Indonesia allows customs warehouses to self-govern

Indonesia wants to make it easier for companies to import primary products and export goods. Above all, the textile industry expects competitive advantages.

The Indonesian customs authority has given 119 of the 1,372 existing bonded-warehouses (known as Kawasan Berikat in Indonesia) the right to self-govern (Kawasan Berikat Mandiri). This should speed up time-consuming customs clearance for export-oriented companies – which often rely on the import of precursor products and semi-finished products at the same time. The measure aims to increase exports and attract investment.

In these industrial customs warehouses, materials for processing can be imported duty-free from abroad. This procedure is usually used for the production of exported goods. The self-governing Indonesian customs warehouses can now handle their imports and exports without the compulsory testing of products, means of transport or safety standards by the customs and tax authorities. Instead, there are electronic and, only on a random basis, personal tests. Cameras are installed in the customs warehouses concerned. The operators have to make their IT systems compatible with the tax and customs system of the authorities, also known as CEISA.

According to the Indonesian Customs Roadmap, by 2020, there will already be 500 self-administered customs warehouses. By 2022, all customs warehouses will then work without physical checks. The existing bonded warehouses are located almost exclusively in Java, and especially in the Greater Jakarta area, where a significant proportion of export-oriented companies are located.

The European Chamber of Commerce (EuroCham) in Jakarta welcomes the new regulation and has already received positive feedback from European companies. The export side the new regulation in particular is regarded to be cost and time saving. According to the Ministry of Finance, the establishment of these self-governing systems should increase the export of goods delivered by customs warehouses by 30%. The customs warehouses currently generate US$6.1 billion (roughly Rp 86.3 trillion) worth of exports. This corresponds to about 3% of Indonesia's total exports.

Advantage for the textile industry
In particular, the textile industry sees advantages. The industry association API said that this measure was overdue. One could now at any time without delay export goods. The industry has lost market share in recent years against competition from Vietnam, India and Bangladesh.

One reason for this is longer delivery times. Because the so-called lead-time, the period between the completion of the goods and their receipt at the destination is up to 120 days in Indonesia – twice as long compared to international competitors. Therefore, local companies have less flexibility in responding to customer requests.

The Indonesian textile and apparel sector, which includes footwear manufacturing, employ three million people and was the third most important export industry behind the coal and palm oil industry in 2018. The textile and apparel sector has an export value of just under $14 billion. German industry companies also produce locally. For example, the Seidensticker Group in Central Java's Semarang produces about 8% of its total production volume. Seidensticker has been buying locally since the 1980s.

The new regulation is part of the government's efforts to boost exports. Foreign trade balance has slipped after three years of surpluses in 2018 into the minus. Also in the first eight months of 2019, a deficit was booked. Meanwhile, foreign direct investment threatens to decline for the second year in a row (at least in US dollars).

In the archipelago, there is a broad discussion about opening the economy in order to bring know-how and technology to the country and to create much-needed jobs. For re-elected President Joko ‘Jokowi’ Widodo, attracting investment is high on the agenda. For example, an early liberalization of the Negative Investment List (DNI), which defines areas closed to foreign companies, is already expected.

GTAI is the foreign trade and inward investment agency of the Federal Republic of Germany. The organization advises foreign companies looking to expand their business activities in the German market. It provides information on foreign trade to German companies that seek to enter into foreign markets.