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Jakarta Post

RI to address concerns on local content phone manufacturing

  • Linda Yulisman

    The Jakarta Post

Jakarta   /   Mon, April 27, 2015   /  07:25 am

The government will address and respond to concerns raised by trading partners over a series of policies that may affect investment, notably the mandatory local content rules in the telecommunication sector.

The US was the first to convey its concerns about Indonesia'€™s two draft rules, which require products with the 4G LTE spectrum, including smartphones, sold in the Indonesian market to have 40 percent local content starting from 2017.

The US claims the policy will favor domestic firms over foreign companies.

As soon as the local content requirement for phone manufacturing is put in place, Indonesia will eventually see investment from neighboring countries with a smaller market.

Four rules '€” local content provisions in the energy sector, the newly passed Industry Law and Trade Law and minimum local product requirement for modern retailers '€” were also the target of scrutiny at a recent meeting of the Committee on Trade-Related Investment Measures (TRIMs), according to a press statement from the World Trade Organization (WTO).

Trade Minister Rachmat Gobel said the government would examine the concerns of its major trading partners.

He, however, asserted that it was only natural for Indonesia to expect investment due to its huge market.

'€œSuch a sizeable domestic market is our capital. We expect investors to bring added value locally,'€ he told reporters on Friday.

Rachmat further said that he was in intensive talks with Communications and Information Minister Rudiantara about the planned rules.

Rudiantara earlier said that the local content rules that would affect 4G cell phones would likely be issued by mid-year, with hardware and software included in the calculation.

The planned rules will support another regulation, Trade Minister Regulation No. 38/2013, which demands importers to either build their own facility or hand over assembly to local original equipment manufacturers (OEM).

At present, local device manufacturers, such as PT Sat Nusapersada and PT Hartono Istana Teknologi, source between 20 percent and 35 percent of cell phones parts domestically.

Without any arrangement, Indonesia, the world'€™s fourth most populous nation with more than 250 million people, half of which comprises the rising middle-income bracket, has lured global phone producers such as South Korean giant Samsung, China'€™s leading smart phone maker Oppo and US giant Apple to set up local manufacturing facilities.

They follow steps that were taken earlier by at least 10 local device makers to invest in local plants in a race for untapped potentials.

Currently, less than a third of its population owns a smartphones, lagging far behind China'€™s nearly 80 percent, according to research firm Canalys, as quoted by Reuters, thereby providing enormous room for growth.

Samsung kicked off phone production in its factory in Cikarang, West Java, early this year.

Apple supplier Foxconn has pledged to build a facility in Indonesia but land issues continue to hamper the plan.

The Trade Ministry'€™s acting director for multilateral trade cooperation Deny Kurnia said Saturday that with the local content rules, Indonesia aimed to ensure it could become part of the global value chain in the telecommunication sector.

'€œI think the General Agreement on Tariffs and Trade [GATT] recognizes the aspiration of developing countries like Indonesia to build its domestic industry in the context of development,'€ he said.

Deny further said that the local content requirement would further encourage companies to invest in Indonesia to spur expansion in domestic manufacturing, thereby providing leverage to climb up the value chain of manufactured products.
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'€œSuch a sizeable domestic market is our capital. We expect investors to bring added value locally.'€

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