On 23rd December 2015, the Ministry of Trade ("MOT") finally issued Minister of Trade Regulation No. 118/M-DAG/PER/12/2015 on Import Provisions for Complementary Goods, Test Market Goods and Goods for After-Sales Service (“Regulation 118”) which restores the capability of holders of Producer Importer Identification Numbers ("API-P") to import manufactured goods as complementary goods, test market goods, and goods for after-sales services. This regulation revokes import restrictions that were put in place by Minister of Trade Regulation No. 70/M-DAG/PER/9/2015 on Importer Identification Number ("Regulation 70") and will come into force on 1st January 2016.

Implications for API-P Holders

As you may be aware, Regulation 70 removed the exemption which allowed API-P holders to import industrial/finished goods to be traded under certain criteria (i.e., test market products and complementary products) subject to obtaining a Producer Importer/Importir Produsen license (PI) from the Minister of Trade ("Minister"). The removal effectively means that API-P holders can no longer import industrial/finished goods to be traded.

Regulation 118 may resolve the problem that arises from the issuance of Regulation 70. As indicated in the draft regulation circulated some time ago, the concept for importing manufactured goods to be used as test market goods and complementary goods in Regulation 118 is generally the same as previously stipulated under Minister of Trade Regulation No. 27/M-DAG/PER/5/2012 on the Provisions of Importer Identification Number as lastly amended by Minister of Trade Regulation No. 84/M-DAG/PER/12/2012 ("Regulation 84"). While complementary and test market goods were already acknowledged under Regulation 84, Regulation 118 introduces a new criteria for importing manufactured goods to be used for after sales services. Regulation 118 no longer uses the term Producer Importer; instead Regulation 118 uses the new term Import Approval ("IA") to import manufactured goods to be used as test market goods, complementary goods or goods for after-sales service. So the imported manufactured goods can be traded and transferred to other parties after obtaining an IA from the Minister.

We set out below a summary of Regulation 118:

I. Importing Complementary Goods, Test Market Goods and Goods for After-Sales Service

API-P holders can import manufactured goods as test market goods, complementary goods or goods for after-sales services for the development of their business and investment, and can trade and transfer those manufactured goods to other parties after obtaining an IA from the Minister.

The criteria for test market goods that can be imported by API-P holders are as follows:

1. The goods are in new condition;
2. The goods cannot be produced by the API-P holders;
3. The goods are in line with the industrial business license, or other business licenses held by the API-P holders.

The importation of test market goods can only be done for a limited time and amount as determined by the relevant technical Ministry in its recommendation.

The criteria for complementary goods that can be imported by API-P holders are as follows:

1. The goods are in new condition;
2. The goods cannot be produced by the API-P holders;
3. The goods are in line with the industrial business license, or other business licenses held by the API-P holders;
4. The goods are produced by a foreign affiliated company that has a “special relationship” with the API-P holders.

The term "special relationship" is defined as a relationship between an API holder and an overseas company where one party has the capability to control the other party or has significant influence over the other party based on the applicable accounting standards. Under Regulation 118, a “special relationship” can be obtained through the following:

1. contractual agreement to share control over economic activities
2. shareholding
3. articles of association
4. a distributor/agency agreement
5. a loan agreement
6. a supplier agreement

The criteria for goods for after-sales services that can be imported by API-P holders are as follows:

1. The goods are in new condition;
2. The goods cannot be produced by the API-P holder or the availability of the goods in the local market is limited;
3. The goods are in accordance with the industrial business license, or other business licenses held by the API-P holders.

II. Obtaining Import Approval (IA)

To obtain an IA, an API-P holder must submit an application to the Minister through the Director General of Foreign Trade (“Director General”) by submitting an online application at INATRADE along with the following documents:

1. a copy of the industrial business license or other business licenses held by the API-P holder;
2. a copy of the valid API-P;
3. evidence of “special relationship” with a foreign company as required for importing complementary goods; and
4. a recommendation from the technical ministry, i.e. the Ministry of Industry.

If the application is approved, the Director General will issue the IA within five working days after the receipt of a complete application. The IA is valid for the period of time specified by the technical ministry in its recommendation. API-P holders must state the number and date of their IA in the Customs Declaration (PIB). This means that in practice if API-P holders do not state the number and date of their IA in the import declarations even though they have obtained an IA, there is a possibility that the imported goods cannot be cleared out from the customs area. It is advisable that API-P holders liaise with their customs agent or broker before clearing the goods to avoid any obstacles.

Once API-P holders obtain an IA, they are obliged to submit a quarterly report on their importation activity through the online system at INATRADE.

III. Revocation of IA

IA can be revoked if the API-P holder:

1. fails to submit the import report through the online system twice;
2. is proven to have changed the data or information in the IA;
3. is proven to have submitted false or incorrect data or information as the requirements to obtain its IA after the issuance of the IA;
4. conducts violations in customs matters based on information from the Customs office;
5. is found guilty of misuse of IA by a legally binding court decision.

An API-P holder can re-apply for an IA license one year after it is revoked.

Actions to consider

Regulation 118 stipulates that any PI license that will expire before 30th June 2016 will remain valid until 30th June 2016. API-P holders can therefore consider applying for an IA once their PI license has expired (or maybe before it expires), so API-P holders can keep importing finished goods. Given that Regulation 118 is relatively new and not tested, we may expect some hiccups during the first to second month of implementation of this regulation, which may include the process of obtaining the IA from the Director General of the MOT.

Going Forward

Regulation 118 is likely to be welcomed by API-P holders, as Regulation 118 restores the exemption for API-P holders to import manufactured goods as test market goods, complementary goods or goods for after-sales service to be traded to other parties, which previously had been removed by Regulation 70.

Note that the implementation of Regulation 118 will be evaluated every year after it comes into force. Consequently, the issuance of Regulation 118 may be seen as a temporary measure for importation of finished products or manufactured products based on policy. Hence, there is a possibility that Regulation 118 can be revoked at any time based on the evaluation.

Hadiputranto, Hadinoto & Partners, Member of Baker & McKenzie International - 4th January 2016

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Indonesia Manufacturing Snapshot

Contribution to GDP: 18% (2015)
Sector Growth: 5.5% (yoy, 2015)
Number Employed in the Sector: 16 million (2016)
Highest Minimum Wage by Province: 3,350,000 IDR/month (DKI Jakarta)
Lowest Minimum Wage by Province: 1,631,245 IDR/month (West Nusa Tenggara)
Main Areas: Automotive, Electronics, Textile & Garment, Footwear, Food & Beverages, Metal Products, Chemicals.
Main Export Markets: USA, Japan, China, Turkey, South Korea, Germany, Singapore, Thailand, Philippines, Saudi Arabia, Malaysia.

Related Topics

Indonesia to Restore Manufacturing Companies' Capability to Import Finished Goods

New Regulation Prohibits Manufacturers from Importing Industrial/Finished Goods

Useful Documents

Ministry of Trade Regulation No. 118/M-DAG/PER/12/2015 (Indonesian)