Opposition Builds Against Local Content
As the prolonged global economic slowdown has forced many countries to take hard measures in protecting their local industries, discussions over non-tariff barriers have become a contentious point during the APEC Summit in Bali.
Among the barriers are policies applied by several countries, including Indonesia, requiring certain sectors to source their goods and services locally, thus creating barriers for imported products or services.
While Indonesian officials gave their assurances that there would not be any binding commitments on the US-initiated opposition against local content or other barriers to trade, the issue is likely to loom in future negotiations.
“For the time being, the impact on the opposition against local content will be limited. The nature of the deal is limited to encouraging member countries to adopt best practices,” the Trade Ministry’s director general for international trade cooperation, Iman Pambagyo, said on Wednesday.
“For us it is fine, as it is based on voluntary take-up. However, we should not be complacent over complaints related to the issue. We are open to consultation with stakeholders over the policy, should other countries express objections on the matter,” he said.
Indonesia has local-content provision in the oil and gas sector, despite intensified scrutiny over the policy at the World Trade Organization (WTO).
The regulation, which was issued by now-defunct upstream oil and gas regulator BPMigas in December 2009, requires oil and gas contractors to source at least 35 percent of their goods and services locally. The regulator raised the threshold of mandatory local content requirements to 51 percent in 2011.
The country’s oil and gas sector sourced local goods totaling more than US$1.5 billion each year, representing around 40 percent of the sector’s total goods expenditure, while services totaled more than $5 billion, or 73.31 percent of total service expenditure, according to the Upstream Oil And Gas Regulatory Special Task Force (SKKMigas), which replaced BPMigas and comes under the authority of the Energy and Mineral Resources Ministry.
Centre for Strategic International Studies (CSIS) economist Titik Anas said the proposal to relax local content requirements was “the way APEC should be”.
“While the proposal is largely normative, it will be set against Indonesia’s policy to process raw materials into added-value goods at home. However, APEC outcomes are generally not legally binding. So if Indonesia refuses to comply, other members can only exert moral pressure on us,” she said.
“Generally speaking, it will not have a devastating impact on Indonesia.”
APEC is a grouping of 21 Pacific-rim economies that aims to promote free, open trade and investment.
