The Trading Environment of International Business: Laws and Institutions of - INDONESIA

Introduction:
Over the past fifteen years, Indonesia has undergone dramatic changes, starting with the crash of its economy during the South East Asian economic meltdown. Shortly thereafter, the Indonesian political structure underwent its most drastic changes in decades when President Soeharto was ousted in May 1998 and democratic elections were held in November 1999 to elect a new president. Since then Indonesia has gone through the growing pains and turmoil of a newlydemocratised country. In 2004 Indonesia suffered the disturbances of an election year, and with some of the capital that flowed overseas during the political upheavals now returning to the country, Indonesia needs now, more than ever, a cohesive and certain legal system and investment regime, both to continue the implementation and development of the recent reforms and also to attract new investment that might otherwise be attracted by the dynamic economies of China and other SE Asian nations. As on today, Indonesia is one of the most attractive destinations as an investment centre owing to the vast natural resources, its land mass and availability of a major workforce. The country has been working on investment friendly policies and the reduction in bureaucracy in order to attract more investment.

Key Agencies in Indonesian Trade:

i. Ministry of Trade, Department of Trade: The Ministry of Trade is focused, but at the same time inclusive and target oriented, as the front runner in promoting Indonesias capacity to climb up the value chain in a sustainable manner both in the domestic arena as well as the international forum. ii. National Agency for Export Development: The National Agency for Export Development (NAFED) is formed to act as a special service agency of the Ministry of Trade. NAFED functions as a focal point for Indonesian exporters and foreign importers to source for trade related information. Its objective is to assist and support local manufacturers in identifying and penetrating overseas markets for their products, which is done by providing market research information and relevant advice. iii. Indonesia Exporters Federation Sudirman Tower: This federation works for helping exporters in Indonesia. iv. Indonesia chamber of commerce and industry: KADIN stands for 'Kamar Dagang dan Industri', or Chamber of Commerce and Industry. It is the umbrella organization of the Indonesian business chambers and associations. KADIN is focused on all matters
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relating to trade, industry and services, and is highly committed to tapping potentials and synergies of the national economy, offering a strategic forum for Indonesian entrepreneurs. It is privately financed, hence an independent spokesperson of private sector interests. v. Director General of Customs and Excise, Department of Finance: This department looks after the custom or excise duties levied upon goods imported or exported from country. vi. Bank of Indonesia: A financial institution of Indonesia which regulates finance related issues or decisions in Indonesia. In other words it is a financial regulatory body of Indonesia.

Indonesian Trade Regulations:

Indonesian customs tariff is based on the harmonized commodity description and coding system. 1. Imports regulations: Imports are classified into four main groups such as group A, group B, group C and group D.
Group Products

A B C D

Includes rice, flour, iron and steel products, chemicals, organic and pharmaceutical products, cotton, medicine, fertilizers and insecticides, agricultural and industrial machinery and some raw materials. Includes materials and spare parts for industry Is made up of locally produced goods that require import protection. Is made of luxury products, some consumer goods and some goods produced locally. Importers must have API, temporary API, and limited API. Importers must have an import license delivered by the Ministry of Industry and trade.

At import level the following documents are required:

a. Commercial invoice:

Three copies are required bearing the name and address of the shipper, place and date of the shipment, name and address of the consignee, number and kind of packages, content and weight of each package, tariff number, marks and numbers. Prices, quantities, and qualities on the invoices should be the same as those originally quoted. Invoices covering shipments under letter of credit should show the date and number of the letter of credit and the import control number. On air cargo shipments, two copies of the invoice are required.
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b. Certificate of origin:

A certificate of origin is required for narcotics and drugs imports. The certificate of origin must be certified by a recognized chamber of commerce, which usually requires one additional notarized copy for its files.

c. Bill of lading:

A bill of lading usually shows the name of the shipper, name and address of the consignee, port of destination, description of goods, listing of freight and other charges, numbers of bills of lading in full set, and date and signature of the carriers official acknowledging receipt on board of goods for shipment. The information should correspond with that appearing on the invoices and packages. Freight charges must be stated separately. The airway bill replaces the bill of lading on air cargo shipments.
2. Exports regulations:

In compliance with the decree of the Ministry of Industry and Trade (n 124/MPP/Kep/5/1996, goods or commodities that can be exported are classified into four categories and they are as follows: goods subject to Export regulations (textiles, timber and wooden products, sandalwood products and handicrafts, manioc and rattan products), goods subject to inspection, goods that are forbidden for Export, goods that are free for Export. The specific following documents are required for exports: a. Sanitary certificate: special sanitation, fumigation, and other similar certificates are required only for the import of goods generally prohibited or restricted. Goods originating in places infected with pests and cholera must be disinfected before their import. The entry and Export of some plants and seedlings require a permit from the Ministry of Agriculture or from a designated official. The import license must be accompanies by a plant health certificate from the country of origin. Plants propagating materials and plant products must be imported through authorized ports and are subject to inspection in Indonesia at the expense of the importer. All food products require a health certificate issued by the authorized body in the country of origin. Some animals require an inspection certificate from the Indonesian Veterinary Service. b. Shipping restrictions: All Indonesian government imports and exports must be carried out on Indonesian vessels.

3. Tariff In 2011, Indonesias average most favored nation applied tariff was seven percent. Indonesia periodically changes its applied rates. In December 2011, the Ministry of Finance increased applied import duties for designated grain and oilseed products from zero percent to five percent. This change will be applied to wheat and soybean imports. In 2010 and 2009, similar increases in applied rates were implemented for a range of goods that compete with locally manufactured products, including chemicals, electronic products, electrical and non-electrical milling machines, cosmetics, medicines, iron wire and wire nails, and a range of agricultural products including milk products, animal or vegetable oils, fruit juices, coffee, and tea. Indonesias simple average bound tariff of 37 percent is much higher than its average applied tariff. Most Indonesian tariffs are bound at 40 percent, although bound tariff levels exceed 40 percent or remain unbound on automobiles, iron, steel, and some chemical products. In the agricultural sector, tariffs on more than 1,300 products have bindings at or above 40 percent. Tariffs on fresh potatoes, for instance, are bound at 50 percent, with the applied rate at 20 percent. The large gap between bound and applied rates, combined with seemingly arbitrary changes in applied rates, creates uncertainty for foreign companies seeking to enter the Indonesian market. U.S. exporters report that a reduction in Indonesias tariffs could increase market access opportunities in agricultural and manufactured goods. For companies operating in the restaurant sector, the reduction or elimination of tariffs on a wide range of products including beef pepperoni, mozzarella cheese, cooking appliances, cookware, and beverage systems could result in increased U.S. exports. U.S. motorcycle exports remain severely restricted by the combined effect of a 60 percent tariff, a luxury tax of 75 percent, a 10 percent value-added tax, and the prohibition of motorcycle traffic on Indonesias highways. In 2010, Indonesia converted its applied tariff on imported distilled spirits from 150 percent ad valorem to 125,000 rupiah ($15) per liter. Indonesia has extensive preferential trade relationships with other countries. Under the ASEAN Free Trade Agreement, duties on imports from ASEAN countries generally range from zero percent to five percent, except for products specified on exclusion lists. Indonesia also provides preferential market access to Australia, China, Japan, Korea, India, and New Zealand (under regional ASEAN agreements) and to Japan (under a bilateral agreement). Indonesia is currently negotiating bilateral agreements with Iran, India, Pakistan, Australia, and European Free Trade Association countries, and undertaking joint studies on potential FTAs with Chile, Turkey, South Korea, Tunisia, and Egypt. Indonesia imposes an export tax of 5 percent on cocoa exports and an export tax of 15 percent on palm oil exports. The Indonesian government is considering the imposition of export taxes on other products, including base metals and coal.
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4. FDI: In principle, FDI concerns two sets of legal issues: on one hand, those relating to undertaking the investment in the first place, and on the other, those relating to the investment once it is made. How does Indonesia address these two concerns? The legislative policies addressing FDI are enshrined in Law Number 1 of 1967 on Foreign Investment (as amended by Law Number 11 of 1970) (FIL) (see Annex I). The main body of the FIL consists of 31 articles essentially, it propounds the GOIs legislative policies towards the following: licensing; general incentives; sectors closed or restricted for FDI; domicile of foreign entities; manpower; fiscal concessions; use of land; capital transaction and repatriation; investment duration; nationalization and compensation.14 In addition to the FIL, foreign entities are subject to sectoral policies, applied by the corresponding ministries such as that stipulated in Law No. 5/1984 on industry, Law No. 5/1967 on forestry, and Law No. 12/1992 on agriculture. Notably, the FIL attempts to balance the development goals as well as national identity of Indonesia with the aspirations, business strategies, and needs of foreign entities. In a similar way to most developing countries, the GOI fosters and controls FDI through licensing. The Investment Coordinating Board (Badan Koordinasi Peranaman Modal or BKPM), established in 1973 (Presidential Decree No. 20/1973), is the government institution that administers the FIL. It is a central body that screens investment applications, grants licenses/permits, and offers incentives. In addition, similar regional investment bodies (BKPMD) co-exist in the respective provinces and is headed by a chairman, who is subordinate and responsible to the provincial governor (see Annex II). The BKPM is the first port of call for all foreign investors contemplating investments in the permissible investment sectors with the exception of petroleum (oil and natural gas)/general mining and forestry, whereby the Ministry of Mines and Energy and the Ministry of Forestry, respectively, process the initial application approvals and thereafter the BKPM supervises the implementation and production stages. Furthermore, the Ministry of Finance handles and regulates all foreign investments in the financial sector. Generally, all aspects of financial activities including banking, insurance, leasing, consumer credits, factoring, money brokering, and venture capital are open to foreign participation, but in consortium with local participants. Indonesia Membership and Trade Relations Indonesia is member of the following international organizations: World Trade Organization (W.T.O); United Nations Organization (UN) and its main specialized institutions (IMF, World Bank); Organization of the Islamic Conference (O.I.C); The Association of Southeast Asian Nations (ASEAN); Asian Development Bank;
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ESCAP etc.

Indonesia signed commercial and economic co-operation agreements with ASEAN and APEC countries and bilateral co-operation agreements with Malaysia, Singapore, Hong Kong, Thailand, Philippines and Australia. Investment agreements were signed between Indonesia and Egypt (19/1/1994), Malaysia (22/11994), Netherlands (6/4/1994), Turkmenistan (2/6/1994), Slovakia (12/7/1994), Laos (18/10/1994), China (18/11/1994), Ukraine (11/4/1995), Spain (30/5/1995) and Finland (13/3/1996).

Indonesian International Trade Laws details:

Date Effecti Title of ve Issue Date ANTIDUMPING, SUBSIDIES & COUNTERVAILING MEASURES
Government Regulation No. 34/1996, Ministerial Decrees 136 and 172 Government Regulation Number 34 of 2011 concerning Antidumping Measure, Countervailing Measure, and Safeguard Measure June 4, 1996 July 4, 2011 July 8, 1996 July 4, 2011

WTO Notification
G/ADP/N/1/IDN/2 G/SCM/N/1/IDN/2 G/ADP/N/1/IDN/3 G/SCM/N/1/IDN/3

Additional Communications to the WTO

Law No. 17/1997, Ministerial Decree 41/1997 May 23, 1997 Oct. 7, 1997 G/ADP/N/1/IDN/2/Su ppl.1 G/SCM/N/1/IDN/2/Su ppl.1 G/SG/N/1/IDN/1 Dec. 16, 2002 Feb. 17, 2003 Dec. 16, 2002 Feb. 17, 2003 G/SG/N/1/IDN/2

SAFEGUARD MEASURES
Notification of no safeguards law or legislation Presidential Decree No. 84/2002, The Safeguard of the Domestic Industry Against the Impact of Increased Imports (REVOKED per G/SG/N/1/IDN/3) Decree No. 85/MPP/Kep/2/2003, Minister of Industry and Trade, Regarding Procedures and Requirements of Application for Investigation with Respect to Safeguarding Domestic Industry From an Increase in Imports

Some of the key laws in strategic plan of Foreign Affairs Ministry for 2010-14 of Indonesia: Law Number 37 of 1999 regarding Foreign Relations (State Gazette of the Republic of Indonesia Number 156 of 1999, Supplement to State Gazette 3882); Law Number 24 of 2000 regarding International Relations (State Gazette of the Republic of Indonesia Number 185 of 2000, Supplement to State Gazette 4012); Law Number 17 of 2003 regarding State Finance (State Gazette of the Republic of Indonesia Number 47 of 2003, Supplement to State Gazette 4286); Law Number 1 of 2004 regarding State Treasury (State Gazette of the Republic of Indonesia Number 5 of 2004, Supplement to State Gazette 4355);
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 Law Number 25 of 2004 regarding National Development Planning System (State

Gazette of the Republic of Indonesia Number 104 of 2004, Supplement to State Gazette 4421); Law Number 17 of 2007 regarding National Long Term Development Planning (RPJPN) for 2005-2025 (State Gazette of the Republic of Indonesia Number 33 of 2007, Supplement to State Gazette 4700); Government Regulation Number 20 of 2004 regarding Government Work Plan (State Gazette of the Republic of Indonesia Number 74 of 2004, Supplement to State Gazette 4405); Presidential Decision Number 108 of 2003 regarding the Organization of Indonesian Overseas Representatives; Presidential Regulation Number 5 of 2010 regarding National Medium Term Development Planning for 2010-2014; Presidential Instruction Number 7 of 1999 regarding the Performance Accountability of Government Agencies; Decision of the Minister of Foreign Affairs Number SK.05/A/OT/IV/2004/02 of 2004 regarding the Amendment to the Appendix to Decision of the Minister of Foreign Affairs Number K.03/A/OT/XII/2002/02 of 2002 regarding the General Guidelines for the Implementation of the System of Performance Accountability of Government Agencies of the Ministry of Foreign Affairs and Indonesian Representatives Overseas; Decision of the Minister of Foreign Affairs Number SK.06/A/OT/VI/2004/01 of 2004 regarding Organization and Work Procedure of Indonesian Overseas Representatives.