Indonesia - Turning protectionist?

(Indonesia - courtesy:worldwidehomestay.com)

I had recently blogged about Bali,Indonesia being the venue for the next Ministerial Conference of the WTO which is held every two years. Indonesia is in the news again in relation to trade news, but this time for all the wrong reasons. Complaints of Indonesia becoming increasingly "protectionist" are being heard from it's trading partners.

So what exactly is the complaint against Indonesia? Trends that Indonesia is increasingly looking inward in its industrial and trade policy are doing the rounds. More detailed analysis is found here and here. Specific import restrictions, export taxes and export bans on minerals are some of the measures causing unease amongst Indonesia's trading partners. Some believe that the restrictions are not excessive an justified.

An undated piece by Daniel W. Christman of the U.S. Chamber of Commerce highlights the dangers in the new policy:

"One recent measure makes it harder for foreign companies to export a range of products from specialty foods to shoes and pharmaceuticals to movies. The trade barriers seem to tilt the playing field unfairly in favor of domestic companies and may violate Indonesia’s obligations under the World Trade Organization. 

Last December, the government issued a decree requiring foreign companies to negotiate new import licenses. This effectively banned the importation of some 500 different products from sneakers and electronics to clothing and beverages. Chinese, Indian, and American companies will be unable to export their products to Indonesia until new licenses can be negotiated. 

Even more worrisome, the Ministry of Health issued a decree banning the importation of foreign medicines unless a foreign producer opens a manufacturing plant in Indonesia within two years. When initially asked to comment on this regulation, the health minister said, “If they (foreign companies) want to go away, go ahead.” 

The Ministry of Culture and Tourism followed suit by banning the sale of foreign films not printed in Indonesia. Among those likely to be harmed by this measure are Indonesian movie theaters that depend on foreign films for their revenue." 

The British Embassy in Jakarta had a few words of caution against the "protectionist" trend here:

" Indonesia’s credentials as an economic success story remain largely unblemished, but the regulatory environment is in fact becoming less friendly to foreign investment. A recently published Global Trade Alert report highlights the fact that in 2011 Indonesia introduced the largest number of potentially trade restrictive measures in South East Asia, and ranks it as among the top ten protectionist nation against three indicators - the number of tariff lines, sectors and trading partners affected. 

This tends to be obscured by the continued strong growth of the economy and by the many individual success stories. Foreign investors continue to beat a path to Jakarta. The report’s findings come however as no surprise to businesses located here.  One investor describes Indonesia as the most protectionist of its markets in South East Asia. Another complains about non-WTO compliant discriminatory excise duties. Banks will soon be required to invest heavily to on-shore their data processing centres.  Across a range of sectors – from petrochemical to pharmaceutical and consumer goods – foreign companies are struggling to make sense of, and to comply with, complex and unclear import licensing regulations. 

What particularly frustrates these companies is the lack of consultation and cross-government co-ordination when such measures are in gestation. As a result, many are ill-thought through and have unintended consequences, both for business and consumers.  Confusion over import licensing has led to a shortage of some medicines. Restrictions on the import of fruit and vegetables (apparently introduced as a consumer safety measure) have triggered price increases."

Whether Indonesia's trading partners will take Indonesia to the WTO DSM is a matter of conjecture at hi stage? Unlike Argentina which is involved in a large number of DSM cases, Indonesia is a relative novice. Do the measures of Indonesia violate the national treatment principles under GATT? Are they in violation of Indonesia's obligations under the Import Licensing Agreement? Are they technical regulations which are unreasonable restrictions on international trade? Thus, while Indonesia would have to prepare for the next Ministerial Conference, it would need to look into a possible WTO challenge to its domestic policy measures. 

EU cries foul against Argentina, yet again

Reports of the EU considering a trade dispute against Argentina are trickling in. Reuters reported  that a WTO  complaint is a few weeks away. 

"The European Union is planning to lodge a complaint at the World Trade Organization over Argentina's import restrictions and is seeking other trading partners to back its suit, a source familiar with the situation said on Tuesday.

"This is a process that is advancing but it will take some time before it becomes official. We will naturally look at others that could accompany us," the source said.

It is likely to be "a matter of weeks" before the EU launches the case, the source said." 

As reported here, EU Trade Commissioner Karel De Gucht proclaimed in this speech:

"We have a comprehensive trade enforcement strategy that employs all tools, from diplomacy to dispute settlement proceedings at the WTO, to promote market openness around the world." 

I had earlier blogged here  about a joint statement by a number of countries against Argentina's import licensing policies. Are these measures against the Agreement on Import Licensing Procedures ? A number of cases  have been filed earlier with respect to this Agreement in the WTO DSM. The Committee on Import Licensing  too has addressed this issue of Argentinian non-automatic import licensing procedures.

The Joint statement seemed to imply that the procedures violate the Agreement.

"A non-automatic licensing requirement is WTO incompatible unless it is necessary to implement measures which are imposed in conformity with the relevant WTO rules and does not have trade-restrictive or trade-distortive effects on imports beyond those caused by the underlying restriction. The non-automatic licensing requirement must comply with all relevant provisions of the Agreement on Import Licensing Procedures, including a maximum processing period of 60 days.

• Companies from many of the Members that support this statement report that Argentina’s non-automatic import licensing scheme has a trade-restrictive effect on imports and that there are long delays in the issuance of import licenses. Many companies have reported wait periods of up to six months and longer. In some instances, companies are denied import licenses altogether, without justification or explanation.

• The lack of transparency in Argentina’s implementation and administration of its import licensing regime creates profound uncertainty both for exporters and potential exporters to Argentina, as well as for investors in Argentina.

• In January 2012, Argentina announced regulations that went into effect on February 1, requiring pre-registration, review and approval of each and every import transaction. These regulations are creating long delays and resulting in huge costs for many of the exporters from Members supporting this statement.

• It appears that this new system is operating as a de facto import restricting scheme, on all products."

The first step for the EU would be to seek consultations under the WTO DSM. I will be watching this space to see Argentina's official response. Would the dispute be a threadbare interpretation of the Agreement on Import Licensing procedures? Would the dispute go the whole way to the Appellate Body? Would Argentina argue that its procedures are within its domestic policy space consistent with its WTO obligations? The last Trade Policy Review  of Argentina  was in 2007. Would the next review throw up violations of WTO obligations? If found in violation of its WTO commitments, would Argentina continue to maintain the restrictions and face retaliation? After all, if a country is "protectionist" it should be ready to face similar treatment to its goods in other countries.