Indonesia – minimum local product requirement
for modern retail sector

Replies to questions from the European Union^[1]

The following communication, dated 15 April 2015, is being circulated at the request of the Delegation of Indonesia.

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We refer to the European Union’ questions contained in document G/TRIMS/W/141 dated 17 September 2014, Indonesia hereby wishes to provide the following clarifications:

Questions:

· The EU understands that the 80% local content requirement already exists for franchising, and by means of Regulation 70/2013 it is extended to the whole retail sector. Could Indonesia clarify:

o         Which Regulation sets out the 80% local requirement for franchising? Are there any implementing regulations? Are exceptions to the rules foreseen? Could Indonesia provide the relevant rules?

Reply

The Minister of Trade Regulation No.53/2012 concerning Franchise provides general rules on establishing and operating franchise. This regulation applies to all franchise-able business sectors and requires all franchisors as well as franchisees to use domestically produced goods and/or services for at least 80% of its raw materials, equipment, and sales.

This regulation also provides certain conditions which may allow The Minister of Trade to grant exemption. The decision to grant exemption will be made after taking into consideration the recommendation made by the Assessment Team.

The definition of "certain conditions" as well as the procedure to request the exemption are further detailed in the Decision of Director General of Domestic Trade No. 16/PDN/KEP/3/2014.

o         Which Regulation sets out the 80% local requirement for the whole retail sector? Are there any implementing regulations? Are exceptions to the rules foreseen? Could Indonesia provide the relevant rules?

Reply

The Minister of Trade Regulation No.70/2013 requires Shopping Centre and Modern Store to provide at least 80%, in terms of quantity and type, of its products being traded are domestic products.

In September 2014, the Government enacted  the Minister of Trade Regulation No. 56/2014 to amend the Minister of Trade Regulation No. 70/2013. The new regulation provides exemption, as described in Article 22, for Modern Stores in the form of stand alone brand and/or specialty stores to meet the 80% requirement, provided the products being sold:

a.    Require a uniformity of production and are derived from single unit of global supply chain;

b.    Are premium products and have no production base in Indonesia; or

c.    Are originated from certain countries to exclusively meet the needs of its citizens who live in Indonesia.

This exemption shall be given with the authorization of the Minister of Trade. Modern Stores who have obtained the exemption must gradually increase the sale of similar goods produced in Indonesia as well as submit the implementation report to the Minister of Trade c.q. Director General of Foreign Trade.

Based on those regulations, any Modern Stores, franchised or not franchised, are required to meet the minimum 80% requirement. For franchised Modern Stores, more specific rules are set out in the Minister of Trade Regulation No.68/2012.

· The 15% limitation on the number of private labels goods sold would also be of difficult application for single brand retailers. Can Indonesia please clarify what the objectives of this provision are and how the provision would be implemented?

Reply

The objectives of this provision are inter alia to promote better climate for competition especially for the participation of SME’s as well as to ensure business certainty.

The Minister of Trade Regulation No. 56/2014, in particular Article 21.2, provides exemption to meet the 15% requirement. This exemption applies to Modern Stores who carried out partnership cooperation as stipulated in Article 15.3 of the Regulation No. 70/2013.

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