IMPLEMENTATION LEVEL

National

AFFECTED FLOW

Inflow

ANNOUNCED AS TEMPORARY

No

NON-TRADE-RELATED RATIONALE

No

ELIGIBLE FIRMS

all

JUMBO

No

TARIFF PEAK

No
← back to the state act
Inception date: 05 Oct 2012 | Removal date: open ended
Still in force

Public procurement localisation

Article 43 of the law on the defence industry states that the Indonesian military is "required to use defence equipment and security equipment of domestic production" (para. 1, own translation). Paragraph 2 of the article also stipulates that the maintenance and repair of defence and security equipment shall be carried out within Indonesia.

If the defence industry is incapable of meeting the national military demand, foreign products may be procured through a direct channel with the government or the manufacturer (para. 3). In the case of national strategic interest, the procurement will require a "consideration" by the parliament (para. 4). Furthermore, the procurement of foreign products shall be in line with a number of requirements (para. 5):

  • "a. Equipment of Defense and Security Equipment has not or can not be made domestically;
  • b. The participation of the Defense Industry shall be included;
  • c. Liability for technology transfer;
  • d. Guarantees the absence of potential embargoes, political conditionality and barriers to the use of the Defense and Security Equipment Tool in order to maintain the sovereignty of the state, the territorial integrity of the Unitary State of the Republic of Indonesia, and the safety of the entire nation from threats and disruption to the integrity of the nation and state;
  • e. the existence of trade returns, local content and/or offset at least 85% (eighty-five percent);
  • f. the local content and/or offset as referred to in letter e shall be at least 35% (thirty-five percent) with an increase of 10% (ten percent) every 5 (five) years; and
  • g. the enactment of the offset shall be no later than 18 (eighteen) months after the Act is enacted." (own translation)

Paragraph 6 of the article further states that "the participation of the Defense Industry as referred to in paragraph (5) letter b shall be purchased under a trade-off mechanism, including offset."

In conclusion, article 43 of the law de facto states that unless an 85% local content requirement of the procured military products can be satisfied, the selling country will have to "offset" the lost Indonesian production, by purchasing the same value-amount equalling the 85% of Indonesian products.

The law came into affect on 5 October 2012.

AFFECTED COUNTRIES

MAP
TABLE
EXPORT

AFFECTED SECTORS AND PRODUCTS

447 Weapons & ammunition & parts
9301 Military weapons, other than revolvers, pistols and the arms of heading 93.07.
930110 Artillery weapons (for example, guns, howitzers and mortars)
930120 Rocket launchers; flamethrowers; grenade launchers; torpedo tubes and similar projectors
930190 Other
9302 Revolvers and pistols, other than those of heading 93.03 or 93.04.
930200 Revolvers and pistols, other than those of heading 93.03 or 93.04.
9305 Parts and accessories of articles of headings 93.01 to 93.04.
930591 Of military weapons of heading 93.01
9306 Bombs, grenades, torpedoes, mines, missiles and similar munitions of war and parts thereof; cartridges and other ammunition and projectiles and parts thereof, including shot and cartridge wads.
930621 Cartridges
930629 Other
930630 Other cartridges and parts thereof
930690 Other
496 Aircraft & spacecraft; parts
8802 Other aircraft (for example, helicopters, aeroplanes); spacecraft (including satellites) and suborbital and spacecraft launch vehicles.
880230 Aeroplanes and other aircraft, of an unladen weight exceeding 2,000 kg but not exceeding 15,000 kg
880240 Aeroplanes and other aircraft, of an unladen weight exceeding 15,000 kg

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