreign companies may invest andoperate
inIndonesia through ajoint venture with anIndonesian partner foramaximum period of
30years. These joint ventures arereferred tointhelegislation asPMA companies. Thepurpose
ofthePMA scheme istoattract foreign investment anddevelop export activity ofIndonesia.
Theestablishment must beauthorized bythePresident through theIndonesian Capital Investment
CoordinatingBoard.Theapplicablelegislationenumeratesanumberofconditionstobefulfilled
such asminimum capital, activity, share holding etc.
After approval bythecompetent authorities thePMA company iseligible foralarge number
ofbenefits:
- import dutyexemption orreduction: 100percentexemption formain equipment, 50per
centexemption forsupport equipment, 100percentexemption forspare-parts formain
materials, 100percentexemption forrawmaterials notavailable locally (where the
dutyislessthan 5percent, otherwise 50percentexemption and100percentexemption
forconsumables.
- import dutyexemption forexport manufacturing: theadministering authority willgrant
anexemption from import duty andsurcharges onimported goods andmaterials and
factory equipment formanufacturing export products. Theexport needs tobemade
within 12months. Iftheexport isnotmade within 12months, theduty must bepaid
on75percent.
- Import duty drawback: PMA companies which buygoods andmaterials locally may
obtain adrawback ofimport duty paid bytheimporter. Anapplication must bemade
tothecompetent authority.
- Import drawback forexport manufacturing: manufacturers whoexport atleast 65per
centoftheir production mayreceive adrawback onimported goods andmaterials used
intheproduction.
- Exemption from withholding taximposed onimports: PMA companies mayobtain an
exemption from withholding taxonimported capital goods andrawmaterials forthe
remainder ofthecalendar year.
- Postponement ofValue Added Tax: PMA companies may apply directly forVAT
postponement ongoods andmaterials falling within amasterlist.
TheCommunity requests anotification under Article 25.G/SCM/Q2/IDN/8
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Reply
TheGovernment ofIndonesia isintheprocess ofpreparing anotification anditwillbesubmitted
inaccordance with agreed format totheCommittee induecourse.
Q.(b) Export Processing Zone
TheIndonesian Government established within itsterritory anumber ofexport processing zones.
These zones contain companies producing forexport purposes.
Acompany authorized toproduce inanexport processing zone iseligible foranumber of
benefits, namely theright toimport rawmaterials andequipment required tomanufacture the
product without paying import duty andother government levies.
Q.(c) Bonded Zone Authority
TheBonded Zone Authority isanewly developed state-owned limited liability company with
main responsibility forderegulating business activity within theZone. Abonded zone canbe
defined asbeing within acustoms area andcanbeused tomanufacture imported goods without
theprior imposition ofduties andlevies.
Imported goods which arere-exported arenotsubject toduties orstate levies. These duties
willbeimposed ifthegoods arenotexported butimported intotheIndonesian customs area.
Thecompanies located inthebonded zone arerequired toexport atleast 85percentoftheir
production. These companies arealsoeligible foraduty drawback onimports which arelater
exported. Thebenefits seem tobecontingent upon export performance.
Therefore, theCommunity would liketoknow whythese schemes were notnotified totheWTO.
TheCommunity requests Indonesia tosubmit anotification under Article 25,andwould like
IndonesiatocommentonthecompatibilityofeachschemewithitsobligationsundertheSubsidies
Agreement, andtoindicate whether there areanyplans tophase outthese subsidies.
Reply to(b)and(c)
Thecompanies located inbonded zones arenotrequired toexport atleast 85% oftheir products.
Thecompanies areallowed toimport intoIndonesian customs areaatthemaximum of25% ofthevalue
oftheproduct exported andsubject toimport duty andstate levies. Forthose products which arenot
exported ornotimported intotheIndonesian customs areas areexempted from import duty andstate
levies inthesimilar treatment asthose being exported. Therefore, thebenefits arenotcontingent upon
export performance.
Replies toFollow-up Questions from theEuropean Community
Q.1. Itisunderstood that companies inexport processing zones inIndonesia canobtain duty
exemptions onimported machinery andnon-incorporated materials oncondition thattheyexport the
final product. Since theabove arenotconsumed intheproduction process, thisgoes beyond adrawback
scheme andconstitutes anexport subsidy.G/SCM/Q2/IDN/8
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Can Indonesia confirm ourunderstanding andnotify thesubsidy involved?
Reply
Theexemption ofimport duty isapplicable ontheimportation ofcapital goods andequipment
forbonded zones, provided thattheimported goods concerned form anintegral partoftheoverall
production process.
Q.2. Could Indonesia explain thedifference between "export processing zones" and"bonded zones"?
Reply
Since 4June 1996, there arenoexport processing zones inIndonesia except bonded zones.
Replies toQuestions from Thailand
Subsidy programmes notnotified totheWTO
Q.1. Please givedetails ofIndonesia Export Processing Zones (EPZ) andExport-Oriented Production
Entrepols (EPTE) according tothenotification process.
Reply
According toGovernment Regulation No.33of1996 dated 4June 1996, Export Processing
Zones (EPZ) andOriented Production Entrepot (EPTE) aredeclared asBonded Zones. Benefits provided
intheBonded Zones such asimport duty andstate levies exemption shall notbedeemed tobeasubsidy
according totheAgreement onSubsidies andCountervailing Measures, therefore theyarenotnotified.
Q.2. Does Indonesia maintain anyexport incentive scheme i.e.duty andtaxconcessions, during
thenotification period? Ifyes,please give details according tothenotification format.
Reply
Yes, intheform ofadrawback scheme. Thenew andfullnotifications inaccordance with
theagreed notification format willbesubmitted assoon asthey arecompleted.
Replies toQuestions from theUnited States
Section I:Notified Programmes
Q. Could Indonesia please provide theadditional and/or more detailed information onthereported
"Government Assistance forRice Production" which wasnotincluded initsnotification butwhich is
specified bythenotification requirements referenced above, i.e.theperiod covered bythenotification;
theobjective and/or purpose ofthesubsidy; thebackground andauthority forthesubsidy; theform
ofthesubsidy; howisthesubsidy provided; duration ofthesubsidy and/or anyother limits attached
toit,including date ofinception/commencement; andanystatistical data permitting anassessment of
thetrade effects ofthesubsidy?G/SCM/Q2/IDN/8
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Reply
Indonesia submitted thelatest subsidy notification on30June1995 (document G/SCM/N/3/IDN,
19July 1995) andthenotification therefore wasnotyetmade inaccordance with thequestionnaire
format asadopted bytheCommittee on21July 1995. This information isunder preparation.
Section II:Non-notified Programmes
Pleaseprovideinformationconcerningthefollowingprogrammeswhichwerenotincludedwithin
Indonesia ’snotification, yetmay meet thenotification requirements ofGATT 1994 and/or theSCM
Agreement. Ifthese programmes aresomehow encompassed inIndonesia ’snotification, please explain.
Ifnot,please include information relevant totheelements requested inthenotification format, orexplain
thebasis onwhich Indonesia determined thateach programme didnotmeet thenotification requirements
referenced above:
A. Import duty reductions onautomotive parts andaccessories andluxury sales taxconcessions
onfinished vehicles contingent onmeeting certain domestic content requirements.
Reply
PleaserefertoIndonesia'supdatenotificationdocumentG/SCM/N/16/IND,dated13January1997
regarding notification pursuant toArticle XVI.1 oftheGATT 1994 andArticle 25oftheAgreement
onSubsidies andCountervailing Measures.
B. Information developed inthecourse ofthe1994 Trade Policy Review ofIndonesia indicates
thatthere arecertain policies inIndonesia which directly affect exports. These include:
Q. (1) Duty Drawback andExemptions
Reply
TheGovernment ofIndonesia considers thatthere isnorequirement tonotify thedutydrawback
scheme.
Q. (2) Export promotion andAssistance
Authority: National Agency ofExport Development oftheMinistry ofTrade andthe
Export Support Board.
Reply
NAFED isagovernment agency designed toimplement atrade promotion programme of
Indonesian nonoilandgasexports. Neither finance contribution norsubsidies, likegrants, loans or
equity infusion areprovided byNAFED forexporters. Infact, indeveloping itsactivities, NAFED
remains benefitting technical andfinancial assistance from international institutions such asITC -
UNCTAD/WHO aswell asdonor countries.
TheExport Support Board provides technical assistance tosmall- andmedium-sized companies.G/SCM/Q2/IDN/8
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Q. (3) Export Finance
Reply
Regarding Export Finance, 1994 Trade Policy Review ofIndonesia hasacknowledged thatsince
1993, interest rates charged forthese facilities arenolonger concessionary, therateissetatcommercial
level using SIBOR plusaspecific margin. Thepolicy inthisareaistherefore consistent with theSCM
Agreement.
Q. (4) Export Credit Guarantees andInsurance
Authority: PTASEI
Reply
PT.ASEI activities cannot beconsidered toconstitute anexport subsidy. Thecompany operates
intheinsurance environment onconventional commercial terms with noadvantages gained inbeing
astate enterprise.
Q.C. According toareport intheEconomist (Sept. 3,1994), theGovernment ofIndonesia provided
US$185 million insubsidies tothestate owned aircraft manufacturer IPTN.
Reply
TheGovernment ofIndonesia isintheprocess ofdetermining thenature ofthesupport provided
toIPTN, notably US$185 million, andasmay berequired, itwillbenotified.
D. TheJanuary 1995 Economist Intelligence Unit liststhefollowing programmes orpolicies which
appear tobespecific subsidies within themeaning oftheSCM Agreement:
Q. (1) Incentives totheoilindustry announced bythegovernment ofIndonesia inJanuary
of1994.
Reply
Beforerespondingtothispoint,theGovernmentofIndonesiawouldappreciatemoreinformation
onthespecific nature oftheincentive mentioned.
Q. (2) Assistance tocertain industries asprovided forunder Article 31AoftheIndonesian
TaxLaw.
Reply
Article 31A oftheIndonesian TaxLaw provides taxincentives forqualified industries. The
provisions determining forwhat constituted qualified industries isunder preparation.
Q. (3) Incentives available forinvestment inremote regions (provinces ofIrian Jaya, Moluccas,
East Timor, East and West Nusatenggara, thefour provinces ofSulawesi, allof
Kalimantan, andBengkulu andJambi inSumatra.)G/SCM/Q2/IDN/8
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Reply
Thetaxincentives granted toqualified industries aswell asremote regions under Article 31A
oftheIndonesian TaxLaw, take theform of:
(a) Longer losscarry forward
(b) Accelerated deprecation
(c) Reduced rateoftaxondividends paid tonon-residents.
Q. (4) Exemption from import duties andvalue added taxonmaterials andintermediate goods
used tomanufacture products forexport markets.
Reply
Exemptionfromimportdutyreferstothedutydrawbackscheme.Thevalueaddedtaxisrefunded
onallintermediate goods used tomanufacture products fortheexport market.