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2. Introduction to trade and investment regime
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2.1 Legislation on trade and investment

There are 6 types of legislation in Indonesia, namely: the Constitution of 1945; Decisions passed by the People's Consultative Assembly; "Act of Parliament" or "Law" passed by legislature; Government Regulation; Presidential Decisions; Implementing regulations such as Ministerial Regulations.

Major legislation governing trade in Indonesia consists of the Trade Law of 1934, Law No 10 Year 1995 concerning Customs, Law No 7 Year 1994 regarding Authentication of Agreement Establishing the World Trade Organization, Law No 5 Year 1984 regarding Industrial Affairs. Other laws related to trade include Law No 1 Year 2004 concerning State Treasury, Law No 5 Year 1999 concerning Prohibition of Monopoly Practice and Unfair Trade Competition. Major investment-related legislation consists of the Foreign Capital Investment Law No 1 of 1967 and the Domestic Capital Investment Law No 6 of 1968.

2.2 Trade administration

2.2.1 Tariff system

While most imported products are subject to ad valorem duty, certain products such as rice and sugar are subject to specific duty in Indonesia.

There are two types of import duties in Indonesia, the MFN Tariff Rate and the Preferential Tariff Rate. According to the Framework Agreement on Comprehensive Economic Co-operation between the People's Republic of China and the Association of South East Asian Nations signed in November 2004, Indonesia is to lower tariffs on imports from China starting from 2005. Those MFN tariff rates, originally above 20 percent, dropped to 20 percent in 2005. The MFN rates of 15 percent and 10 percent were maintained in 2005, and are expected to drop to 8 percent in 2007. For MFN rate of 5 percent, no reduction is going to be made until 2009 when it is expected to be zero. Both China and Indonesia are going to reduce the import tariffs for most of the products to zero by 2010.

2.2.2 Import administration

The Indonesian government requires certain imports to go through import licensing procedures, classified as automatic and non-automatic licensing. Nine categories of goods are subject to automatic licensing, including: CFC, methyl bromide, hazardous goods, alcoholic beverages and their immediate raw materials containing alcoholic substances, industrial salts, ethylene and propylene, explosives and their immediate raw materials, wastes and scraps, used clothing. Six categories of goods subject to non-automatic licensing include: Cloves, textiles, iron and steel, synthetic lubricating oil, sugar, and agricultural hand tools.

The Indonesian Government conducts quota and license administration over automatic and non-automatic licensing. Quota system applies only to imports of alcoholic beverages and their immediate raw materials containing alcoholic substances. Import quotas are allocated only to appointed domestic companies. For non-quota goods, import licenses for industrial salts, ethylene and propylene, explosives, motor vehicles, wastes and scraps, and hazardous goods are reserved for qualified companies, which shall only use any of these import goods solely for their own production process. Licenses to import synthetic lubricating oil, artificial sweeteners and agricultural hand tools are issued only to approved importers.

2.2.3 Export administration

Indonesia bans the exportation of certain live fishery products, rubber of low quality, rubber materials, crude leather of reptile, ferrous scrap/waste (except if originating in Batam Island), round wood and wood chips, CITES-protected wild animals and natural plants, and urea. Besides, exports to Israel remain banned. Indonesia exercises export control by dividing exports into two types, "supervised" exports and "regulated" exports. Export approval requirements must be met for "supervised" products, including certain live bovine animals, live fish, palm nuts/kernels, lead and bauxite ores/concentrate, petroleum oils/products, urea fertilizer, crocodile leather, unprotected wild animals and plants, unprocessed silver/gold, and waste/scrap of metals. Indonesia also conducts licensing and quota administration over regulated exports. Regulated exports are: coffee, textiles and clothing, rubber, veneer and plywood or similar laminated wood, teakwood, and mixed rattan and semi-prepared rattan.

2.2.4 Other tariff administrative systems

On 31 December 2004, the Ministry of Finance issued a notice, amending the tariff rates imposed on luxury goods except automobiles. The amendment came into effect as of January 1, 2005. Luxury duties are 10 percent, 20 percent, 30 percent, 40 percent, 50 percent and 75 percent. Household electrical appliances, sport goods, air conditioners, audiovisual equipment and photographic facilities are subject to a luxury duty of 10 percent; a 20 percent luxury duty is imposed on other household appliances, houses and apartments, film and television equipment, such electromagnetic devices as dishdryer and microwave oven, and perfume; 30 percent on equipment for ships, products for such sports as golf, diving, and water skiing, etc.; 40 percent on alcoholic beverages, leather products, silk or woolen carpet, crystalware, products made of precious me tals, motor vessels for leisure purposes, spaceship pistol bullet, special shoes, expensive stationeries, porcelain products and exquisite products made of stone; 50 percent on blankets made of fine animal hair, other aircrafts, other sport goods including golf clubs, and pistols; 75 percent on alcoholic beverages other than the abovementioned, precious metals other than the abovementioned or products made of pearls, and luxury cruise ships.

2.3 Investment administration

Indonesia bans domestic and foreign investment in businesses in the following 11 industries: cultivation and processing of marijuana and the like; collection/utilization of sponge; industries producing harmful chemicals harmful to the environment; industries producing chemical weapons; industries producing weapons and related components; industries producing cyclamate and saccharine; industries producing alcoholic drinks; casino and gambling facilities; air traffic system providers, ship certification and classification inspections; management and operation of Radio Frequency Spectrum and Satellite Orbit Monitoring Stations; and mining of radioactive minerals.

Foreign investment is prohibited in the following 8 areas: germ plasm cultivation; concession for natural forests, contractors in the field of lumbering; taxi/bus transportation services; small-scale sailing; trading and trading supporting services; radio and television broadcasting services providers, media services; motion picture production industry.

Conditions are attached to businesses between foreign and domestic capital in the following 8 areas: building and operation of seaports; electricity production, transmission and distribution; shipping; processing and provision of potable water for public use; atomic power plants; medical services, telecommunications; regular/non-regular commercial airliners.

2.4 Competent authorities

The Ministry of Industry and Trade (MIT) is the competent authority for trade administration, and its responsibilities mainly include the formulation of trade policies, participating in the formulation of trade related legislation, classifying export and import products into different administrative systems, import/export license examination and approval, appointing importers and allocating quotas, and participating in the settlement of trade disputes and anti-dumping cases. The Customs under the Ministry of Finance administers imports and exports in accordance with the policies made by the Ministry and existing laws. The Agency for Agriculture Quarantine (AAQ) is an agency under the Ministry of Agriculture. The AQQ is responsible for carrying out animal, fish, and plant quarantine.

Indonesia's Investment Coordinating Board (BKPM), directly responsible to the President of the Republic of Indonesia, is mainly in charge of assessing and formulating national investment policy, coordinating and promoting foreign investment. Besides, it reviews and monitors strategic investment programs that involve high risks and advanced technologies. According to the Presidential Decree No. 11 in March 2005, MIT is to provide policy coordination to the BKPM and assist the agency in determining which areas shall be open to investment, while the BKPM implements the relevant investment policies.

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