Indonesia – minimum local product requirement for

modern retail sector

Replies to questions from the United States^[1]

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

_______________

We refer to the United States' questions contained in document G/TRIMS/W/139 dated 15 September 2014, Indonesia hereby wishes to provide the following clarifications:

Question 1

Is our understanding of Regulation 70 correct? Can Indonesia provide any further clarifications on the operation of this regulation? For example, can Indonesia provide any information about procedures relating to exemptions from or enforcement of this regulation?

Reply

In September 2014, the Government enacted  the Minister of Trade Regulation No. 56/2014 to amend the Minister of Trade Regulation No. 70/2013. According to the new regulation, exemption to the 15% requirement applies to Modern Stores who carried out partnership cooperation as stipulated in Article 15.3 of the Regulation No. 70/2013.

The new regulation also 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.

Question 2

The regulation was scheduled to come into force in June 2014. Is the regulation now in force? We note that investors are provided 2 years to come into compliance with the requirement to use local goods. Can Indonesia provide updated information about the process for implementing Regulation 70?

Reply

The Regulation No.70/2013 as well as the Regulation No.56/2014 is now in force. However, according to Article 41 of the Regulation No.56/2014, Modern Stores are provided 2 (two) years period from the entry into force of the regulation, to come into compliance with the 80% requirement. This regulation entered into force in September 2014.

Similar regulations apply to franchise establishments. Ministry of Trade Regulation 53/2012 requires that "Franchisors and franchisees must use domestically produced goods and/or services for at least 80% of their raw materials, business equipment and sales". This local sourcing requirement is also reflected in Regulations 68/2012 and 7/2013. 

Question 3

Is our understanding of Regulations 68/2012 and 7/2013 correct? Can Indonesia provide any further clarifications on the operation of these regulations? For example, can Indonesia provide any information about procedures relating to exemptions from or enforcement of these regulations?

Reply

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

However, there are 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 minimum 80% requirement as well as the exemption is also applied in Regulation No. 68/2012 which provides more specific rules on Modern Store Franchise and in Regulation No.7/2013 which regulates more detail rules on Franchise Partnership Development for Food and Beverage Services.

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.

__________