ANNOUNCEMENT 05 Oct 2012

On 5 October 2012, the Indonesian government introduced a new law (UU No.16 tahun 2012) on the defence industry. It contains several trade-distorting aspects.

The law came into force on the day of its stipulation.

NUMBER OF INTERVENTIONS

3

  • 3 harmful
  • 0 neutral
  • 0 liberalising

SOURCE

Law no. 16 / 2012 on the defence industry (in Bahasa Indonesia)
https://choromaster.files.wordpress.com/2015/03/uu_no_16_2012.pdf

Inception date: 05 Oct 2012 | Removal date: open ended

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 SECTORS

 
Inception date: 05 Oct 2012 | Removal date: open ended

FDI: Entry and ownership rule

Furthermore, article 52 of the law on the defence industry stipulates that all companies in the "major appliance industry" ought to be fully owned by the state (para. 1). Also, paragraph 2 states that industry of "main or supporting components (...) and raw materials" has to be owned at least to 51% by the government.

The law came into affect on 5 October 2012.

 
N/A
 
N/A
Inception date: 05 Oct 2012 | Removal date: open ended

State aid, nes

Article 51 of the law on the defence industry mentions that the Indonesian government shall provide equity participation to the Indonesian defence industry. Paragraph 2 of the article specifies that this participation shall be limited to state-owned enterprises.

The law came into affect on 5 October 2012.

 
N/A