Indonesia WT/TPR/S/184 
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II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
(1) OVERVIEW  
1. The period since 1998 is known as the era of reform in Indonesia ( era reformasi ) in which 
good governance has been a central theme of governme ntal reform programmes.  Until the end of 
2003, unilateral economic reforms helped stabilize the macroeconomy, restructure the financial 
sector, dismantle state monopolies, and reinforce po licies of trade and investment liberalization.  
Since 2004, the Government has made improvement of  Indonesia's investment climate a priority and 
has focused its reform agenda on revising Indonesia' s investment, tax, customs, and labour laws while 
continuing to liberalize trade.  It has also been undertaking an effective anti-corruption campaign  and 
laying the groundwork for judicial and civil service reform.  
2. Indonesia has undergone a relatively rapid transition to a democratic and decentralized State.  
The decentralization process, under way since 1999, h as transferred control of large amounts of public 
expenditure and service delivery from the centr al government to 440 local governments.  The 
introduction of trade-distorting, revenue-raising meas ures by local governments, appear to have added 
to the level of uncertainty for foreign investors.  Also, decentralization may have raised barriers to 
internal trade and movement of factors of productio n, and has raised investor concerns about weak 
administration and delays in document processing.  On the other hand, the decentralization process 
could benefit potential investors as local governments start to vie with each other to create the most 
favourable location for investment.  However, to the extent that this involves local governments 
competing with each other in the provision of incen tives for investment, it could also undermine their 
capacity to undertake public expenditures and investment sufficient to meet Indonesia's 
developmental needs, particularly for infrastructure. 
3. The Government has set a goal of creating a more efficient economy through opening markets 
and liberalizing trade, protecting intellectual prope rty rights, and strengthening the rule of law, 
transparency, improving the business climate, and enc ouraging competition.  In order to meet this 
goal, the Government has begun a review of rules an d regulations related to imports and exports and 
business licensing, the intention being to identif y and rectify onerous bureaucracy and poorly 
conceived trade and investment policies.  
4. During the period under review, Indonesia has begun to follow a triple-track strategy of 
international trade negotiations:  multilateral, unde r WTO auspices;  regional, centred on ASEAN and 
ASEAN+ agreements;  and bilateral.  Indonesia is ne gotiating its first bilateral trade agreement, with 
Japan, with other possible bilateral agreements under study.  Indonesia considers that a multi-track 
strategy has become a necessity although it consider s the multilateral trading system as ultimately still 
optimal.  To further its objectives, the Govern ment has established a National Trade Negotiation 
Team, which is responsible fo r overall negotiating strategy.  
5. In order to tackle Indonesia's poor investment climate, the Government announced in early 
2006 an investment policy package, which enjoys  considerable political commitment through its 
issuance as a Presidential instruction.  It includes submission of a draft investment law to Parliament, 
creation of a new investment negative list, drastic  reduction of the time needed to start a business, 
acceleration of the review process of non-business-fri endly local regulations, as well as streamlining 
of customs procedures and improvement of customs regulations.  
(2) GENERAL CONSTITUTIONAL AND INSTITUTIONAL FRAMEWORK  
6. Since the Asian economic and financial crisis of  1997 (and the end of the Soeharto regime in 
1998), Indonesia has embarked on a programme of political and institutional reform.  This has WT/TPR/S/184 Trade Policy Review 
Page 18 
 
 
resulted in the emergence of new political parties, a restructuring of Parliament, and the devolution of 
much power away from the central government.  In  2004, the President and the Vice-President were 
elected by direct popular vote for the first time, a nd the automatic right of the security forces to have 
direct representation in the legislature came to an end.  
7. The highest authority of the State is  the People's Consultative Assembly ( Majelis 
Permusyawaratan Rakyat or MPR ), which consists of the 550 elected members of the House of 
People' s Representatives ( Dewan Perwakilan Rakyat or DPR ), the country's legislative organ, and the 
House of Representatives of the Regions ( Dewan Perwakilan Daerah or DPD ).  The DPD comprises 
128 directly elected representatives from Indonesia's 33 provinces, and has formal powers limited to 
legislation on specific topics related to the regions.  The principal power to approve legislation resides 
with the lower house, the DPR.  Draft legislation su bmitted to the DPR passes through four stages:  an 
explanation of the proposed legislation, a ge neral debate, discussions between the relevant 
commissions and the Government, and final debate and vote.  Approved legislation is sent to the 
President for enactment.  Under the constitution, th e President is both the head of state and chief 
executive1;  the executive branch of government also  includes the vice-president and currently 
26 cabinet ministers who are responsible to the presi dent.  There are 33 provinces, each headed by a 
governor, and local government is through a three-tie r system of provincial, district, and village 
assemblies.  Provincial governors are confirmed by the President, who also approves the election of the governor of Jakarta, which is designated as a special district, as are Aceh and Yogyakarta.  
(i) Decentralization 
8. Because Indonesia's decentralization reforms emerge d in a crisis situation, the general reform 
framework was pushed urgently.  The Indonesian d ecentralization (on the basis of Law 22/1999) is 
often referred to as "Big Bang" because the signifi cant shift in resources and responsibilities from the 
central and provincial to the district governments occu rred quite rapidly.  Under the reforms, district 
governments were assigned 11 key functions, while provincial governments were given a secondary 
role.
2  Decentralization has mainly involved the transf er of implementation obligations and of staff 
from the national government to the 440 local governments without as yet giving those governments 
power over revenue.  Few revenues are decentralized  and the district governments continue to be 
funded by grants determined by, and transferred from, the national government.  At the same time, 
decentralization leaves large scope for local govern ments to make their own priorities in most 
decentralized fields.   
9. Since decentralization, the regions have become  key players in service delivery and their role 
in economic development is increasing.  In 2004, th e latest year for which there is regional fiscal 
information, the regions commanded about 35% of total expenditure.  Given the sharp increase in 
regional transfers in 2006 due to revenue from higher oil prices and the fuel subsidy reduction, the 
                                                      
1 The President has the right to initiate bills and issue government regulations, which must then be 
approved by Parliament.  He appoints and dismisses key members (ministers of State) of the Government.  Amendments made in 2002 to the 1945 Constitution reduced the president's stay in office to two five-year 
consecutive terms.  According to the Constitution there sha ll be a Presidential Advisory Board with the duty of 
giving advice to the President.  
2 Obligatory functions of districts covered:  public works, health, education and culture, agriculture, 
communication, industry and trade, capital investment, la nd, cooperatives, and manpower affairs.  In line with 
the expanded responsibilities, 2.5 mi llion civil servants from the centr al and provincial governments were 
shifted to the districts during the transition period 2000-01.   Indonesia WT/TPR/S/184 
 Page 19 
 
 
regional share in total public investment is lik ely to exceed 50% in 2006 according to the World 
Bank.3  
10. Although most powers have been devolved to over 400 districts, making government more 
accountable to local communities, business costs have risen.  Decentralization has complicated the tax 
situation in several provinces; local governments are now permitted to impose additional taxes on top 
of those levied by the central government.  As a r esult, many tax regulations have been issued, but 
several seem to be of questionable legality.  This has raised uncertainty concerning the operational 
environment among foreign investors, particularly in the mining and forestry sectors.   
(ii) Governance 
11. The Government is implementing its most  significant anticorruption campaign since 
independence and has focused on strengthening the in stitutional framework against corruption.  New 
institutions such as the Anti-Corruption Commission  (KPK), Anti-Corruption Court, the Interagency 
Corruption Eradication Team, the Judicial Commission4, the Police Commission, and the 
Prosecutorial Commission have been given consider able authority, and exis ting institutions like the 
Supreme Audit Commission and the Attorney General's office have become more active.  High profile 
corruption investigations have been launched at all levels of government, and among state-owned 
enterprises, leading to a number of successful prosecutions.  In consequence, corruption and 
governance indicators appear to be improving slowly.   
12. For example, in the Transpar ency International (TI) annual corruption perception survey, 
Indonesia was 33 from the bottom of a list of 164 countries in 20065, which is an improvement from 
previous years (it was 11 from the bottom in 2003).  However, Indonesia is still perceived as one of 
the most corrupt countries in the world.  Corruption, according to TI , is pervasive in all parts of 
society and within state institutions and the dealings of those instituti ons with businesses and citizens.  
A culture of corruption – paying bribes, receiving pe rks, and getting shares – s till largely prevails in 
Indonesia and has not been challenged until very r ecently.  While there has been some success with 
prosecutions, there has been less progress in impl ementing a strategy of institutional and policy 
reforms to prevent corruption and make sustai nable improvements in governance.  The critical 
bottleneck appears to be lack of progress in administrative and civil service reform.  
13. In this context, customs reform is high on th e Government's governance agenda, with the aim, 
inter alia,  of reducing illegal smuggling, customs fraud,  and the solicitation of informal payments, 
which adds to the costs and uncertainty of trad e.  In October 2006, Parliament approved a new 
customs law that should cut the time and cost of clearing customs and tackle rampant smuggling.  
                                                      
3 World Bank (2006c), p. 18.  Currently,  an important fiscal concern is th e capacity of regions to spend 
their resources;  their accumulation of unused funds seems to imply that they have not worked this out.  One of 
the constraints on regional expenditure appears to be th e slow pace of decentraliza tion reforms.  With large 
resources to spend and most service delivery functions at th e local level, Indonesia is aware that it can ill afford 
to leave its decentralization structure in limbo.  Key issues to be addressed include:  it is still not clear who is in 
charge of key public services, as central government  departments continue to spend over half of their 
development budgets in the regions on infrastructure services that are the responsibility of provinces and 
districts;  unlike most decentralized countries, Indonesia has not transferred significant tax power to local governments;  and despite the increased responsibility of sub-national governments, Indonesia does not yet have 
a sound system of sub-national fiscal and financial re porting to facilitate the systematic monitoring and 
evaluation of local government performance to establish a firm basis to allocate resources. 
4 In August 2006, a ruling by the Constitutional Court stripped the Judicial Commission of its powers 
to oversee the Supreme Court and scrutinize the many pub lic complaints about the 51 Supreme Court justices.   
5 Transparency International Corruption Perceptions Index 2006.  Viewed at:  http://www.transparency. 
org. WT/TPR/S/184 Trade Policy Review 
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(3) STRUCTURE OF TRADE POLICY FORMULATION  
14. Final responsibility for the formulation and implementation of trade and other economic 
policies remains mainly with the President and the Cabinet.  With a view to streamlining the performance of the Cabinet, the President carried  out a limited reshuffle in early December 2005, 
which affected two coordinating ministers,  two state ministers and two ministers.  In the context of 
the Government's focus on improving Indon esia's business climate and competitiveness, 
two inter-agency teams were created with the ove rall aim of improving coor dination of governmental 
strategies and positions in trade dialogues and negotiations and facilitating the development of 
strategic sectors.  A Presidential decree revita lized the National Team for Increasing Exports and 
Investment ( Tim Nasional Peningkatan Ekspor dan Peningkatan Investasi or PEPI), originally 
established in 2003, with the President as  Chair.  The main tasks of the team are to:  formulate 
policies for improving exports and investments;  decide actions needed to increase exports and 
investments;  and evaluate strategic issues rela ted to export and investment promotion.  In 
October 2005, a further Presidential decree establis hed an interagency Indonesian National Trade 
Negotiation Team, with the Coordinating Minister fo r the Economy and the Minister for Trade as its 
chair and deputy chair, respectively.  The main tasks of this team are to:  improve Indonesian 
participation in international fora;  evaluate the impact of international trade issues on the national 
economy;  prepare and formulate strategies and pos itions for trade negotiations;  and communicate the 
results of negotiations to Indonesian stakeholders.  
15. The Ministry of Trade is the main state agency responsible for coordinating trade policy and 
international trading relations, including WTO-re lated activity.  In 2004, the Minister of Trade 
announced a comprehensive review of trade policy,  aimed at dismantling protectionist measures of 
previous administrations, rationalizing and lowering tariffs, and gradually removing bans and quotas.  
As part of the review, Indonesia's Team Tariff, an  interagency body responsible for reviewing tariff 
and non-tariff measures, announced in December  2004 the completion of the first phase of a 
comprehensive tariff harmonization programme.  By means of a Decree (No. 49/M-DAG/ 
KEP/3/2006), the Minister of Trade elaborated furt her the role and function of the negotiating and 
technical working group on trade matters.
6  
16. According to the authorities, there is no formal independent advisory body to evaluate trade 
and sectoral assistance policies or provide advice to  the Government on such matters.  External 
advice, however, is available from international in stitutions and think tanks such as the IMF, the 
World Bank and the Consultative Group for Indon esia, USAID, Asian Development Bank (ADB), 
Centre for Strategic and International Studiers (CSIS-Indonesia), Japan International Cooperation 
Agency (JICA), and EC trade support programmes. 
(4) TRADE LAWS AND REGULATIONS  
17. The current Government has set a goal of cr eating a more efficient economy through opening 
markets and liberalizing trade, protecting intellectua l property rights, and strengthening the rule of law 
and transparency, improving the business climate, and encouraging competition.  In order to meet this 
                                                      
6 The group covers:  cooperation and development (Min istry of Foreign Affairs);  services (Ministry of 
Finance and the Central Bank), and e-commerce;  negotiations on non-agricultural goods (Ministry of Industry 
and Ministry of Trade);  agriculture (Ministry of Agri culture);  environment (Ministry of Foreign Affairs and 
Ministry of Environment);  government procurement (National Development Planning Body/BAPPENAS);  intellectual property rights (Ministry of Justice and the National Agency of Drug Control);  investment 
(Coordinating Minister for Economy and Indonesia' s Investment Coordinating Board);  competition policy 
(Commission for Supervision of Business Competition and BAPPENAS);  rules, and tr ade facilitation (Ministry 
of Trade and Ministry of Finance).  Indonesia WT/TPR/S/184 
 Page 21 
 
 
goal, the Government began to review all rules a nd regulations related to imports and exports and 
business licensing.  The stated intention of the revi ew is to identify and r ectify onerous bureaucracy 
and poorly conceived trade and investment policies.  Regulatory reforms that are part of the ambitious 
2006 policy package to improve the investment climat e, are aimed in particul ar at investment and 
customs regulations.  The goal of customs reform, for example, is to reduce the time and cost of 
clearing customs, to combat illegal smuggling and cu stoms fraud, and to comply with WTO valuation 
procedures and safeguard measures. 
18. Indonesian legislation is published in the Official Government Gazette7, and ministries are 
increasingly creating websites to disseminate laws, regulations, and decrees as well as other 
information in English (Table II.1).  
Table II.1 
Trade-related legislation, 2007 
Legislation Description Effective 
Tax Ordinance No. 319  Company tax ordinance  1925 
Law No. 1/1967 Concerns foreign investments 1967 
Law No. 6/1968 Concerns domestic investments 1968 
Law No. 4a Environmental management 1982 
Law No. 6b Copyright 1982 
Law No. 23 Health 1992 
Law No. 7c Patents 1994 
Presidential Decree No. 75 Negative list of o ccupations closed for foreign nationals 1995 
Law No. 7  Food 1996 
Law No. 1/1995 Establishment of PMA company 1997 
Customs Law 10/1995 Regulates customs procedures 1997 
Government Regulation No. 27  Mergers of limited liability companies 1998 
Government Regulation No. 72 Pharmaceu tical and medical devices control 1998 
Law No. 22 Concerns regional autonomy to provide local authorities more rights over 
natural resources  1999 
Law No. 41d Forestry law 1999 
Law No. 5 Anti-monopoly and unfair competition 1999 
Presidential Decrees No. 96 and 
No. 118 List of business fields closed/open to investment on certain conditions 2000 
Law No. 31 Industrial designs 2000 
Law No. 32 Layout designs of integrated circuits 2000 
Law No. 30 Trade secrets 2000 
Presidential Decree No. 127 Sectors reserved for small-scale business, and open for medium and 
large-scale business with partnership condition 2001 
Government Regulation No. 83 Permit foreign investors to buy shares  in domestic and foreign companies 2001 
Law No. 14 Infringement of intellectual property rights 2001 
Law No. 15e Trade marks 2001 
Table II.1 (cont'd) 
                                                      
7 Provisions of international treaties become a part of national legal order through ratification.  Once 
ratified, international treaties are incorporated in the do mestic law and are enforceable within the entire territory 
of Indonesia, although domestic law takes precedence in case of inconsistency.  WT/TPR/S/184 Trade Policy Review 
Page 22 
 
 
Legislation Description Effective 
Government Regulation No. 26 Import and/or delivery of certain stra tegic goods exempted from VAT 2003 
Law No. 13 Manpower law, regulating wo rking conditions for labour force  2003 
Government Regulation No. 19  Tobacco control 2003 
Law No. 2  Aimed at improving settlement of disputes related to industry 2004 
Law No. 7 Water resources 2004 
Ministerial Regulation No. 20 Expatriate empl oyment, and training for national workers 2004 
Government Regulation No. 28 F ood safety, quality, and nutrition 2004 
Law No. "Cyber Law" E-commerce Ongoing 
discussion in 
Parliament 
a Later Law No. 24/1992 on Spa tial Management was adopted. 
b Subsequently amended in 1987, 1997 a nd last amended by Law No. 19 in 2002. 
c Amended by Law No. 14 in 2001.  
d Although forests are prohibited for foreign i nvestors, the Indonesian Parliament (later  with consent from the Supreme Court) 
approved Law No. 19/2004 allowing 13 companies, including one In donesian branch of a foreign company, to start operations 
with open-pit mining. 
e Amended in 2001. 
Source:  Government of Indonesia. 
(5) TRADE POLICY OBJECTIVES  
19. Indonesia's main general and sector-specific trad e policy goals and priorities are to improve 
its business climate and regional competitiveness;  at tract greater foreign and domestic investment, 
especially in infrastructure and export sectors;  and generate high-quality job growth needed for 
sustained economic development.  To this end, th e authorities maintain that Indonesia should reassert 
itself in bilateral, regional, and multilateral trade forums and negotiations, with the aim of expanding 
international markets and supporting global efforts to liberalize trade while protecting Indonesia's 
economic interests and maximizing the poten tial benefits for national welfare.  
(6) TRADE AGREEMENTS AND ARRANGEMENTS  
20. In the Government's view, Indonesia should pur sue a triple-track strategy of international 
trade negotiations, as neighbouring countries have done.  This comprises the multilateral track under 
the auspices of the WTO;  the regional track, which focuses on ASEAN and ASEAN+1 regional 
agreements;  as well as negotiation of a bilateral tr ade agreement with Japan .  Indonesia is also 
studying the potential benefits and costs of a free- trade area with other potential partners, including 
the United States and Pakistan.  In pursuing this multi- track strategy, Indonesia is  keen to ensure that 
the negotiations are consistent on all tracks and do not lead to agreements that are different in 
structure, commitments, rules of origin, and other as pects of rules and standards.  Inconsistency would 
increase the cost of doing business and erode the benefits of the agreements.   
(i) Multilateral agreements 
21. Indonesia is an original and an active Member of the WTO.  In the period under review, its 
Government has made a number of notifications to the WTO (Table II.2).  It appears that no 
notification has been submitted covering agriculture -related issues while regu lar reports have been 
made to the WTO Integrated Data Base on import tariff and trade-related statistics.  Indonesia WT/TPR/S/184 
 Page 23 
 
 
Table II.2 
Main notifications by Indonesia un der WTO Agreement, April 2003-March 2007  
WTO 
agreement and date of 
circulation Description of 
requirement Reason for a measure Periodicity for 
notification Document symbol of most recent 
notification 
Sanitary and phytosani tary measures   
05.10.2006 Article 7, Annex B Plants Ad hoc G/SPS/N/IDN/31 
28.08.2006  Carcass, meat a nd offal Ad hoc G/SPS/N/IDN/30 
17.08.2006  Protection from pathologic 
substance and/or veterinary 
drug materials Ad hoc G/SPS/N/IDN/29 
20.06.2006 Annex B of the 
agreement Protect human health from 
all fish diseases; animal 
health Ad hoc G/SPS/N/IDN/28 
29.05.2006  Plant protection, territory 
protection Ad hoc G/SPS/N/IDN/27 
31.10.2005  Protection of live animals, 
animal products and by-
products – FMD Ad hoc G/SPS/N/IDN/26 – EMRG 
31.10.2005  Food safety, animal health, 
territory protection Ad hoc G/SPS/N/IDN/26 
07.09.2005  Live fish;  animal health, 
territory protection Ad hoc G/SPS/N/IDN/25 
18.05.2005  Requirements and quarantine 
actions; protection of plant 
sand territory from pests Ad hoc G/SPS/N/IDN/24 
24.01.2005  Food safety and plant 
protection Ad hoc G/SPS/N/IDN/23 
12.08.2004  All foods;  food safety; protect 
humans from animal/plant 
pest or disease Ad hoc G/SPS/N/IDN/22 
08. 06. 2004  Plant protection, protect 
territory from other damage 
from pests Ad hoc G/SPS/N/IDN/21 
09.03.2004  Procedure for importation; 
plant propagating materials Ad hoc G/SPS/N/IDN/20 
27.05.2003  Import requirements for 
skins, hides, leather Ad hoc G/SPS/N/IDN/19 
25.01.2006  Annual G/SPS/ENQ/19 
20.10. 2004   G/SPS/ENQ/17 
05.12.2003   G/SPS/ENQ/16 
24.10. 2003  Transparency obligations – 
national enquiry points 
 G/SPS/GEN/27/Rev.11 
Safeguards      
29.09.2006  Termination of investigation Ad hoc G/SG/N/9/IND/2 
09.02.2006 Article 12.1 (A) Termination of  investigation Ad hoc G/SG/N/9/IDN/1 
09.01.2006  Initiation of  investigation Ad hoc G/SG/N/6/IDN/3 
12.08.2005  Initiation of  investigation Ad hoc G/SG/N/6/IDN/2 
21.10.2004  Initiation of  investigation Ad hoc G/SG/N/6/IDN/1 
07.02.2006 
07.02.2006 
07.02.2006 Article 12.1 (B) Imposition of definitive duty 
(finding) Ad hoc G/SG/N/8/IDN/1/Suppl.1 
G/SG/N/10/IDN/1/Suppl.1 
G/SG/N/11/IDN/1/Suppl.1 
01.04.2003 Article 12.6 Laws and re gulations Ad hoc G/SG/N/1/IDN/2 
Technical barriers to trade    
24/11/2006 Art. 3.2 and 7.2 SNI requirement s Ad hoc G/TBT/N/IDN/14, G/TBT/N/IDN/15 
16.02.2006 Article 15.2 Measure in existence Not specified G/TBT/GEN/1/Rev.3 
17.02.2006 GATT Ministerial 
Decision on 
ISO/IEC Transparency - Code of 
Good Practice Once a year G/TBT/CS/2/Rev.12 
13.10.2004 Articles 10.1 and 
10.3 National Enquiry Points Not specified G/TBT/ENQ/25 
18.05.2004 Article 15.2 Implementation of the 
agreement Ad hoc G/TBT/2/Add.3/Rev.1 
12.08.2003 Article 10.6  Frequency standards for AC 
system Not specified  G/TBT/N/IDN/5 plus updates to 
G/TBT/N/IND/12  
Table II.2 (cont'd) WT/TPR/S/184 Trade Policy Review 
Page 24 
 
 
WTO 
agreement and 
date of 
circulation Description of 
requirement Reason for a measure Periodicity for 
notification Document symbol of most recent 
notification 
Anti-dumping actions    
19.01.2007 Article 16.4 Semi-annual re port 2006/II Semi-annual G/ADP/N/153/IDN 
18.11.2006 Article 16.4  Semi -annual G/ADP/N/145/IDN/Corr.1 
16.05.2006 Article 16.4 Anti-dumping actions 
2005/II Semi-annual G/ADP/N/139/IDN/Rev.1 
30.08.2005  Anti-dumping actions 200 5/I Semi-annual  G/ADP/N/132/IDN 
21.08.2003  Semi-annual report 2003/ I Semi-annual G/ADP/N/105/IDN 
17.02.2005  Semi-annual report 2004/II Semi-annual G/ADP/N/126/IDN/Rev.1 
21.06.2005    G/ADP/N/126/IDN/Rev.1/Corr.1 
05.08.2004  Semi-annual report 2004/ I Semi-annual G/ADP/N/119/IDN 
02.03.2004  Semi-annual report 2003/ II Semi-annual G/ADP/N/112/IDN 
25.10.2005 Article 16.5 Competent authorities Ad hoc G/ADP/N/14/Add.21 
20.10.2004  Competent authoritie s Ad hoc G/ADP/N/14/Add.19 
07.10.2003  Competent authoritie s Ad hoc G/ADP/N/14/Add.17 
Subsidies and countervailing measures    
25.10.2005 Article 25.2  Ad hoc G/SCM/N/18/Add.21 
20.10.2004    G/SCM/N/18/Add.19 
07.10.2003    G/SCM/N/18/Add.17 
07.04.2005 Article 25.11 CD actions I Semi-annual G/SCM/N/19/Add.1/Rev.12 
20.04.2006  CD actions 2005/II Se mi-annual G/SCM/N/138/Add. 1 
27.04.2004 Article 25.11 CD actions 2001/ II Semi-annual G/SCM/N/81/Add.1/Rev.4 
Customs valuation     
07.10.2005 Decision of CV 
Committee Inclusion of interest charges 
in the customs value Ad hoc G/VAL/W/5/Rev. 17 
08.09.2003 Decisions A.3 and 
A.4 Interpretation of the 
agreement;  carrier media Not specified  G/VAL/N/3/IDN/1 
Market access      
28.03.2006 Decision on HS96 Changes into tariff 
concessions;  waivers Not specified G/MA/TAR/2/Rev.37 
WP on state 
trading      
 Article XVII:4 (a) 
of GATT 1994 Information on state trading Ad hoc G/STR/N/10/IDN 
Import licensing     
04.06.2004 
09.10.2003  Article 5.4 Replies to questionn aire Annual G/LIC/Q/IDN/6/Add.1 
G/LIC/Q/IDN/2/Add.1 
23.04.2003 
 Article 5 Procedures for importing Ad hoc G/LIC/N/2/IDN/1 
27.11.2006 Article 7.3 Products subject to IL  Not specified  G/LIC/N/3/IDN/3 
20.05.2003 Article 7.3 Replies to ques tionnaire Ad hoc G/LIC/N/3/IDN/2 
TRIPS      
19.08.03 Article 69 Contact points Not specified  IP/N/3/Rev.7 
GATS      
02.12.03 Articles III.4 and 
IV.2 Contact and enquiries points Not specified  S/ENQ/78/Rev.5 
Source: WTO Central Registry of Notifications. 
22. Indonesia has observer status in the WTO plurila teral Agreement on Trade in Civil Aircraft.  
It is a party to the Ministerial Declaration on Tr ade in Information Technology Products (ITA).  As a 
member of the Cairns Group, G-33, and G-20 groupings, it is at the forefront in agricultural 
negotiations.  The G33 group, led by Indonesia,  has focused on special products and a special 
safeguard mechanism for a subgroup of agricultural products based on  food security, rural livelihood, 
and employment.8 
23. For Indonesia, the concept of development is at the heart of the Doha Development Round. 
Accordingly, development is not about trade reforms per se  but about managing market opening that 
does not cause severe adjustment costs;  sequenci ng the process within as well as between sectors;  
                                                      
8 WTO document WT/L/613. Indonesia WT/TPR/S/184 
 Page 25 
 
 
and building on the development be nefits from trade reforms through capacity building that addresses 
other necessary policy and institutional changes.9 
24. Around 45% of the Indonesian population is engage d in the rural sector  making it imperative 
that agriculture sub-sectors (special products) critical for food security, rural livelihood, and 
development, should be treated differently.  It is  also important for countries like Indonesia to have 
recourse to special safeguard mechanisms when faced with import price and volume shocks, which 
can affect a large part of the rural population.  Indonesia is also keen to ensure that special and 
differential (S&D) treatment remains at the heart of the negotiations and is made operational and 
effective, as mandated in the Doha Development Agenda.  In agriculture this means a minimum 
package on S&D, including, inter alia , guaranteeing a different, higher threshold for tariff reduction, 
and adequate proportionality in reduction commitments. 
25. Regarding market access for non-agricultural products (NAMA), improved and secure access 
to markets is a prerequisite for export-oriented de velopment strategies.  Promoting exports of non-oil 
and -gas products is a top priority in order to ach ieve sustainable growth and create jobs.  Indonesia 
advocates a longer time-frame for developing countries to  maintain a certain level of tariffs, to allow 
time for their trade policy reforms and complement ary policies and institutional changes to work.  
Therefore, Indonesia considers unacceptable the id ea mooted by some developed WTO Members to 
drastically cut tariff levels.  On services, Indon esia has emphasized that any agreement should not 
erode developing countries' flexibilities nor negate the policy space that was carefully negotiated in 
the Uruguay Round.  Indonesia supports further opening of markets by developed countries for 
specialists from developing countries.10  The future position of developing countries must be protected 
by operational emergency safeguard measures in cases of in jury to their domestic industries.  The 
framework on services should allow developing countries to open up sectors in a manner and at a pace consistent with their level of development.  Indonesia has also stressed the need to address 
implementation issues that remain unsolved from the Uruguay Round, including anti-dumping provisions, and more flexibility for developing countries under Annex VII of the Agreement on 
Subsidies and Countervailing Measures.  
(ii) Regional arrangements 
(a) Regional cooperation – APEC 
26. Indonesia is a member of the Asia-Pacific Economic Cooperation (APEC ) forum, which has 
been instrumental in advancing regional and globa l trade and investment liberalization since it was 
founded in 1989.  The 21 APEC economies collectiv ely account for 46% of world trade and 57% of 
global GDP.  In 2005, they undertook a review to assess progress towards achieving the 1994 "Bogor 
Goals" of free and open trade and investment in the APEC region by 2010 for industrialized 
economies and 2020 for developing countries.  The review concluded that APEC economies still had 
to undertake significant work to achieve the Bogor Goals, including redoubling efforts to advance the 
DDA negotiations;  promoting high-quality FTAs;  a nd improving the regional business environment.  
27. To promote liberalization, each APEC memb er economy adopts a unilateral liberalization 
plan or Individual Action Plan (IAP).  The IAPs  can be implemented according to each economy's 
domestic policy objectives and are reviewed periodi cally by all APEC Members in the context of 
                                                     
 
9 See document WT/MIN(05)/ST/21:  statement by the Indonesian Minister of Trade at the Hong Kong 
Ministerial Conference, da ted 14 December 2005.   
10 For instance, in the tourism sector a group of developing countries, including Indonesia submitted a 
document inviting other WTO Members to open markets under mode 4 (movement of natural persons).  WTO document TN/S/W/23. WT/TPR/S/184 Trade Policy Review 
Page 26 
 
 
achieving the Bogor targets.  The 2005 peer revi ew of Indonesia focused on 13 specific areas – 
notably tariffs, NTMs, services, investment, custom s, IPRs, government procurement, standards and 
competition policy – in which progress and best pr actices towards the achievement of the Bogor 
Goals were considered.11  According to the Indonesian Government, an important if intangible benefit 
of APEC is the extent of capacity- and knowledge-bu ilding in trade and investment liberalization, and 
facilitation, through interaction with other memb ers and having to formulate policy positions in a 
non-negotiating and non-binding setting. 
(b) Regional integration – ASEAN  
28. As a founding member of ASEAN and APEC, Indonesia has long been a leader in the 
South-east Asia and larger Asia Pacific regions.  Within ASEAN, Indonesia has the largest economy, 
population and territory by significant margins.  The Framework Agreemen t on enhancing economic 
cooperation, signed in 1992, established the Comm on Effective Preferential Tariff (CEPT) Scheme, 
which aimed to achieve an ASE AN Free Trade Area (AFTA).  Unde r the CEPT it was agreed that 
tariffs on goods subject to tariff reductions would be reduced to  0-5% by 2002 for the founding 
members plus Brunei (ASEAN-6), by 2006 for Viet Nam, by 2008 for Laos and Myanmar, and by 
2010 for Cambodia.  Tariff reduction/elimination unde r the AFTA is granted on a reciprocal basis and 
local-content requirements apply.12  The process of reducing tariffs, which began in 1993, is almost 
complete:  ASEAN-6 members have fully complied, by including 98.9% of the products into the CEPT, of which 99.6% at a rate between 0-5%
13;  Indonesia has reduced ta riffs on 11,034 tariff lines 
to 5% or less for products of ASEAN origin.14  Under the terms of AFTA, Indonesia applies three 
lower tiers, of 0%, 2.5% and 5%, for all goods imports from ASEAN members that meet the AFTA 
rules of origin requirements.  According to the authorities, Indonesia does not have any products in the temporary exclusion list. 
29. ASEAN is also working to remove non-tariff barriers to intra-ASEAN trade;  harmonize 
customs nomenclature, valuation and procedures;   harmonize product st andards and regulatory 
requirements;  and improve rules of origin under the CEPT.  With regard to the work programme on 
the elimination of non-tariff barriers by 1 Janua ry 2008 (First Package), 1 January 2009 (Second 
Package) and 1 January 2010 (Third Package), the authorities state that Indonesia has submitted 
updates on its NTM list together with the relevant supporting legislation.  Indonesia will harmonize its 
customs nomenclature under the HS 2007 by 1 January 2007.  As to the rules of origin under the 
CEPT, ASEAN is focussing on finalizing the Product   Specific Rules (PSRs) for products under the 
Priority Integration Sectors (PIS) and the text of CEPT-ROO and its Operational Certificate 
Procedures (OCP). 
30. The ASEAN Framework Agreement on Services, signed in 1995, guides services 
liberalization over and above WTO commitments, and promotes cooperation among service suppliers 
in ASEAN.  To date, ASEAN has completed seve ral packages of services liberalization covering 
construction, telecommunications, business services, fi nancial services, air and maritime transport, 
and tourism.  This involves preferential access fo r other ASEAN member states in the establishment 
of services entities and employment of professionals.  Under the priority integration approach, 
                                                     
 
11 APEC (2005). 
12 A product is eligible for a tariff concession if at least 40% of its content originates from any ASEAN 
member state;  the 40% local content refers to both single and cumulative content.  
13 See ASEAN online information.  Viewed at:  http://www.aseansec.org. 
14 However, in February 2002, the Indonesian Government decided not to cut import duties on sugar to 
a maximum of 5%, in line with AFTA.  Instead, it put suga r on the "highly sensitive list"  of products that face a 
maximum tariff of 20% during 2003-10.   Indonesia WT/TPR/S/184 
 Page 27 
 
 
tourism, healthcare, and air travel are scheduled to be liberalized by 2010.  ASEAN countries are 
currently working on expanding negotiations to cover all sectors and all modes of supply.   
31. The ASEAN Investment Area Agreement, signed in 1998, is aimed at facilitating the free 
flow of direct investment, technology, and skilled professionals.  The agreement covers 
manufacturing, agriculture, fisheries, forestry, a nd mining as well as services activities related to these 
sectors.  The agreement is also aimed at increasi ng intra-ASEAN investment and FDI, promoting the 
economic integration of ASEAN, and jointly prom oting ASEAN as an attractive region for FDI.   
32. ASEAN is also seeking to enhance regional ec onomic integration through the establishment 
of the ASEAN Economic Community (AEC) – a single market providing for the free flow of goods, 
services, skilled labour and capital – by 2020.  Member countries have identified 11 priority sectors:  
agri-based products;  air travel;  automotive produc ts;  electronics;  fisheries;  healthcare;  
rubber-based products;  information/communicati ons technology sector (products and services) 
related to e-commerce;  textiles and apparel;  t ourism;  and wood-based products.  In 2004, they 
signed a Framework Agreement for the Integration of  Priority Sectors to accelerate their integration 
across members.  In 2003, the priority sectors account ed for more than 50% of intra-ASEAN trade.   
ASEAN-plus FTAs 
33. ASEAN is seeking RTAs with other partners , such as China, Japan, Korea, CER members 
(Australia and New Zealand), and India.  At  the ASEAN summit in 2002, ASEAN members and 
China signed a framework agreement to begin negotia tions in 2003 to create the world's largest FTA, 
with a combined market of 1.7 billion people.   The ASEAN–China FTA is expected to be 
implemented over ten years through progressive elim ination of tariffs and non-tariff barriers, and 
progressive liberalization of trade in services and i nvestment.  The Agreement in Goods was signed in 
November 2004.  The first package of tariff reducti ons, covering 40% of tariff lines, was implemented 
on 1 July 2005;  products covered by the "early harvest package", implemented on 1 January 2004, 
include live animals, meat, fish, dairy produce, other animal products, live trees, vegetables, fruit, and 
nuts.  However, the Indonesian Government decide d in November 2004 to include 400 products on its 
list of sensitive and highly sensitive goods to be excluded from the FTA between ASEAN and 
China.15  
34. ASEAN also cooperates with Australia and New Zealand under the AFTA–CER Closer 
Economic Partnership.  Negotiations to establis h an ASEAN–CER FTA commenced in April 2005 
and are due to be completed in 2007.  Cooperati on with the EU is taking place on trade facilitation, 
industrial standards, food products, and investme nt promotion under the Trans-EU-ASEAN Regional 
Trade Initiative (TREATI), and ASEAN and the EU ar e currently undertaking a joint feasibility study 
on a possible FTA prepared by the ASEAN-EU Vi sion Group.  ASEAN is also working with the 
United States towards a U.S.–ASEAN Trade and Inve stment Framework Agreement (TIFA) under the 
Enterprise for ASEAN initiative (E AI) announced by the United States in 2002.  Negotiations began 
in 2004 to establish an ASEAN-India FTA by 2011 for the ASEAN-6, and by 2016 for the other 
ASEAN members.  Negotiations also commenced  between ASEAN and Japan to establish an 
ASEAN–Japan Comprehensive Economic Partnership covering a regional free-trade area in goods 
and services by 2012 for the ASEAN-6 and by 2017  for newer ASEAN members.  ASEAN and Korea 
commenced negotiations in April 2005 to establish an  FTA;  the two sides have agreed to eliminate 
tariffs on at least 80% of goods by 1 January 2009.   
                                                      
15 The sensitive list includes cars, electronics, textiles, and chemical products for which Indonesia 
frequently uses licensing requirements and quality control st andards to control imports.  The highly sensitive list 
includes rice, sugar, soya beans, maize, and other food items.  Negotiations in 2005 reduced the number of products on these lists to 351. WT/TPR/S/184 Trade Policy Review 
Page 28 
 
 
(iii) Bilateral arrangements 
35. During the review period, the Indonesian Gove rnment has also actively pursued greater 
access to markets through bilateral agreements.  In pa rticular, Indonesia and Japan, its largest trading 
partner, held several rounds of Economic Partners hip Agreement talks in 2005 and 2006 to establish a 
comprehensive bilateral economic agreement, comp rising the liberalization of trade in goods and 
services, and cooperation in investment, comp etition policy, and the movement of people.16  Indonesia 
has also begun to study the potential benefits and costs of free-trade agreements with other potential 
partners such as the United States, Pakistan, and In dia.  Indonesia and the United States intensified 
discussions during 2005 on a possible bilateral FTA. 
(iv) Trade preferences 
36. Indonesia is both a beneficiary and a provide r of trade preferences under international 
preferential arrangements.  It receives special treat ment under the Generalized System of Preferences 
(GSP) from, inter alia :  Canada, Japan, New Zealand, Norway, Switzerland, United States, Bulgaria,  
Australia, Turkey, and the EU.  It provides preferential tariff treatment for certain imports from other developing countries under the Global System of  Trade Preferences (GSTP), which it joined in 
October 1989.  At present, Indonesia grants GSTP tariff concessions on 31 tariff items at a 
preferential margin of mainly 10%.  Indonesia does not impose any tariff duty on imports from non-WTO members in excess of the MFN tariff. 
(7) T
RADE DISPUTES AND CONSULTATIONS  
37. During the period under review, Indonesia has been a party to two disputes under the DSU 
(Table II.3). 
38. In the case against Korea, Indonesia had requ ested establishment of a panel to examine 
definitive anti-dumping duties imposed by Kor ea on imports of business information paper and 
uncoated wood-free printing paper from Indonesia.  According to Indonesia,  these duties frustrated 
efforts to promote its exports at a crucial ti me.  Korea had imposed the anti-dumping duties in 
November of 2003 and Indonesia's paper exports to Korea had been severely affected.  Indonesia and 
Korea agreed that the reasonable period of time to implement the DSB recommendations and rulings 
would expire by the end of July 2006. 
39. Indonesia was one of the complainants in th e case against the United States concerning the 
Continued Dumping and Subsidy Act of 2000 (CDSOA, us ually referred to as the Byrd Amendment).  
Moreover, in 2004 the United States applied anti-dumping measures on the Indonesian bottle-grade 
polyethylene terephthalate (PET) re sin and certain preserved mushrooms.17  In February 2006, 
                                                      
16 On 28 November 2006, the Prime Minister of Japan and the President of the Republic of Indonesia 
jointly announced that agreement in principle has been  reached on major elements  of the Indonesia-Japan 
Economic Partnership Agreement (IJEPA).  It seeks to forge closer economic relati ons through cooperation for 
capacity building, liberalization, promo tion, and facilitation of trade and inve stment between the two countries.  
It covers a wide range of economic activities including energy and mineral resources, movement of natural 
persons, government procurement, intellectual property, competition policy, improvement of the business environment and promotion of business confidence.  The IJEPA will also cover a comprehensive capacity 
building cooperation project focusing on activities to enhance the competitiveness of Indonesia's industrial, 
agricultural, fishery, and forestry pr oducts, including joint initiatives to further promote the competitiveness of 
Indonesia's manufacturing industry. 
17 Other anti-dumping duties were imposed on goods of Indonesian origin in 2006 by Australia (linear 
low-density polyethylene), and Turkey (pre-finished engineered laminated flooring (floating or not));  in 2005 by Malaysia (polyethylene terephthalate (PET));   and in 2004 by New Zealand (oil filters). Indonesia WT/TPR/S/184 
 Page 29 
 
 
Indonesia and other complainants welcomed the step s by the U.S. Congress towards the repeal of the 
CDSOA but did not agree that the United States had brought its measures fully into conformity with 
the DSB's recommendations and rulings.   
Table II.3 
Indonesia's recent involvement in the WTO dispute settlement mechanism 
Defendant/dispute Complainant(s) Request(s) for 
consultation/panel Panel established/ 
Panel report 
circulated Appeal requested Panel/Appellate 
Body Report 
adopted 
Korea 
"Antidumping duties 
on certain paper from 
Indonesia" Indonesia  10.06.2004 
(WT/DS312/1, 
G/L/681, 
G/ADP/D54/1) 
 20.08.2004 
(WT/DS312/2) 27.09.2004 
(WT/DS312/3) 
 
 
 28.0.2005 
(WT/DS312/R)
a  28.10.2005 
United States 
"Continued Dumping 
and Subsidy Act of 
2000"b Australia, Brazil, 
Chile, EC, India, 
Indonesia, Japan, Korea, Thailand 21.12.2000 
(WT/DS217/1 
G/L/430 G/ADP/D31/1 
G/SCM/D39/1) 
 13.07.2001 
(WT/DS217/5) 23.08.2001 
WT/DS217/6 
WT/DS234/14   
 
 16.09.2002 
WT/DS217/R 
WT/DS234/R 18.10.2002 
WT/DS217/8 
WT/DS234/16 27.01.2003 
WT/DS217/11 
WT/DS234/19 
 
a Two delegations submitted a joint communication on reaching an ag reement under Article 21.3(b) of the DSU.  At its meeting on  
23 January 2007, the Dispute Settlement Body (DSB) referred this dispute, if possible, to the original Panel in accordance with  
Article 21.5 of the Dispute Settlement Understanding (DSU) to examine the matter referred to the DSB by Indonesia in 
document WT/DS312/9.  The Panel's terms of reference are:  "To ex amine, in the light of the relevant provisions of the covered 
agreements cited by Indonesia in document WT/DS312/9, the matt er referred to the DSB by Indonesia in that document and to 
make such findings as will assist the DSB in making the reco mmendations or in giving the rulings provided for in those 
agreements." 
b Parties to the dispute could not find agreement under Article  21.3 of the DSU and some WTO Members had recourse to 
authorization under Article  22.2 of the Understanding on Rule s and Procedures Governing the Settlement of Disputes (DSU). 
However, Indonesia's Government did not suspend MFN concessions to the United States, retaining the right to suspend 
concession under Article 22.6 of the DSU in future. 
Source: WTO Secretariat. 
40. According to the authorities, Indonesia and Japan  reached a mutually satisfactory decision in 
the dispute on customs classification of Indonesian tariff lines for products under "other digital cameras" in July 2006 before it was to be sent fo r settlement under the DSU.  Indonesia has agreed to 
eliminate customs duties on the disputed products gradually between January 2007 and January 2009.  
41. ASEAN has a dispute settlement mechanism sim ilar to that of the WTO to resolve trade 
disputes among its members on any ASEAN economic agreement.  In the period under review, no 
dispute involving Indonesia was submitt ed for settlement in ASEAN's DSB. 
(8) F
OREIGN INVESTMENT REGIME  
42. Investment declined sharply during and afte r the 1997-98 economic cr isis, and net foreign 
direct investment became positive again only in  2005.  Recent progress on political and economic 
stability has removed some investor risks and improved market sentiment.18  Nevertheless, firms 
surveyed by the World Bank indicate that costs associated with corruption and poor contract 
enforcement, excessive and uncertain regulations, a nd unreliable infrastructure can make up 20% of 
                                                      
18 Improved market sentiment is reflected in recen t upgrades in international credit ratings, lower 
international and domestic risk premiums, and strong performance in the Jakarta Stock Exchange.  WT/TPR/S/184 Trade Policy Review 
Page 30 
 
 
the value of sales (compared with 8% in Poland and 13% in China, for example).19  Corruption and 
poor infrastructure also have a direct impact on the poor, by reducing their already slender incomes and weakening their access to services.  Overall, Indon esia's investment climate is one of the worst in 
the region on most measures according to Bank Indonesia (Box II.1). 
Box II.1:  Constraints on busine ss competitiveness in Indonesia 
The overall impact of various constraints is that Indonesia ranks below its Asian neighbours in business 
competitiveness.  A survey by the World Economic Forum indicates that Indonesia holds 59th place on the 
ladder of competitiveness as assessed by corporate operations and strategy, and the quality of the business 
environment.  By comparison, Malaysia ranked 23rd, Thailand 37th, India 31st, and China 57th.  The WEF 
survey on competitiveness rated as a combination of the technology index, public institutions index, and 
macroeconomic conditions index lowe red Indonesia's ranking from 69th place in 2004 to 74th in 2005. 
Efficiency of the bureaucracy 
Various surveys indicate relatively low efficiency in promoting investment in Indonesia.  A Bank Indonesia 
survey shows that the major hindrance to boosting investment lies in costly illegal levies, which make up 
60% of the overall problem.  In regard to business start-up issues – number of procedures that must be 
completed, time required for start up, regulation of business registration, and minimum start up capital – the World Bank survey shows that Indonesia fares badly in  efficiency compared with other Asian countries.  
When starting a venture, an investor must complete 12 procedures that take 151 days.  In Malaysia investors 
must complete 9 procedures and start up requires only 30 days. 
Labour and bankruptcy regulations  
Concerning labour, the major obstacles pertain to the high risks involved in dismissals, despite the relatively 
competitive cost of labour.  Dismissal cost also involve the risk of conflicts between management and 
labour, which could drive up the cost of investing in Indonesia.  This also affects the cost of bankruptcy in 
Indonesia, which is significantly higher than in other Asian countries.  Comparable indicators are also 
consistent with the conclusions of the World Bank survey citing high costs of worker dismissals in Indonesia compared with some Asian countries, and the lengthy (3 4-day) bankruptcy process.  However, the cost of 
employing personnel in Indonesia is only 10.2% (of salary), less than in Malaysia (13.3%) and in South 
Korea (17%). 
Taxation 
According to a Bank Indonesia survey on issues related to international trade, several tariff and non-tariff 
issues have a strong bearing on production costs.  In addition, a World Bank survey finds that Indonesia has 
a high number of tax payments, at 52 each year (almost double the 28 payments in Malaysia).  The World 
Bank survey found that tax payments amount to 38.8% of gross profit, well above the equivalent 29.2% in 
Thailand.  Issues with taxation also concern delays in processing VAT refunds and the opportunity this offers for corruption.  VAT refunds normally take fi ve months and the refunded value is only 87% of the 
claimed VAT.  Another issue concerns the time required to fill in tax returns. 
Condition of infrastructure 
Investment promotion faces increasing challenges because infrastructure has failed to keep pace with the rate 
of economic expansion.  The Bank Indonesia survey indicates that infrastructure-related problems, and 
particularly in regard to road infrastructure, accoun t for about 32% of problems affecting investment.  The 
constraints to infrastructure development are partly rela ted to tight government spending on infrastructure in 
recent years.  Efforts to in crease budget spending on infr astructure have been slow ed by delays in budget 
expenditure approvals. 
Source:   Bank Indonesia, Economic Report on Indonesia 2005,  pp. 48-50.  Viewed at:  
http//www.bi.go.id/web/en/Riset+Survey+Dan+ Publikasi/Publikasi/Economic+Report/Ipi+05+e
ng.htm 
                                                      
19 World Bank (2005),  p. ii.  A University of Indonesia survey in August 2005 found that companies 
are concerned about demands for irregular fees to obtain required permits or licences, and government awards of 
contracts and concessions based on personal relationships.  Legal uncertainty is a frequent complaint, and courts 
at several levels are perceived as inefficient and corrupt. Tax and customs administration in Indonesia, while improving, are still viewed by the business co mmunity as widely corrupt and arbitrary.  Indonesia WT/TPR/S/184 
 Page 31 
 
 
(a) Main regulatory developments 
43. The regulation of investment in Indonesia con tinues to be underpinned by the Law on Foreign 
Investment of 1967 and the Law on Domestic Investment of 1968.  For the most part, foreigners can invest only through the establishment of a PMA (or a foreign investment) company.
20  In addition, 
neither foreign individuals nor foreign-owned co mpanies can own land in Indonesia, although PMA 
companies have certain restricted land rights.  It has been the aim of successive governments to 
replace these laws by a single unifying law on invest ment.  A guiding principle in the drafting of a 
new law has been to establish a more level playing fi eld for foreign and domestic investors.  Several 
drafts have been produced, the latest of which was submitted to Parliament for consideration in early 
2006. 
44. A Presidential Decree in 2000 (Keppres No. 118/20 00) updated the classification of restricted 
investment sectors under:  sectors that are totally closed to invest ment, both domestic and foreign;  
sectors that are closed completely to foreign investment;  sectors that are open to foreign investors but 
with the requirement that the foreign investor set up a joint venture with an Indonesian entity;  and 
sectors that are open to foreign investment but with specific requirements (Table II.4). 
Table II.4  
Investment negative list, 2006 
No.    Business activity  
I. ABSOLUTELY CLOSED FOR INVEST MENT (DOMESTIC AND FOREIGN) 
 Agriculture 
1. Cultivation and processing of marijuana and the like 
 Marine and fishery 
2. Collection/utilization of sponge 
 Industrial and trading 
3. Chemicals harmful to the environment, e.g. penta chlorophenol, di chloro dipenhul trichloro ethane (DDT), dieldrin, chlordane, 
carbon tetra chloride, chloro fluoro carbon (CFC), methyl bromide, methyl chloroform, halon, etc. 
4. Chemicals stipulated in schedule 1 of the Chemical Weapon Convention – sarin, soma n, tabun, mustard, levisite, ricine, saxit oxin 
5. Weapons and related components 
6. Cyclamate and saccharine 
7. Alcoholic drinks e.g. liquor, wine  and beer (drinks containing malt) 
8. Casino and gambling facilities 
 Communication 
9. Air traffic system providers (ATS providers), ship certificati on and classification inspections 
10. Management and operation of radio frequency spectrum and sate llite orbit monitoring stations 
 Mining and energy 
11. Mining of radioactive minerals 
II. CLOSED TO ANY FOREIGN INVESTMENT (CLOSED TO INVESTMENT IN WHICH A SHARE IS OWNED BY 
FOREIGN CITIZEN AND/OR FOREIGN BUSINESS ENTITIES) 
 Forestry and plantation 
12. Germ plasm cultivation 
13. Concession for natural forests 
14. Contractors in the field of lumbering 
 Communication 
15. Taxi/bus transportation services 
16. Small-scale sailing 
Table II.4 (cont'd) 
                                                      
20 PMA ( penanaman modal asing ) means foreign investment.  A PMA company may be a joint-venture 
company established by a foreign investor and an Indonesian partner or a wholly foreign-owned company where 100% foreign shareholding is permitted.  WT/TPR/S/184 Trade Policy Review 
Page 32 
 
 
No.    Business activity  
 Trading  
17. Trading and trading support services, except large-scale retailers  (malls, supermarkets, departme nt stores, shopping centres), 
wholesale trading (distributor s/wholesalers, exporters, and importers), e xhibition/convention service providers, quality 
certification service providers, market rese arch service providers, warehousing servi ces outside seaports, and after-sale servi ce 
 Information 
18. Radio and television broadcasting, services  providers, radio and closed-circuit tele vision broadcasting services, and multimedi a 
and printed media 
19. Motion picture production (film production, film technical services, e xport and import film busine ss, film distributors and 
operation of motion picture theatres 
III. OPEN TO INVESTMENT UNDER THE CONDITION  OF A JOINT VENTURE BETWEEN FOREIGN AND 
DOMESTIC INVESTORS 
20. Building and operation of seaports 
21. Electricity production, transmission and distribution 
22. Shipping 
23. Processing and provision of potable water for public use 
24. Medical services, including the building and operation of hospitals , medical check-ups, clinical laboratories, mental rehabilit ation, 
public health maintenance security, rent of  medical equipment, assistance services fo r health aid and evacuation of patients un der 
emergency conditions, hospital management se rvices, and services for testing, mainte nance and repair of medical equipment 
25. Telecommunications 
26. Regular/non-regular commercial airliners 
IV. OPEN TO INVESTMENT UNDER CERTAIN CONDITIONS 
 Marine and fishery sector 
27. Cultivation of freshwater fish (a) open to foreign investment for freshwater turtles,  nila gift, sidat, kodok lembu, freshwater  giant 
shrimps and thillapya sp (b) in cooperation with small-scale fishery business 
28. Fishing of demersal fish (big fish, grouper and other sea fish, except ZEEI areas of the Malacca Strait and Arafura Sea 
 Industrial 
29. Wood pulp (a) raw material obtained from im ported chips or quarantine of raw material  supplied from industrial timber estates 
(HTI) (b) other than sulphonating and/or chlorination (C 12) 
30. Pulp made from cellulose fibres or other materi als, except sulphonating and/or chlorination (C 12) 
31. Chloro alkali, except using mercury 
32. Finished/semi-finished goods ma de from mangrove wood – raw material  coming from mangrove cultivation 
33. Money printing – operational licences from BOTASU PAL-BAKIN and approval from  Bank Indonesia required 
34. Special printing – postal stamps, duty stam ps, Bank Indonesia negotiable papers, passports and stam ped postal matter;  operatio nal 
licences needed from BOTASUPAL-BAKIN  
35. Milk processing (powder and condensed sweeten ed condensed milk (processing not repackaging) 
36. Plywood and rotary veneer (only for the Irian Jaya Province (Papua) 
37. Sawn timber (a) only for the Irian Jaya province (Papua ) (b) or outside, only using logs from non-natural forests 
38. Ethyl alcohol – technical grade, be ing only used as raw materials and auxiliary materials of other industries 
39. Raw materials for explosives (ammonium nitrate) – only in coope ration with business entities, which have security devices and 
recommended by the Ministry of Defence 
40. Explosives and components for industrial (commercial) use (a) only in cooperation with business entities recommended by the 
Ministry of Defence, (b) only manufacturing;   storage and distribution are provided by  companies appointed by the Government 
41. Electricity planning and supervision consulting services, open to foreign investment provided capacities above (a) 50MW for 
hydro power plant (PLTA), (b) 55MW for steam power plants (PLTU ), (c) 55MW for geothermal power plants (PLTP), (d) main 
electrical relay stations and transmissi on networks with voltage above 500 KV 
42. Electricity equipment construction, maintenance, installation services, development of technology supporting the supply of 
electricity and testing of electricity inst allations – open to foreign i nvestment providing that main  electrical relay stations  and 
transmission networks have capacity above 500 KV 
43. Petroleum and natural gas drilling services – open to foreign investment  provided (a) only for offshore drilling, (b) especiall y 
outside the eastern Indonesian region in coopera tion with national partners of business field 
44. Power plants in locations outside Java, Bali, and Madura 
 Trading 
45. Restaurants – open to foreign investment if located  in tourism areas/zones and/or integrated with hotels 
46. Game services – open to foreign investment if locat ed in tourism areas/zones a nd/or integrated with hotels 
Source:  BKPM, based on Presidential Decree No. 96/2000, jo .118/2000.  Viewed at:  http://www.bkpm.go.id/ 
en/dni.php?mode=baca&t=Ne gative%20Investment%20List  Indonesia WT/TPR/S/184 
 Page 33 
 
 
45. The 2000 decree was the latest in a series of similar decrees that have steadily reduced the 
number of sectors totally or partially closed to foreign investment.  Economic activities in Indonesia 
are, on the whole, relatively heavily regulated.  On e of the Government's main challenges is to reduce 
the extent of regulation to enable Indonesia to bette r compete in the global market place.  The latest 
decree opened several sectors:  for example, medical services and freshwater fish farming are now 
open under a joint venture requirement.  Certain se ctors are reserved for the State, such as weapons 
manufacturing.  Gambling and the ownership of casinos  are illegal.  Alcoholic beverages industry is 
closed to new foreign investment.  
46. A new proposed law21, to replace existing  legislation, should further liberalize investment;  it 
was submitted to parliament (the DPR) in March 20 06 and is expected to be passed in 2007.  The 
proposed investment law is designed to improve le gal certainty, provide equal treatment for foreign 
and domestic investment and codify the use of interna tional arbitration in contracts.  It also aims to 
radically reduce the number of days required to st art a business to 30, down from an estimated 151.  
The proposed law also seeks to shorten the "negativ e list" of sectors in which foreign investment is 
prohibited, and to resolve areas of regulatory overlap created by regional autonomy.  A further 
measure to improve the investment climate calls for the revitalization of the National Team for 
Increasing Exports and Investment (PEPI), which fo cuses on strategic issues faced by the business 
community.  The coordinating Minister for Econom ic Affairs is responsible for implementing the 
investment proposal, together with the other elements of the policy package. 
47. The Investment Coordinating Board (BKPM), r esponsible for promoting foreign investment, 
regulates investment in industry and services, excl uding financial services.  Financial services, 
including banking and insurance, are regulated by the Ministry of Finance.  The Department of Mines 
and Energy licenses oil and gas, power project s and mining through its various agencies. 
Telecommunications projects must be licensed by th e Department of  Telecommunications  as well as 
by the BKPM.   
48. There are no foreign exchange controls affecti ng the repayment of loans and the remittance of 
profits, dividends, interest, and royalties.  Ho wever, documentation on all foreign exchange 
transactions must be provided, including receipts of sale, issuing letters, and loan agreements.  All 
foreign loans must be reported to Bank Indonesia to ensure repatriation in case exchange controls are 
imposed in the future.  The rupiah, the local curre ncy, remains freely convertible.  In October 2002, 
Indonesia changed the restrictions on the export of rupiah by Indonesians and non-citizens, aligning 
them with the money laundering law (Law No. 15/2002) passed that year. 22 
                                                      
21 On 2 March 2006, the Government released a po licy package aimed at improving the investment 
climate.  The policy package was issued as a Presidentia l Instruction (Inpres 3/2006).  The package focuses on 
four areas in which many reforms have been pending for several years:  investment law, tax law, customs law, 
and labour law.   
22 The law was subsequently amended in September 2003 to help reduce corruption and crack down on 
illicit activities.  However, Indonesia was still categorized  in July 2004 as a "non-cooperative country" by the 
Paris-based Financial Action Task Force (FATF) on money laundering, which placed it on a black list of 
seven countries.  According to the FATF, the legislation di d not go far enough in criminalizing the laundering of 
crime proceeds, allowed banks too long to file reports, and failed to addres s unauthorized disclosure of such 
reports.  However, Indonesia was removed from the list of Non-Cooperative Countries and Territories (NCCT) 
on 11 February 2005, based on an evaluation that it had improved its anti-money laundering (AML) systems for 
strict customer identification, suspicious transaction reporting, bank examinations, and legal capacities to 
investigate and prosecute money laundering. WT/TPR/S/184 Trade Policy Review 
Page 34 
 
 
(b) Investment incentives   
49. As was the case at the time of the last Revi ew of Indonesia, in 2003, investment incentives 
apply to all investors, domestic and foreign.  They include duty concessions on imported inputs and 
capital goods, and additional incentives for export-orie nted investment as well as investment in 
certain regions.  The proposed new tax law, part  of the Government's 2006 policy package aimed at 
improving the investment climate, seeks to simp lify Indonesia's tax incentive regime and revise VAT 
to promote exports.  A Presidential Instruction (Inpres 3/2006) directs the Minister of Finance to determine the industries and sectors eligible for ta x incentives under Article 31A of the existing tax 
law. 
(c) Investment guarantees 
50. Indonesia has signed investment guarantee agreem ents (IGAs) with 60 countries, of which 
18 are APEC Members. Three IGAs have been  signed since 2004, with Bulgaria, Iran, and 
Saudi Arabia.  Indonesia is a Member of the Multil ateral Investment Guarantee Agency (MIGA) in 
order to secure investments against political risks and have access to effective investment dispute 
mitigation.  In order to deal with FDI-related disputes, Indonesia also became a member of the 
International Centre on the Settlement of Investment Disputes (ICSID). 
(9) A
ID FOR TRADE  
51. According to the authorities,  Indonesia has two major assistance projects in operation with the  
European Union and USAID.  The implementing ag ency for the USAID programme is the Indonesia 
Trade Assistance Project (ITAP), which supports the Governme nt in building and strengthening 
capacity related to the analysis, negotiation, and implementation of bilateral and multilateral trade 
agreements.  The project is working directly with the Ministry of Trade to provide training that will 
better equip Indonesia to further access and compete in international markets.  The Trade Support 
Programme (TSP), the implementing agency for EU assistance, is focusing on two projects:  training 
and dissemination of information, and market rese arch.  The beneficiaries of this programme are 
intended to be operators of inte rnational trading activities within Indonesia, particularly exporting 
SMEs, which will be able to improve trade with international and EU counterparts.  European 
companies importing goods from Indonesia will also benefit from more reliabl e, European-standard-
compliant Indonesian products.  European companie s exporting goods, or operating in Indonesia, are 
also expected to benefit from streamlined import procedures.