In a decree released on Tuesday, the Finance Ministry eliminated import duties on 182 types of raw materials and capital goods needed by the chemical manufacturing, food manufacturing, machinery, electronics and shipping sectors. The previous duties were 5 percent.
However, the government also raised import duties for some processed goods from 5 percent to 10 percent. The affected goods include sardines, tuna, mackerel and candy.
“We will try to help local industries improve their competitiveness against imported products in Indonesia,” Bambang Brodjonegoro, the finance ministry’s head of fiscal policy, said on Tuesday.
Local industry players have voiced concerns about the flood of cheap goods from China into Indonesia after the Asian-China Free Trade Agreement was implemented in January 2010. Business representatives have complained that Indonesia opened up its market without first instituting the necessary policies to strengthen domestic businesses.
The Central Statistics Agency (BPS) reported that Indonesia recorded its largest trade deficit with China last year. Although it had a $22 billion overall surplus in international trade in 2010, it had a $4.7 billion trade deficit with China.
An Industry Ministry survey of 11 cities showed Indonesian textiles, furniture, electronics, metals and machinery manufacturers were hurt by the wave of cheap, Chinese imports, prompting fears that businesses would lay off workers.
Heri Kristono, director of tariffs at the Finance Ministry’s customs office, said the government scrapped some import duties that were related to the shipping sector to help local firms fulfill cabotage rules, which require vessels operating in the country’s waters to register as Indonesian-flagged vessels, except for six specific activities in the oil and gas sector.
Heri said Indonesia registered 898 foreign vessels, but about 460 of them have not paid the import tariffs as the ships were considered to be manufactured outside the country. With the decree, the owners of the vessels do not have to pay the fees.
Industry representatives and economists welcomed the government’s move.
Franky Sibarani, secretary of Indonesian Employers Association (Apindo), said scrapping import tariffs for some goods in the affected sectors would help manufacturers cut production costs.
He also said raising import tariffs for some processed goods would help protect local food manufacturers from a surge of imported goods.
Ahmad Erani Yustika, an economist at the Institute for Development Economic Finance, said the move was a step toward easing concerns about the trade deficit with China.
“It is good to know the government has started to think about industries, not just trying to earn as much as it can get from customs,” Erani said.