72638 v1 World Trade Indicators 2009/10 Indonesia Trade Brief Trade Policy investigations (of 44 AD user countries). Most AD investigations were on steel products, paper products, In the context of the East Asian financial crisis, and wheat flour, and the main target countries were Indonesia pursued trade liberalization in 1998 under China, the Republic of Korea, and India. the auspices of an IMF program. Tariffs and non-tariff barriers were reduced, and foreign investment was Since 1998, Indonesia has also taken steps to liberalize liberalized extending also to services industries. In key services, notably financial services, 2005, the government implemented a new tariff telecommunications, and shipping. There have harmonization plan, which aims at setting a uniform recently been a number of policy reversals in these tariff of 5 percent for most products by 2010. areas, however, and a variety of trade and investment However, protectionist elements still remain, restrictions remain. In 2007, the government particularly through nontariff barriers in agriculture, consolidated existing laws on domestic and foreign textiles, and steel. Indonesia’s latest MFN Tariff Trade investment into a unified legal framework, and issued Restrictiveness Index (TTRI)1 for overall trade is 4.6 investment negative lists in July and December 2007 percent, which is similar to the average TTRI of 4.8 to provide a transparent set of restrictions for foreign percent for the East Asia and Pacific (EAP) region, direct investment (FDI). Although these lists clarified but significantly lower than the average of 11.6 percent the areas where foreign investment could take place, for lower-middle-income countries. It ranks 56th of they also added new levels of restrictions, and 125 countries, where 1st is the least restrictive. increased restrictions for many services sectors.2 These Treatment of non-agricultural imports and agricultural included rising foreign ownership restrictions and imports is similar, with TTRIs of 4.7 and 4.4 percent, some scale limitations. According to the GATS respectively. Following a significant drop between commitments index, the country ranks 94th of 148 1995 and 2001, the simple average of the MFN countries, suggesting room for deeper commitments applied tariff rate has remained steady at 6.9 percent in to multilateral liberalization. Indonesia now allows 99 2007 (latest available), slightly lower than the average percent foreign ownership in the banking sector, but for both the EAP region and lower-middle-income has not revised its GATS commitment at the WTO, countries, which are 8 and 10.3 percent, respectively. which remains bound at 52 percent.3 In 2007, Indonesia decreased its maximum tariff by 13 percentage points to 102 percent and applied this rate In response to rising food prices, the Indonesian to vanilla, of which Indonesia is one of the top government removed tariffs on several imported exporters in the world. The trade policy space, as goods, including wheat and soybeans in 2008.4 The measured by the wedge between bound and applied government also limited exports of rice to maintain tariffs (the overhang), has remained steady at 30.3 domestic supply, allowing the state agency to export percent, similar to its regional and income group only when domestic stockpiles were above a threshold comparators. Over the 1995–2008 period, Indonesia of 3 million tons and domestic prices were below their was the 13th largest initiator of antidumping (AD) target price.5 In late 2008 as world economic growth slowed, protectionist tendencies arose. Indonesia restricted Unless otherwise indicated, all data are as of August 2009 imports by introducing new import licensing and are drawn from the World Trade Indicators 2009/10 requirements for five categories of goods (food and Database. The database, Country Trade Briefs and beverages, textiles and garments, footwear, children’s Trade-at-a-Glance Tables, are available at toys, and electronics) in December 2008, and for iron http://www.worldbank.org/wti. and steel in February 2009.6 Further, the country increased tariffs on 17 product lines including steel, If using information from this brief, please provide the electronic parts, chemicals, food, and beverages following source citation: World Bank. 2010. “Indonesia (February 2009).7 After initiating only one anti- Trade Brief.� World Trade Indicators 2009/10: Country Trade dumping investigation in 2007, Indonesia initiated Briefs. Washington, DC: World Bank. Available at seven AD investigations in 2008 (six in the last http://www.worldbank.org/wti. World Trade Indicators 2009/10 Indonesia Trade Brief quarter), making it the 8th largest initiator last year. has increased market access for goods and services Two safeguard investigations were also initiated during through the free trade agreements (FTAs) it has 2008 on iron/steel, wires/nails, and glucose. To negotiated as part of ASEAN. ASEAN has FTAs with stimulate exports, the government opted to decrease China, Japan, Korea, Australia, New Zealand, and, export duties for some goods.8 Although new tariff since August 2009, India. The goods FTAs with China polices discriminate against foreign goods, in June and Korea are expected to be fully realized by January 2009 the government announced a new liberal 1, 2010. The FTA with Korea extends beyond goods investment policy. It provides national treatment to trade with the services agreement taking effect in May foreign investment; protection against expropriation; 2009, and an investment component signed in June. repatriation of capital, profits, and wages; elimination The ASEAN-Australia-New Zealand FTA signed in of restrictions on the size of investment; and only a February 2009, is comprehensive, covering goods and limited negative list of activities not open to services as well as investment and intellectual property foreigners. At the same time, a 2008 shipping law will issues, whereas the FTA with India is currently come into effect starting in 2010 that contains the restricted to goods. Both FTAs are expected to come cabotage principle, which requires coal, oil, and gas, as into effect on January 1, 2010. In March 2008 ASEAN well as domestic shipping, to be performed by locally signed a FTA with Japan that would eliminate tariffs registered vessels.9 on 93 percent of goods exported from ASEAN. Indonesia signed a more comprehensive bilateral agreement with Japan (its main export market) that External Environment took effect in July 2008. It encompasses assistance to Indonesian exports face a less favorable external build Indonesia’s technological capacity and migration environment than its comparators as judged by a of Indonesian nurses.11 Market Access TTRI10 (including preferences) for 2007 of 4.2 percent for all goods, which is slightly Behind the Border Constraints higher than the averages for both the EAP region (3.8 percent) and lower-middle-income countries (2.4 In terms of the conduciveness of its institutional percent). The simple average of the rest of the world environment to business, Indonesia is ranked 122nd tariff faced by Indonesian exports is 10 percent. When out of 183 countries in the Ease of Doing Business weighted by actual exports, it is 3.5 percent, with the index for 2009. The Logistics Performance Index, a barrier faced by agricultural goods significantly higher measure of the ease of trade facilitation, rates than that faced by non-agricultural goods at 9.2 and Indonesia well at 3.01 on a scale from 1 to 5 with 5 2.9 percent, respectively. Indonesia was the 5th largest being the highest performance. This is compared with target of antidumping legislation, facing 145 2.58 for the EAP region and 2.47 for countries in the investigations during 1995–2008. In 2008 Indonesia lower-middle-income group. It ranked 43rd in the faced 11 anti-dumping investigations initiated against world and 4th in the EAP region, with Malaysia leading it, and tied for 3rd most frequently targeted country the EAP regional group. The country performed best with Taiwan (China), being surpassed only by China in the area of tracking and tracing shipments but and Thailand. In 2009 there have been four additional ranked 11th out of 13 countries in the EAP region in investigations initiated against the country. The the area of domestic logistics costs, due mostly to the Indonesian rupiah plummeted in the fourth quarter of relatively high cost of transporting goods. 2008 by 20 percent against the U.S. dollar, to register an annual depreciation of 6 percent. In the second In response to a drop in the availability of credit quarter of 2009, there has been a 10 percent brought on by the financial crisis, Indonesia instituted appreciation of the currency over the first quarter. several trade financing policies that were designed to increase the availability of financing to exporters. Indonesia’s main integration agreement is the ASEAN These include the establishment of an export-import (Association of South-East Asia Nation) free trade bank in December 2008. Swap agreements with Asian agreement (AFTA). Although tariff elimination has central banks also facilitated trade by alleviating progressed effectively, services liberalization among exchange rate pressures and the scarcity of foreign members has been less comprehensive. Liberalization exchange.12 of air transport, telecommunications, tourism, and healthcare is planned for 2010, when ASEAN ownership limits expand to 70 percent. Indonesia also Indonesia Trade Brief World Trade Indicators 2009/10 Trade Outcomes Notes Buoyed by rising commodity prices, Indonesia’s total 1. TTRI calculates the equivalent uniform tariff that trade in goods and services grew by 11.6 percent in would keep domestic welfare constant. It is weighted by real (constant 2000) dollars during the 2005–07 period. import shares and import demand elasticity. However, as commodity prices fell and global demand 2. Magiera, 2008. shrunk in the latter part of 2008, trade growth 3. USTR, 2009 decelerated to 9.7 percent for the year. Real export 4. FAO, 2009. growth of goods and services was 9.5 percent in 2008 5. Arnst, 2009, p. 9. while import growth was 10 percent. As Indonesia’s 6. World Bank, April 2009, p. 22. main export markets, including Japan, the United 7. WTO, p. 69. States, Singapore, China, and Korea, face growth 8. World Bank PREM Trade Group, January 2009, pp. 3, 9. contractions or slowdowns, exports are forecast to fall 9. Global Trade Alert, 2009. in 2009 by 3 percent, while imports are expected to 10. MA-TTRI calculates the equivalent uniform tariff of grow, although at a severely diminished 1.5 percent. trading partners that would keep their level of imports In nominal U.S. dollar terms, total trade grew by 24.4 constant. It is weighted by import values and import percent in 2008, which was a 10 percentage point demand elasticities of trading partners. increase over 2007. Although the manufacturing 11. Bilaterals.org, 2009a, 2009b, 2009c. export base has been widened, Indonesia’s exports are 12. World Bank PREM Trade Group, June 2009, p. 11. still dominated by commodities (oil and gas, coal, and palm oil), and high commodity prices in the first half of 2008 drove goods exports up by 18 percent. References Exports in services grew by 21.5 percent, but Arnst, Randall. February 2009. “Business as Usual: accounted for only 10 percent of total exports. Responses within ASEAN to the Food Crisis.� Plummeting oil revenues made goods export growth Occasional Paper 4. Focus on the Global South. register a negative 8.5 percent growth in the last . quarter of 2008 on a year-on-year basis, after Bilaterals.org. April 2009a. “AANZFTA.� Bilaterals.org. increasing 26.9 percent in the previous quarter. The ———. April 2009b. “India-ASEAN; Japan-ASEAN. first two quarters of 2009 registered a negative goods Japan-Indonesia.� Bilaterals.org. export growth of 31 percent and 26 percent ———. June 26, 2009c. “RI, NZ Bilateral FTA respectively, compared to the same period in 2007. Arrangements To Conclude Within Months: FM.� However, an earlier than expected recovery from Bilaterals.org. China bodes well for Indonesian commodity exports, Food and Agriculture Association of the United Nations and on a quarter-on-quarter basis, exports did increase (FAO). 2009. “Policy Measures Taken by by 17 percent in the second quarter of 2009. Governments to Reduce the Impact of Soaring Total imports grew by 31.6 percent in 2008 (double Prices (As of 15 December 2008).� FAO. December their 2007 rate), driven by a 36 percent increase in 15, 2008. . imports. In the last quarter of 2008, imports continued Global Trade Alert. 2009. “Indonesia: Announced to rise in nominal U.S. dollar terms by 43.2 percent. In Intention to Unify Policies towards Domestic and 2009, goods imports registered a 32 percent decrease Foreign Investments. . optimistic signal of domestic demand recovery is that International Monetary Fund (IMF). August 2009. on a quarter-on-quarter basis goods imports grew by 4 International Financial Statistics (Country Tables). percent in the second quarter of 2009. Foreign direct Magiera, Stephen L. August 21, 2008. “The Investment investment increased in dollar terms and stayed steady Negative List: One Year Later.� United States- at 1.6 percent of GDP in 2008. Indonesia Society. . World Bank PREM Trade Group. April 21, 2009. “Update on Trade Measures and Sector-Specific Support.� World Bank, Washington, DC. World Trade Indicators 2009/10 Indonesia Trade Brief ———. January 14, 2009. “The World Bank, Update on ———. June, 2009. Indonesia Economic Quarterly. World the Impact of the Financial Crisis on Trade and Bank, Washington, DC. Trade Finance.� World Bank, Washington, DC. World Trade Organization. July 15, 2009. “Report to the ———. June 6, 2009. “Philippines: Quick Measures to TPRB from the Director-General on the Financial Boost Exports in Response to the Global Financial and Economic Crisis and Trade-Related Crisis.� World Bank, Washington, DC. Developments.� Geneva. World Bank. April 2009. “East Asia And Pacific Update: Battling the Forces of Global Recession.� World Bank, Washington, DC.