Indonesia eases imports and exports because of Corona

Indonesia's continued growth path for more than 20 years is at risk from the consequences of the global corona pandemic. The archipelago's manufacturing industry is particularly suffering. It relies on primary products, especially from China, which in many cases can no longer deliver due to its own production stoppages. According to the Ministry of Finance, 20 to 30% of all primary products in textile, plastic and steel production come from China. In other industries, it is up to 50%.

In order to guarantee the urgently needed imports and to open up new sources of supply, the Indonesian government has now announced the relaxation of the import restrictions (the so-called "Lartas"). Restrictions come in many forms, such as fixed import quotas. In many cases they are controlled by issuing import licenses.

There are first loosenings for iron and steel products. For them, the import had been made more difficult, with the result that suppliers were no longer able to get machines or spare parts into the country. In some places production came to a standstill. The reason for this step was the supposed substitutability of corresponding products by domestic production. 

Steel and iron are widely imported and exported in Indonesia. Both are urgently needed to expand the domestic infrastructure. The government is trying to protect domestic manufacturers such as the heavily indebted state-owned company Krakatau Steel from foreign, especially Chinese, imports.

Easier import of food 

Further easing of the “Lartas” has been announced for the import of agricultural products such as vegetables like onions and garlic (complete list of the corresponding HS tariff items: Permendag No. 44/2019). The import of live animals and meat (Permendag No. 72/2019) as well as medicines, their ingredients and processed foods (Perka BPOM No. 29/2017 and No. 30/2017) will be facilitated.

This measure should also be about stabilizing food prices. Because April 23 and 24, 2020, is the beginning of the Muslim month of fasting Ramadan, on which lavish food is eaten after sunset. At the end of the 23rd / 24th of May, feasts are then served. High prices for staple foods would lead to resentment among the population. 

Indonesia relies on imports for practically all staple foods, be it rice, wheat, soy, corn, milk, meat or salt. In view of its backward sugar cane cultivation, the archipelago is the world's largest importer of sugar. In addition, more than 90% of the garlic required must be imported - almost exclusively from China.

Reduced import taxes for intermediate products 

In addition to the “Lartas” easing, the Indonesian Ministry of Finance has decided to lift or reduce tariffs for the import of intermediate products. This should make it easier for industries to find new sources of supply beyond China. Out of a total of 1,022 HS tariff items for industrial raw materials, 313 are to be prioritized first (complete list: PMK No. 34/2017 PPh article 22). 

This step is intended to facilitate imports for 19 defined sectors:

1. Chemical industry and chemical products 
2. Electrical industry 
3. Manufacture of motor vehicles, trailers and semi-trailers 
4. Pharmaceutical industry, chemical drugs and traditional drugs 
5. Metal industry 
6. Means of transport 
7. Paper and paper industry 
8. Food industry 
9. Industrial computers, electronic and optical goods 
10. Machinery and equipment industry 
11. Textile industry 
12. Rubber industry, rubber and plastic products 
13. Furniture industry 
14. Printing, reproduction and recording media 
15. Non-metallic mining 
16. Metal industry and equipment 
17. Finished products 
18. Beverage industry 
19. Leather industry, leather goods and shoes 

Depends on imports 

Indonesia's industry is hardly integrated into global supply chains. Nevertheless, it requires preliminary products to a large extent, due to the lack of in-house production. According to the system of the Ministry of Commerce, almost three quarters of all Indonesian imports are raw materials and intermediate products.

In anticipation of figures not yet officially released by the Ministry of Commerce, the Indonesian press reports that imports fell 5.1% in February 2020 (compared to the previous year). Imports from China even dropped by 35.3%. China is by far Indonesia's largest trading partner. In 2019 - outside the oil and gas sector - China accounted for 30% of all imports and 17% of all exports.

For example, the electronics industry in the Indonesian Batam free trade zone lacks the primary products from China. There have been restrictions there since January 2020. According to the management of the Batamindo Industrial Park, half of the 68 companies located there (including the German semiconductor manufacturer Infineon) rely on supplies from the People's Republic, 70% of all preliminary products come from there. On the island of Batam, production is almost exclusively for export. 

Faster import and export processing 

Not only imports but also exports from Indonesia are to be facilitated. There are said to be loosening of a total of 749 HS tariff items. The focus is on fishery products (complete list: Permen No. 18/2018) and products from the timber industry (Permendag No. 38/2017).

In addition, the often lengthy import and export procedures had been reportedly streamlined since April 1, 2020. According to the Ministry of Economic Affairs, 735 retailers with a "good reputation" are to be given greater autonomy when importing and exporting goods. The technical handling of the import and export processes should be simplified. 

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.