T

he trade minister recently enacted regulation No. 27/2012 on importer identification numbers (API), which not only concerns the procedures to obtain an API but also governs imports of finished goods for both general importers and importing producers.

This new regulation fills the legal vacuum following the Supreme Court’s annulment of regulation No. 39/2010 on the import of finished goods. The court ruling temporarily suspended imports of manufacturers that used to import finished goods, such as automotive producers importing completely built cars and pharmaceutical producers importing certain medicines produced overseas.

Although the new regulation does not ban imports of finished goods, it is more restrictive than the previous regulation in two ways. First, each general importer is only allowed to import goods that fall under one heading, while the old decree did not contain such a clause. Second, an importing producer is allowed to import finished goods for market testing and as complementary goods only.

A consequences of the requirement that a general importer is only allowed to import goods under one heading is that an existing importer has to establish new companies if, in the past, they imported goods under more than one headings. This will delay imports of finished goods, compared to the previous regulatory regime.

Based on the Doing Business Survey 2012, it will take 45 days and cost around Rp5 million (US$525) to start a business in Indonesia, including acquiring a business permit (Surat Ijin Usaha Perdagangan), a business registration number (Tanda Daftar Perusahaan) and a tax file number, then another five days to get the general importer identification number (API-U) before the new company can start importing.

The restriction on importing producers might end up forcing them to establish a new company to obtain an API-U, since importing under an API-U appears to be much simpler than under the importing producers classification (API-P).

Not only is it more restrictive, the new regulation also exposes importers and importing producers to discretionary decisions and rulings. Discretionary decisions are possible in at least three areas. The first is how “complementary goods” and “a special relationship between an importer and an overseas supplier”, as stated in the decree, are defined. The second is how market test durations by technical ministries are determined. The third is how technical ministries make recommendation regarding finished goods that are allowed to be imported by importing producers.

The discretionary decisions may be avoided if the Trade Ministry publishes the criteria and sectoral-specific items. The definition of complementary goods in the decree is rather vague. A technical regulation is needed to justify what it means by “complement in each of the sectors”. The decree refers to an accounting standard in determining the “special relationship between an importer producer and an overseas supplier”. This also needs to be spelled out in the technical guidelines used by all API issuing agencies.

As mentioned earlier, ministers are required to make decisions in a few areas. How fast the ministries can adopt this new regulation will determine the effectiveness of the implementation of this new decree. Coordination failures will delay imports. Although this new regulation is on imports of finished goods, the lack of domestic supply of these goods might negatively affect business activities in general. For example, the after-sales market of automobile and motorcycles (for parts and components) and the health sector (for the availability of medicines not currently produced domestically).

More restrictive trade policies are often questioned by trading partners. Since the ratification of the World Trade Organization (WTO) agreement in 1995, Indonesia is bound to the organizations agreements. There are at least two agreements that Indonesia might be questioned on. The first is Article 11 of the General Agreement on Trade and Tariffs (GATT) that states no restrictions, other than duties, taxes or other charges, can be instituted or maintained by member countries. The second is the WTO agreement on import licensing, which requires member countries to ensure all non-automatic import licensing do not distort trade and make all information about licensing procedures publicly available.

With the enactment of this new regulation, the government needs to make all technical requirements to apply for an importing producer’s identification number publicly available.

This new regulation solves one problem: It fills the legal vacuum over importing producers importing finished goods. But there is still some homework that needs to be done for the government to avoid unnecessary hiccups in the manufacturing sector, in particular, and Indonesia’s trade relations, in general.

The writer is a researcher at the Centre for Strategic and International Studies, Jakarta, and a doctoral candidate at the Australian National University.