http://www.asiasentinel.com/index.php?option=com_content&task=view&id=5262&Itemid=226
More Protectionism in Indonesia
Written by Our Correspondent
Tuesday, 19 March 2013
This all belongs to us, thanks
New industry law update appears to be another illustration of economic
nationalism
The American Chamber of Commerce in Indonesia, already alarmed over a
protectionist draft trade bill, is now growing concerned about new legislation
before the Indonesian House of Representatives to update the country's Industry
Law.
Critics say the language in the updated law is designed to protect
Indonesian industry at the expense of multinationals. As with the draft trade
law, multinationals are concerned that the new industry regulatory framework,
which is aimed at updating the regulations governing manufacturing in the
country, will constrict investment and cut into market access for foreign
investors.
Taken together with a wide variety of other measures and regulations put
in place over the past year, the new regulation appears to represent a broad
onslaught against foreign companies investment.
"Looked at in full with the trade bill, this amounts to a full-on assault
on free trade and WTO standards," said an American consultant based in Jakarta.
It dovetails with other measures that multinationals are struggling to deal
with, including one requiring that companies doing business in Indonesia direct
their transactions through Indonesian banks.
Yet another measure being debated in the House of Representatives would
cut the foreign ownership of Indonesian banks to a maximum of 40 to 49 percent
from the current 99 percent, and would also introduce a so-called reciprocity
principle giving Indonesia the right to implement barriers to foreign banks
similar to those imposed on Indonesian banks overseas. Foreign bankers warned
that should the provisions become law, banking authorities in foreign countries
would be tempted to impose more barriers against Indonesian banks doing
business in their countries.
Amcham Indonesia, which represents the interests of 250-odd companies
doing business in the country, said foreign participants have been kept out of
the process of drafting the industry law, as they were in the process of
drafting the trade law. And, the organization said, while the details are yet
to be worked out, the law "has several articles that potentially violate the
World Trade Organization's (WTO) principle of non-discrimination," Amcham said
in an analysis. "A country should not discriminate between its trading
partners, giving them equally ‘most-favored nation,' or MFN status, and it
should not discriminate between its own and foreign products, services or
nationals, giving them ‘national treatment.'"
Some clauses in the new industry law allegedly violate the "free and
fairness" principle, which discourages unfair practices such as export
subsidies and dumping products at below cost to gain market share, the Amcham
report said.
"In general...we find that the draft law is moving away from the
non-discrimination principle and does not always embody the spirit of creating
a more competitive domestic manufacturing sector, as it purports to do," it
continued.
Indonesia has been the focus of growing investor concerns over economic
nationalism for months. Billions of dollars in investment by foreign companies
including mining and oil concerns are being held to ransom by the government.
Freeport McMoRan, the Colorado-based mining giant, reportedly has US$12 billion
in investment in Indonesian operations stalled. Other oil and mining operations
have as much as US$50 billion held up waiting to be invested.
The question is whether eventually this misguided economic policy will
come home to roost, and possibly it already has. The rupiah has been
depreciating steadily against the US dollar. It faces a fast-shrinking current
account balance and inflation is creeping up. So far, that hasn't deterred
international investors, who continue to flood into the country.
Amcham points to several articles in the proposed industry law, including
ones that allow the government to prioritize the provision of natural resources
for domestic companies over foreign ones, demands the application of Indonesian
National Standard (SNI) certification of products, which "enables
discriminatory behavior, and discourages imports due to the extra testing and
certification burdens," and which give preference to domestic companies for
government tenders in certain circumstances, which "is not in line with free
and fairness concepts, and thus potentially violates WTO regulations.
Others give preference for domestic products in the government
procurement process, allow measures to protect domestic industry from global
competition, business climates and regulations, restrict small business
ownership and other culturally important industries to Indonesian citizens,
limits the extent to which the private sector can provide meaningful advice and
input on new regulations, and potentially creates an unpredictable business
environment, which violates WTO protocol.
"Foreign companies, investors and governments should be confident that
trade barriers would not be raised arbitrarily," the Amcham letter states. A
final article essentially criminalizes non-compliance with mandatory SNI
requirements.
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