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Published online by Cambridge University Press: 21 October 2015
TRADE POLICY FRAMEWORK
Indonesia has had a rolling programme of trade and investment liberalization since the late 1980s. By developing country standards, its trade policies have swung from high protection to openness in a comparatively short period. Its average unweighted tariff has come down to 7.3 per cent (Table I). About 70 per cent of tariff lines now have duties in the 0–5 per cent range. A three-band tariff structure (0–5–10 per cent) should be in place by 2003, albeit with higher tariffs and tariff escalation on some products (such as transport equipment, beverages, wood, furniture, and agriculture). Non-tariff barriers, however, are higher than in other ASEAN-5 countries, but have come down through the 1990s. Perhaps most visibly, tariff and non-tariff barriers on cars and car parts, previously very high due to the promotion of a National Car Programme, have been drastically reduced. Until recently, Indonesia hardly ever used anti-dumping measures or other trade remedies. However, it has resorted to anti-dumping actions in the last few years and has adopted new safeguards legislation.
Indonesia was hardest hit by the Asian crisis and had to be rescued by an IMF bailout package. The Structural Adjustment Programme agreed with the Indonesian Government in 1998 significantly accelerated the pace of liberalization and domestic regulatory reform. Non-tariff barriers (especially discretionary import licensing arrangements) were substantially reduced. Entrenched domestic monopolies on plywood, cement, paper, cloves, and other products were abolished. All import-restricting local content measures were phased out. Tariff and non-tariff barriers on agricultural imports were brought down. Most noticeably, the state-owned National Logistics Agency (Bulog) had its monopoly on importing rice, wheat, sugar, and other bulk food products removed. Lastly, full foreign ownership was allowed in banking, insurance, securities, and in the retail and distribution sectors, with other sectors (telecommunications, the utilities, and transport) further opened to inward investment. Significant privatization in banking and telecoms kicked off in 2002, with more planned. A new investment law guaranteeing National Treatment was due to be enacted in 2003.
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