RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/TPR/G/184 
23 May 2007  
 
(07-2038) 
Trade Policy Review Body Original: English 
   
 
  
 
TRADE POLICY REVIEW 
 
Report by 
 
INDONESIA 
 
  
 
Pursuant to the Agreement Establishi ng the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), the policy statement by Indonesia is attached. 
 
 
Note: This report is subject to restricted circ ulation and press embargo until the end of the first 
 session of the meeting of the Trade Policy Review Body on Indonesia. Indonesia WT/TPR/G/184 
 Page 3 
 
 
CONTENTS 
  Page 
I. INTRODUCTION   5 
II. ECONOMIC ENVIRONMENT  6  A. M
AIN ECONOMIC AND POLICY DEVELOPMENTS  6 
 B. F INANCIAL SECTOR RESTRUCTURING  7 
 C. I NVESTMENT    8 
 D. I NFRASTRUCTURE    8 
 E. D ECENTRALISATION AND SPECIAL ECONOMIC ZONES  9 
III. INSTITUTIONAL FRAMEWORK 9 
 A. P OLITICAL CHANGE   9 
 B. I NSTITUTIONAL AND LEGAL REFORM  10 
 C. I NTERNATIONAL TRADE RELATIONS  13 
 1. Multilateral Cooperation 13 
 (a) World Trade Cooperation (WTO) 13 
   (i) Doha Development Agenda 13 
     (ii) Regular Activities 15 
 (b) South-South Cooperation 15 
     (i) Global System of Tr ade Preferences (GSTP) - UNCTAD 15 
     (ii) Developing 8 (D-8) 15 
     (iii) Organization of Islamic Conference (OIC) 15 
 2. Regional Cooperation 16 
 (a) Association of South East Asian Nations (ASEAN) 16 
     (i) ASEAN Economic Integration 16      (ii) ASEAN-Dialogue Partner 16 
 (b) Asian Pacific Economic Cooperation (APEC) 17 
 (c) Asian-Europe Meeting (ASEM) 17 
 3. Bilateral Cooperation 17 
 4. Others   17 
 D. I
NVESTMENT TREATIES   17 
IV. TRADE AND RELATED POLICIES 18 
 A. O VERVIEW OF POLICY AND DEVELOPMENT  18 
 B. T RADE DEVELOPMENTS AND POLICY  18 
 1. Developments  18 
 2. Tariff policy  19 
 3. Tariff Quotas  19  4. Tariff Exemptions or Concessions and Duty Drawbacks 20 
 5. Non-tariff measures 20 
 6. Incentives  20 WT/TPR/G/184 Trade Policy Review 
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  Page 
 C. S ECTORAL POLICIES   21 
 1. Agriculture  21 
 2. Fisheries  22  3. Oil, gas and minerals 23 
 4. Manufacturing  23 
 5. Services   24 
V. FUTURE DIRECTIONS   24 
 A. E
CONOMIC PERSPECTIVES   24 
 B. G OVERNMENT PROGRAMMES  25 
 C. C ONSTRAINTS , CHALLENGES AND OPPORTUNITIES  25 
 
 Indonesia WT/TPR/G/184 
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 I. INTRODUCTION 
1. Since the previous Trade Policy Review in 2003, Indonesia has continued a broad-based 
political and economic reform programme aimed at sustainable development and the alleviation of 
poverty.  Under this programme, which includ es a further opening of the economy, Indonesia 
achieved 5.5 per cent overall economic growth in 2006, while inflation had fallen to 6.6 per cent from 
over 17 percent in the previous year. Coupled with  falling debt and growing reserves, this turnaround 
of the economy means that Indonesia has now been  able to pay increasing attention to addressing 
social problems.  Apart from the economic austerity programs used to tackle the financial crisis of 
1997/98, Indonesia’s difficulties have included coping with a series of various large-scale natural 
disasters (tsunami, earthquakes, flooding) that strain ed resources.  Internationally, Indonesia is a 
strong supporter of the Doha Development Agenda, and has been an active participant in the WTO 
negotiations.  It has also strengthened its trade and investment ties with neighbours in the Asia-Pacific 
region.  
2. Political and institutional reforms are central to the modernization of the economy, and in the 
last ten years Indonesia has undergone important demo cratic change, most recently manifest in the 
direct election of President Susilo Bambang Yudhoyono and Vice-President Yusuf Kalla.  The 
Government has also devolved increased authorit y and responsibilities to the regions, where it has 
lifted spending to help improve welfare across the count ry.  It has made a major effort to address the 
issue of corruption, including in tax administration, customs and public procurement, by greater transparency and auditing in relation to both pro cess and decision-making.  It has sought to improve 
competition within the Indonesian economy, and hence also external competitiveness. A new 
Investment Law (approved by the legislature in Marc h 2007) should contribute to this process. While 
state-owned enterprises provide an increasing net retu rn for the Government, further privatisation is 
envisaged, consistent with national developmen t objectives.  The Government has made some 
important advances in the implementation of protecti on of intellectual property rights.  While progress 
has been made on many fronts, the effort to deve lop a modern, efficient, more open and competitive 
economy is ongoing.    
3. Consistent with its broad appr oach to modernising the economy, the Government of Indonesia 
is also progressing on trade policy.  Tariffs – now the main trade policy instrument - are in the process 
of being lowered and made more uniform in line with the ASEAN Tariff Harmonization Program.  As 
a consequence of these changes and the deeper inte gration in the regional and the world, the overall 
import weighted applied MFN rate has come  down to a moderate 8.3 per cent in 2006,
1 demonstrating 
the openness of the Indonesian economy. Moreover, n on-tariff measures are continuing to be reduced 
and eliminated. Agriculture, critical to the livelihood of a large part of the Indonesian population, has 
started to benefit from a revitalization programme  providing support for infrastructure, financial 
services, research and development and institutional re form. Industrial policy is oriented to fostering 
cluster groups, with selective use of incentives to  support the development of Indonesia’s regions and 
deepen and diversify industrial production in the face of stiff international competition and a fast-
changing business environment.  Indonesia is also se eking to develop a modern services sector that it 
also regards as important through inter-sectoral linkages for the country’s efforts to improve competitiveness in traditional and non-traditional exports. 
4. In international trade relations, Indonesia is  an active participant in the current WTO 
negotiations, working together with other WTO Memb ers to achieve a balanced outcome, consistent 
                                                     
 
1 The duty collected/import value ratio is 2.2 per cent in 2006, which is comparable to the weighted 
average of applied MFN and preferential rates.  WT/TPR/G/184 Trade Policy Review 
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 with the development objectives that are central to  the Doha Declaration.  Indonesia’s principal 
concerns are to obtain improved access for its ke y agricultural and manufactured exports, while 
ensuring obtaining guarantees for its most sensitive sectors objectives and some flexibility to develop 
its industrial sector.  Indonesia, which is the coordi nator of G-33 (a group of developing countries), 
believes that the negotiations in these areas point  towards some welcome understanding of its key 
concerns.  When the details are fully elaborated, the way should be clear for a speedy conclusion of 
the negotiations, provided WTO Members countries are ready to make the necessary political choices.  
5. High among the Government’s priorities is to continue to build on the existing reforms, 
further lifting economic growth to increase empl oyment opportunities. Among the newer reforms, 
investment legislation that was approved by the legislature on 29 March 2007 and the accompanying 
implementing regulations should further help to im prove the climate for investment and improve the 
competitiveness of business more generally. The Govern ment is also working to ensure that the 
benefits of the reforms -political, institutional, lega l, social and economic re forms – are available to 
all the Indonesian people in a safe, just, democratic  and prosperous Indonesia.  However, there are 
some constraints, internal and external, that need  to be addressed. Moreover, implementation of many 
reforms already approved is underway but will ta ke time.  In a democracy, progress cannot be 
achieved overnight in implementing the comprehensiv e reform package set out by President Susilo 
Bambang Yudhoyono and Vice-President Yusuf Kalla.   Much also depends on economic conditions 
in world markets, affecting commodity prices and the flow of earnings to help to develop and modernize the economy.  Despite the challenges ahead, Indonesia faces the future with greater 
confidence than at any time in recent years, and looks  forward to working with its trading partners to 
build a more open, secure and stable environm ent for their mutual trade and investment. 
II. ECONOMIC ENVIRONMENT 
A. M
AIN ECONOMIC AND POLICY DEVELOPMENTS  
6. Since the previous Trade Policy Review of I ndonesia, the Government has been carrying out 
its own economic reform package, following completion of the IMF reform program in 2003. This has 
taken place against the background of a series of de vastating natural disasters, including the tsunami 
of December 2004 in Aceh and Nias, the large earthquake in Yogyakarta and Central Java in 
May 2006 and other smaller but also very destru ctive earthquakes in Nias, Papua, West Sumatra, 
Nusa Tenggara, North Sulawesi, the mud volcano in E ast Java that has been flowing since May 2006, 
the July 2006 earthquake and tsunami in West Java a nd floods which  hit various parts of Indonesia in 
the early part of 2007. In addition, avian infl uenza has already claimed many Indonesian lives. 
7. The economic reforms are being implemented with in the overall framework of the Agenda for 
National Development for 2004-2009, which has thr ee main goals, namely i) A Safe and Peaceful 
Indonesia, ii) A Just and Democratic Indonesia, iii)  A Prosperous Indonesia.  With regards to the 
agenda for enhancing the prosperity of the people, the main target is to reduce total number of the 
poor population and lower unemployment. To attain these targets, the Indonesian Government under 
President Susilo Bambang Yudhoyono and Vice-Pr esident Yusuf Kalla created a "cut-through" 
strategy: i) to accelerate economic growth (pro-growth); ii) to create employment (pro-job) and reduce 
poverty (pro-poor); and iii) to revitalize the agricultural sector. 
8. In order to accelerate economic growth, in  2005 the Government announced several 
refinements of policy to impart great dynamism to the economy and to cope with external pressures, 
such as the oil price rises and the increase of interest  rates.  The modifications extended to energy, 
monetary, fiscal and investment policies. In the en ergy area, the government outlined its intention to Indonesia WT/TPR/G/184 
 Page 7 
 
 
 reduce fuel demand and encourage the progressive development of new energy sources such as bio-
fuels. The specific measures taken covered: i) the ad justment of the fuel price for the industry and 
mining sector with the market price, ii) economizing the use of fuels in government activities, iii) the 
adjustment of overall fuel prices; and iv) the acceler ated the reduction of fuel usage by electricity 
power plants.  Cuts were also made in fuel subs idies, but these were offset by the unconditional cash 
transfer programme (UCT) to redu ce the impact of the changes on the poor, although this is to be 
modified later this year to a cash for work pr ogram and a comprehensive program to improve the 
welfare of the poor people such as in the areas of education and h ealth.  Fiscal incentives were also 
introduced to help industry, including by st rengthening competitiveness, improving the business 
climate and compensating workers. The incentives,  listed in the October 2005, package involved 
changing the value added tax status of primary pro ducts to non-taxable products, and the waiver of 
customs duties for several industrial inputs.   
9. These adjustments, together with interest ra te increases, were intended to put fiscal and 
monetary policy on a solid footing, but they also occasioned a slow down in the economy in early part of 2006.  This was partly offset by export growth that reached 17.6 per cent, and recovery was evident 
in the latter part of 2006, with growth accelerating to  6 per cent in the last two quarters, bringing the 
rate of growth of the economy to around 5.5 per cent for the year as a whole.  Inflation, which had 
surged to 17.1 per cent in 2005 (when fuel prices  had increased by more than 100 per cent), was 
curtailed to 6.6 per cent by the end of 2006 (2 percen tage points below the targeted level). Inflation 
stabilization and relatively good performance in the ba lance of payments, with a surplus of 3.7 per 
cent of GDP and a historical high of foreign exchange reserves of US$43 billion (even after early 
repayment of $7.8 billion in debt to IMF) , cont ributed towards a stable Rupiah exchange rate 
throughout 2006.   However, despite these encour aging indicators, renewed growth has not been 
matched by similar growth in employment opportuniti es, and the Government is making an effort to 
lift growth to around 6.3 per cent in 2007 to help a ddress this problem.  This should also contribute to 
poverty alleviation, as should a number of other specific policies, as discussed below.  
B. F
INANCIAL SECTOR RESTRUCTURING  
10. Financial sector reforms are aimed at overcoming the problem of access to capital and finance 
needed as working capital and for growth.  While  large businesses have access to international 
financial markets, small and medium-size busines s face high domestic interest rates.  To help 
overcome this problem, Government and Central Bank have been work ing to drive down inflation to 
single-digit levels, which it achieved in 2006, follow ing an increase in 2005.  This should pave the 
way for a further decrease in inte rest rates that will also provide a stimulus to growth.   
11. The Government is seeking to address weaknesses in the financial market by diversifying the 
sources of funding available to the real sector, both from financial institutions and capital markets. In 
addition, the Government is also taking steps to st rengthen financial sector stab ility to re-build public 
and market confidence in the Indonesian financial se ctor, decreasing the risk of any recurrence of the 
financial crisis. The Government is also seeki ng to promote competition between banks, other 
financial institutions and the capital market to impr ove the overall efficiency of the financial sector. If 
successful, the competition will drive down current infl ated margins, and hence the cost of finance. 
The financial sector package, aimed at assisting in th is process, is targeted mainly at regulatory and 
institutional reforms. A follow up financial sector pack age, being prepared in early 2007, is directed at 
increasing access to finance and lowering the cost of finance. WT/TPR/G/184 Trade Policy Review 
Page 8 
 
 
 C. INVESTMENT  
12. While the Government plays a key role in the provision of public services, including health, 
education, infrastructure, etc., private sector investme nt, including inward foreign direct investment, is 
important for the modernisation and greater efficien cy of the economy. Therefore, investment policy 
has been an important component of the policy cha nges that were introduced in 2005.  These reforms, 
intended to improve, the country’s investment clim ate cover are contained in three policy reform 
packages launched in the first half of 2006.  The investment policy package (February 2006) covers 
the following areas: i) general i nvestment policies; ii) customs; iii ) taxation; iv) the labour market; 
v) small and medium-size enterprises (SMEs) . The Infrastructure Development Package 
(March 2006) provides the policy framework for public  private partnership and the risk sharing to 
enable acceleration of the building of infrastructur e with private sector participation. The Financial 
Sector Reform Package (July 2006) aims at impr oving coordination between the Government and the 
central bank, Bank Indonesia, and to continue refo rm steps to strengthen the banking industry, non-
bank financial institutions and the capital market.   
13. A number of areas in each of these reform p ackages have been completed such as the risk 
sharing framework for infrastructure; the revised Customs Law; and most recently the  Investment 
Law which was passed in Parliament on 29 March 2007.  At the same time there is an ongoing 
program of deregulation, administrative and bureaucratic reforms aimed at increasing the efficiency and good governance of the public service.  
14. In the last three years domestic investment  has risen sharply, doubling between 2002 and 
2005 (from Rp.26 trillion to Rp. 50.6 trillion). In 2006 , realized domestic investment until November 
amounted to Rp 153.9 trillion and realized forei gn investment amounted to Rp 42.8 trillion (with 
Indonesia’s currency assumption Rp 9,100 for 1 US$).  This has been concentrated in the food, 
chemicals and pharmaceuticals industries as well as in electricity, gas and water supplies. Foreign 
direct investment tends to fluctuate considerably fr om year to year but has shown a moderate overall 
positive secular trend since 2003, reaching $8.9 billion in 2005. FDI is concentrated mainly in the 
large plantations, chemicals, automotive, and pharmaceu tical sectors, but there are significant levels 
also in transportation, warehousing, communicati ons and construction.  Thus while policies are 
bearing fruit, Indonesia would benefit from furt her investment by the private sector.    
D. I
NFRASTRUCTURE  
15. Apart from the general objective of improving the investment climate, the reforms also 
targeted the challenges in improving infrastru cture. Government of Indonesia recognizes that 
investment in infrastructure is necessary to improve the overall i nvestment climate and to support 
economic growth. It has been focussing on establishing  an effective framework for policy, regulation 
and new institutions, sector specific reforms, facilit ating the involvement of local government in the 
provision of infrastructure, and improved project prep aration.  It has also been improving government 
procurement procedures to ensure value for money in  public works and the elimination of corruption.  
(The Government also considers that public works ar e beneficial in the short term by generating jobs 
and growth while the infrastructure to co me on stream has longer term goals).  
16. Despite improved public finances, the Govern ment does not have the economic capacity to 
finance all necessary infrastructure development. It is estimated that around 60 percent of funding needed for infrastructure building w ill need to come from the private sector. To deal with this budget 
constraint, Government has adopted some strategies  such as promoting Public Private Partnerships 
(PPP).  Under this strategy, a risk sharing framewo rk has been designed with the private sector, and Indonesia WT/TPR/G/184 
 Page 9 
 
 
 funding has been allocated in the 2006 budget for th e initial capital for an infrastructure fund which is 
expected to be supplemented by other invest ors to increase the pool of funds accessible for 
infrastructure development by the private sector. This strategy will also enable Government to focus 
its efforts to improve infrastruc ture development in lagging areas of the economy such as eastern part 
of Indonesia. There is also a priority program to accelerate the generation of 10,000 MW electricity 
capacity, given the urgent need to increase electricity  availability. This Reform Package also provides 
a policy framework providing incentive for infrast ructure maintenance ensuring that the cost for 
maintenance is available to private sector investors.  
E. DECENTRALISATION AND SPECIAL ECONOMIC ZONES  
17. The decentralisation process that started in 2001 is intended to extend economic progress to 
Indonesia’s diverse regions where living standards range from levels comparable to those of the 
developed world to other areas that have very low in comes.  This has involved transfers to the regions 
that have almost tripled since 2001.  Today, an i ssue is to ensure that th ese increased funds are spent 
effectively. 
18. The Government is also taking action to create a number of special economic zones which 
can also be islands of excellence and best practic es.  That is, whilst the process of economic and 
institutional reforms will be achieved in the medium  term, in the shorter term, the government will 
create the best practices in terms of policies, ins titutions and investor service in these geographically 
defined zones. There are areas with existing clusters of industries or infrastructure where it is possible 
to create best practices in term of policy, in lo cal government and quality of institutions. These will 
have a single zone authority responsible for regulatory framework, licensing and dealing with 
investors.  It will involve working closely with lo cal government which will play the key role within 
the overall framework set by the central government.  
III. INSTITUTIONAL FRAMEWORK 
A. POLITICAL CHANGE  
19.  Since 1998, Indonesia, which is a republic with a presidential system, has undertaken major 
reform of its political and governmental structures, with four amendments of the constitution in this 
period. The executive, judicial and legislative branches have been revamped, creating a newly 
democratic political system.  The first direct electi ons of the President and Vice-President were held 
in 2004. Presidential terms are five years and limited to a maximum of two consecutive terms. 
20. The highest representative body at national leve l is the People’s Consultative Assembly 
(MPR).  Its main functions include supporting an d amending the Constitution, inauguration of the 
President and the formalization of broad outlines of state policy. The MPR contains two houses: the House of Representatives (DPR) with 550 members and the Regional Representatives Council (DPD) 
with 168 members. 
21. The DPR passes legislation and monitors the executive branch. Members of the DPR are 
elected for five-year terms on a proportional representation system from more than two thousand 
electoral districts.  Since 1998, the DPR's role h as increased markedly, including a total control of 
statutes production without executive branch interven tions, all members are now  elected The DPD is a 
new chamber, based on the 2001 constitution amendm ent. Its members are representatives from the 
thirty-three provinces; each has four non-partisan representatives. The DPD represents regional areas 
within national politics and its role is restricted to bills concerning matters of regional management. WT/TPR/G/184 Trade Policy Review 
Page 10 
 
 
 22. As a unitary state, a political power was highly concentrated at the national government. 
Through the decentralization process, however, th e central government has devolved significant 
powers to regional government with a view to extend the regional government power and 
responsibility in fostering social and economic de velopment. Between the years 2004 and 2009, all 
480 provincial governors, heads of districts and mayor s will be directly elected. This is intended to 
improve the political and economic accountability of the local public officials to their constituents. 
23. One of implications of those democratic refo rms is on the policy formulation process. Since a 
policy needs to be debated in order to achieve  consensus across the country, policy formulation 
process may take a longer time. Nevertheless, the pro cess has created a greater sense of ownership of 
all stakeholders on the importance of a policy. 
B. INSTITUTIONAL AND LEGAL REFORM  
24. Indonesia has taken a number of steps to modernize its economy and the functions of the 
state.  Among the more important measures bei ng implemented are those intended to improve the 
fairness, efficiency and transparency of its in stitutions and procedures. These include stringent 
measures to deal with corruption, new public pr ocurement procedures, customs procedures, tax 
administration, investment procedures (as discussed  in the previous chapte r), manpower, transport, 
etc. as elaborated below.    
25. A central element is the determination of  the Government to stamp out corruption .  To this 
end, the Corruption Eradication Commission (KPK ), established under Law 30/ 2002, has extensive 
powers to deal with corruption, including wire-t apping, blocking the travel of persons being 
investigated, inspection, blocking of bank accounts and prosecution.  It can cut red tape to investigate 
any national public servant suspected of being in volved in corruption.  Furthermore, Indonesian 
Presidential Decree Number 11 year 2005 has set th e Establishment of Special Team to fight 
Corruption, which has been able to  carry out people’s concerns to fight against corruption cases. Its 
activities have led to jailing of officials, including at senior levels.  
26. In its efforts to create economic stability and a conducive investment climate, the Government 
of Indonesia recognizes that development and enfo rcement of the protection of IPRs which would 
encourage creativity and innovation is fundamental. Therefore, the Government of Indonesia, under 
Presidential Decree Number 4/2006, has created a sp ecial task force on Intellectual Property. Several 
significant efforts have been taken since the decree was issued. The National Team is now coordinating reports on IP-related data/activities from various govern ment institutions including the 
national police, customs, the Attorney General’s Offi ce, the Supreme Court, the Ministry of Industry, 
the Ministry of Trade, and the Ministry of Agricu lture. The National Team has determined that all 
related activities on IP shall support the national policy on the strengthening of IP enforcement 
system. This concerted effort has resulted in the downgrading from Priority Watch List status to Watch List status imposed on Indonesia by USTR on IPR-related issues in early 2007.  
27. In relation to government procurement
, the Government of Indonesia has introduced new 
procedures to improve the transparency and effici ency of procedures and to foster competition in 
bidding for Government contract (Presidential Decrees 80/2003 and 8/2006).  The procedures covered by the decree relate to transp arency, efficiency and effectiveness, fairness and accountability, 
including by simplifying bid procedures and acqui rements and encouraging post qualification method 
for open tender. The decree obliged to all government  agencies to declare Government project plans 
and announce the tender invitations . Widespread procurement public notices are expected to increase 
the number of procurement participants, to enhan ce the quality of procurement process and to achieve Indonesia WT/TPR/G/184 
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 more accountability and reliability of the process a nd simultaneously obtain government expenditure 
savings, as a result of more options to gain the b est tender.  The President Decree also allows 
procurement participants to file complaints and/or  claims if there is any indication of corruption, 
collusion, nepotism and violation of contracts. The decree urges that moral integrity and responsibility 
along with technical qualifications and capability of procurement professionals is essential to conduct 
procurement operations, and this is enforced through a training and examination programme.  
Presidential Decree 8/2006 requires agencies to announ ce projects, invite tender, and provide related 
information in one national newspaper, and by 2008 the announcement of tenders will also be 
publicized in a national procurement we bsite currently under development. 
28. The Government is developing an Electronic Government Procurement System (E-GP) to 
enhance transparency, accountability, and efficiency in the procurement system, and by reducing opportunities for corruption  (Presidential Instructions  5/2003 and 5/2004) on th e subject of Electronic 
Government Procurement (E-GP).  In early 2008 th e Government will conduct an E-GP pilot project 
in several line ministries and selected provinces/local governments.  In the future, the E-GP will be 
progressively implemented nation-wide.  
29. The government has been modernizing customs administration
, to facilitate trade. Under this 
programme the time for customs clearance has been greatly reduced.  The customs administration has 
accelerated the restitution of duties on imported go ods that are used in exports and established a 
priority channel for producer-importers as well as qualified general importers . The Government of 
Indonesia intends to improve its business environment and strengthen business competition by 
enhancing trade facilitation .  This includes improving the transparency and efficiency of export, 
import and customs procedures by establishing a Na tional Single Window. On Line Certificate of 
Origin facility was also launched in January 2006 as  an integral part of the National Single Window. 
In 2006 the Port of Batam has a pilot project to  implement the National Single Window and in 2007 
this is being followed up by the port of Tanjung Pr iok, Jakarta.  By 2008, through the agreement in 
ASEAN, Indonesia has to finish its preparation fo r a National Single Window and start linking to the 
ASEAN Single Window (ASW) network. 
30. In 2002, the Directorate General of Taxes (DGT) launched a modernization programme for 
tax administration .  The essence of this programme is to  implement the spirit of good governance 
through the application of a transparent and account able tax administration system by utilizing the 
reliable and the modern information technology.  Th e modernization has three major purposes: i) to 
achieve the high level of compliance; ii) to ach ieve the high level of public confidence to tax 
administration; and iii) to achieve the greater pr oductivity of tax personnel in ensuring the compliance 
of taxpayers.  To this end DGT has also impl emented a public awareness campaign.  Among the 
efforts to improve its services, DGT is simplifying administrative requirement s and filing procedures, 
and modernizing tax offices.  It also plans call-centr es in district tax offices.  DGT is progressively 
introducing electronic filing to reduce personnel cont acts with official and reduce the opportunities for 
corruption. 
31. Concerning income tax , a draft law proposes, inter alia, the reduction of income tax rate for 
individual and corporate taxpayers.  Minister of Finance Regulation No. 137/PMK.03/2005  raises the 
amount of exempt income as deduction of net taxabl e income for calculation of Individual Income 
Tax as well as Withholding Income Tax. 
32. The key steps in the investment reform  package, noted in the previous chapter, cover: general 
policies; customs (see above); tax rates, structur e and administration; labour market reform and 
programmes to assist small and medium-size enterprises.  WT/TPR/G/184 Trade Policy Review 
Page 12 
 
 
 33. Competition policy  is an important part of the Govern ment reforms, intended to improve the 
functioning of the Indonesian economy.  In recen t years there has been considerable progress in 
deregulating international trade policy in Indonesia,  with the reduction of import tariffs, licensing and 
export restraints.  This should help provide comp etitive environment for local firms in both import 
and export markets.  In addition efforts have been made at increasing competition within the 
economy.  For example, Law No. 5/1999 is intended to safeguard the public interest and to increase 
the national economic efficiency, ensuring equal opp ortunities for big, medium and small businesses; 
to prevent monopolistic practices and other unfair business competition; and to create efficiency in 
business sector. The law covers a wide spectru m of anti-competitive behaviour, ranging from 
prohibited business activities and agreements to abuse of the dominant position, including those 
related to Merger and Acquisition (M&A) practices.  The law has been in place since 2000, but the 
technical implementation rules for mergers and acquisitions are now in the process of completion.  Following the law, by the Presidential Decree  No. 75/1999 Komisi Pengawas Persaingan Usaha 
(KPPU, Commission for The Supervision of Busi ness Competition), an independent regulatory 
agency, was established to supervise anti-comp etitive business practices and to provide policy 
recommendations to the government concerning compe tition-related policy issues. Also in support of 
the law, a number of technical regulations has been enacted for its implementation, covering 
procedures for the operation of the commission.   In the period 2000-2006, KPPU has received 
471 reports, but only 48 reports relate to compe tition issues (under Law No.511999), and KPPU has 
handed down decisions in 41 decisions, mainly c oncerning bid-ridging activities in government 
procurement.  
34. Standards
.  The National Standardization Agency of Indonesia (BSN) has the responsibility 
for developing and promoting National Standardiza tion in Indonesia, including through standards 
development, conformity assessment, and standard implementation.  In recent years there has been a 
restructuring of the institutional framework a nd procedures to foster openness, transparency, 
consensus, impartiality, coherence, and effectiven ess, taking account of the development dimension 
and of international rules. The objective is to  strengthening national competitiveness and improving 
the transparency and efficiency of trade transac tion while assuring protectio n to consumer safety, 
public health, environment and security.  By  N ovember 2006 there were a total of 6723 standards 
approved as National Standards of Indonesia (SNI) status of national standard: 96.8% voluntary 
standards and 211 (3.2%) as mandatory standards. 
35. Considering the importance of standards fo r trade facilitation, Indonesia has joined 
international standard fora such as International Organization for Standardization (ISO), International 
Electrotechnical Commission (IEC), Codex Alimen tarius Commission (CAC), and International 
Telecommunication Union (ITU).  Indonesia will become the chair of ISO DEVCO in the 
period 2007-2008 and currently acts as vice chair in ISO/TC 207. 
36. In the context of WTO, BSN acts as a Notification Body and Enquiry Point for Indonesia, and 
until November 2006 there were 18 technical regul ation notified to the WTO Secretariat.  
37. In the field of conformity assessment, Indonesi a is now continually improving its technical 
capabilities. After becoming signatories of IAF/PAC MRA for QMS in 2000, APLAC/ILAC MLA for calibration in 2003, IAF/PAC MRA for EMS in 2004 and lastly the APLAC/ILAC MLA for inspection body (December 2004).  Indonesia WT/TPR/G/184 
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 C. INTERNATIONAL TRADE RELATIONS  
38. Indonesia’s trade relations are principally gove rned by its membership of the WTO. In 
addition, Indonesia is also engaging in re gional cooperation such as ASEAN, APEC, ASEM, 
Developing 8, as well as in bilateral cooperation. Indonesia considers that the above cooperation are 
consistent with Multilateral Trading System of WTO including the enabling clause and GATS which 
allowing it to deepen its integration more rapidly with neighbouring countries in the fast growing 
Asian region. The Economic integration of ASEAN re gion has been an important sector in the greater 
peace, stability and prosperity of the region.  In  this sense, Indonesia considers that its regional 
agreements are building blocks for l onger term multilateral liberalisation. 
1. Multilateral Cooperation 
(a) World Trade Cooperation (WTO) 
(i) Doha Development Agenda 
39. Indonesia has been an active participant in th e WTO Doha Work Programme, in its own right 
and as a member of the G20 and the G33.  The Doha  Declaration put development at the centre of the 
current negotiations, but the delivery of the deve lopment promise depends to a large degree on 
faithful implementation of the Doha text.  Indonesi a considers that the essential technical work has 
been completed, but that political will and flexibilit y are urgently needed to move the negotiations 
toward a successful conclusion.  In this r espect, on 20-21 March 2007, Indonesia hosted a G-33 
Ministerial Meeting that welcomed the new politic al emphasis shown by WTO Members to re-ignite 
the negotiation and called on WTO Members to tr anslate this commitment into concrete positive 
movement in the light of the window of opportunity  to conclude the negotiations.  The G-33 stressed 
that success in the negotiations would be measure d by the contribution made to development.  
Focussing mainly on agriculture the G33 Meeting str essed the potential of the negotiation to benefit 
the world’s small and vulnerable, resource-poor farmers.2 
40. For Indonesia, the negotiations on agriculture a nd non-agricultural market  access are critical.  
In agriculture , there is a need to concretise the solution to  the problems faced by poor farmer in the 
developing countries through the Special Products (SPs) and Special Safeguard Mechanism (SSM) 
modalities. Regarding special products, there is a need to have verifiable indicators that can also be 
prioritized. Regarding the Special Safeguard mechanism,  there is a need to be flexible in developing  
solutions based on the import volume and product price criteria (volume and price triggers). However, 
the key to a successful conclusion to the negotiatio ns is agreement between the developed countries 
on reductions in tariffs and domes tic support, as well as elimination of export subsidies and similar 
measures.  
41. In NAMA  Indonesia supports the reduction and elimin ation of tariff peaks, high tariffs and 
tariff escalation, especially on products of export inte rest to the developing countries, as well as less 
than full reciprocity by developing countries. Nevertheless, Indonesia stands ready to make 
commitments to reduce substantially its bound rates in the context of a balanced outcome of the 
overall negotiations, taking account of the Single Unde rtaking.  However, it is also concerned to 
retain a degree of flexibility to develop its industria l sector that is so important for jobs (and hence 
poverty alleviation), especially in the light of th e experience of the crisis of 1997/98 and the 
subsequent austerity programme.  Indonesia belie ves that its moderate tariffs can help the 
                                                      
2 See Communiqué of 21 March 2007 at http://www.crnm.org/documents/ 
wto/G33_Communique_21March07_.pdf.  WT/TPR/G/184 Trade Policy Review 
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 development of outward-oriented industrial productio n that could become internationally competitive 
in the longer term.   
42. In services , Indonesia emphasizes that agreement on this issue should not erode developing 
countries’ flexibilities that were so carefully nego tiated in the Uruguay Round. Negotiation in services 
must allow developing countries to liberalize sectors at the pace that correlate with their levels of 
development. In this context, se quencing and on going requisite cha nges in domestic institutions and 
regulations are important in the services liberalization process.  In the spirit of constructive engagement, Indonesia has made offers in nine sect ors: business services, communications, health and 
social services, transport, tourism and related services and other services not elsewhere included 
(energy services).    
43. The protection of intellectual property rights
 is crucial for an envir onment that is conducive to 
innovation.  However, it is important that this be seen in the contex t of the greater need to protect 
welfare, as in the case of access to affordable drugs and technologies, as well as providing some 
protection to traditional knowledge.  There is a n eed in the WTO to resolve the issues of the 
relationship of the TRIPS to the Convention on Biodiversity and the extension of Geographical 
Indications to products other than Wines and Spir its. The objective of Indonesia on TRIPS is to work 
progressively towards full implementation of the TRIPS Agreement, and it has already taken a number of measures in this respect, among others the revision of related laws and regulations on 
intellectual property rights, institutional developmen t of intellectual property related agencies as well 
as law enforcement.   
44. In the issue of TRIPS and Public Health
, Indonesia and other developing countries had made 
an effort to struggle for the opening of market a ccess for the developing countries in acquiring cheap 
patented medicines in protecting the public hea lth. The Doha Round had opened a way for developing 
countries to negotiate exemption towards imported license on medicine goods/products. Indonesia is 
committed to fulfilling its commitment under the TRIP s and Public Health arrangements that were 
concluded in December 2005. 
45. The different needs and capacities of developing  countries have been recognised in the GATT 
and WTO since 1955 as the basis for special and differential treatment . Addressing these development 
needs and capacities was rightly cen tral to the Doha Ministerial Declaration, and Indonesia looks 
forward to full implementation of the promises of Doha in the post-Doha Work Programme of the 
WTO. Indonesia would wish to see Special & Differential Treatment being more precise, effective 
and operational.  Equally important are the various issues related to implementation of the results of 
the Uruguay Round, where deadlines have repeatedly been missed and problems have only partially 
been resolved.   
46. Trade Facilitation .  Indonesia supports the negotiations to f acilitate trade.  In this respect, it 
would be useful to have further clarificati on of GATT Articles V (Freedom of Transit), VII 
(Valuation for Customs Purposes), and X (Publicati on and Administration of Trade Regulations).  
Indonesia considers that a successful outcome ma y need to be supported with the provision of 
technical assistance and capacity building for the developing countries. 
47. Trade and Environment .  Indonesia supports the negotiation to enhance mutual 
supportiveness between trade and environment.  Indon esia is of the view that trade liberalization 
needs to be positive for trade, environment, and development.  Indonesia WT/TPR/G/184 
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 (ii) Regular Activities  
48. Indonesia has made 58 (fifty-eight) notifications  in various areas, and has outstanding 
obligations to submit 36 notifications.3  However, because of the complexity of notification 
requirements, a lack of human capacity and th e periodical staffing changes (tour-of-duty) of 
responsible officials, fulfilment of the notifica tion obligation has not been progressing well yet. In 
order to resolve this problem, Indonesia is trying to enhance the staff capacity and to improve coordination between domestic agencies in or der to complete its outstanding notifications. 
49. The Indonesian government has adopted trade remedy
 policy in the form of anti-dumping, 
subsidy and countervailing duties, as well as safeguards: 
-  Government regulation number 34 dated 4th June 1996 on anti-dumping and countervailing 
duties  
-  Presidential decree number 84 dated 16th December 2002 on safeguarding domestic industry 
against surges in the import of goods 
On anti-dumping measures, KADI (Indonesian Co mmittee on Anti Dumping) has investigated 
34 cases between 1996 and 2007, and  cases have been terminated. The Indonesian Government has 
imposed the duties in 14 cases, of which six have been imposed since January 2004 (Calcium 
Carbide, Carbon Black, Uncoated Writing, Paracetamol, Wheat Flour HS, and Cavendish Bananas). 
50. The Indonesian Government has taken serious steps to respond to allegations of dumping 
raised by foreign government against Indonesia e xports. During the period under review, there were 
61 dumping allegations on Indonesian products, where more than half (34 cases) of them imposed 
anti-dumping duties. 
51. On safeguard measures, the Indonesian governme nt has imposed a safeguard duty on Ceramic 
Tableware and terminated the Matches case as well as thee Cast and Rolled Glass case. The Authority 
which conducts global safeguard investigations is KPPI (Indon esian Committee on Safeguards). 
(b) South-South Cooperation  
(i) Global System of Trade Preferences (GSTP) - UNCTAD 
52. Indonesia is currently participating in talks to  expand the GSTP which it regards as a valuable 
instrument for the expansion of South-South coop eration.  Indonesia considers that South-South 
cooperation in trade in goods and services, as well as in investment, technology and other areas, can 
bring important benefits to developing countries. 
(ii) Developing 8 (D-8) 
53. As a member of Developing 8, Indonesia has signed the Preferential Trade Agreement (PTA) 
which aimed to expand trade among their member s by reducing tariff on goods and other trade 
restrictions. 
(iii) Organization of Islamic Conference (OIC) 
54. Indonesia has actively participated in OIC a nd has signed the protocol on the Preferential 
Tariff Scheme for TPS-OIC (PRETAS).  
                                                      
3 Document WTO G/L/223/rev. 13, 28 February 2006  WT/TPR/G/184 Trade Policy Review 
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 2. Regional Cooperation 
(a) Association of South East Asian Nations (ASEAN) 
(i) ASEAN Economic Integration 
55. Twelve priority integration sectors were identif ied for accelerated economic integration (Agro 
based, wood based, Textile and Apparel, Automotive,  Electronic, Healthcare, e-ASEAN, Tourism, 
Rubber based, Air Travel, Fisheries and Logistic Se rvices).  Steps towards policy integration include 
in the ‘horizontal’ areas (e.g., customs, including the ASEAN Single Window); standards; rules of 
origin; non-tariff measures; and the liberalization of trade in services. Indonesia is country coordinator 
for the wood based and automotive sectors. 
56. At the 12th ASEAN Summit, the Leaders affirmed their strong commitment to accelerate the 
establishment of an ASEAN Community by 2015 as envisioned in the ASEAN Vision 2020 and the ASEAN Concord II and signed the Cebu Declaration on the Establishment of ASEAN Community by 2015.  In particular, the Leaders agreed to hasten the establishment of the ASEAN Economic 
Community by 2015 and to transform ASEAN into a region with free movement of goods, services, 
investment, skilled labour, and freer flow of cap ital.  Several Member Countries took on the 
coordinator role for each sector.  Each priority integration sector has a roadmap, which combines 
specific initiatives of the sector and the broad in itiatives that cut across all sectors such as trade 
facilitation measures. Integration of Se rvices Liberalisation towards 2015.  
(ii) ASEAN-Dialogue Partner 
57. ASEAN is seeking to establish RTAs with part ners such as China, Japan, Korea and CER 
members (Australia and New Zealand), and India.  At the ASEAN Summit in 2002, ASEAN members 
and China
 signed a framework agreement to begin negotia tions in 2003 to create the world’s largest 
FTA with a combined market of 1.7 billion people. Subsequently, The ASEAN and Chinese Economic Ministers signed the Trade in Goods Agreement and Dispute Settlement Mechanism 
Agreement under ASEAN-China FTA (ACFTA) on N ovember 2004, which then launched the goods 
implementation through Early Harvest Programme on July 2004 which consists of agricultural 
products. The gradual tariff elimin ation for products in Normal Trac k started in 2005 and end on year 
2015. Finally, just recently on January 2007, the ASEAN Economic Ministers and The Chinese 
Foreign Affairs Minister signed the Services Agreemen t. At the first package of services agreement.  
58. The Framework agreement between ASEAN and Korea
 was signed by the Leaders on 
December 2006. At the same time, The ASEAN and Korea Economic Ministers signed the Dispute 
Settlement Mechanism Agreement of ASEAN-Kor ea FTA (AKFTA), and af terward, on August 2007, 
the Trade in Goods Agreement was also signed by  the Ministers. Negotiations for AKFTA services 
and investment are still on going and expected to be  finalized within this year. The implementation of 
goods agreement is expected to st art on June 2007 upon completion of  domestic ratification from each 
party. The FTA negotiations with CER (Australia and New Zealand) , Japan  and India  are targeted to 
conclude at the end of 2007, and implemented on early 2008. . Furthermore, it is also expected that 
ASEAN and the EU  will launch the ASEAN-EU FTA negotiations.  
59. Other than FTAs negotiations, ASEAN also involved in cooperation under Trade and 
Investment Framework Arrangement (TIFA) with United States, Trade and Investment Framework 
(TIF) with Australia,  and in the process of establishing ASEAN-Canada  Trade and Investment 
Cooperation Arrangement (TICA). Indonesia plays an  important role as the country coordinator for 
ASEAN countries in dealing with ASEAN cons ultations with United States and Canada. Indonesia WT/TPR/G/184 
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 (b) Asian Pacific Economic Cooperation (APEC) 
60. Indonesia is committed to implementing APEC’s voluntary target of open and free trade, as 
well as services and investment for developing country members by 2020, as set out in the Bogor Declaration of 1994. APEC economies are to ach ieve their targets on a voluntary and non-binding 
basis ("concerted unilateral liberalization"). In order to develop a high-quality RTAs/FTAs, Indonesia 
contributed in designing Model Measures of the minimum requirement for RTAs/FTAs on non-
binding basis. Based on the Individual Action Plan (IAP) peer review process of 2005, it was considered that Indonesia was already over half  way to achieving the Bogor Goals. Indonesia 
indicated in the IAP 2005 that, inter alia, tariff rates would be reduced, while import and export 
restrictions would be further eliminated. 
(c) Asian-Europe Meeting (ASEM)  
61. As a member of Asian-Europe Meeting (ASEM), Indonesia will take part in implementing the 
Leaders’ vision of deepening the partnership to fa ce future challenges, broadening the perspective 
through marking out focussed areas for action, and re inforcing the institutiona l mechanism by forging 
a stronger partnership as outlined in the Helsinki Declaration. 
3. Bilateral Cooperation  
62. In line with its policy of establishing closer economic relations with countries in the Asian 
region, Indonesia has been negotiating with Japan  since mid 2005 to establish a bilateral Economic 
Partnership Agreement that covers goods, rules of origin, customs procedures, investment, services, 
movement of persons, competition policy, energy  and mineral resources and cooperation. These 
negotiations are in the final stage and it is expected to be completed in 2007.  Indonesia is also in the 
process of negotiating Preferential Trade Agreement with Pakistan, and exploring the possibility to 
negotiate PTA/FTA with India and Iran.  
63. Talks and consultation on a range of trade and investment issues are also being held with 
major developed countries i.e. United States, EU and Australia.  
4. Others 
64. Indonesia is determined to make best use of opportunities under the GSP.  It considers that 
such preferences are a useful means of helping to  diversify and expand its industrial sector, and as 
such contribute to the overall economic developm ents of Indonesia, including job creation and the 
alleviation of poverty.  
65. Considering the importance of human resources and infrastructure development, Indonesia is 
continuously assessing its needs and priorities to  request to the donor countries for Technical 
Assistance and Capacity Building. In this regard , Indonesia appreciates to several donor countries and 
agencies namely, JICA, the European Union, USAI D, AUSAID, KOICA, Switzerland, Sweden, WTO 
Secretariat, JETRO,  New Zealand, Switzerland, India, China and the Netherlands. 
(D) I
NVESTMENT TREATIES  
66. Indonesia has signed 61 Bilateral Investment Treaties/Investment Gu arantee Agreements. 
However, current tendency of ne gotiating Economic Partnership Ag reement covers broader sectors 
including investment, services, labour, cooperation, capacity building, etc. WT/TPR/G/184 Trade Policy Review 
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 IV. TRADE AND RELATED POLICIES 
A. OVERVIEW OF POLICY AND DEVELOPMENT    
67. Indonesia’s trade and related policies are part of  its overall social and economic development 
strategy, and not goals in themselves. While tr ade and related polices should contribute to the 
improved efficiency and overall growth of the econom y that will increase the availability of resources 
for social purposes, policies - and their implementation - need to take account of short- to medium-term social consequences of change, particularly in  the light of persistent unemployment and poverty, 
especially in some regions.  Because of the dive rsity of the levels of development across the 
archipelago, Indonesia considers that social justice requires the greater e ffort to spread the benefits of 
its economic achievements to all of its peoples, as in the decentralisation programme of recent years.  
Indonesia is also of the view that the longer term development of the economy needs to be consistent with Indonesia’s underlying comparative advantage.   However, policy interventions may be need to 
realize these goals in the presence of externalities associated with certain economic activities and in 
the light of important distortions on world markets,  including barriers to exports.  The pace of policy 
implementation also depends on the success in buildi ng supply capacities and social indicators.  While 
Indonesia’s own polices are obviously key, assistance  from treading partners and donors can also be 
of considerable assistance.   
68. With regard to the structure of the Indon esian economy, services now make the largest 
contribution to GDP, around 40 per cent in recent years.  Manufacturing is second at some 28 per cent, while the share of agriculture  has fallen form 15.5 per cent in 2002 to 12.9 per cent in 2006, and 
mining and quarrying has grown for 8.8 per cent to t 10.6 per cent in the same period.  Construction 
has grown slightly to 7.5 per cent, while the electri city, gas and water sector has remained stable at 
around 1 per cent.  Clearly services and industry are now major employers, particularly in the urban 
areas, and any sectoral policy changes need to take  account of the potential impact on employment.   
However, the agricultural sector is also critical fo r the poorest regions of the country.  The sector has 
an important role in the provision of the most basic food of the nation, rice, but it also has a large 
element of subsistence farming, and, overall, th e agricultural sector is a net consumer of rice. 
69. Indonesia has considerable natural resources, renewa ble, such as its extensive tropical forests, 
fishing, etc., and non-renewable, such as oil a nd gas, and minerals.   Managing these resources 
prudently for sustainable development is a majo r challenge for any government, and more so for 
Indonesia because of its many islands. To this e nd, various programmes are being implemented and 
being improved, including for example the management of its forestry and fishing resources.   
B. T
RADE DEVELOPMENTS AND POLICY  
1. Developments  
70. Since the last Trade Policy Review, Indonesia's trade balance has fluctuated, but registered a 
trade surplus of over $3 billion in 2006.  Exports grew at the robust rate of some 18 per cent in the 
period 2003-06, reaching record levels.  Much of this can be attributed to strong commodity prices, in 
particular oil and gas, but also rubber,  palm oil, coal and metal ores, as well as the healthy growth of 
the world economy. However, measures to impr ove the competitiveness of the Indonesian economy, 
including control of inflation, also seem to be paying off.  
71. Oil and gas exports reached some $2.2 billion in  2006, an increase of 17.6 per cent over the 
previous year.  (In 2005 the increase was partially associated with world price increase of crude oil, 
which also triggered an increase in the value of oil and gas imports since Indonesia is a net importer Indonesia WT/TPR/G/184 
 Page 19 
 
 
 of such products).  Non-oil & gas exports of go ods reached $79.5 billion, nearly 20 per cent higher 
than in 2005.   
72. In the light of reduced expectations for the growth of the world economy, the Government 
target for non-oil export growth in  2007 is 14.5 per cent.  Reaching this target will require special 
effort, in particular on trade-related infrastructur e, but much depends on the external environment, 
such as the economic growth of major markets and commodity prices. 
2. Tariff policy  
73. To fulfil its commitments in the Uruguay Roun d, Indonesia implemented significant changes 
in its bound MFN tariffs over the period 1996-2003 (under Minister of Finance Decree 
No. 378/KMK.01/1996). In addition, it has begun to implement further changes in its applied MFN 
rates under the ASEAN Tariff Harmonization Program for the period of 2005 to 2010, as well as reductions in AFTA preferential ra tes, consistent with its views on the importance of integration 
within the Asian region. 
74. To accommodate national economic interests, however, some products have been excluded 
from the general schedule of tariff reduction progr am.  These are mainly in the agricultural, 
chemicals, plastics, metals, alcoho lic beverages and automotive sectors,  as well as products related to 
moral and security items. The tariff reduction schedule for these products was stipulated in the Minister of Finance Decree No. 542/KMK.01/1997. 
75. The implementation of the tariff reduction progr am has changed Indonesian tariff structure 
significantly. In 1995, the  average tariff rate was 15.6 per cent, with rates ranging from 0 to 10 per 
cent covering 3,832 tariff lines (or just over half of the total of 7,386 tariff lines). In 1996, the year 
when the program was first launched, the average rat es declined to 13 per cent, with an expansion of 
the rates lying in the 0-10 per cent range to 56 per cent of lines. By the end of the tariff reduction 
program (2003), the average rates had fallen to 7.2%, while rates lying in the 0-10 per cent range had increased to 83.4 per cent of lines. 
76. In 2004, one year after the tariff reduction pr ogram ended, Indonesia adopted the new tariff 
classification under “ASEAN Harmonized Tariff Nomenclature” (AHTN) as part of Indonesian 
commitment under AFTA. As noted earlier, the purp ose of the programme is a gradual lowering and 
harmonisation of rates, intended to reduce inter-s ectoral distortions, while preserving a moderate 
overall level of assistance to the productive sector on an MFN basis.  The programme beyond 2010 
has not yet been finalised. 
77. With the new classification, the total tariff lines increased drastically from 7,540 in 2003 to 
11,163 in 2004.  As a consequence of the technical classification changes, tariff rates also changed, 
and the average tariff increased to 9.9 per cent, with rates between 0 and 10 per cent covering 
8,387 tariff lines (75 per cent of the total of 11,163 tariff lines). 
78. As a continuation of the tariff reducti on program, Indonesia introduced the Tariff 
Harmonization Program for the period of 2005-2 010. Under the programme, the average tariff 
reached 9.5 per cent in 2006, with rates in the 0-10 per cent range covering 8,365 tariff lines or 
74.9 per cent the total.  
3. Tariff Quotas 
79. Currently, Indonesia does not utilize tariff quotas. WT/TPR/G/184 Trade Policy Review 
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 4. Tariff Exemptions or Concessions and Duty Drawbacks 
80. To increase the efficiency and the competitiv eness of domestic industries, Indonesia provides 
certain tariff exemptions or concessions, in accord ance with Indonesia Custom Law (Law 10/1995). 
The importation of raw materials, components, or m achineries that are used by a certain industrial 
sectors can be exempted from import duties. Some of industries granted tariff exemptions or 
concessions include aircraft maintenance, public transportation, energy and telecommunications. 
81. In addition, Indonesia is also implementing th e Duty Drawback System on the re-export of 
imported inputs. This policy is stipulated in the Minister of Finance decree No. 580/KMK.04/2003.   
5. Non-tariff measures   
82. In order to improve the functioning of the economy in line with its dynamic comparative 
advantage and make it more responsive to long-t erm international price movements, Indonesia has 
also been progressively eliminating non-tariff measur es, in particular the use of import licences which 
is currently limited to dangerous materials; explosives; ozone-depleting substances; alcoholic 
beverages; salt; propylene copolymers; lubricant; cl ove; textiles and textile products; nitrocellulose; 
machines and machinery; optical discs; and rough diamonds. 
83. The most important measures still in place are: i) the regulation on the timing of the import of 
rice and sugar: ii) verification and other requirement s for the export of tin and granite; and ii) the ban 
on the export of logs and sand.   
84. The rice import regulation is intended to provi de support for poor farmers in the face of 
distorted world prices as a result of subsidies by some rice-exporting countries, but it is periodically 
relaxed at times of shortage, that is durin g non harvest periods, to stabilise prices.   
85. The ban on the export of logs is used to suppor t Indonesia’s forestry and wildlife conservation 
policy while a broader forest management programme  is being put in place.  Because of the many 
islands and the rugged terrain, it is  difficult and requires extensive resources to implement the forest 
management programme, which is also targeted at mining and to  support forest or near-forest 
dwellers.  The government is also planning a comp ensation tax to be paid by mining and logging 
companies to compensate for environmental damage and finance re-afforestat ion programme, to be 
implemented by local communities. Given the porous  sea and land border, the export ban allows the 
immediate identification of illegal logs leaving the c ountry.  Cooperation is also being provided by a 
number of neighbouring countries as well as European countries in controlling the import of logs form 
Indonesia. Although a log export ban is currently in  effect, relaxing the export ban has been under 
study mainly in relation to the pl antation forestry program.     
6. Incentives 
86. Concerning central and local authorization of investments, the Ministry of Domestic Affairs is 
now preparing the amendment to Government Regul ation No.25 Year 2003. This process is expected 
to reach its final stage coinciding with the Invest ment Law Bill that has just been approved by the 
legislature. 
87. To anticipate challenges that will be faced by  Indonesia such as global competition and as 
mandated in Law No. 32 year 2004 regarding Local Government (an amendmen t of Law No. 22 year 
1999), the Government is now preparing a Gove rnment Regulation Bill (GRB) concerning the Indonesia WT/TPR/G/184 
 Page 21 
 
 
 Guidance for Granting Incentives and In vestment Facilitation in Local Area. A draft is currently being 
discussed with affected sectors.  
C. SECTORAL POLICIES  
1. Agriculture 
88. Agriculture plays an important role in the Indonesian economy, providing employment for 
over 38 million people.  There is also an importa nt linkage to poverty, since the majority of 
Indonesia’s poor live in rural communities and are hence highly dependent on the agricultural sector. Food crops and animal husbandry are the key sectors fo r smallholders.  Rice, being the main staple 
food, remains a sensitive commodity politically because it is important both for the rural 
producers/consumers and urban consumers. Some key products such as rice and sugar are subject to 
high levels of intervention in other countries, thereby depressing world prices.  
89. To further develop the sector, the Governme nt launched the agricultural revitalization 
programme in 2005.  A set of policy instruments on rural infrastructure, financial services, research and development and institutional de velopments are used in support of this programme.  Under the 
programme, the Government provides subsidies to increase production on food crops such as on 
fertilizers and hybrid seeds. Subsidized credit to smallholder farmers (“food security credit”) is 
intended to motivate smallholder fa rmer to have more access to  commercial banks, sharing risk 
between the Government, the commercial banks and the farmers. 
90. As noted the Government regulated rice imports  in 2004, with the main restrictions operating 
during harvesting.  BULOG as a state-owned agency  procures and buys rice from farmers using the 
HPP (Government procurement price). BULOG, however , has the capacity to absorb 5 to 6 % of the 
total domestic rice production.  BULOG also distri butes rice to the needy and poor families nation-
wide under the RASKIN (Rice for the Poor) progr amme, funded with state finance amounting to IDR 
4,000 billion  a year or around $435 million a year. The RASKIN program distributes 15 to 20 kg of 
rice per poor household per month. There are 10.8 million households classified as eligible, as real food support to maintain food security of poor households.  The Government also reserves a rice stock 
in BULOG for emergencies and price stabilization within the country.  
91. The Government switched from ad valorem to sp ecific tariffs for sugar in 2003.  Currently, 
the tariff is Rupiah 550 per kg of raw sugar and Rupiah 700 per kg for refined/white sugar. The 
Government regulates sugar imports to protect domestic  farmers from low prices, particularly during 
the harvesting periods when prices tend to fall.  The importer registration mechanism is therefore 
applied to registered importers who have to absorb at  least 75 percent of small farmers’ sugarcane.  In 
2006, the Government restricted the amount of im port of sugar to 300,000 tons for the period of 
November to April. 
92. Based on the risk analysis and OIE recommendation on BSE, and in line with the current 
situation of diseases, a new regulation - Agriculture  Ministerial Decree No. 482/Kpts/PD.620/8/2006 
dated 22 August 2006 - has been released concerning Import Requirements for Ruminants and 
Products from BSE-Infected Country or Zone into the Indonesian Territory. The Decree described in 
details the category, BSE status and import requirements.  
93. To prevent fruit fly to Indonesia from other c ountry, Indonesia applied Minister Agriculture 
Decree No.37/Ktps/HK.060/1/2006 concerning Technical Requirements and Plant Quarantine Actions for the importation into the territory of The Repu blic of Indonesia of Fresh Fruits and/or Fruit 
Vegetables which had been notified to the WTO S ecretariat with notification no. G/SPS/N/IDN/24 on WT/TPR/G/184 Trade Policy Review 
Page 22 
 
 
 18 May 2006. According to above decree, Indonesia designated only 7 (seven) points of entry for the 
effectiveness of Plant Quarantine Action to  prevent fruit fly from abroad, namely:  
1 Tanjung Priok Seaport, Jakarta 
2 Tanjung Perak Seaport, Surabaya 
3 Belawan Seaport, Medan 
4 Batu Ampar Seaport, Batam 5 Soekarno-Hatta International Airport, Jakarta 6 Ngurah Rai International Airport, Denpasar 7 Makassar Seaport 
94. Government of Indonesia consider to stipulate Requirements and Plant Quarantine Actions 
for the Importation of Wood Packaging into the Territory of the Republic of Indonesia.  
Implementation of this regulation to be in accordan ce with International Standard for Phytosanitary 
Measures (ISPM) # 15 which had been notified to the WTO Secretariat with notification 
no.G/SPS/n/IDN/27 on 29 May 2006 
2. Fisheries  
95. Indonesia’s Marine and Fisheries development plays an important role in providing 
employment, food sources, poverty alleviation and de velopment, especially for the outer islands. A 
key milestone in the fisheries development was th e prorogation of the new Fisheries Law Number 31 
2004. The Law provides the national mandate and le gislative support from the parliament for the 
government to pursue fisheries development. The ne w Law on fisheries aims at a new direction for 
fisheries management intended to improve of livi ng condition of small-scale fishermen and fish 
farmers; to increase government revenues and foreign exchange earnings; to spur the expansion of job 
opportunities; to increase the supply and consumption of fish which is rich in protein sources; to optimize the management of fishery resources; to increase the productivity, quality, added value and 
competitiveness; to increase the supply of raw materi als for the fish processing industry; to achieve 
optimal utilization of fisheries res ources, areas for fish culture and fi sh resources environment; and to 
ensure the conservation of fishery resources areas for fish culture and spatial management.   
96. In order to improve fisheries management, the Government issued Government Decree 
number 17/2006 on Fisheries Management. The Govern ment Decree applied new scheme of fisheries 
management which eliminates foreign vessels from  operating in the Indonesian Economic Exclusive 
Zone or build Land Based Industry through Integrat ed Fisheries Investment Management Unit in 
Indonesia by joint venture. Besides of this, produc tivity in the sea-fishing i ndustry has remained low 
while over-fishing in some areas has th reatened to deplete fish stocks. Illegal fishing, by both foreign 
and domestic operators, also has been a serious problem and causing environmental damage. So, to 
take conservation of fish stock, the Minister of Marine Affairs and Fisheries has published Ministerial 
Decree number: KEP.34/MEN/2006 regarding the est ablishment of a coordination team on illegal 
fishing measures and fisheries processing industry revitalization.] 
97. However, productivity in the sea-fishing industr y has remained low while over-fishing in 
some areas has threatened to deplete fish stoc ks. Illegal fishing, by both foreign and domestic 
operators, also has been a serious problem and cau sing environmental damage. Therefore in order to 
conserve fish stocks, the Minister of Marine Affairs and Fisheries has published Ministerial Decree number: KEP.34/MEN/2006 regarding the establishm ent of a coordination team on illegal fishing 
measures and fisheries processing industry revitalization. Indonesia WT/TPR/G/184 
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 3. Oil, gas and minerals   
98. While Indonesia has important reserves of fossil fuel s, it is still a net importer of crude oil, so 
that the recent increases in oil prices mainly had a ne gative effect on trade and on inflation.  However, 
Indonesia is the world’s leading exporter of liquefi ed natural gas, and the country has potential for 
further development of hydro-electric and geotherm al energy (as well as coal), and other “green” 
sources of energy such as bio-fuels, solar power, et c.  Domestically, the lack of infrastructure has 
limited the use of alternative energy resources, and i nvestment in the sector is needed.  The increase in 
oil prices, if maintained, makes exploitation of these alternative sources of energy more viable, as 
well as being attractive from an environmental perspective. 
99. A noted in the previous TPR, the oil and g as sector has been liberalised under enabling 
legislation passed in 2001, and a number of foreign firms have entered the oil and gas market for 
exploration, production and retailing.  The Government is also privatizing Pertamina, the state oil and 
gas company. 
100. Except for tin, commercial mining is relatively unimportant in Indonesia, although there is 
some potential for the production of coal, metallic and non-metallic minerals , and investment has 
been growing in this sector.  Along with logging, mining has become an environmental issue that is 
now being subject to greater scrutiny and new regulat ions are being promulgated to address this issue, 
as noted earlier. 
4. Manufacturing 
101. Prior to the financial crisis of 1997-98, In donesia had passed through several stages of 
industrial policy, including import-substitution indust rialization in the 1960s and 1970s and moves to 
strengthen export-oriented activity and the industrial structure in the 1980s and early 1990s.  Since the 
industrial process was derailed by the crisis, the fo cus has shifted to ensuri ng the survival of the 
industry through the Industrial Revitalization Progr amme.  Under this progr amme, the Government 
has used several measures to promote internationa l competitiveness, such as the promotion of cluster 
groups and value-chain alliances that have recently st arted to be used to gain and sustain industrial 
competitiveness.  The programme operates with in the general context of the political, 
macroeconomic, institutional and le gal reforms described earlier that are intended to improve the 
business environment.   They are also being implem ented within the context of moderate, harmonized 
tariffs and the progressive elimination of non-tari ff measures.  Incentives are principally used in 
relation to regional developments.   (These have ma inly been tariff waivers on inputs in the past, as 
described above). 
102. The cluster theory gives prime importance to interaction among local firms and institutions 
whereas the global value-chain th eory accords prime importance to interaction with global buyers. 
Under the cluster approach, the main objective is to promote collective efficiency or competitive 
advantage derived from externalities economies and jo int actions. This is ach ieved through a product 
upgrading in the context of inter-firm interactions such as pool of skilled workers, specialized inputs 
and quick dissemination of knowledge within the cluste r. Small firms in clusters are able to overcome 
some of the major constraints due to a lack of sp ecialized skills, difficult access to technology, inputs, 
market, information, credit, and external services.  Clusters overcome the constraints by facilitating 
interactions among firms, allowing resource sharing and transfer of skills and knowledge.  Clusters 
emphasize the importance of geographical proximi ty and networking also to reduce shipping and 
transaction cost. WT/TPR/G/184 Trade Policy Review 
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 103. In accordance with the National Medium-t erm Development Programme (Presidential 
Regulation 7/2005), the focus is on strengthening and de veloping core clusters in the following areas: 
food and beverages, fishing, textiles and textile pr oducts, footwear, palm o il, timber (including rattan 
and bamboo), rubber and rubber produc ts, pulp and paper, electrical e ngineering, and  petrochemical 
engineering.  The strategy involves strengthening li nkages at all value chain levels in a cluster of 
related industries, improving value added along the value chain, improving resources employed by the industry, and developing small and medium-size indus tries.  This is to be achieved by promoting a 
conducive business environment (as described in ear lier sections), determining prioritized industries 
and their spread, developing industries within th e cluster approach and developing technological 
innovation capability.  Applying this approach is e xpected to induce industrial sector growth of the 
order of 8.5 per cent annually in the medium term. 
5. Services 
104. Services account for around 40 per cent of GDP, but exports of services only account for 
7 per cent of total exports of goods and services, a net deficit of around $20 b illion. This performance 
is less than satisfactory, and Indonesia recognizes th at having access to efficient services  is important 
to the good functioning of a modern economy, includi ng as an important input into the production and 
trade of traditional exports of goods.  Access to basic services is also important for human development.  In this respect, the WTO framework  on services should not erode the flexibilities that 
are characteristic of the GATS and should allow developing countries to open up their services sectors 
at a pace that is consistent with their level of development.   
105. Indonesia does not at the moment provide any sp ecial incentive for the development of trade-
related services.  While  public works expenditur es are one of the key means of development of 
infrastructure services that provide benefits to the people as well as inputs for production and trade, 
such services are procured in a public process to ensu re that contracts are awarded on the basis of cost 
and efficiency, as discussed elsewhere in this report.   
106. Supervision of services monopolies is intended to  ensure security, efficiency and quality of 
services at a fair price, which also provides for maintenance and a reasonable return to the service 
supplier. 
107. Development of an efficient financial services sector has been a particular preoccupation of 
the government for some time, but particularly since the financial crisis. This sector is important as a 
source of finance for small and medium-size enterprises, which do not have easy access to 
international sources.  Regulation of financial services is intended to ensure proper prudential 
supervision, security for account holders, and to help promote the real sector of the economy.  
108. Other services that are particularly important for Indonesia are transport and communications 
– given the geographic diversity of the country –a nd tourist-related services which have started to 
recover after recent setbacks. Indonesia believes it h as considerable potential for the development of 
labour services, e.g. in construction, for which a su ccessful outcome of the Mode 4 negotiations in the 
WTO would be beneficial. 
V. FUTURE DIRECTIONS 
A. E
CONOMIC PERSPECTIVES  
109. The economic outlook for Indonesia has improved main ly as a result of the reforms that it has 
undertaken in recent years, and a healthy external environment.  The principal economic concerns of Indonesia WT/TPR/G/184 
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 the Government relate to its ability to lift econom ic growth sufficiently to create jobs and address 
poverty.  However, it is important for social jus tice, peace and stability to address a wider range of 
social and economic issues.  Moreover, it is essential also to help raise the development of the poorer 
regions of the country where the problems of pove rty are more acute. However, further progress 
depends on the success of the Government’s efforts in the ongoing implementation of the reforms and 
rebuilding of much needed infrast ructure, as well as external developments in the world economy.   
110. Economic growth in 2007 and 2008 is expected  to reach 6.3% and 6.8% respectively. The 
main source of growth in the next two years is exp ected to come from revival of investment which in 
turn will expand the capacity of exports, as well as consumption growth and to a lesser extent 
compared with previous years, government spending.  
B. GOVERNMENT PROGRAMMES  
111. Progress has been made in the Government’s refo rm programme as already indicated above in 
terms of a number of new laws and regulations, as well as an ongoing process of changing legislation 
and regulations which are in different stages of impl ementation.  Further reforms, for example in the 
area of investment, are also under way or are being cons idered in the light of developments. As part of 
the effort to improve efficiency and public finances,  further privatization of state-owned enterprises is 
being considered, but it will take time to prepare some of these businesses for privatization, and due 
account will need to be taken of the social con sequences as well as the development implications, for 
example in the areas of public services such as transport and communications. 
112. There is a need for further effo rts to modernize and develop the real sector.  As noted in the 
report, efforts are being made to revitalize th e agriculture and industrial sectors, while the 
Government also recognizes that an efficient servi ces sector is also a key to the development of 
international competitiveness.  From this perspective,  its already open trade regime should be seen as 
a complement to other domestic policies, while th e Government is moving carefully but progressively 
toward even greater opening up of the econom y by reducing tariffs and non-tariff measures, 
facilitating trade and encouraging investment. In th is the Government is confident that the new 
Investment Law and the implementing regulations, as well as the other components of the investment 
package, will contribute in an important way towa rds improving the investment climate.   Apart from 
its effort to improve the institu tional and legal framework, the centr al Government needs to work 
more closely with the regional governments and the private sector in a number of areas, and to further 
develop an enabling environment for business, en couraging domestic as well as foreign direct 
investment.   
C. CONSTRAINTS , CHALLENGES AND OPPORTUNITIES   
113. The major internal challenges that are now f aced by the Government of Indonesia are in 
implementing its reform programme to bring improveme nts to the quality of life for all its peoples. In 
this respect, some of the greatest needs are in the areas of health and social programmes, education, 
and physical infrastructure, and the challenge is to  deliver improvements across its diverse regions. 
Despite the improved economic performance, lower debt and an improved reserve position, Indonesia 
needs additional capital resources to carry forward these social and economic programmes.  The new 
Investment Law will help in this respect, but the progress in the implementation of the reforms will be 
gradual, given the bottom-up nature of the process,  and the new legislative framework needs to be 
supported by short and medi um term action plans to carry forw ard the momentum.  In some areas 
there is a need, especially in the poorer regions, to  develop the administrative capacity to carry out 
reforms, even where funding has been provided.  In other areas, there is still a shortage of resources, WT/TPR/G/184 Trade Policy Review 
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 human and capital, where Indonesia needs greater private sector involvement, and where foreign 
investment and aid could usefully assist.  The ongoing reforms also require the continuation of 
national dialogue to build a sense of consensus, ownership and common purpose in the new democratic framework.  Such a process even though it will take time, will also mean that the reforms 
should “stick”. Meanwhile, in the short term, the pr ocess of deregulation and bureaucratic reforms as 
well as creating islands of excellence and best pr actices within certain regions (Special Economic 
Zones) and within institutions, will be continued. In  terms of opportunities, the growth and increase in 
per capita incomes of the 220 million population of  Indonesia offers opportunities for a robust market 
as well as a source of young and productive labour force.  Indonesia also has a strong basis of natural 
resources on which to build on for its continued and sustained growth. 
114. Externally, the constraints facing Indonesia include improved, secure access to overseas 
markets for its main exports, and increased competitio n. This can best be addressed in the multilateral 
framework of the WTO, and Indonesia stands ready to  make substantive commitm ents consistent with 
its development needs. Indonesia looks forward to continue working closely with other WTO 
Members to achieve a speedy and successful conclusi on to the current negotiations, taking account of 
the development dimension of the Doha Declaration.   Indonesia also looks forward to the continued 
deepening of its integration within the East Asia a nd Asia-Pacific region, whic h is consistent with the 
WTO and becomes the building block for the multilateral process. 
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