Indonesia: greater requirement for Indonesian language ingredient labels on imported products

[Harold Schiffman]

Protecting domestic industries

Foreign governments and businesspeople have been complaining about
what they consider restrictive import barriers the Indonesian
government has slapped on certain goods.

However, further analyses would show that what the Trade Ministry has
been doing so far is mostly protecting the domestic market from dumped
or smuggled goods as there is now a huge excess of manufacturing
capacity in most countries due to the global economic downturn.

Since manufacturers in major exporting countries such as China, India
and Vietnam are facing depressed demand in the United States, Europe
and most other developed economies, they naturally seek other markets
to absorb their surplus production.

Indonesia, which is still predicted to grow at least by 4.5 percent
next year -- though down sharply from about 6 percent this year --
could become the target for foreign suppliers, given the large market
potential market of its 230 million people.

As the risk of import smuggling and other practices of contraband
trade have increased -- in view of the country's vast coastal areas
and inefficient and corrupt customs service -- the government
naturally has taken concerted efforts to protect domestic
manufacturers from smuggled products.

In this context, for example, the Trade Ministry ruled last month that
five categories of goods -- food and beverage, garments, electronic
goods, shoes and toys which are already produced within the country --
can be imported only through five major seaports: Jakarta's Tanjung
Priok, Medan's Belawan, Semarang's Tanjung Emas, Surabaya's Tanjung
Perak and Makassar Port.

The government even plans to hire Swiss Societe General de
Surveillance to make preshipment inspections of these goods before
they are shipped to the five Indonesian ports to ensure that these
imports fully abide by all regulations, especially those regarding
quality standards, duties and taxes.

None of these measures contravene the Geneva-based World Trade
Organization rules.

Such additional measures are deemed most imperative now because of the
country's high vulnerability to import smuggling and the corrupt and
grossly inefficient customs service at smaller seaports across the
vast archipelago.

The government has also strengthened the enforcement of the
regulations on the implementation of Indonesian National Standard
(SNI) requirements on particular industrial products such as steel,
tires and packaged goods.

Lack of supervision had previously weakened the enforcement of these
standards. Now that they are being implemented through more forceful
manners to protect both domestic producers and consumers, to overseas
suppliers and exporters they appear to be a new form of trade barrier.

New SNI measures include stricter anti-dumping policies, a greater
requirement for Indonesian language ingredient labels on food and
beverage products and the requirement of Indonesian language user
manuals for electronic devices such as mobile phones and radios.
Unfortunately, the initial enforcement of the new measures
unintentionally caused a temporary disruption in the supplies of
certain foreign food products because smuggling was minimized and
legal importers and distributors were still making adjustments to meet
the new quality-standard requirements.

This disruption has caused widespread complaints among the expatriate
community and foreign restaurant owners who found it increasingly
difficult to obtain their favorite ingredients or fresh or packaged
food. This temporary negative impact gave the impression that the
government was erecting a massive protectionist wall against imports,
while simply better policy coordination among the Trade, Industry and
Health Ministries could immediately remove the supply problem.

Likewise, the government's plan to scrap import duties on industrial
materials which are not yet made locally or not adequately available
should not be seen as a subsidy to Indonesian exporters. Such a
measure is needed to strengthen the competitiveness of domestic
manufacturers amid the global economic slowdown. The government,
however, is well advised to realize that while curbing unnecessary
imports is required to protect the domestic industry and safeguard the
balance of payments, that is not enough.

Significant improvements in logistical arrangements -- low transport
costs, efficient port handling, short transit times, reliable delivery
schedules and careful handling of goods in cold storage chains -- are
vital for bolstering the competitiveness of our manufacturing
industries.

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