Indonesia in April 2014 posted its largest trade deficit in nine months, placing additional pressure to curtail imports on a government already moving towards implementing protectionist policies on a handful of key commodities. As reported by the Central Statistics Agency, the country’s monthly deficit swelled by 11.9% to $1.96 billion USD in April on the back of a rise in both raw/intermediate goods (up $1.25 billion) and capital goods (up $435 million).

This development brings back into the spotlight the country’s existing measure to limit imports via a complex and often restrictive licencing process. This import licencing system - part of a slew of regulations implemented by the government to protect local industries from international competition – was most recently scaled back (if only marginally) in response to allegations of WTO non-compliance in 2013.

A fresh round of WTO-related complaints and Indonesia’s recent history of removing barriers to imports to control inflation seemed to set the table for a further easing of import licence requirements. At the very least, the upcoming surge in consumer demand during and in the lead up to Ramadan would have given cause to consider a further shortening of the list of products for which strict import policies are imposed. Whether this remains politically viable in light of the present trade deficit is yet to be seen. As such, businesses are advised to take note of the process to obtain import licences in Indonesia as well as other current and future policies that may impinge upon trade into the country.

Applications aplenty

Indonesia’s trade licence process can be best thought of as a built in mechanism for the government to exercise control over import quantities by imposing a number of requirements for approval. In addition to cut and dry rules such as ‘fresh horticultural products imported into Indonesia must arrive within six months of being harvested’, hurdles to imports exist in the form of a multitude of certifications and recommendations that need to be obtained for an import licence to be granted. More often than not, each of these individual pre-requisites for an import licence in and of itself involves a substantial amount of documentation and depends upon the efficiency of relevant ministries in processing the application.

Horticultural imports: No low hanging fruit

Indonesia’s trade policy for horticultural products presents the clearest example of the burden that a convoluted licence application process can place on importers. Like the policies that preceded them, the Ministry of Agriculture Regulation No.47/2013 and the Ministry of Trade Regulation No.16/2013 mandate that entities planning to import products into Indonesia obtain an Importer Identification Number (Angka Pengenal Importir, or API) from the Ministry of Trade (MOT). Companies are limited to applying for only one of the two types of Importer Identification Numbers: a general importer identification number for those who wish to import goods that can be sold in Indonesia (Importir Terdaftar, or IT), and a producer identification number reserved for companies that need to import raw materials and capital goods used in production (Importir Produsen, or IP).

Though this Importer Identification Number serves as the de facto licence for importing in Indonesia, applying for one is often neither the first or last step of the process. Companies importing any one of 39 horticulture products identified in MOA Reg. N0.47/2013 (down from 57 listed in earlier decrees) must also receive a formal letter of recommendation (Rekomendasi Impor Produk Hortikultura, or RIPH) from the MOA prior to being able to apply for an identification number from the MOT. Requesting an RIPH entails the submission of a number of documents (See Organic Growth – Horticulture in Indonesia), and must be carried out at the beginning of either the first or second semester of each year. As noted by the USDA Foreign Agricultural Service, this means submitting RIPH applications in either December of the previous year for the first semester or June of the current year for the second semester. 

Import licences that require an RIPH are thus issued at the beginning of each semester, and are only valid for 6 months. Other key stipulations laid out in these regulations include the suspension of import licences if importers fail to reach at least 80% of their intended import quality, which must be specified during the application process. Companies that have their licence suspended are allowed to re-apply for the following semester.

Controlling imports of importance

Horticultural goods are by no means the only products that require additional steps prior to being cleared for import. The MOT lists eight products for which a Special Importer Identification Number (Nomor Pengenal Importir Khusus, or NPIK) is needed on top of the API, namely: corn, rice, soy beans, sugar, textiles, shoes, electronics & electronic components, and toys. These products can largely be categorised as agricultural commodities central to Indonesia’s drive towards self-sufficiency in food or goods that require preliminary certification from relevant ministries (i.e. the Ministry of Communications and Information Technology for electronics). Unlike the RIPH, the NPIK is obtained after first receiving the API.

Regulations on rice

It is important to keep in mind that the list of imported products requiring an NPIK is fluid and subject to change as the government sees fit. Of particular note is rice imports; an area of Indonesian trade presently under scrutiny following the discovery of 16,000 tonnes of non-specialty rice imported from Vietnam by private importers in early 2014, despite prevailing policies limiting this particular import activity to state owned food security and logistics firm BULOG. To clamp down on cheating and better monitor compliance with laws limiting private sector players to importing only specialty rice or rice used in food manufacturing, the government on 1st October 2014 will implement MOT Regulation No.19/M-DAG/PER/3/2014. This regulation is to revoke the right of NPIK holders to import rice, and will instead require companies to apply for a more specific identification number indicating their status as either a rice importer for production purposes (Producer Importer of Rice, or IP-Beras) or an importer of rice to be sold for dietary purposes (Registered Importer of Rice, or IT-Beras). As is the case with the aforementioned horticulture products, obtaining these licences first requires a letter of recommendation from the MOA. Other rules put forth in MOT Regulation No.19 include:

• IP-Beras holders are permitted to import 100% broken rice, 100% broken glutinous rice and 5% broken japonica rice to be used as raw materials for industry, but only when this rice cannot be adequately produced domestically.
• Status as an IP-Beras holder is valid for six months, or until 31st December
• IT-Beras holders are allowed to import specialty rice for dietary purposes, including glutinous rice, 5% broken Thai Hom Mali rice, parboiled rice, and 5% broken japonica rice.
• To verify that speciality rice is accurately identified, importers must provide a “Varietal Purity Attestation” (USDA Foreign Agricultural Service) endorsed by a government official from the country of origin. Without the Varietal Purity Attestation, importers will not be able to obtain import recommendations from the MOA.

Ironing out issues in steel trade

In June 2014, the MOT issued a similar rule for the steel industry, in that importers will need to apply for import licences that specify as to whether they intend to import for the purpose of supporting production or re-selling to other parties. This regulation specifically pertains to the import of boron-added alloy steel, which has in the past been abused by companies hoping to avoid higher duties on non-alloy steel (which does not contain boron). With a list of importers of this product, the MOT will be better able to monitor each party’s actual need for steel with boron content and identify instances in which companies misrepresent the type of steel required for their operations to sidestep steeper taxes.

Outlook

While still a long and cumbersome process, Indonesia’s import licence system is taking steps to improve upon issues of bureaucracy. Central to this initiative was the launch of INATRADE, an online portal through which all of the trade licence-related applications can be carried out (See INATRADE). This represents a considerable improvement upon the inefficiencies of the previous system, in which, as an example, RIPH applications had to be submitted in person to MOT officials who would then forward hardcopy documents to the MOA. INATRADE also allows for up to the minute information on the status of one’s application and serves as a useful resource in better understanding the complete list of required documents for specific products.

It must be said, however, that re-organising the import licence application process so that it runs through INATRADE can be interpreted as an intermediary step – one that should build towards less confusion but falls short of actually streamlining the system. Importers must in many cases still obtain several different recommendations and certifications from multiple state bodies as opposed to being able to submit a single all-encompassing application. INATRADE makes it easier to submit documents, but does not guarantee coordination between ministries nor ease the onus on importers to keep abreast of the many regulations governing each recommendation and certification process.

For an overview of the import licence application process, please see the list of procedures below:

1. Register and receive approval for a Foreign Direct Investment (PMA) Limited Liability, as well as obtain a Permanent Business Permit (IUT) from the Investment Coordination Board (BKPM).
2. Before registering with the Ministry of Trade (step 3), a selection of products are subject to additional pre-requisites for approval:
   1. In the case of horticultural products identified in Ministry of Agriculture Regulation No.47/2013, submit application for a letter of recommendation for horticultural imports (RIPH) from the Ministry of Agriculture. Similarly, as of October 2014, a letter of recommendation from the MOA will also be required for rice products. Applications can be submitted through INATRADE.
   2. Electronic goods and components must receive certification from the Ministry of Communication and Information Technology. Applicants are advised to check as to whether these types of checks from relevant ministries are necessary for their intended imported good.
3. Apply for and obtain an Importer Identification Number, via the MOT’s INATRADE. Though identification numbers are already classified into those reserved for either general use or production, applicants should take the time to ensure that their intended imported good does not fall under a product category that requires a more specific licence (i.e. IT- Beras and IP-Beras).
4. For any one of the following eight products, importing parties must also obtain a Special Importer Identification Number (Nomor Pengenal Importir Khusus, or NPIK) upon receiving their regular Importer Identification Number. These products include:
   1. Corn
   2. Soy Beans
   3. Rice
   4. Sugar
   5. Textiles
   6. Toys
   7. Shoes
   8. Electronics & Electronic Components

Global Business Guide Indonesia -  11th June 2014

Tweet

digg

Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)

Interview Highlights