Indonesia WT/TPR/S/184 
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III. TRADE POLICIES AND PRACTICES BY MEASURE 
(1) INTRODUCTION  
1. Since its previous Trade Policy Review in 2003, Indonesia has continued its efforts to 
increase the pace of its economic development by removing government-based constraints to trade, 
investment, and production, and streamlining procedures at the border.   
2. Customs reform is high on the Government's ag enda and Parliament is  considering important 
changes that are expected to go into  effect in 2007.  The goal of cust oms reform is to reduce the time 
and cost of clearing customs, to limit smuggling an d customs fraud, and to better comply with WTO 
valuation procedures and measures.  Indonesia has been active in the APEC trade facilitation 
framework with the aim of reducing transaction co sts.  Computerized documentation requirements 
and customs clearance have facilitated both imports  and exports;  registration of importers has 
remained a major requirement.    
3. The tariff has remained Indonesi a's main trade policy instrument, albeit a relatively small  
source of tax revenue, accounting fo r a little over 4% of the total.  The 2006 average applied MFN 
tariff is 9.5%, down from 9.9% in 2004 when Indonesia adopted a new tariff classification for MFN 
(non-ASEAN) tariffs, which increased the number of tariff lines (by 48%) to over 11,000.  Whereas 
the average applied MFN tariff for industrial products is 9.2%, that for agricultural imports is 11.4%.  
More than 75% of tariff rates are in the range zero to 10%.  In line with long-standing sectoral 
support, the highest tariffs apply mainly to alcohol ic beverages and motor vehicles.  Over 93% of 
tariff lines are bound, which lends a marked degree of pr edictability to the tariff.  However, at 37.5%, 
the simple average of the final bound MFN rat es largely exceeds the average applied MFN rate, 
providing the authorities with considerable scope to  increase applied tariffs within bindings.  The 
difference between average applied and bound rates remains much higher for agricultural products  
than for industrial products.  Over 99% of applied tariff rates are ad valorem , a feature that contributes 
to the transparency of the tariff.  Nonetheless, th e structure of the tariff remains complex, involving 
16 ad valorem  rates and three specific rates.  The tariff also embodies a degree of escalation, which 
has become more pronounced for processed food,  beverages and tobacc o products, and for 
semi-processed paper, printing, and publishing.  By 2006, the ASEAN Common Effective Preferential 
Tariff (CEPT) rate had come down to 2.7%, and  as intra-ASEAN trade develops it is predicted that 
Indonesia's CEPT rate will drop further, thus wide ning the gap with its MFN tariff rate.   
4. During the period under review, Indonesia has c ontinued to reduce the number of tariff lines, 
subject to import restrictions, currently at 141.  Bans for sanitary and other reasons have affected 
imports of chicken parts, rice, and salt.  No orig in-related restrictions have been maintained, except 
those affecting trade with Israel.  Remaining non-ta riff barriers include the producer-importer licences 
for sugar imports, the importer registration licensing scheme (NKIP), and (according to some 
third-party accounts) onerous reporting requireme nts to obtain an import licence for textiles. 
5. Government procurement remains an important in strument of industrial policy.  Indonesia is 
not a signatory of the WTO Agreement on Govern ment Procurement (GPA).  It has revised its 
procurement regime to, inter alia,  increase domestic sourcing, reduce corruption, and bring its 
procurement framework more into line with international public procurement practice.  Indonesia has 
remained a relatively active user of anti-dumping meas ures, mainly against imports of base metals and 
chemicals from the region.  It initiated 26 anti-dum ping investigations betw een 2002 and 2006;  in 
2003 a safeguards committee was established, follow ing the enactment of safeguards legislation in 
2002.  Countertrade transactions, involving foreign firms tendering for certain types of government 
procurement contracts and construction proj ects, have fallen off considerably.   WT/TPR/S/184 Trade Policy Review 
Page 36 
 
 
6. National standards are formulated in accordance wi th international standards;  where feasible, 
mandatory standards, which account for just over 3% of all standards, have been introduced.  
Involvement in mutual recognition arrangements ha s increased.  Regarding SPS regulations, animal 
and plant quarantine measures are strictly enforced.  
7. During 2003-06, export licensing, prohibitions, and restrictions were maintained to ensure 
protection of natural resources and endangered species, promot e higher-value-added downstream 
industries, upgrade the quality of export produc ts, and provide an adequate supply of essential 
products.  Exports of products subject to restric tive measures were allowed only through registered 
and approved exporters.  The export ban on logs is used to support Indonesia's forestry conservation 
policy.  In 2005, export taxes were introduced on raw skins, white tanned hides, and coal.  Regarding 
export assistance, in 2004 the Government ended seve ral credit programmes that offered subsidized 
loans to support exports.  Export finance is provide d to firms that have no bad debt, based on 
commercial considerations. 
8. Support for production and trade has been provide d through financial assistance for R&D as 
well as through industry and/or region-specific tax in centives.  Indirect taxes have been levied in a 
non-discriminatory manner;  it is unclear wh ether regional levies, and taxes are also non-
discriminatory.  In 2006, the Government proposed  three new tax laws to reform what is widely 
perceived to be an arbitrary and, in regional terms, a system with relative high corporate taxes.  Rising 
global oil prices obliged the Government to reduce s ubsidies for fuel in 2005 and bring prices closer 
in line with the market;  it is estimated that sav ings from fuel subsidies could free up US$6-8 billion 
annually for investment.  State involvement in the economy (including exclusive import rights to 
domestic producers of certain sensitive items (such as rice, cloves, alcoholic beverages, sugar, hot- 
and cold-rolled coil iron, and steel products) h as continued with a view to assisting domestic 
production and/or controlling/restraining trade in virtually all important sectors.  A handful of 
commodities and services remain subject to "administered prices".   
9. Indonesia's competition policy framework has been put  into effect;  most cases dealt with up 
to 2006 appear to relate to collusion on tenders ma inly relating to government contracts.  Action has 
continued on consumer protection;  responsibilit y is now shared between the Government and 
non-governmental organizations.  
10. Indonesia has sought to strengthen protection of intellectual property rights by expanding its 
international commitments and im proving its legal framework to combat IPR violations.  Although  
institutional constraints have c ontinued to impede effective im plementation of the laws, the 
Government appears to have made progress in co ntrolling piracy.  In 2006, a Presidential Decree 
established a National Task Force for IPR Violation Prevention, which is tasked with coordinating a 
number of essential strategic and law enforcement efforts. 
(2) MEASURES DIRECTLY AFFECTING IMPORTS  
(i) Customs procedures 
11. Documents required for imports include:  a bill of lading on which freight charges must be 
stated; a commercial invoice containing information on, inter alia,  buyer and seller, date of shipment, 
description and prices of goods, origin  of goods, and freight and insurance;  an insurance certificate, 
which is usually required when goods are insured outside  of Indonesia or are to be stored in a bonded 
warehouse; and a certificate of origin, re quired for narcotics and drugs imports. Indonesia WT/TPR/S/184 
 Page 37 
 
 
12. As part of the effort to reform the investment  climate, the Government issued a package of 
policies in early 2006.1  One element concerns the improvement of customs procedures (Table III.1). 
The Government undertook to (a) accelerate the flow of goods by speeding up the customs 
examination process, facilitating cargo processing, and implementing lower costs at Indonesian ports;  
shorten cargo processing for capital goods to seven days from the current average of 30 days;  
(b) expand the role of bonded zones by extendi ng the function of bonded warehouses and automating 
certain of their functions2;  c) aim to eradicate smuggling and customs fraud3;  and (d) accelerate the 
registration and application process for excise facilities.   
Table III.1 
Planned improvements to Indonesian Customs to be carried out in 2006/07 
Policy and programme Measure Output Responsible 
agency 
A. Acceleration of the flow of goods   
Acceleration of the customs 
examination process   
 Simplifying laws and regulations 
related to customs examination 
procedures Simplified customs examination 
procedures MOF 
 Expansion of the EDI system at the 
Directorate General of Customs and 
Excises Expansion of the EDI system at the 
Directorate General of Customs and 
Excises to decrease the Time Release 
Target: 1) Green lane to become 30 minutes 2) Red lane to become 3 days MOF 
 Preparation of the application of the 
import/export system with Web-base 
technology to support the application of the National Single Window 
(NSW) 2008 Increase the import and export 
application system with Web-base 
technology MOF 
 Stipulate clear and transparent criteria 
and consistently carry out regulations 
concerning use of the green lane and 
red lane, supported by appropriate 
equipment and technology Revised regulations related to the use 
of the green lane and red lane, 
supported by appropriate equipment 
and technology so that the use of red 
lane will become: 20% in June 2006 
15% in September 2006 
10% in December 2006 MOF 
 Stipulate clear and transparent criteria 
and consistently carry out regulations 
concerning the use of the priority lane 
supported by appropriate equipment and technology Revised regulations related to the use 
of the green lane and red lane by 
appropriate equipment and 
technology to increase the use of  
priority lane from 71 to 100 importers MOF 
 Compile a manual of the procedures, 
stipulating the classification of certain 
primary goods, in order to establish clear and transparent tariffs Classification of certain primary 
goods MOF 
Table III.1 (cont'd) 
                                                      
1 Presidential Instruction No. 3/2006:  Policy Package to Improve the Investment Climate. 
2 Bonded warehouses provide businesses with the opportunity to defer payment of import duties, while 
allowing them to store, exhibit, sell, pack, re-pack and/or process goods originating from outside Indonesia. 
3 According to the Directorate General of Customs and Excise, there were 220 cases of customs fraud 
between 2004 and April 2005 causing financial losses of Rp 130.4 billion.  Customs & Excise online 
information.  Viewed at:  http:/www.beacukai.go.id/en/news_en/read//News.php?ID=1040&Ch==01  [23 November 2006]. WT/TPR/S/184 Trade Policy Review 
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Policy and programme Measure Output Responsible 
agency 
Faster cargo processing and lower costs at the ports of Tanjung Priok 
and Soekarno Hatta   
 Preparation of the application of the 
National Single Window 2008 
covering the trade-net and port-net Decree of the Coordinating Minister 
for Economic Affairs on the 
Preparation of the National Single Window (NSW) in the framework of 
Keppres No. 54/2002 on flows of 
exports and imports CMEA 
 Acceleration of cargo handling and 
reduction of costs at the ports Shortening the time for cargo 
handling 
Abolishing costs that do not comply 
with laws and regulations MT 
 Investigative audit of port activitie s Conducting investigative audit MT 
 Improving spatial layout of por t An efficient spatial layout 
implemented MT 
B. Expansion of the role of bonded storage (TPB)   
Changes in bonded storage to 
attract investors   
 Amending Articles 44 to 47 of 
Customs Law No. 10/1995 Articles 44 and 45 of Customs Law 
Amendment No. 17/2006 MOF 
Improvement of TPB regulations   
 Prepare draft replacements of the 
decrees on TPB The replacement decrees on TPB are 
adjusted in acco rdance with the 
Customs Law Amendment MOF 
Automation of activities at TPB    
 Prepare a TPB service application, 
system to become mandatory Mandatory application of the TPB 
service application system MOF 
Enhanced customs facilities in the 
bonded zone   
 Applying the customs system in force 
in Batam to other bonded zones Minister of Finance Regulation MOF 
C. Eradication of smuggling   
Increase activities to eradicate 
smuggling   
 Enhance coordination with related 
agencies Accelerate the legal process with 
respect to the crime of smuggling AG 
 Intensify supervision through customs 
and excise audits Stipulate an Audit Object Plan List 
(DROA) with a profiling and 
targeting system;  and enhance joint 
audits with the Directorate General of Taxes and the BPKP (Supervisory 
Agency of Finance and 
Development):  50 companies to be audited MOF 
D. Debureaucratization in the excises sector   
Accelerate the registration and 
application process for excise 
facilities   
 Application for registration and 
facilities does not need to pass 
through the Regional Office of the 
Directorate General of Customs and Excises Revised Minister of Finance Decree MOF 
Note: MOF =  Ministry of Finance;  CMEA = Coordinating Mini stry of Economic Affairs;  MT = Ministry of Transport;  
AG = Attorney General. 
Source:  The Indonesian authorities. Indonesia WT/TPR/S/184 
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(ii) Customs valuation and rules of origin  
13. Indonesia complies with the WTO Customs Valuati on Agreement (Article VII of the GATT).  
Import duties, which are generally, ad valorem , are imposed on the c.i.f. value of the import. The 
valuation basis changed in 1997 from the prevailing ma rket value used in preshipment inspection to 
the transaction value plus certain costs and expen ses.  However, Customs reportedly uses a schedule 
of arbitrary check prices rather than the tr ansaction value when assessing duties on certain food 
imports.4  
14. Under Indonesian Customs Law No. 10/1995, which became effective 1 April 1997, a 
post-entry audit system replaced the pre-shipme nt inspection that was required under the 1985 
Presidential Decree.  The system relies primarily on  verification and auditing of declarations rather 
than inspection to monitor compliance.  Selectiv e on-arrival inspection of imported goods, however, 
is undertaken by the Directorate-General of Cust oms at the port of entry.  Import declaration, 
including self-assessment of duties, can be made  by the importer through an EDI (electronic data 
interchange) system that links importers, banks, and customs, although it is limited to major 
international ports and customs offices.  Goods awa iting clearance at the port receive free storage for 
the first six days after entry.  Customs officials ha ve 30 days after submission of documents to verify 
import prices and impose any fines. 
15. According to the authorities, Indonesia is in the process of completing its regulations on 
preferential rules of origin under the ASEAN CEPT and the ASEAN-China FTA.5  Indonesia's 
non-preferential rules of origin are in conformity with the WTO Agreement on Rules of Origin. 
(iii) Tariffs 
(a) General features  
16. Indonesia uses the Harmonized Commodity Description and Coding System for classifying 
imports and exports.  In order  to meet its WTO commitments and its domestic policy imperatives, the 
Government has pursued two sets of policies in recen t years that have had a significant impact on the 
level and structure of tariffs.  The policies relate d to a tariff reduction programme from 1996 to 2003 
and to a tariff harmonization programme (THP) fo r the period 2004 to 2010 (Box III.I).  The 
implementation of the tariff reducti on programme reduced the unweighted average applied tariff rate 
from 15.5% in 1995 to 7.2% in 2002 (Table III.2). Ho wever, in 2004, following the end of the tariff 
reduction programme, Indonesia adopted the ASEA N Harmonized Tariff Nomenclature (AHTN) as 
part of its commitments under AFTA.  The revised  tariff book categorizes tariffs into ASEAN tariffs 
(with 7,442 lines) and into MFN Non-ASEAN tariffs .  The latter increased the number of tariff lines 
from 7,540 in 2003 to 11,161 in 2004 as a result of splitting (and merging) of tariff lines.  The 
merging of tariff lines with different tariff rates resu lted in an overall increase in the simple average 
applied rate to 9.9% in 2004. 
17. At the end of 2004, Team Tariff announced the results of the THP's first phase, which was 
implemented in early 2005.  It covered 1,964 lines with actual changes to 239 lines:  96 tariff 
increases for agricultural (rice, fish, chicken qua rters, mangos, carrots, mandarin oranges, and 
flowers) and ceramic products, and 143 tariff reductions, including fo r some mining related products.  
                                                      
4 USTR (2006), p. 319. 
5 According to the authorities, Indonesia issued a le gal enactment regarding the issuance of Certificate 
of Origin form D under the ASEAN Common Effective Preferential Tariff (CEPT), and form E under the 
ASEAN-China FTA, as laid down in the Regulation of Minister of Trade No.17/M-DAG/PER/9/2005, dated 30 September 2005. WT/TPR/S/184 Trade Policy Review 
Page 40 
 
 
The second phase, which covered more than 9,100 tariff lines and was completed in February 2006, 
reduced the simple average tariff rate to 9.5% in 20 06, with 59% of tariff lines subject to zero or 5% 
ad valorem  duties, compared with 68% of lines in 2002.  
18. The authorities state that Indonesia does not implement any tariff quotas. 
19. The tariff has remained a relatively minor sour ce of tax revenue since the previous Review, 
accounting for 4.3% of total tax revenues in 2005.  It  is nonetheless an important instrument of trade 
policy.  The tariff is a relatively complex in strument, containing over 11,000 lines and 19 rates 
(16 ad valorem  and 3 specific).  Bound tariff rates tend to be substantially higher than applied rates 
and the gap has widened in many cases since 2003 as a result of scheduled tariff cuts.  This gives 
increased scope for the authorities to raise app lied rates on strategic commodities, which the 
Government did in 2005, when it increased import duties on corn and soybeans from 0% to 5% and 
10%, respectively.  
Box III.1:  World Bank analysis of the Tariff Harmonization Program 
A medium-term tariff harmonization programme, announced in February 2006, aims to move toward a "low" 
and uniform" tariff rate and specifies a tariff reduction schedule between 2005 and 2010.  According to the 
schedule, 94% of all tariff lines would have rates at or below 10% by 2010;  rates on the remaining 6% (sensitive sectors) would be reduced to 10% within a longer time-frame. 
Indonesia's tariff harmonization programme was carried out in two phases.  The first phase (Phase-I) was 
announced at the end of 2004 and covered 1,964 tariff lines on six groups of products (mainly agriculture 
commodities).  It was implemented in early 2005 (M inistry of Finance Regulation No. 600/2004).  The 
second phase (Phase-II) was announced at the end of 2005 and covered more than 9,100 tariff lines.  It was 
completed in February 2006 (Ministry of Finance Regu lation No. 132/2005).  In Phase-II, Team Tariff, 
which is responsible for the programme, established crite ria for setting tariff rates, including  lower rates by 
2010 and fewer tariff bands. 
On a weighted average basis (weighte d by the number of tariff lines w ithin each broader grouping), the MFN 
(Most-Favoured Nation) tariff would be reduced from 8.7% in 2004 to 7.7% in 2010.  The effective average 
tariff rate is likely to be much lower than 7.7%:  th e following two factors are likely to lower the effective 
average tariff rate: 
(i) Commitments to ASEAN Free Trade Area (AFTA) :  Indonesia's commitments  to AFTA mean that 
most tariff lines have AFTA rates ranging between 0 and 5%.  Depending on the magnitude of Indonesia's trade with AFTA, we expect the overa ll average tariff rate to be less than 7.7%. 
(ii) Possible duty-exemptions under various export  facilitation programs: a substantial proportion of 
imported intermediate goods are duty-exempt under Indonesia's various export facilitation 
programmes.  Figures are not available on the valu e of imported goods ex empted from duties, but 
this could be at least US$10 billion per year, or about one quarter to one third of imports.  Thus, 
with these imports zero rated, the effective average tariff rate would be well below 7%. 
By 2010, 87% of tariffs would fall into two bands:  5% and 10%.  This consolidation of tariff lines also 
results in fewer products subject to zero import duty (except for exporters).  The percentage of products 
subject to zero tariff falls from 20.9% in 2004 to 5.5% in 2010. 
While Team Tariff had established basic guidelines for determining tariff reductions, the final 
recommendations were essentially achieved through negotiations between the different departments on 
Team Tariff.  These negotiations resulted in slowing tari ff reform in so-called "sensitive sectors" but also 
slowing down the shift towards the initially stated goal of a "uniform" tariff rate. While the overall rate is 
declining, the implications for economic efficiency remain unclear, as the dispersion of tariff rates has only declined slightly.   
Source:   World Bank Office Jakarta (2006), "Recent Developm ent of Tariff Harmonization Program", INDONESIA 
Trade Note, June 2006. 
 Indonesia WT/TPR/S/184 
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Table III.2 
Structure of the MFN tariff, 2002-06 
(Per cent)  
  2002 2003 2004 2005 2006 Final 
bounda 
 1. Bound tariff lines (% of all tariff lines) .. .. .. .. .. 93.2 
 2. Simple average applied rate 7.2 7.2 9.9 9.9 9.5 37.5 
 Agricultural products (HS01-24) 8.6 8.6 11.6 11.8 11.4 47.3 
 Industrial products (HS25-97) 7.0 7.0 9.6 9.6 9.2 35.8 
 WTO agricultural products 8.6 8.6 12.1 12.2 11.8 47.7 
 WTO non-agricultural products 7.0 7.0 9.6 9.6 9.2 35.8 
 Textiles and clothing 10. 5 10.5 10.8 10. 8 10.9 29.3 
 3. Domestic tariff "peaks" (% of all tariff lines)b 1.6 1.6 5.0 5.0 5.1 0.5 
 4. International tariff "peaks" (% of all tariff lines)c 3.6 3.6 10.7 10.4 10.6 90.7 
 5. Overall standard deviation of tariff rates 11.2 11.2 15.4 15.4 13.7 12.7 
 6. Coefficient of variation of tariff rates 1.5 1.5 1.6 1.6 1.5 0.3 
 7. Duty free tariff lines (% of all tariff lines) 21.9 21.8 20.9 21.1 22.0 1.7 
 8. Non- ad valorem tariffs (% of all tariff lines) 0.2 0.2 0.2 0.2 0.2 0.0 
 9. Non- ad valorem  tariffs with no AVEs (% of all tariff lines) 0.0 0.0 0.0 0.0 0.0 0.0 
10. Nuisance applied rates (% of all tariff lines)d 0.0 0.0 0.0 0.0 0.0 0.0 
.. Not available. 
a Based on 1998 tariff schedule in HS96 nome nclature.  Calculations are based on 6,8 93 bound tariff lines (representing 93.2% o f 
total lines), of which 6,717 (93.2%) are fully bound and 176 (2.4 %) are partially bound.  Implementation of the U.R. was 
achieved in 2005. 
b Domestic tariff peaks are defined as those exceeding three times the overall simple average applied rate. 
c International tariff peaks are defined as those exceeding 15%. 
d Nuisance rates are those greater than zero, but less than or equal to 2%. 
Note: Calculations include AVEs for speci fic rates provided by  the authorities. 
 The 2002 and 2003 tariff schedules are ba sed on 9-digit HS02 nomenclature consisting of 7,532 tariff lines.  The 2004, 2005 an d 
2006 tariff schedules are based on 10-digit HS02 nomenclature consisting of 11,151, 11,159 and 11,161 lines, respectively. 
Source:  WTO calculations, based on data provided by the Indonesian authorities. 
(b) MFN tariff bindings  
20. Under its WTO obligations, Indonesia committed to bind 94.6% of its tariffs at 40%.  
Products for which tariff bindings exceed 40%, or wh ich remain unbound, include automobiles, iron, 
steel, and some chemical products. While binding  ratios for agricultural and marine products, 
petroleum oil, textiles and clothing are at 100%, the ra tio for transport equipment is only a 31.4%.  In 
the agriculture sector, 1,341 tariff lines have bindings  at or above 40%, including the most sensitive 
and heavily protected sectors.  In the current WT O negotiations, Indonesia, as leader of the G-33, has 
been advocating special exemptions from tariff reduc tions for rice, sugar, soybeans, and corn.  The 
average bound tariff for WTO agricultural products is 47.7% (Table III.2), which is considerably 
higher than the average bound tariff on all goods of 37.5%. 
(c) Specific duties 
21. In January 2000, specific duties replaced ad valorem  tariff rates for rice and sugar, ostensibly 
to avoid under-invoicing and other ille gal practices.  The specific rate of Rp 450/kg. for rice products 
is equivalent to an ad valorem  rate of approximately 30%.  The specific rates of Rp 550/kg. for raw 
sugar products and Rp 790/kg. for refine d sugar products are equivalent to ad valorem  rates of 30% 
and 40%, respectively.  Import licences for sugar products for several tari ff lines are granted to 
producer-importers and approved importers until 2007.  The Indonesian Government has been 
developing a comprehensive sugar programme to e nhance the productivity of sugar cane plantations 
and their processing factories.  WT/TPR/S/184 Trade Policy Review 
Page 42 
 
 
(d) Applied MFN tariffs 
22. Indonesia's applied MFN tariff rate is below 10%  for the majority of goods although tariffs 
ranging from 0% to 10% decreased from 83.4% of I ndonesia's total tariff lines in 2002 to 75% in 2006 
(Chart III.1).  The share of duty-free tariff lin es remained virtually unchanged at 22%.  Tariff 
dispersion indicators show that the dispersion in applied MFN tariffs has increased since 2002 with 
tariff "spikes" and the standard deviation in tari ff rates increasing (Table III.2 and Chart III.1).  High 
tariffs, of up to 80-90% are being imposed on alcoholic  beverages, while for cars the highest rate of 
80% was reduced to 60% in 2006.  With the excep tion of these products, the overall trend regarding 
tariff rates is downward.  Indonesia has made it clear in the APEC forum that it is seeking to eliminate 
all tariffs by 2020 to achieve the Bogor goal of barrier-free trade. 6 
23. Many of Indonesia's bound rates are considerably higher than the applied duties, thus creating 
a degree of uncertainty to its tariff. The current  gap of 28 percentage points between the average 
bound and applied MFN tariff rates provides consider able scope for the authorities to raise applied 
rates within bindings, although there has been a relative narrowing of this gap since 2002.  The 
difference between average applied and bound ra tes in 2006 was much higher for agricultural 
products than for industrial produc ts (Chart III.2).  The authorities indicate willingness to negotiate 
further cuts to bound rates.  
 (21.9%) (46.2%) 
 (15.3%)
 (13.0%)
(1.9%)  (1.7%). (22.0%)(37.1%)
(15.9%)
(14.4%)
(5.4%)  (5.3%)
05001,0001,5002,0002,5003,0003,5004,0004,500
Duty free >0-5 >5-10 >10-15 >15-20 >20
Note:          Figures in parentheses denote the share of to tal lines.     Calculations include AVEs for specific rates provide d by the 
                    authorities.   The 2002 and 2006 ta riff schedules consist, respectively, of 7,532 and 11,161 tariff lines.   
Source:     WTO Secretariat calculations, based on data provided by the authorities of Indonesia.Number of tariff linesChart III.1
Distribution of MFN tariff rates, 2002 and 2006
Tariff rates MFN 2002
MFN 2006
 
 
                                                      
6 Under the APEC declaration signed in Bogor (West Java) in 1994, the region's advanced industrial 
countries pledged to remove all trade barriers by 2010, with emerging market economies set to follow suit by 2020.  The declaration stipulated that free trade in the Asia-pacific region must comply with WTO principles.  Indonesia WT/TPR/S/184 
 Page 43 
 
 
0.05.010.015.020.025.030.035.040.045.050.0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Calculations include AVEs for specific rates provided by the authorities.   Only HS sections 02, 03, 08, 09, and 11 are
fully bound.   HS sections 19 and 21 are fully unbound.    Bound rates are based on 1998 tariff schedule.    2002 tariff
is based on  9-digit, consisiting of 7,532 tariff lines;  2006 tariff is based on 10-digit consisting of 11,151 tariff lines.
WTO Secretariat calculations, based on data provided by the Indonesian authorities.Per centChart III.2                       
Average applied MFN and bound tariff rates, by HS section, 2002 and 2006
Note:
Source :01   Live animals & products
02   Vegetable products03   Fats & oils      04   Prepared food, etc.05   Mineral products06   Chemicals & 
products07   Plastic & rubber
08   Hides & skins09   Wood & articles10   Pulp, paper, etc.11   Textiles & articles12   Footwear
, head gear13   Articles of stones
14   Precious stones, etc.15   Base metals and products16   Machinery17   Transport equipment18   Precision instrument19   Arms & ammunition
20   Miscellaneous manuf.21   Works of art, etc.MFN 2002 MFN 2006 Bound
Average applied rate 
2006  (9.5%)Average applied rate
 2002  (7.2%)Average bound rate
(37.5%)
 
24. The average rate of customs duty collected on total imports between 2003 and 2006 was  
2.7%.  This was considerably lower than the average applied MFN rate, thus indicating the 
widespread use of preferences and exemptions.  
(e) MFN tariff escalation 
25. Changes in the customs tariff have affected th e pattern of tariff escalation differently in each 
activity.  Since 2002, it has remained relatively unchanged for textiles and leather, chemicals, 
non-metallic mineral products, and basic metal products  (Chart III.3).  More pronounced escalation is 
apparent for fully processed food, beverages a nd tobacco industry products, and for semi-processed 
products in the paper, printing, and publishing sector  due to a reduction of tariffs on final products.  
(f) Tariff preferences 
26. Indonesia fully implemented the final stage of its ASEAN Free Trade Agreement (AFTA) in 
January 2002.  The Common Effective Preferential Tariff (CEPT) scheme aims to lower tariffs on imported goods of ASEAN member countries to 0- 5%;  the six original members of ASEAN, 
including Indonesia, were schedul ed to so by 2003.  By 2006, the average applied CEPT rate had 
fallen to 2.7% and as intra-ASEAN trade develops it is predicted that the CEPT rate will drop further, 
bringing about an even wider gap with the MFN ta riff rate (Table III.3).  In making the tariff cuts, 
however, Indonesia did not meet its target uniformly.  For example, the Government decided in February 2002 not to cut import duties on sugar to  a maximum of 5% in line with AFTA terms;  
instead, it put sugar on the "highly sensitive list" of products that face a maximum tariff of 20% in the 
period 2003-10. WT/TPR/S/184 Trade Policy Review 
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n.a.n.a.024681012141618
Food,
beverages
and tobaccoTextiles and
leatherWood and
furniturePaper,
printing and
publishing Chemicals Non-metallic
mineral
products Basic metal Fabricated
metal
products and
machineryOtherChart III.3
Tariff escalation by 2-digit ISIC industry, 2002 and 2006
n.a.n.a.024681012141618
Food,
beverages
and tobaccoTextiles and
leatherWood and
furniturePaper,
printing and
publishingChemicals Non-metallic
mineral
products Basic metal Fabricated
metal
products and
machineryOtherAverage applied rate in manufacturing
(7.5%)
Not applicable.
Calculations include AVEs for specific rates provided b y the authorities.   The 2002 tariff schedule is based on 9 -
digit HS02 nomenclature consisting of 7,532 tariff lines and the 2006 tariff schedule is based on 10-digit HS02 
nomenclature consisting of 11,161 tariff lines.WTO Secretariat calculations, based on data provided by the Indonesian authorities.n.a.
Note:
Source :Per cent
First stage of processing Fully processed Semi-processedPer cent
Average applied rate in manufacturing
(9.8%)2002
2006
 Indonesia WT/TPR/S/184 
 Page 45 
 
 
Table III.3 
Summary analysis of the Indonesian MF N and CEPT preferential tariff, 2003-06 
(Per cent) 
 2003 2004 2005 2006 
  MFN CEPT  MFN CEPT  MFN CEPT  MFN CEPT  
Total 7.2 2.8 9.9 3.4 9.9 3.4 9.5 2.7 
By WTO definition         
Agricultural products 8.6 6.8 12.1 10.2 12.2 10.2 11.8 7.6 
Live animals and products thereof 4.1 2.3 4.1 1.9 4.3 1.9 4.5 0.2 
Dairy products 5.0 0.0 5.0 0.0 5.0 0.0 5.6 0.0 
Coffee and tea, cocoa, sugar, etc. 7.7 5.5 11.0 9.3 11.1 9.4 11.3 7.5 
Cut flowers and plants 5.1 3.2 5.7 3.1 6.4 3.1 6.4 0.0 
Fruit and vegetables 5.0 3.8 5.0 3.8 5.1 3.8 5.2 0.5 
Grains 8.2 7.9 17.4 17.3 17.7 17.3 17.7 16.3 
Oils seeds, fats, oil and their produc ts 4.1 2.8 4.8 2.7 4.8 2.7 4.7 0.3 
Beverages and spirits 52.2 50.3 96.4 94.7 96.4 94.7 87.4 84.1 
Tobacco 10.3 2.2 10.5 3.9 10.5 3. 9 10.5 3.8 
Other agricultural products, n.e.s. 3.7 2.2 4.1 2.6 4.1 2.6 4.3 1.6 
Non-agricultural products (excl. petroleum) 7.0 2.2 9.6 2.6 9.6 2.6 9.2 2.1 
Fish and fishery products 5.0 4.2 5.1 4.1 5.3 4.4 5.4 0.5 
Mineral products, precious stones, etc. 5.3 3.2 5.6 3.3 6.4 3.3 6.7 3.0 
Metals 8.1 2.0 9.8 2.5 9.1 2.0 9.1 2.1 
Chemicals and photographic supplies 5.6 2.4 6.7 2.7 6.7 2.7 6.6 2.4 
Leather, rubber, footwear, travel goods 7.5 3.9 8.7 4.1 8.7 4.1 10.3 3.9 
Wood, pulp, paper and furniture 3.7 1.8 4.3 2.3 4.3 2.3 4.2 2.2 
Textiles and clothing 10.5 1. 5 10.8 2.0 10.8 2.0 10.9 1.6 
Transport equipment 18.4 2.7 28.7 4.1 28.7 4.1 25.6 4.1 
Non-electric machinery 2.4 0.8 2.7 0.9 2.7 0.9 2.7 0.6 
Electric machinery 6.0 2.7 6.4 2.9 6.4 2.9 5.6 1.4 
Non-agricultural products, n.e.s. 7.4 2.7 7.2 2.3 7.2 2.3 7.0 1.4 
Petroleum 5.0 2.0 5.0 1.8 5.0 1.8 1.6 0.5 
By sectora         
Agriculture and fisheries 4.1 3.1 4.0 3.0 4.2 3.1 4.2 0.5 
Mining 3.9 2.3 4.0 2.3 4.0 2.3 4.0 1.8 
Manufacturing 7.5 2.8 10.3 3.5 10.2 3.5 9.8 2.8 
excluding food processing 7.2 2.1 9.8 2.6 9.8 2.6 9.4 2.1 
By stage of processing         
First stage of processing 4.2 2.9 4.6 3.3 4.7 3.3 4.7 0.7 
Semi-processed products 6.2 2.0 7.3 2.4 7.0 2.5 7.0 2.0 
Fully processed products 8.6 3.3 11.6 3.8 11.7 3.8 11.1 3.1 
a ISIC (Rev.2) classification.  Electricity , gas and water are excluded (1 tariff line). 
Note: Calculations include AVEs for speci fic rates provided by  the authorities. 
 The 2006 tariff schedule is based on 9-dig it HS02 nomenclature consisting of 7,532 ta riff lines;  the 1999/00 tariff is based on 
HS96 nomenclature;  and the 2005/ 06 tariff is based on HS02 nomenclature.  Th e 2004, 2005 and 2006 tariff schedules are based 
on 10-digit HS02 nomenclature consisting, respec tively, of 11,151, 11,159 and 11,161 tariff lines. 
Source:  WTO calculations, based on data provided by the Indonesian authorities. WT/TPR/S/184 Trade Policy Review 
Page 46 
 
 
27. Indonesia also decided in November 2004 to in clude 400 products (later reduced) on the list 
of sensitive and highly sensitive goods to be excluded from the free-trade agreement proposal 
between ASEAN and China.  The sensitive list consis ts of 304 tariff lines at 6-digit level, which 
includes cars, electronics, textiles, and chemical  products, for which Indonesia frequently uses 
licensing requirements and quality-control standards to  regulate imports.  The tariff rate of products 
on the sensitive list will be at a maximum of 20% by 2012 and reduced into the 0-5% bracket or 
eliminated by 2018.  The "highly sensitive list" includ es rice, sugar, soya beans, maize and other food 
items, motor vehicles, motor cycles, ethyl alcohol , and ceramics for which the maximum tariff rate 
will be 50% by 2015;  the most drastic tariff reducti ons will not apply to this list and trade in these 
goods may remain quite restricted.   
(iv) Other charges affecting imports  
28. Since 2000, the Government has applied a 10%  value-added tax (VAT) on the sale of all 
domestic and imported goods.  A sepa rate luxury tax can range much higher for certain products and 
excise duties are applied to certain products, nota bly cigarettes, beer, and wines and spirits (see 
section (4)(i)(a) below).  These indirect taxes appl y to imported and domestically produced goods 
alike.   
29. The authorities state that the only cost ch arged by Customs is a Customs User Fee 
(Penerimaan Negara Bukan Pajak), a specific fee charged per declaration document submitted.  This 
is used primarily to pay for connection to Electr onic Data Interchange (ED I) providers, and covers 
transmission and maintenance of IT operations fo r the automation of import and export activities. 
(v) Import prohibitions, restrictions, and licensing  
30. During the period under review, the Indonesian Government has continued to reduce the 
number of products subject to im port restrictions, prohibitions, a nd special licensing requirements. 
Currently, 141 tariff lines are subject to import licensing restrictions, down from 1,112 tariff lines in 1990.  Alcoholic beverages, lubricants, explosives,  and certain dangerous ch emical compounds, ozone 
depleting substances, and rough diamonds, among other items, are subject to these requirements.  The 
Government controls the import of video tapes, laser discs and other entertainment products for both 
exhibition and private use;  such products are subject to review by a censor board.   
31. According to the authorities, the import licensi ng system is implemented to protect health, 
safety, security, the environment, and public mora ls as well as to meet certain socioeconomic 
objectives including enhancing domestic competitiveness and  preventing smuggling.  The Ministry of 
Trade is responsible for issuing and approving lic ences, stating that all products are subject to 
automatic import licensing except the following which are subject to non-automatic licensing:  
alcoholic beverages;  nitrocellulose;  precursors;   optical discs;  rice;  white crystal sugar;  
consumption salt;  and unworked diamonds.
7 
32. Only resident companies are eligible to beco me registered importers, of which there are 
several thousand.  The Ministry of Trade is the ma in issuer of licences but special licences from other 
ministries may be needed to import  certain products  such as medicines and foodstuffs.  Items that 
remain restricted may be imported only by one of four types of special licence holder:  state-enterprise importers;  producer importers (private or state co mpanies licensed to import goods that compete with 
those they produce domestically);  importe r-producers (firms approved to import goods and 
equipment necessary for production and not availabl e locally);  and sole agents (i.e. national 
distributors holding sole-import licences from the Ministry of Trade).  
                                                     
 
7 See Indonesia's notification to the WTO of 27 November 2006 in document G/LIC/N/3/IDN/3.   Indonesia WT/TPR/S/184 
 Page 47 
 
 
33. Indonesia continues to ban on imports of chicke n parts imposed originally in September 2000 
by the Directorate General of Livestock Services in the Ministry of Agri culture (MOA).  The MOA 
maintains that it is necessary to assure consumers that imports are halal  (produced in accordance with 
Islamic practices).  Indonesia also imposes de facto quantitative restrictions on imports of meat and 
poultry products, requiring an Im porter Letter of Recommendation ( Surat Rekomendasi Importir ), 
which may affect the quantity allowed to enter. 
34. A rice import ban in force since February 2004 was eased somewhat in November 2005, 
when the Ministry of Trade issued import permits  to Bulog allowing imports of about 70,000 tonnes 
of rice.  Rice imports are prohibited during the p eak harvest season (January to June) and may be 
imported only by importer-producers and registered im porters of rice;  they can be unloaded only in 
approved ports in non-rice-producing areas.  Rice impor ts are approved for a specified tonnage, type 
of rice, port of destination, and shipping schedule.  It can be used only as a raw material in industrial 
processing and may not be sold or transferred to othe r parties.  The policy applies to a wide range of 
rice categories with the exception of pa ddy for sowing and glutinous rice.   
35. In June 2004, the Ministry of Trade banned  the import of salt during the harvest season from 
July through the end of each year.  Under the regul ations, salt importing companies must be registered 
and source 50% of their raw materials locally.8  
36. A September 2004 Ministry of Trade decree allows five companies (importer-producers) to 
import sugar.  It also states that the Ministry of  Trade decides which companies can import sugar and 
how much.  According to the Government, sugar im ports are regulated to protect domestic farmers 
from low prices.  Registered importers are obliged to absorb three-quarter of the sugarcane produced 
by small farmers. 
37. In March 2002, the Minister of Industry and Trade issued a decree requiring importers of 
certain critical products to obtain a  special importe r identification code number (NPIK).  Importers of 
certain product categories must apply for a special importer identity card, without which products can 
be detained at port.  The goods include:  corn, rice, soybeans, sugar, te xtile and related products, 
shoes, electronics, and toys.  The authorities explai ned that this action was taken to stop large-scale 
smuggling of these products, which was hurting domestic producers.  
38. The Minister of Industry and Trade issued a decree concerning Textile Import Arrangements 
on 23 October 2002.  Only companies that have pr oduction facilities using imported fabrics as inputs 
for finished products, such as garments or furniture, may obtain import licences.  All authorized 
importers must seek approval from the Ministry for the amount and time schedule of their imports and 
must also report to the Ministry on a regular basis.   Trading partners have raised concerns that the 
import licensing requirements restrict and distort trade.9  Indonesia maintains that the regulations are 
designed to help curb smuggling.  
(vi) State trading 
39. Indonesia's latest WTO notification on state trading was in August 2004 (new and full 
notification).10  In accordance with past practice, the notification covered only the rice trading 
operations of the National Logistics Agency (Per um Bulog), which was established in 2003 as a state 
trading enterprise (STE) with the purpose of s upporting domestic rice producers and stabilizing the 
                                                      
8 According to Ministry of Trade decree No. 20/2005, the domestic content regulation applies only to 
salt for use by consumers.  
9 See, for example WTO document G/LIC/Q/IDN/7/Add.1 of 8 January 2007. 
10 See WTO document G/STR/N/10/IDN, 23 August 2004.  WT/TPR/S/184 Trade Policy Review 
Page 48 
 
 
price of rice at consumer and producer levels.  Th e authorities indicate that Bulog is the only STE in 
Indonesia.  Previously Bulog had a monopoly on importing and distributing major bulk food commodities, such as wheat, rice, sugar, and soyb eans, but now has the status of a state-owned 
enterprise with responsibility for maintaining rice stocks for distri bution to the military and to low-
income families, and for managing the country's ri ce stabilization programme.  Bulog is no longer 
entitled to draw on Bank Indonesia credit lines and must use commercial credit and pay import duties.  
40. State-owned enterprises (SOEs) are estimated to  account for up to 40% of Indonesia's GDP, 
reflecting their key role in the oil, gas and electri city industries, their continued presence in various 
other industries, including cement, fertilizer, steel and mining, as well as in agricultural plantations, 
transport, banking, and telecommunications (Table III.4).  As  stated in the previous Review in 2003, it 
appears that widespread state involvement in the economy continues with a view to assisting domestic 
production and/or promoting or restraining trade in a number of important sectors   The new oil and 
gas upstream authority, BP Migas, regulates the import of all materials used by the oil and gas sector.  
In the interests of efficiency, th e Government plans to reduce the number of SOEs from 158 to 80-85 
over the next three to five years.  Much of the reduction is expected to take place through 
consolidation rather than divestiture.  
Table III.4 
Major state-owned enterprises, 2006 
Firm Activity State ownership (%) 
Adhi Karyaa Construction 51.00 
Angkasa Pura Ia Airport management 100.00 
Antam Tbk Mining 65.00 
Asuransi Ekspor Indonesia Insurance 100.00 
Asuransi Kredit Indonesiaa Insurance 45.00 
Bank Ekspor Indonesia Banking 100.00 
Bank Mandiria Banking 68.90 
Bank Negara Indonesiaa Banking 99.12 
Bank Rakyat Indonesiaa Banking 57.37 
Danareksaa Financial 100.00 
Garuda Indonesiaa Airline 100.00 
Indofarmaa Pharmaceuticals 80.66 
Indosat Telecommunications 15.00 
Jakarta Industrial Estatea Industry 50.00 
Kawasan Berikat Nusantaraa Industry 88.70 
Kereta Api Indonesia Railway 100.00 
Kimia Farmaa Pharmaceuticals 90.03 
Krakatau Steel Steel 100.00 
Merpati Nusantaraa Airline 93.20 
Pembangunan Perumahana Construction 51.00 
Pertamina Oil and gas 100.00 
Perusahaan Umum Bulog Logistics 100.00 
Perusahaan Gas Negaraa Energy 61.00 
Perusahaan Listrik Negara Electricity 100.00 
Pos Indonesia Postal service 100.00 
Semen Gresik Cement 51.00 
Surabaya Industrial Estatea Industry 50.00 
Tambang Batubara Bukit Asam Coal mining 69.24 
Telekomunikasi Indonesiaa Telecommunications 51.19 
Timah Tbk Mining 65.00 
a Under consideration for privatization. 
Source:  The Indonesian authorities. Indonesia WT/TPR/S/184 
 Page 49 
 
 
(vii) Government procurement 
41. Government procurement continues to be used as an important instrument  of industrial policy. 
Its main policy objective is to increase the use of domestic production, design, and engineering with 
the aim of expanding domestic employment and national industries.  A Presidential Decree on 
government procurement issued in November 2004 is  aimed at simplifying procedures and increasing 
efficiency and transparency in the procurement process.  However, some special preferences are 
granted to encourage domestic sour cing, and there are provisions on the maximization of local content 
in government projects, regardless of their source of funding. 
42. The authorities estimate that government procurement in 2006 accounted for 30-40% of total 
government expenditure.  No information was made available on the volume of government 
procurement in public-sector enterprises and other government-affiliated agencies, or the percentage 
of contracts awarded to foreign companies.  Indonesia is not a party to the WTO Government 
Procurement Agreement (GPA) but is an active part icipant in the Working Gr oup on Transparency in 
Government Procurement. 
43. Foreign participation in procurement contracts is  subject to certain conditions.  For example, 
under the 2004 decree, foreign companies are eligible to bid for government contracts as part of a 
joint partnership or as a subcontractor to a domestic  firm, and permissible foreign participation was 
increased from US$1 million to US$5 million.  Regional decentralization may introduce additional barriers as local and provincial governments adopt their own procurement rules.   
44. Bilateral or multilateral donors finance many large government contracts and often impose 
special procurement requirements.  For large, government-funded projects, international competitive 
bidding practices must be followed.  The Government seeks concessional financing for most procurement projects.  Since late 1999, it has conduc ted audits of the state-owned electricity company 
(PLN), the state oil and gas company (Pertamina),  and the state logistics agency (Bulog), which 
identified serious irregularities in procurement;  however, no legal action has been taken.  
State-owned enterprises that publicly offer shares through the stock exchange are exempted from 
government procurement regulations. 
45. Foreign firms bidding on high-value government -sponsored projects have been asked to 
purchase and export the equivalent value in selected Indonesian products.  Government departments, 
institutes, and corporations are expected to u se domestic goods and services to the maximum extent 
feasible, with the exception of foreign-aid -financed procurement of goods and services. 
46. A Country Procurement Assessment Review (C PAR) conducted in 2001 by the World Bank 
identified the awarding of government contracts as a major source of corruption.  The World Bank 
called the government procurement system the prin cipal source of leakage from the budget, noting the 
existence of collusive rings involving bidders and government officials.
11  The CPAR, together with 
other studies12, have analysed the poor functioning of the procurement system.  The reasons include:  
lack of clarity and confusion caused by a multiplicity  of legal instruments;  weak compliance with 
existing procurement rules;  poor oversight and enfo rcement;  corruption and collusive practices;  and 
absence of a cadre of professional project managers  and procurement practitioners.  In response to 
these problems, the Government assigned a national procurement policy development team within the 
National Development Planning Agency (BAPPE NAS) to work on reforms to make government 
procurement more effective, efficient and compe titive as well as more transparent and accountable. 
                                                      
11 World Bank (2003), pp. 30-32.  
12 See for example ADB/OECD (2006), and Transparency International (2006), Part II. WT/TPR/S/184 Trade Policy Review 
Page 50 
 
 
47. The authorities maintain that since 2003 progress has been made in several areas.  Presidential 
Decree (No. 8/2006), revising Decree (No. 80/20 03), established a procurement framework more 
consistent with international public procurement practices by making the procurement process more 
transparent.  Each government agency is required to publish tenders of a value of up to Rp 1 billion 
(for services and construction projects) and Rp 200 m illion (for consultancy projects) in a national and 
a provincial newspaper.  Under those threshol ds, tenders may be announced in a provincial 
newspaper.  Establishment of a National Public  Procurement office, professional certification and 
wider competition are key features of the updated decr ee.  Furthermore, a draft new procurement law 
provides more clarity on procurement policies and procedures and stronger enforcement mechanisms.  
Procurement training modules for international a nd national competitive bidding procedures have 
been prepared by the Government to develop professional procurement expertise.  A pilot e-procurement system, being developed by the Gove rnment, is expected to produce savings of up 
to 25%. 
48. Indonesia's countertrade policy appears unchanged since its previous Review;  it is aimed at 
linking imports relating to procurement by mini stries, public-sector institutions and SOEs with 
exports of non-oil commodities.  The most recent da ta supplied by the Ministry of Trade, indicates 
that countertrade in the form of "counter purchase" reached US$166,9 million in 2003 and 
US$234,9 million in 2004, then fell to around US$36 million in 2005. 
(viii) Contingency measures  
(a) Anti-dumping and countervailing measures  
49. Indonesia established an Anti-dumping Committee in  1996.  Under the Customs Law, duties 
are applied to imported goods if the export price is  lower than its normal value, and countervailing 
duties will be applied:  if subsidy is proven on such goods produced in the exporting country;  if 
import of the goods causes material injury to the domestic industry producing similar goods;  or if it 
may materially retard the establis hment of a domestic industry of similar goods.  In line with other 
developing countries, Indonesia urges discipline in  the use of anti-dumping measures as contingency 
protection.  Procedures and investigation require ments are laid down in Ministry of Trade and 
Industry decrees 261/MPP/Kep/9/ 1996 and 216/MPP/Kep/7/2001. 
50. Indonesia's recourse to anti-dumping action be tween 2002 and end-June  2006 shows that 
29 anti-dumping investigations were initiated w ith 15 subject to definitive measures involving 
anti-dumping duties (Table III.5).  Indonesia has in itiated four anti-dumping investigations against 
Chinese products, mainly involving calci um carbide, paracetamol, wheat flour
13, and hot-rolled steel 
in coils.  Four investigations were initiated with respect to products from India, four from Korea, and 
two from Thailand.  In view of Indonesia's export in terests in foreign markets, the Government has 
taken serious steps to respond to allegations of dumping raised by foreign governments against its 
exports.  During the period under review, there were 61 dumping allegations against Indonesian 
products;  anti-dumping duties were imposed for more  than half (Table III.5).  Two countervailing 
actions against Indonesia were initiated, in 2005 and 2006.  
                                                      
13 As of 11 November 2005, the Indonesian Government imposed a definitive anti-dumping duty of 
9.5% on wheat flour originating from China.  Indonesia WT/TPR/S/184 
 Page 51 
 
 
Table III.5 
Summary of anti-dumping actions, 2002-06 
 Initiation Final measurea 
(for the reported initiations) No final measureb 
(for the reported initiations) 
 A B C 
Anti-dumping actions by Indonesia   
2002 8 0 0 
2003 11 0 6 
2004 5 9 8 
2005 0 4 1 
2006 5 0 0 
Total 29 13 15 
Anti-dumping actions against Indonesia  
2002 15 7 6 
2003 9 13 8 
2004 12 2 4 
2005 17 5 2 
2006 8 7 2 
Total 61 34 22 
Countervailing actions against Indonesia  
2002 0 0 0 
2003 0 0 0 
2004 0 0 0 
2005 1 0 0 
2006 1 0 1 
Total 2 0 1 
Safeguards actions against Indonesia  
2002 2 0 0 
2003 0 1 1 
2004 1 0 0 
2005 1 1 0 
2006 2 1 0 
Total 6 3 1 
a Final determination is affirmative. 
b Final determination is negative. 
Note: Columns B and C do not add up to column A when cases are ongoing or where final determinati on has not been reported yet. 
Source: Information provided by the Indonesian authorities. 
(b) Safeguards 
51. Due to pressure from local manufacturers, I ndonesia introduced a regulatory framework for 
safeguard measures in 2002.14  These take the form of higher import duties applied initially for a 
period of six months and can be extended to up to four years depending on the findings of the 
investigation.  A ministerial decree was issued in 2003 on th e establishment of the Indonesian 
safeguards Committee (KPPI).  In the period under review, Indonesia has initiated three safeguard 
investigations;  one, regarding impor ts of ceramic tableware from China, resulted in final measures in 
2006.  In 2005, Indonesia initiated a safeguard investigation involving imports of lighters from China.  
                                                      
14 Presidential Decree No. 84/2002 on the Safeguard of Domestic Industry against a Surge in the 
Import of Goods. WT/TPR/S/184 Trade Policy Review 
Page 52 
 
 
(ix) Standards and other technical requirements 
(a) Standards 
General framework 
52. The institutional framework regarding standa rds has remained largely unchanged since 
Indonesia's previous Review.  The authority of the National Standardization Agency of Indonesia (Badan Standardisasi Nasional, BSN), the (non-de partment) governmental institution responsible for 
the development of standardization, oversees the National Standardization System (Sistem 
Standardisasi Nasional, SSN), which is responsible fo r all stages of standard setting.  Within the SSN, 
the Standard Nasional Indonesia (SNI) is the only na tional standard in Indonesia, as stipulated in 
Government Regulation No. 102/2000.  A draft sta ndard is approved to become an SNI through 
processes designed to ensure openness, transparency , and national consensus among relevant parties, 
including government institutions, business organiza tions, companies, scientists and technologists, 
producers, and consumers.  Once approved by BS N, these drafts are adopted under the National 
Standardization System.  
53. The main functions of the BSN are:  assessment  and formulation of nati onal policy in national 
standardization;  facilitation and direction of standardization activities by government technical 
institutions;  organizing nationa l and international standardiza tion cooperation;  and general 
administration service. 
54. Development of draft standards is the responsib ility of technical committees (TCs) within  the 
ministries concerned with particular products.  TC  chairs and secretariats are appointed by BSN, 
which selects members and sets up sub-committees a nd core groups.  Technical committees draw up 
yearly programmes to develop new standards and to review standards adopted by regional and 
international standards bodies.  All standards are re viewed at five-year intervals.  BSN recognizes the 
importance of including consumer health and safety c oncerns in the standard-setting process.  To this 
end, the Indonesian Standardization Society, know n as MASTAN, was set up in late 2003 to improve 
the process.  MASTAN is an independent body ope n to public membership;  it has 1,572 members 
(with representatives from industry, associations , NGOs, research and consumer groups) and 
40 interest groups, and is seeking to  recruit more consumer groups.  
55. Standards are formulated in harmony with inte rnational or regional standards or foreign 
national standards by means of adopting or adapting re levant standards.  SNI standards are voluntary;  
however, those related to safety, security, and hea lth, as well as environment conservation and/or for 
economic considerations can be made mandatory. 
Mandatory standards 
56. In December 2006, a total of 6,752 standards were approved as SNIs (Chart III.4):  96.8% 
were voluntary.  The 211  mandatory SNIs, including 72 under the Ministry of Industry and Trade, and 
18 under the Ministry of Energy and Mineral resources, cover, inter alia,  raw sugar, wheat flour for 
foodstuff, battery cells, cement, tyres, plastics, fertilizers, steel items, salt, and safety glass for vehicles.  Indonesia WT/TPR/S/184 
 Page 53 
 
 
Chart III.4                               
Composition of Indonesian National Standards
Source:  Indonesian authorities.Food & agriculture
16%Electrotechnical engineering & 
electronics  6%Mining
5%
Basic standards & miscellaneous
5%
Other
35%Automotive, shipbuilding
     & railway engineering
           7%Textiles
8% Metallurgy
5%
Chemical engineering
4%
Mechanical engineering
3%
Buildings & construction
6%
Total national standards:  6,752 at end 2006
 
Testing and certification 
57. Implementation of standards is carried out through the BSN accreditation and certification 
system.  Accreditation is conducted by the Nationa l Accreditation Body (KAN) and certification by 
domestic organizations or laboratories accredited by  KAN, or overseas organizations or laboratories 
that have mutual recognition agreements with the KAN.  In the case of product certification, domestic 
or overseas producers who consistently produce goods in conformity with SNI specifications can be 
granted a certificate to use the SNI mark. 
Transparency 
58. The BSN conducts the operational activities of th e Indonesian Enquiry Point and Notification 
Body dealing with matters relating to technical barri ers to trade.  The principal responsibilities of the 
Enquiry Point and Notification Body include:  responding to technical enquiries on domestic 
regulations from other WTO Members, standards and conformity assessment procedures, and fulfilling notification obligations under the TBT Agreement.  Be tween 2003 and 2006, 
11 notifications were submitted to the TBT Co mmittee.  BSN publishes drafts of technical 
regulations, standards and rules of certification systems in the bulletin Warta Standardisasi .  BSN 
also publishes announcements on standards, and accreditation and certification systems online.
15 
(b) Sanitary and phytosanitary regulations 
59. The national enquiry point for SPS matters, th e Agency for Agricultural Quarantine (CAQ), 
under the Ministry of Agriculture, was established in 1984.  The agency employs around 
                                                      
15 See BSN online information.  Viewed at:  www.bsn.or.id. WT/TPR/S/184 Trade Policy Review 
Page 54 
 
 
1,500 personnel and supervises the activities of 78 an imal, fish, and plant stations in more than 
200 entry points throughout the country.16  It is mandated to carry out animal, fish, and plant 
quarantine.  The agency ensur es that foreign agricultural impor ts meet Indonesia's sanitary and 
phytosanitary standards. 
60. Most processed food imports must be register ed with the Department of Health, and may 
require certificates for the degree of radiation, standards of Islamic purity ( Halal) , food additives, 
food safety, and alcohol content.  According to the authorities, food may only be released from 
customs after a food importation approval has been is sued by the National Agency for Drug and Food 
Control (BPOM or Balai Pengawasan Obat dan Makanan ), based on regulation No. 28/2004.  Certain 
food items require a halal  certificate and approval prior to import;  in September 2000, imports of 
chicken parts were banned to ensure that imports were halal .17  The ban is still under review. 
61. Due to a case of Bovine Spongiform Ence phalopathy (BSE) in the United States in 
June 2005, Indonesia banned imports of U.S. meat and other ruminant products on 1 July 2005.  The 
MOA has yet to specify what information it will need to reinstate this trade, and no timeline has been 
given for reconsideration of U.S. beef imports.18 
62. All processed food products must be tested  by the BPOM.  Under the 1998 Consumer 
Protection Law, a registration number (ML) must  be obtained from the BPOM to import food 
products.  Following complaints that the ML-related procedures were time consuming and costly, the 
BPOM granted temporary MLs for food items that, according to the authorities, had already entered 
Indonesian territory, but had not received the approval from BPOM.  In July 2000, the Government 
began to implement the Consumer Protection Law of 1998 by requiring registration of imported food 
products. Importers must apply for a registration nu mber from the BPOM.  This has proven to be an 
overly complex, time consuming, and costly procedure.   All imported food products must be tested by 
BPOM.  
Transparency 
63. Between 2003 and 2006 , 15 notifications relating to SPS requi rements on food safety, animal 
health, and plant protection were submitted to the WTO Committee on Sanitary and Phytosanitary 
Measures. 
64. As regards the importation of live animals and meat products, a new decree on import of meat 
of various species, replacing Decree No. 745/1992, is to be notified to the WTO.19  Countries wishing 
                                                      
 16 The Director of the CAQ is responsible for managing quarantine activities at the national level.  At 
the field level, quarantine activities are carried out by the stations;  each sta tion may cover three to ten entry/exit 
points. 
 17 The authorities note that the Government banned the importation of chicken leg quarters (CLQ) due 
to health and halal reasons:  it is more difficult to monitor and control the origin of CLQ than whole chicken. 
 18 Imports of animals, materials of animal origin, or products of material of animal origin are prohibited 
if they originate  from coun tries or areas in which an outbreak of a di sease warranty quarantine is in progress or 
if they are listed in CITES.   Prohibited animal commoditi es are:  animal and/or an imal products from countries 
with foot and mouth disease, Rinderpest and Bovine Spongiform Encephalopatis (BSE) outbreak. 
19 In October 2006, Brazil expressed concern regarding Indonesia's Government 
Regulation No. 82/2000 applicable to quarantine import procedures for animals and related products.  Brazil 
noted that Regulation No. 82/2000 did not comply with the regionalization provisions of Article 6 of the SPS Agreement or with Chapter 1.3.5 of th e OIE Territorial Animal Health Code as it did not take into account the 
sanitary characteristics of the areas from which the pro ducts originated, but required the whole territory of an 
exporting country to be free of any diseases that were not present in Indonesia.  Brazil has urged Indonesia to adopt national protection levels based on risk assessmen ts, taking into account the re levant provisions of the Indonesia WT/TPR/S/184 
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to export meat and meat products intended for human  consumption to Indonesia must be FMD-free.  
Recognition of the disease-free status will be based on an OIE declaration.  A desk audit and on-site 
audit by the Director General of Livestock Services will also be required. 
65. According to the authorities, requirements for imports of live ruminants and ruminant 
products from countries/zones declared as negligible B SE risk by the OIE are set out in a new decree.  
The Agriculture Ministerial Decree No. 482/Kpts/PD.620/8/2006 of 22 August 2006, based on risk analysis and OIE recommendations on BSE, details  the import requirements for ruminants and 
products from BSE- infected countries or zones into Indonesian territory.  In principle, under the new 
regulation, live ruminants and ruminant products from countries or zones declared as negligible BSE 
risk by the OIE may be imported.  Imports of meat and meat products from BSE-risk countries are 
prohibited.  However, exceptions include meat an d meat products originating from de-boned meat as 
specified in Article 2.3.1.3.1 of OIE Code.   
66. In October 2006, the United States expressed c oncerns regarding Decree No. 37 implemented 
in March 2006, which established new phytosanita ry requirements on fruit imports into Indonesia.
20  
Indonesia indicated its intention to send an expert t eam to do an on-site inspection of a Mediterranean 
fruit fly-free area for grapes in the State of California. 
(c) Marking, labelling, and packaging  
67. The production, importation, and distribution of food supplements (defined as vitamins, 
minerals, extracts, plant substances, amino acids, concentrates or any combination) must, inter alia , 
be by licensed pharmaceutical companies or local -government-licensed food supplement companies, 
and be manufactured in compliance with Good Manu facturing Practices (GMP).  Hygiene and safety 
requirements have been set, as well as daily limits for vitamin and mineral amounts.   
68. Under new food labelling requirements, effec tive from 1999, all packaged food products 
distributed in Indonesia must be labelled exclusively in Bahasa  language, Arabic numbers, and Latin 
letters.21  The use of stickers was authorized temporarily  (i.e. until enactment of the new regulation).  
Since 1999, specific wording has been required for th e labels of certain food items, including milk 
products, baby food, alcoholic beverages, and halal  food, to indicate their content.  The date of 
minimum durability (expiry date) has been required for food items.  Food additives must be identified. 
69. As from January 1999, any food containing genetica lly engineered or irradiated products must 
be labelled in compliance with BPOM requirements.   However, the Government has not implemented 
these requirements because it has yet to establish minimum threshold presence levels. 
70. All medicines, cosmetics, and household health supplies must be registered with the Director 
General of Food and Drugs.  Imported and locally pr oduced medicines require a certificate of analysis 
from the manufacturer.  Brochures (in Indonesian) must accompany over-the-counter medicines for 
distribution in Indonesia.  Retailers must confine thei r sales of patent medicines to those of recognized 
companies (retailers are prohibited fr om repacking or mixing operations). 
                                                                                                                                                                     
SPS Agreement and OIE standards.  Argentina, Aust ralia, and New Zealand expr essed similar concerns 
regarding Indonesia's draft Regulation on the importation of meat products (G/SPS/N/IDN/30). 
20 WTO documents G/SPS/N/ IDN/24 and G/SPS/R/43. 
21 Government Regulation No. 69/1999 on Food Labelling and Advertisement. WT/TPR/S/184 Trade Policy Review 
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(3) MEASURES DIRECTLY AFFECTING EXPORTS  
(i) Export prohibitions, restrictions, and licensing 
71. During 2003-06, export licensing, prohibitions, and restrictions were maintained to ensure 
protection of natural resources and endangered sp ecies (e.g. in accordance with CITES);  promote 
higher-value-added downstream industries;  upgrade th e quality of export products;  and  provide an 
adequate supply of essential products. 
72. Indonesia bans exports of certain live fishery products, rubber of low quality, rubber 
materials, crude leather of reptile , ferrous scrap/waste (except if originating in Batam Island), round 
wood and wood chips, CITES-protected wild animals and natural plants, and (until January 2007) 
urea. 
73. Exports to Israel remain banned. 
74. Before 2005, Indonesia exercised export control by dividing exports into two types, 
"supervised" exports and "regulated" exports.  Export approval requirements had to be met for 
"supervised" products, including certain live bovine an imals, live fish, palm nuts/kernels, lead and 
bauxite ores/concentrate, petroleum oils/products, urea fertilizer, crocodile leather, unprotected wild 
animals and plants, unprocessed silver/gold, and waste/scrap of metals.  Indonesia also conducted 
licensing and quota administration over regulated exports, including:  coffee, textiles and clothing, rubber, veneer and plywood or similar laminate d wood, teakwood, and mixed rattan and semi-
prepared rattan. 
75. New export-import regulations issued in 2005 lif ted restrictions on the export of tapioca, 
semi-processed rattan and silver .  Licensed businesses may now export without restriction almost 
every product from Indonesia, except for rice,  protected wildlife species, and sand. 
76. Separate licences are required to export goods s ubject to quotas by the importing country or 
that pertain to oil.  Indonesia, as a member of the Organization of the Petroleum Exporting Countries, 
which regulates the world's oil market, has quota a rrangements with other countries.  Exports of 
semi-processed gold items have been allowed without prior inspection since 1998;  however, gold 
powder, gold ingots and bars still need inspection. 
(ii) Export taxes 
77. In 1998, Indonesia cut export tariffs on 34 commodities and revamped procedures for export 
tax payments.  It reduced export taxes by 20% at  end 1998 and another 25% at end 2000.  These 
moves were intended to bolster exports and increase  Indonesia's foreign-exchange reserves.  They 
covered  paper pulp, wood chips, veneer, railroad sl eepers, rattan, logs, sawn timber and natural sand, 
and the raw materials for producing these products.  Export taxes on these goods had been as high as 
200% for logs but have now fallen to just 10%.  The export tax on rattan fell to 5%.  The export tax on 
crude palm oil, one of Indonesia's largest export products, was cut to 3% (from 10%) in 2001, and in 
December 2005 the Minister of Agriculture announced  plans to reduce the tax further to 1.5%.  The 
rate on crude palm oil by-pr oducts (including olein) was cu t to 1% (from 6-8%) in 2001. 
78. In 2005, the Government imposed export tari ffs on raw skins (25%), white tanned hides 
(15%) and coal (5%).  The Ministry of Industry and Trade is also considering regulating the export of 
white pepper by setting up a joint-ma rketing body for the commodity. Indonesia WT/TPR/S/184 
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79. Timber exporters must give seven days notice to  the official surveyor of Indonesian exports 
(Sucofindo), which conducts an inspection using the Harmonized System.  In practice, exporters often 
notify Sucofindo  at the last minute;  this delays inspection of other scheduled exports and gives rise to 
bribes to speed up the process. 
(iii) Export assistance 
(a) Grants 
80. In 2004, the Indonesian Government ended several  credit programmes that offered subsidized 
loans for agriculture and small and me dium-sized businesses to support exports. 
(b) Duty and tax concessions 
81. Exporters are exempt from import duties, VAT a nd luxury tax on materials and intermediate 
goods used to manufacture products for shipment ab road.  The Directorate-General of Customs and 
Excise offers a facility whereby eligible exporters  can reclaim import duties within seven days. 
(c) Free-trade export zones and similar schemes 
82. Indonesia has seven bonded zones and 40 industrial estates.22  Goods may be imported into a 
bonded zone and then re-exported without payment of tariffs, unless the goods are sent into the 
regular customs territory of Indonesia.  Bonde d zones are intended for the processing of goods and 
materials, including their design, engineering, sortin g, initial inspection, and packaging.  They allow 
businesses to defer payment of import duties while stor ing, exhibiting, selling, packing and re-packing 
or processing goods originating outside Indonesia.  Lo cation in one of Indonesia's industrial estates 
offers a simplified application process for buildin g and related permits and a way around complex 
rules on land use.  The Investment Co-ordinating Board handles approvals for foreign investment in 
industrial bonded zones and for Bantam  and Riau islands.  Approvals fo r domestic investment in these 
areas remain in the hands of their local authorities.   
83. Foreign goods imported into these zones are exempt from import duties, VAT, sales and 
income tax until the portion of production destined fo r the domestic market actually enters the market.  
Foreign investors are encouraged to lo cate in bonded or export processing zones. 
84. In addition, foreign investors in bonded z ones are usually granted privileges for building 
manufacturing plants in these regions.  Incentives in clude 100% foreign ownership for five years and 
95% ownership thereafter, provided 100% of prod uction is exported.  Both foreign and domestic 
investors must apply to the Investment Coordina tion Board (BKPM) to est ablish projects in bonded 
zones. 
85. Batam, initially established as an industrial bonded zone, has been technically a free zone for 
almost a decade.  In 2002, the G overnment began consideration of a bill to make Batam an official 
FTZ.  Under Government Regulation No. 63/2003, va lue-added tax and luxury sales tax are collected 
in Batam23, starting 1 January 2004.  The regulation w ill be applied to consumer goods in phases, 
                                                      
22 Industrial estates are widespread, though 32 are on the main Java island.  Locations include Bintan 
island, Medan (North Sumatra), Banten (Java), Bekasi, Bogor and Tangerang (West Java), Semarang (Central Java) and Makassar (South Sulawesi).  There is also a transnational bonded zone – called Sijori – comprising 
Singapore, Johor (Malaysia) and Riau (Sumatra) in Indonesia. 
23 Batam's competitive advantage as a location for fore ign investment has declined in recent years.  
Steps were taken in 2004 to reduce Batam's extraordinary number of tax exemptions and to convert it into an WT/TPR/S/184 Trade Policy Review 
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starting with cigarettes, liquor, and automotive products .  The new policy is considered a transition to 
Batam becoming an official FTZ.   
86. Companies in bonded zones must export at least two thirds of their production, excluding 
components, which may be sold on the domestic mark et if such sales do not exceed 50% of realized 
export value.  The advantages of a bonded zone include permission fo r foreign nationals to own 100% 
of their businesses and an exemption on import du ties on spare parts and material for production 
purpose.  A drawback on duties and surcharges is av ailable on imports into the Indonesian customs 
zone that are subsequently shippe d to bonded zones for later export. 
87. Export-oriented production entrepôts (EPTEs or  stand-alone export-processing units) were 
introduced in 1993.  They may be inside or outside an industrial estate.  Applications for EPTE status 
are made to the Minister of Finance through the Directorate-General of Customs and Excise.  Goods may be imported into an EPTE and re-exported wit hout payment of tariffs, unless they are sent into 
Indonesia's regular customs territory.  Similar to bonded zones, ETPEs may divert up to 25% (by 
volume) of their products to Indonesian customs ar eas, where they are subject to normal procedures 
and customs duties.  
88. Bonded warehouse zones include facilities for re packing, sorting, labelling and bottling of 
imported bulk commodities.  There is no value-a dded tax on goods sold to bonded zones and EPTEs 
from outside Indonesia. 
(d) Export finance, guarantee, and insurance 
89. The state-owned Bank Eksport Indonesia (BEI),  which opened in September 1999, provides 
pre-shipment and post-shipment financing facilities for exporters, which was formerly provided by 
Bank Indonesia.  BEI guarantees letters of cred it and issues guarantees for domestic exporters who 
need loans from local banks.  In August 2005, BEI announced that it would serve as a financier for 
export credits rather than as a guarantor, since cap ital markets have increasingly filled the latter role. 
90. The amount of financing for a company depends on its "working capital needs" within one 
trade cycle, to a maximum of 90% from the letter  of credit or total sales contract.  The maximum 
period of repayment by the exporter is 360 days, and fi nancing is available in rupiah or U.S. dollars.  
The interest rate on loans guaranteed by BEI is based  on its prime lending rate, and the interest rate 
applied by the lending bank is the BEI lending rate plus margin, for both rupiah and U.S. dollar loans.  
Because BEI refuses to give loan s to companies with bad debts, which include many of Indonesia's 
export-oriented companies, exporters have been relu ctant to apply for the loans.  Foreign companies 
are not eligible for official export-credit programmes. 
91. State-owned firm Asuransi Ekspor Indonesia (ASEI) is the major source of export insurance 
for all products other than oil and gas.  ASEI offe rs the following policies:  comprehensive shipment, 
comprehensive contract, political risk, letter-of-cred it, consignment, client-specific contract and 
services, and bond guaranty.  ASEI offers policies of  up to one year and indemnifies the exporter for 
up to 85% of the actual loss.  The agency sets th e credit limits based on assessed creditworthiness of 
the foreign buyer and the situation prevailing in the country of destination.   
                                                                                                                                                                    
 
ordinary bonded zone.  In July 2005, the Minister of Finance confirmed Batam's status as a "bonded zone plus" 
and issued a package of reforms aimed at improving th e island's investment climate.  The package simplifies 
customs procedures, liberalizes the im port of used capital goods, reduces  some taxes, and allows for the 
movement of goods between bonded zones.  It stopped short of making Batam an entirely free zone.  The vast majority of investments in Batam are from neighbouring Singapore.  Indonesia WT/TPR/S/184 
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92. Covered commercial risks include the importer's or  foreign buyer's insolvency;  failure of the 
importer to pay within six months of the due date  of payment for goods that have been sent and 
approved by the buyer;  and failure or refusal by the importer to accept goods that have already been 
exported. Risks that are not covered include losses owning to the exporter's negligence or failure to 
comply with contract or policy terms;  losses that  can be covered by a general-loss insurance policy 
(marine transport, fire, theft, etc.);  losses caused by negligence or default of the exporter's agent or 
collecting bank;  and losses arising from fluctuations in foreign-exchange rates. 
(4) MEASURES AFFECTING PRODUCTION AND TRADE  
(i) Taxation 
93. The Government expects tax revenues to increase from 13.3% of GDP to 14% of GDP in 
2006, and has set a tax collection target of 19% of GDP by 2009.  In 2005, direct taxes accounted for 
50.5% of total tax revenues, up from 47.5% in 2003.  The VAT and the sales tax on luxury goods remained the main indirect tax components, followe d by excise taxes and import tariffs (Table III.6). 
Table III.6 
Taxation revenues, 2004-05 
(Rp trillion) 
2004 2005 
Description Preliminary 
outcome % of GDP Revised budget % of GDP 
Taxation revenues 280.9 12.2 352.0 13.3 
Domestic taxes 268.1 11.6 334.4 12.6 
Income tax 134.9 5.9 180.2 6.8 
VAT/Luxury goods tax 87.6 3.8 102.7 3.9 
Land and building tax 11.8 0.5 13.4 0.5 
Property transfer tax 2.9 0.1 3.7 0.1 
Excise 29.2 1.3 32.2 1.2 
Other taxes 1.8 0.1 2.2 0.1 
Taxes on international trade 12.7 0.6 17.6 0.7 
.. Not available. 
Source: Bank Indonesia, Economic Report of Indonesia , 2005. 
94. According to the World Bank , Indonesia ranks 24th (out of 25 countries) in the region in terms 
of the number of taxes charged (52), 22nd in terms of the administrative burden of taxes, and 19th in 
terms of level of tax with an eff ective tax rate of 38.5% of profits.24  High taxes and an arbitrary and 
abusive tax-enforcement body are among the basic concerns of investors.25  In 2006, the Government 
proposed three new tax laws to improve this record.26  The aim of the reforms is to establish a lower 
rate/base-broadening/higher compliance regime with simplified administrative procedures and better 
application of the self-assessment principle.  Th e reform also seeks to simplify Indonesia's tax-
incentive regime  
                                                      
24 World Bank (2006a). 
25 Economist Intelligence Unit (2006), p. 48. 
26 The February 2006 Presidential Instruction (Inpres 3/2006) called on Parliament to consider 
three proposed tax laws to reform:  Law No. 16/2000 on general taxation arrangements and procedures; Law No. 17/2000 on income tax;  and Law No. 18/2000 on VAT and luxury tax.  WT/TPR/S/184 Trade Policy Review 
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(a) Indirect taxation 
95. Indonesia's indirect taxes comprise VAT, luxury goods tax, and excise duties. 
96. Value-added tax (VAT) is applied at 10% to transfers of goods27 and services28, including 
imports, trade, and processing.  It applies to in tangible goods and to virtua lly all services provided 
outside Indonesia to Indonesian businesses (i.e. importe d services).  It applies equally to all locally 
produced and imported manufactured goods.  VAT is charged at a zero rate.  The Government is 
seeking to speed up VAT refunds on inputs to exporting companies.  
97. Luxury goods tax is applied at 10%  on bottled water, soft drinks, cosmetics, radios and tapes, 
luxury houses, and townhouses;  at 20% on carpets , sanitary goods, and luxury home appliances such 
as air conditioners;  at 30% on non-government ships,  sports equipment, certain television receivers, 
and motor vehicles with fewer than ten seats;   40% on alcoholic beverages, imported leather goods, 
imported precious metals, private ai rcraft, and firearms;  60% on tw o-wheeled motor vehicles;  and 
75% on luxury yachts, and trailers and semi-trailers  for camping or home use.  In January 2004, the 
government imposed VAT and luxury goods tax on cars, cigarettes, and alcohol on the island of 
Batam, which was formerly considered a tax haven. 
98. The main excise duties are on sugar (4%), petroleum (10%), cigarettes (40%), beer (50%), 
and wines and spirits (70%);  they are applied ad valorem  but prices used as the tax base apparently 
often differ from the actual retail pr ices and are subject to periodic review by the tax authorities.  In 
addition to the regular import duty of 170%, th e 10% VAT and the 35% luxury tax, the Government 
restricts imports of alcoholic beverages to thr ee registered importers, including one state-owned 
enterprise. 
(b) Direct taxation 
99. The top personal tax rate in Indonesia, at 35% , is higher than in neighbouring countries such 
as the Philippines, Malaysia, and Singapore.  Pr oposed tax reforms would make the Indonesian 
system more competitive by lowering the top br acket to 33% in 2007 and 30% in 2010.  Personal 
income taxes in Indonesia are levied only at the nati onal level.  Companies pay tax at 10% on the first 
Rp 50 million of taxable income, 15% on the next Rp 50 million, and 30% on income exceeding 
Rp 100 million.  There is no excess-profits tax or alte rnative minimum tax.  Effective tax rates may be 
considerably less than these statutory rates as a resu lt of various tax concessions, including for certain 
firms in the industrial sector or for companies locat ed in certain regions.  The result is significant 
variation in effective tax rates, and thus in the tax incentive to invest, across industries. 
(ii) Production assistance 
100. Indonesia continues to provide assistance to dome stic producers, largely in the form of tax 
incentives.  Article 31A of the tax law allows the Government  to assist some industries in certain 
                                                      
27 The following goods are exempt from VAT:  mining and drilling products gathered directly (such as 
oil and gas);  certain minerals;  basic necessities;  food and drink served in hotels and restaurants;  shares, bonds, and other commercial paper.  The following services ar e also exempt:  healthcare;  orphanage, and funerary; 
postal; banking, insurance, and financial;  religio us;  educational; non-comme rcial art;  non-commercial 
broadcasting;  public transport;  manpower;  and hotel services.  Currently, all investors enjoy a VAT exemption on imported capital equipment.  
28 Special rates apply as follows: build ing-service charges are levied at 4%  of invoice value;  total sales 
by retailers are taxed at 2%;  services by a travel agent are taxed at 1% of invoice value;  courier services are 
taxed at 1%, and factoring services are levied at 0.5% of total fees.  Indonesia WT/TPR/S/184 
 Page 61 
 
 
locations by reducing their tax burden.  The types of assistance available under this provision are 
limited to allowing companies to:  reduce net income  by up to 30% of the amount invested pro-rated 
at 5% for up to six years;  accelerate depreciation;  carry forward losses for tax purposes for up to ten years (from five previously);  and reduce the w ithholding rate on dividends  paid to non-residents 
to 10% (from 20%).  The Government has been working on implementing regulations for these tax 
incentives to determine the industrial sectors eligible.
29  The authorities did not provide estimates of 
revenue forgone as a result of  such incentives/exemption. 
101. To reduce regional disparities, Indonesia has de signated 13 integrated economic development 
zones (KAPETs), mostly in eastern Indonesia, that  need new investment, including Seram Island in 
central Maluku.  Seram Island's zone management board oversees economic activity and is 
responsible for issuing and supervising business licences;   the zone also provides investors with tariff 
exemptions on imports of certain industrial components.  Incentives do not appear to be clearly defined.   
102. Financial support for research and developmen t activities has continued to promote mainly 
high technology and technologically sophisticated industries.  According to the authorities, during 
2002-04 financial support for R&D in science and technology accounted for under 0.1% of GDP.  
Important institutions for conducting research and deve lopment include the Ministry of Research and 
Technology (MoRT), the National Coordinating Ag ency for Surveys and Mapping (Bakosurtanal), 
and National Institute of Aeronautics and Space (LAPAN) (Table III.7). 
Table III.7 
Budget for science and technology institutions, 2004-07 
(Rupiah million, US$1 = ca. Rp 9,000) 
S & T 2004 2005 2006 2007 
National Coordinating Agency for Surveys a nd Mapping (BAKOSURTANAL) 91, 930 151,901 158,508 252,164 
Nuclear Energy Control Board (BAPETEN) 30,727 54,528 53,501 63,204 
National Nuclear Energy Agency (BATAM) 215,171 223,896 259,540 333,163 
Agency for Assessment and Application of  Technology (BPPT) 296,574 310,892 367,463 522,487 
National Standard Agency (BSN) 24,904 40,718 53,620 66,028 
National Institute of Aeronautics and Space (LAPAN) 116,509 156,041 166,258 204,379 
Indonesia Institute of Science (LIPI) 317,408 388,540 454,085 545,321 
Ministry of Research and Technology  (MoRT) 172,427 194,096 276,537 446,235 
TOTAL 1,243,314 1,504,410 1,728,892 2,432,981 
Source: National Institute of Aer onautics and Space (LAPAN). 
103. The monopoly of Bulog, the state logistics agency, over the price and supply of rice was 
abolished in 1998, and subsidized rice is now av ailable only to households with income below a 
certain level. 
104. "Administered prices" remain for a handful of commodities and services including petrol, 
electricity, liquefied petroleum gas, rice, cigarett es, cement, hospital services, potable/piped water, 
city transport, air transport, telephone charges, trai ns, salt, toll-road tariffs, and postage.  The markets 
for essential foodstuffs such as sugar, cooking oil, wheat flour and soya beans were freed in 1999. 
105. Rising global oil prices obliged the Government to reduce subsidies in 2005 and bring prices 
closer into line with the market.  The Government  increased fuel prices in March 2005 by a weighted 
                                                      
29 Government regulation No. 1/2007, and Minister of Finance decree No. 16/PMK03/2007. WT/TPR/S/184 Trade Policy Review 
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average of 29% and in October 2005 it raised the price of household kerosene, premium petrol, and 
diesel by an average of 126%.  The resulting pri ces, however, were still substantially below global 
prices.  In September 2005, the Government comm itted in presidential Regulation No. 55/2005 to 
bring consumer fuel prices into line with internati onal prices by the end of 2006.  The World Bank has 
estimated that savings from fuel subsidies may free up US$6-8 billion annually for investment in 
infrastructure and education.  The elimination of pr ice controls and the reduction of subsidies for fuel 
and electricity would ease pressure on the government budget and rationalize investment and consumption patterns.  
(iii) Competition and consumer policy 
106. The 1997 financial crisis and the IMF's insisten ce on the introduction of a number of policy 
reforms created a significant change in the regul atory environment in Indonesia.  Reforms included 
reduction of some export taxes;  elimination of Bulog and the clove monopoly;  liberalization of 
imports of many agricultural commodities including wheat, soybeans, and sugar;  reduction in import 
tariffs; removal of trade monopolies in cement, rattan, and plywood;  removal of local-content 
requirements for automobiles;  removal of restri ctions on FDI;  and enforcement of extensive 
macroeconomic targets.  Furthermore, the IMF re quired Indonesia to pass laws that ensure fair 
competition, which led eventually to the enactme nt of its first competition (anti-monopoly) law. 
(a) Competition policy 
107. There have been no significant changes to legisl ation in the period under review  but several 
competition-related rulings have occurred.  As described in the previous Review, Indonesia's 
Parliament passed the Anti-Monopoly and Unfair Competition Law (No. 5/1999) in February 1999 
and the President ratified it the following March.
30  In effect since February  2000, it prohibits/prevents 
monopolistic practices and restricts mergers or acqui sitions that increase market concentration as well 
as prohibiting exploitation by firms with market co ntrol.  The law prohibits any individual company 
from holding more than a 50% share of the domestic market and also prohibits two or three companies from holding 75% of the market be tween them if such control could result in 
monopolistic practices and/or unfair business competition (Article 17). 
108. The overall objectives of the law are to safegua rd public interests, and to increase national 
economic efficiency as part of the effort to incr ease the people’s welfare;   to establish a conducive 
business environment ensuring equal opportunities for big, medium, and small businesses;  to prevent monopolistic and other unfair business practices;  and to create efficiency in the business sector.  The 
law covers a wide spectrum of anti-competitive behaviour, ranging from the prohibited business 
activities and agreements to abuse of the dominant position, including those related to mergers and 
acquisitions.  The law prohibits vertical restri ctions on competition and any deals or contracts 
allowing for monopolies, oligopolies, price fixing, cartels, trusts, and geogr aphical designations of 
markets between suppliers.  Companies breaking the law are subject to maximum fines of 
Rp 100 billion.  Exempt from the law are small enterprises and cooperatives, as well as the production 
and marketing of goods and services deemed vital to public welfare, and state-owned companies. 
109. Some observers have pointed out that a number of barriers to competition due to past 
government policy are not adequately addressed by the legislation.
31  There are cartels for cement, 
                                                      
30 During the period under review, the following implementing  regulations have been enacted in 
support of the competition law:  Supreme Court Regulation No. 1/2003 on the Appeal Procedure for 
Competition Cases, which has been amended to Supreme Court Regulation No. 3/2006;  and Commissioner 
Regulation No. 1/2006 on Case Handling Procedures by the KPPU.  
31 See for example Dowling (2006).  Indonesia WT/TPR/S/184 
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plywood, paper and fertilizer, and price controls on sugar, rice, and cement, as well as exclusive 
licensing for clove marketing and wheat flour milling.  Indonesia's law on competition is silent on the continued existence of these restrictions on compet ition and there are no stipulations to prevent the 
Government from creating new monopolies or other ba rriers to competition.  For example, with the 
devolution of power to the provinces and local authorities, local governments may put up barriers to 
competition and trade by introducing preferential gove rnment procurement practices or by requiring 
local content for the production of some products.   
110. Following the introduction of the law, an independent regulatory agency, the Commission for 
The Supervision of Business Competition (Kom isi Pengawas Persaingan Usaha or KPPU), was 
established to supervise anti-competitive business practices, provide policy recommendations to the 
Government on competition-related policy issues, conduc t examinations of any party alleged to have 
violated Law No. 5/1999, issue binding decisions, and impose legal sanctions on any violator of the law.  The Government with the approval of Parliament, appoints and dismisses Commission 
members.  From 2003 to June 2006, 47 cases were handled by the KPPU;  most related to bid-rigging 
activities in government procurement, which, accord ing to KPPU is common practice as there is no 
effective institutional control.  The emergence of the KPPU with the authority to handle bid-rigging 
cases may be considered a critical element in ef forts to improve the working of the Indonesian 
economy. 
111. The KPPU has made a number of important recent rulings.  For example, in December 2005, 
the Supreme Court upheld a KPPU ruling that found that Pertamina, the state-owned oil company, 
Goldman Sachs, a U.S. investment bank, and Fron tline, a Norwegian shipping company, had colluded 
on the sale of two super tankers in June 2004 (a  case subsequently followed up by the Corruption 
Eradication Agency).  
112. According to the authorities, the KPPU will con tinue to focus on its primary function, which 
is competition law enforcement and correcting policy that influences the business competition 
environment.  To strengthen law enforcement and improve case handling by the KPPU, the 2000 
case-handling procedures have been amended by a 2006 commissioner regulation. 
(b) Consumer protection  
113. The Indonesian Consumer Protection Law (Law  No. 8 of 1999 on Consumer Protection) 
became effective on 20 April 2000.  This is the fi rst major regulation that deals with and focuses on 
consumer protection matters.  The Department of Trade, which is currently responsible for overseeing 
the implementation of the law, is currently engaged in preparing the necessary implementing 
regulations, e.g. for the establishment of th e National Consumer Protection Board (Badan 
Perlindungan Konsumen Nasional), the Consumer Dispute Settlement Board (Badan Penyelesaian 
Sengketa Konsumen), and the rules on class actions. 
114. Consumer rights, stipulated in pa ragraph 4 of this law, cover, inter alia :  the right to obtain 
comfort, security and safety;  the right to obtai n correct, clear and truthful information regarding 
condition and warranty of the goods and/or services;   the right to obtain proper, truthful and non-
discriminative treatment or service;  and the right  to obtain compensation, redress and/or substitution 
of goods and/or services.  Prohibited actions under the Consumer Protection Law are stipulated in 
Chapter IV of the Law and cover:  production, distri bution, trade, and promotion that could damage or 
endanger consumer safety.  Entrepreneurs are pr ohibited to trade goods and/or services that do not 
meet the required parameters concerning:  standards;   labelling;  advertisement;  the way of selling;  
standard clause;  after-sale service.  The law provides for administrative and criminal sanctions, the latter being a detention sanction or a penalty , depending on the type of infringement.  WT/TPR/S/184 Trade Policy Review 
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(iv) Intellectual property rights 
115. As described in some detail in its previ ous Trade Policy Review, Indonesia has made 
significant progress in improving its legal framework to combat counterfeiting and reform its intellectual property rights (IPR) laws.  The ne w laws, which recognize patents, trade marks, 
copyrights, and  industrial designs, provide for ha rsher sanctions against infringement.  The laws 
assign civil cases to the Commercial Court and requi re a settlement within 90 days, extendible to 
150 days with permission of the Supreme Court.  Th e laws also establish a m echanism for alternative 
settlement by arbitration and allow for court-ordered injunctions against infringement.  In total, these 
legal provisions amount to a strong copyright regime on paper and the system is considered by some 
as having the strongest compliance with TRIPs in South-east Asia. 
(a) Copyrights 
116. A new copyright law came into force in July 2003.  The law establishes rights to license, 
produce, rent or broadcast audiovisual, cinematographic, and computer software.  It also provides protection for neighbouring rights in sound record ings and for the producers of phonograms.  It 
stipulates a 50-year term of protection for many co pyrighted works.  The law contains a number of 
important provisions including provision for the is suance of an implementing regulation on optical 
disks (OD), criminal penalties for end-user piracy , and the ability of right s holders to seek civil 
injunctions against pirates.  The OD re gulation entered into force in October 2004.
32  The Minister of 
Industry and Trade issued two ministerial decrees to implement the OD regulation.  Optical Disc 
Regulations entered into effect in April 2005.  An  additional regulation passed in July 2005 requires 
importers to register the origin, type, quantity, and destination of all optical discs and optical-disc 
machinery.  However, enforcement of copyrights  is uneven:  optical media piracy in Indonesia 
remains widespread, undermining the sal e and rental of legitimate products. 
117. Periodic raids result in sizable seizures of pirate d optical disk products.  However, it appears 
that none of these cases has resulted in mean ingful penalties or permanent impoundment, or 
destruction of equipment used to manufacture pi rated products.  In recent years, movies on high-
                                                      
32 Since the enactment of Government Regulation No. 29/2004 (5 October 2004) on High Technology 
Production Facilities for Optical Discs;  Minister of Tr ade and Industry Decree No. 648/2004 (October 2004) on 
the Report and Supervision of Companies of Optical Disc s Industries in 2005;  and Minister of Trade Decree 
No. 05/2005 (15 April 2005) on the Provisions on Importation of Machines, Machinery Equipments, Raw and Material and Optical Discs, the Mini stry of Trade and Ministry of Industry are jointly responsible for 
procurement, production and importation of optical discs (OD) in Indonesia, as well as registering, supervising, 
and inspecting OD factories.  All OD factories should be registered and submit an activity report to the Ministry of Industry every three months.  There are 26 OD factories registered at th e Ministry of Industry;  the average 
production capacity of each factory varies from 500-700 pieces per hour.  
Under the coordination of the Ministry of Industry a Monitoring Team has been established, 
comprising representatives from relevant government depart ments and agencies as well as the national police.  
The main task of team is to monitor and inspect factorie s at night time, as there is an indication that certain 
companies/factories run thei r production, after normal wo rking hours.  During November to December 2006 the 
Monitoring Team conducted a monitoring survey of OD factories registered at the Ministry of Industry.
 
In addition, several public awaren ess programmes/campaigns have been conducted by the Ministry of 
Industry to improve and inform the public on the existence and consequences of the regulations and ensure that 
related stake holders (vendors and fact ories) comply.  On 7 December 2006, the Ministry of Industry organized 
a Workshop on the Implementation of Optical Disc Regulation in Jakarta.  The workshop was attended by all registered optical disc industries  as well polycarbonate importers. Indonesia WT/TPR/S/184 
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quality pirated digital video disks (DVDs) have  become increasingly available alongside video 
compact disks (VCDs).33 
118. Capacity to undertake effective enforcement ac tion against copyright infringers appears to be 
limited.  The basic source of the problem is widespr ead piracy, largely of recorded movies and music.  
The incentives to copy and distribute such goods are large and this has become a significant industry.  
Funding for the police tends to be low and there is  a considerable scarcity of customs authorities and 
police officers devoted to IPR issues.  In addition,  the number of qualified judges, prosecutors, and IP 
lawyers is below levels needed for effective en forcement.  Computerized systems are not well 
developed. Centralized authorities in Jakarta  and Bandung may find it difficult to undertake 
enforcement activities in Indonesia's widely spread ur ban and rural areas and coastlines.  They have to 
rely on local governments to manage the problem a nd those governments often have other priorities or 
may have interests in weak enforcement. 
119. Despite these problems, the Government is ma king some progress in combating piracy, which 
has been recognized in the USTR's decision to lo wer Indonesia from the Priority Watch List to the 
Special 301 Watch List  in November 2006.34 
120. In March 2006, the President of Indonesia issu ed a decree establishing the National Task 
Force for IPR Violation Prevention.35  The Task Force's aims are to:  formulate a national policy to 
prevent IPR infractions;  determine national effort s needed to prevent IPR violations;  assess and 
determine measures for resolving IPR infractions, including prevention and law enforcement activities 
in accordance with the main duties  of participating agencies;  educat e related government institutions 
and society about IPR matters through various activ ities;  and improve bilateral, regional, and 
multilateral cooperation to prevent IPR violations.  All costs associated with Task Force activities are 
on the budget of the Ministry of Justice and Human Rights.   The Task Force, which  is responsible 
directly to the President, held its first meeting in June 2006. 
(b) Patents 
121. Indonesia's Patent Law, enacted on 1 August 2001 , consolidated three previous laws covering 
patents, and established an independe nt commission to rule on patent disputes and appeals.  The law 
transferred jurisdiction over IPR civil cases from th e District Court to the Commercial Court, and 
raised the maximum fine for patent violations to  Rp 500 million (US$60,000).  The term of protection 
remains 20 years with a possible two-year extension.  A patent is subject to cancellation only in the 
event the patent holder fails to pay annual fees wi thin specified periods.  Unauthorized use of a 
product or process invention that is the subject  of a pending application constitutes patent 
infringement. 
122. Despite these measures, Indonesia still fails to address some of the weaknesses that concern 
foreign rights holders.  Chief among these is the require ment that an inventor must physically produce 
a product or utilize a process in Indonesia in order to obtain a patent for the product or process.  The 
standard for excluding from patentability inventions th at are contrary to the public interest appears 
broader than the standards enumer ated in the TRIPS  Agreement. 
                                                      
33 According to U.S. industry estimates, total losses from copyright piracy in Indonesia during 2005 
amounted to US$191.6 million. 
34 USTR cites bolstered implementation efforts as well as numerous raids on retail outlets selling 
pirated goods.  International Intellectual Property Allia nce Press release of 8 November 2006.  Viewed at:  
http:/www.iipa.com.   
35 Presidential Decree No. 4/ 2006, 27 March 2006.  WT/TPR/S/184 Trade Policy Review 
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123. The Patent Law increased fines for patent infringements and established an independent 
patent commission to rule on disputes and appeals.  It includes compulsory licensing provisions and 
limits patent protection to products that are made in Indonesia.  The law specifically excludes foods 
and beverages from protection, but it covers forei gn pharmaceutical patents.  The import of patented 
products or goods made under a patented process do es not constitute infringement, nor does use of an 
invention by a third party before the granting of a patent, including the period during which an 
application is under review.  La w No. 14/2001 stipulates that infringers of patent rights may be 
imprisoned for up to four years and may be fined up  to Rp 500 million.  Infringers of small patents 
may be imprisoned for up to two years and fine d up to Rp 250 million.  Anyone, including patent 
consultants and officers, who divulges information on patent applications may be imprisoned  for up 
to five years.  The law transferred jurisdicti on of patent cases from the District Court to the 
Commercial Court although there are doubts that th e Commercial Court has both adequate experience 
and effective enforcement ability. 
(c) Trade marks 
124. Indonesia enacted its trade mark law on 1 August 2001.  The law raised the maximum fine for 
violations to Rp 1 billion (US$120,000), and slightly  reduced the maximum possible prison term.  The 
Government claimed that financial penalties were  a greater deterrent to IPR violators than 
imprisonment.  Foreign rights holders, arguing that most IPR cases never result in the maximum sentence, had pushed for minimum sentencing guidelines rather th an higher fines. 
125. The trade mark law provides for the determina tion of trade mark rights by priority of 
registration rather than commercial use.  The la w also provides for the protection of well-known 
marks, but offers no administrative procedures or  legal grounds under which legitimate owners of 
well-known marks can cancel pre-existing registrations .  Indonesia's officials require all trade mark 
modifications to be registered;  this raises concerns under the TRIPS Agreement and the Paris 
Convention.  Currently, the only avenue for challe nging existing trade mark registrations in Indonesia 
is through the courts, an often-bur densome undertaking that must be initiated within five years from 
the date of the disputed registration.  Faster proc essing (within 180 days) of trade mark cases by the 
Commercial Courts has provided relief to some  trade mark holders.  However, industry 
representatives had hoped courts would also impose injunctions, especially in cases where a lower 
court eventually invalidates a false trade mark registration.