T

he government has decided to raise import duties on foreign steel products to protect local steel producers from cheaper imports.

The duties would be increased to between 15 percent and 40 percent, up from between 0 percent and 5 percent at present.

The duty increase will affect all imports, except from countries that have a preferential tariff arrangement, such as a free trade agreement, with Indonesia.

The increase will put Indonesia'€™s levies relatively on par with its Southeast Asian peers, including Malaysia and Thailand, which respectively charge 20 percent and 40 percent. '€œWe expect the measure to serve as an initial step toward helping local producers by providing them with a space to push up the utilization of their manufacturing facilities,'€ the Industry Ministry'€™s base manufacturing industry director general, Harjanto, said last week.

He added that the duty increase would be stipulated under a ministerial regulation to be issued by the Finance Ministry immediately.

Like their fellows worldwide, local steel producers, including state-owned firm Krakatau Steel, are presented with a more challenging situation, primarily caused by excess global metal supply that has found its way into the home market, either legally or illegally, pushing down prices.

 With insignificant import duties in place, Indonesia is apparently an easy target for foreign steel makers seeking new destinations to dump their excess output. Local steelmakers have seen the utilization rate of their production capacity plunge to 30 percent and 40 percent from about 70 percent in past years, according to the Indonesian Iron and Steel Industry Association (IISIA). Some companies have even shut down operations, inciting a fresh wave of layoffs.

To cope with an abundant steel supply at home, the nation'€™s biggest steelmaker, Krakatau Steel, for instance, has pushed down its steel price to the low market price of between US$380 and $390 per ton, far below its production cost, which can hit $600 per ton.

The higher import duties would be applied temporarily and be subject to review after two to three years, Harjanto further said.

The Industry Ministry would also encourage ministries, public institutions and state-owned companies that used state funds in their procurement to use domestically made steel as the next step to allow the steel industry thrive, he added.

IISIA executive director Hidayat Triseputro welcomed the government'€™s move to impose higher import duties to support struggling domestic manufacturers that have had to deal with allegedly unfair trade practices carried out by overseas steelmakers.

However, he warned that the higher levies might also pose a new risk either by way of illegal inbound shipments or manipulated steel categories subject to lower import duties.

'€œThe government has to ensure tighter supervision over imports. If it cannot control irregular imports, the market will be further distorted with foreign steel products and make the situation worse,'€ Hidayat said in a text message.

Krakatau Steel recently called on the government to immediately impose higher fees on imported steel entering the country to save the domestic steel industry. '€œWe urge the government to soon raise import duties to around 20 percent for foreign-made steel to help local steelmakers offset a steel-price slump and unfair competition from foreign sellers,'€ Krakatau Steel independent commissioner Roy E. Maningkas said recently.