INDONESIA - TRADE AND INVESTMENT HIGHLIGHTS -

UNCLAS SECTION 01 OF 04 JAKARTA 004514

SIPDIS

SIPDIS

DEPT FOR EB/TPP/MTA AND EAP/MTS
TREASURY FOR IA - ANNA JEWELL
USDOC FOR GOLIKE/4430

E.O. 12958: N/A
TAGS: ETRD EINV ECON KIPR ID
SUBJECT: INDONESIA - TRADE AND INVESTMENT HIGHLIGHTS -
MARCH 2006



1. Summary: On March 2, the Government of Indonesia
(GOI) announced an "Investment Climate Improvement
Package" mapping out reforms to a number of laws,
regulations, and procedures affecting the investment
climate. The Ministry of Trade (MOT) met the first key
deadline in the package by submitting a new draft
investment law to Parliament on March 22. Vice President
Kalla announced on March 16 that the GOI plans to
establish eight new special economic zones to attract
foreign investors. The Ministry of Trade said on March 2
it is considering anti-dumping measures against textile
imports from China. On March 3, the Ministry of Marine
Affairs and Fisheries said it would apply international
standards to Indonesian shrimp exports. The ministry
said it has banned seven Indonesian companies under
investigation for illegal transshipment from exporting
shrimp to the U.S. Indonesia's footwear sector hopes to
increase market share in the European Union (EU)
following EU anti-dumping measures against Chinese and
Vietnamese shoes. On March 3, Microsoft Indonesia
announced plans to provide affordable computers to
millions of Indonesian customers. State
telecommunication company PT Telkom announced it would
postpone a planned increase in fixed line telephone
tariffs on March 6. The Indonesian Textile Association
(API) will hold a large Indonesian Textile and Apparel
Fair September 21-24 in Jakarta. End Summary.

New Measures to Improve Investment
--------------


2. On March 2, the GOI announced an "Investment Climate
Improvement Package" containing 85 regulatory and
institutional reforms it plans to take in 2006 to improve
the investment climate. The package focuses on five
areas: general investment policies; customs, excise and
duties policies; taxation; labor; and small and medium
enterprises (SMEs). Key items in the package include:

--Submitting a revised investment law to Parliament by
March 2006.

--Submitting revisions to Manpower Law (No. 12/2003) to
Parliament by the end of April 2006. The revised law
would address business community concerns about worker
severance costs, outsourcing and expatriate work permits.

--Reaching a decision on the status of three draft tax
laws now before Parliament by the end of April 2006.

--The revitalization of the "National Team for the
Enhancement of Exports and Investment" (PEPI) to better
coordinate investment policies and help solve high
profile investment disputes "quickly, cheaply and
fairly".

--The Ministry of Finance will accelerate customs
processing times by June 2006 to 30 minutes for green
lane shipments and three days for red lane shipments.

--A reduction of the use of the red lane to just 10
percent of shipments by December 2006.

--The Ministry of Finance will establish tax facilities
for certain business sectors by the end of June 2006, and
revise rules and regulations on value added taxes (VAT)
to coincide with passage of a package of amended tax
laws.


3. The Ministry of Trade met the first key deadline in
the package by submitting a new draft investment law to
Parliament on March 22. The draft law would unify
Indonesia's separate laws for foreign and domestic
investors and provide traditional investment protections
including national treatment, the right to repatriation
of profits, and a guarantee against nationalization. In
conjunction with a new investment law, the GOI plans a
number of other regulatory changes including a revised
Government Regulation setting out "clear, simple, and
transparent" criteria for the negative investment list;
revisions to Government Regulation 25 on the
responsibilities of local governments in the area of

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investment; and regulations reducing the number of days
needed to establish a business. "A one-stop service for
investors is part of the new package," Advisor to
Coordinating Minister for the Economy Jannes Hutagalung
said.

GOI to Simplify Trade Licenses
--------------


4. As part of the investment climate improvement
package, the Coordinating Ministry for the Economy
announced on April 4 that the MOT had issued decrees
simplifying application procedures and eliminating some
bureaucratic requirements for nine separate trade
licenses. The eight licenses are the:

a) trade business license (SIUP),
b) trade company representation license,
c) surveyor business activity license,
d) franchise business registration document,
e) agency and distribution registration document,
f) alcoholic beverages trade business license,
g) multi-level sales business license, and
h) warehouse registration document.


5. Under Indonesian law, all companies must obtain a
trade business license (SIUP) as part of the business
establishment process. In a 2005 survey, the
International Finance Corporation estimated this step
takes companies an average of 14 days. The new decrees
seek to shorten the SIUP issuance process to five days,
reduce the number of documents required from six to four,
and standardize fees throughout Indonesia.

Indonesia to Create Special Economic Zones
--------------


6. In a March 16 keynote address at a business seminar,
Vice President Jusuf Kalla announced the GOI would create
eight new Special Economic Zones (SEZs) within a year to
attract more foreign investment, in addition to the
existing SEZ on Batam Island. According to press
reports, the GOI is considering creating new SEZs in
Bojonegara (Banten Province),West Java, Central Java,
East Java, East Kalimantan, North Sumatra, South Sulawesi
and Aceh's Sabang Island. Minister of Trade Mari
Pangestu reportedly stated the new SEZs should be located
where there is already a cluster of industries, developed
infrastructure, receptive local government, and space to
accommodate expansion. She added that the GOI would set
up a regulatory framework for the zones before finalizing
the locations. Pangestu told the press that the
individual SEZs would likely focus on sectors already
established in the area, such as petrochemicals in Banten
(already home to several petrochemical plants);
agribusiness in Sumatra; oil, gas and mining in
Kalimantan; and manufacturing in Java.

Anti-dumping Measures Against Chinese Textiles?
-------------- --


7. Minister of Trade Mari Pangestu stated on March 2
that the government would consider anti-dumping measures
against textile imports from China. Her comments were in
response to a safeguards petition the Indonesian Textile
Association (API) submitted to the Ministry of Trade-
chaired Indonesian Trade Safeguard Committee (ITSC)
claiming a surge of textile imports from China had caused
injury to the domestic industry. One issue the ITSC
faces is that safeguard measures are only effective
against legal imports, while many garments from China
found in local markets enter Indonesia illegally. The
ITSC is an interagency committee that includes the
Ministries of Industry, Finance, Agriculture, and
Forestry, the Central Statistics Agency, and the
Coordinating Ministry for Economic Affairs. It
implements Presidential Decree No. 84/2002 on "Domestic
Industrial Safeguard Measures Resulting from a Surge in
Imports".

Shrimp Trade Update
--------------

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8. The Ministry of Marine Affairs and Fisheries (MMAF)
announced on March 3 that the GOI would adopt
international standards on exports of shrimp,
particularly to the European Union and the United States.
Director General for Fish Breeding Made L. Nurdjana
stated the ministry expects to implement a
standardization and certification program for breeding,
cultivation and post-harvest handling of shrimp by mid-

2006. The program would meet the Code of Conduct of
Responsible Fisheries (CCRF) regulated by the World Food
and Agriculture Organization (FAO). The United States is
the largest buyer of Indonesian shrimp. In 2005,
Indonesian fish and shellfish to the U.S. reached USD
726.6 million.


9. Minister of Fisheries and Marine Affairs Freddy
Numberi acknowledged on March 6 that there had been
incidents of illegal transshipment of shrimp from China
through Indonesia. The Minister said MMAF officials
suspect at least seven shipping companies of re-
exportation and re-labeling of Chinese shrimp to the
United States. He refused to name the companies, stating
investigations are ongoing. In the meantime, Numberi
said his ministry has prohibited the seven companies from
exporting shrimp to the U.S. He promised tough
punishment including revocation of licenses if
allegations are confirmed.

Indonesia Hopes to Expand EU Footwear Share
--------------


10. On March 3, Ansari Buchari, Director General of
Metal and Textile Machine in the Ministry of Industry
expressed hope that Indonesia would increase its share of
the EU footwear market after the EU slapped anti-dumping
surcharges of 19.4 and 16.8 percent on shoe products from
China and Vietnam respectively. The surcharges are set
to last for five years effective April 2006. Buchari
said he is optimistic that Indonesia can benefit from the
EU action, and hoped that major companies such as Puma,
Adidas and others would invest in production facilities
in Indonesia. According to the Indonesian Footwear
Producers Association, Indonesia exported USD 1.5 billion
of footwear in 2005, an increase of 13.6 percent from USD
1.32 billion reported in 2004.

Microsoft to Provide Affordable Computers
--------------


11. Microsoft Corporation announced on March 3 that the
company is planning to provide affordable computer
packages, including its own software, to millions of
Indonesian customers this year through its Indonesian
affiliate PT Microsoft Indonesia (PTMI). Under the
program, PTMI will cooperate with local consumer finance
firms to help consumers purchase computers who would
normally have no access to credit. These consumers would
also benefit from a 40-60 percent discount from Microsoft
that would bring the package of a computer system to Rp 6-
7.2 million or USD 660-700.

Telkom to Delay Phone Tariff Hike
--------------


12. PT Telekomunikasi Indonesia (Telkom) announced on
March 6 that the company would not increase fixed line
telephone tariffs for an indefinite period. Telkom
President Director Arwin Rasyid said he has "no heart" to
increase tariffs since many consumers are still reeling
from October 2005 fuel price hikes. According to Rasyid,
the postponement will not affect Telkom's services.

Indonesia to Hold Textile and Apparel Fair in September
-------------- --------------


13. The Indonesian Textile Association (API) will hold
an "Indonesian Textile and Apparel Fair" September 21-24,
2006 in Jakarta, the largest gathering of its kind. The
fair will feature a textile exhibition, seminars and
workshops on marketing Indonesia's products, exploration
of business opportunities and a venue for producers and

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buyers to come together. API expects about 400
exhibitors to participate in the event at the Jakarta
International Expo center. Minister of Trade Mari
Pangestu expressed optimism that Indonesia's textile and
garment exports would continue to grow in 2006.
Indonesia's textile and garment exports reached USD 8.6
billion in 2005, a 15.1 percent increase from 2004.
Details on the textile and apparel fair are at
www.itaaf.com.

PASCOE