EU Automotive Investment in Indonesia

EUROCHAM Automotive Working Group
EU Automotive Investment in Indonesia

EuroCham Automotive Working Group
2012

Background
- Indonesia produced more than 830,000 vehicles in 2011, increased
by 19% compared to 2010. During the last five years, the growth of
the market reached around 10% a year.
- The EU industry is very keen to tap into this potential and to
contribute to the development of the Indonesian automotive industry
and the Indonesian economy in general.
- EU Automotive industry is generally a key industry in providing jobs,
exports income, R&D and innovation and plays a decisive role in the
transition to sustainable growth and mobility.

- EU Automobile manufacturers provide over 10% of EU

manufacturing employment worldwide, with 3.5 million direct jobs
and another 9.1 million jobs indirectly.
- EU Automobile manufacturers are the worlds technology leaders

and are the largest private investors in R&D in the EU and play a
large role in the innovation and knowledge-based economy of today
and tomorrow.
- In Indonesia, EU automotive industry invested almost 300 million
USD in 2010/2011. However, the EU market share is still very small
in Indonesia and EU Trade and Investment flows in this sector still
tend to prefer neighbouring countries such as Malaysia and
Thailand where the environment is regarded as more conducive.

EU Domestic Sales and Production in Indonesia
1. Domestic Sales
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Mercedes-Benz
BMW
Volkswagen
Audi
Smart
MINI
Volvo
2005 2006 2007 2008 2009 2010 2011

Source: GAIKINDO

EU Domestic Sales and Production in Indonesia
2. Production
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Mercedes-Benz
BMW
Volkswagen
2005 2006 2007 2008 2009 2010 2011

Source: GAIKINDO

Regulatory Issues
1. Minister of Trade Regulation No. 27/M-DAG-PER/5/2012 on

Import License
Issues:
- Limitation for company with API-U to import based on one
section only.
- Limitation for company with API-P to import finished goods for
complementary and market test purposes only.
- Limited definition of special relationship
- No transition period for the industry to adjust with the new
regulation and renegotiate contracts with third party.
- Need further clarification of status of existing technical license.
Ministry of Trade verbally agreed to revise provisions stipulated in
MOT Regulation No. 27/2012, however the revision is not yet
issued.

Regulatory Issues
2. The implementation of certain mandatory SNI (Indonesia

National Standard)
Government of Indonesia is planning to make mandatory various
SNI for car components, e.g. SNI for braking system, rear-view
mirror, etc. the Government is also planning to impose mandatory
SNI certification for CBU cars, which will require SNI certification
for tires, mirror, windscreen and other components. Other SNIs to
be introduced are safety glass, rim, battery, safety belt, plastic seat,
brake, noise and emissions.
The application of domestic automotive standards, different from
international standards, can potentially contribute to setting
Technical Barriers to Trade (TBT) and non-tariff barriers (NTB) to
both EU and Indonesian exports, affecting bilateral trade.

Regulatory Issues
3. Revision of Government Regulation No. 52 Year 2011 on

Income Tax Facilities for Investment in Certain Business Lines
and or in Specific Areas
Previously, under Government Regulation No. 62 Year 2008, car
assembler was eligible to apply for Tax Allowance Facility.
However, under Government Regulation No. 52/2011, car
assembler is not included as a sector eligible for Tax Allowance
Facility, whereas car component companies can still apply for the
Tax Allowance Facility.

Regulatory Issues
4. ASEAN Mutual Recognition Agreement

Two options to implement ASEAN MRA are proposed:
- Marketed products
ASEAN countries must accept test report from origin country for
products manufactured by non-ASEAN countries which are
marketed in ASEAN countries.
- Manufactured and marketed products
There are two different interpretations:
Non-ASEAN products marketed in ASEAN should be tested by
ASEAN test facilities
Government of Indonesia interpretation:
Non-ASEAN products marketed in ASEAN should be manufactured
in ASEAN countries and tested by ASEAN test facilities
It is deemed unfeasible for automotive industry to apply interpretation
of Government of Indonesia on manufactured and marketed products.

Regulatory Issues
5. Importation of Used Trucks

By nullification of Ministry of Industry and Trade Regulation No.
756/MPP/Kep/12/2003 on importation of capital goods in used
condition, importation of CBU used truck is prohibited. But up to
now, the importation of CBU used truck is still on going, by using
stipulation in article 10 in Minister of Trade Regulation No. 48/MDAG/PER/12/2011, which we believe should not be applied on
importation of CBU used truck.

Regulatory Issues
6. Bonded Zone Regulation

Minister of Finance Regulation No. 147/2011 on Bonded Zone
stipulates that the delivery of bonded zone product to Indonesian
customs area is only permitted in the maximal amount of 25% of
export realization value in the previous year (2011). Minister of
Finance Regulation No. 44/2012 revises Regulation No. 147/2011
and increases the limitation of delivery of Produced Goods to 50%:
- for goods imported before Minister of Finance Regulation No.
147/2011 was issued (before 6 September 2011)
- for goods which still requires to be processed further, or cannot
function properly without being combined with other goods,
and/or cannot be directly used by end consumer (intermediate
goods), up to 31 December 2014

Environmental Issues
1. Improvement of fuel quality standards and emission

regulations
A high fuel quality with low sulphur content, for both petrol and
diesel fuel is essential for the introduction of modern low emission
injection technologies. The low fuel quality in Indonesia is still the
biggest hurdle for the introduction of such modern low emission
technologies.
Therefore, we are proposing the introduction of higher fuel quality
standards (EURO 4) on par with more stringent emission
regulations. This would lead to lowering emissions and lowering of
the overall fuel consumption in Indonesia.

2. Bio-Fuels
Indonesia as the biggest palm-oil producer in the world is today
having a major opportunity to introduce a biodiesel mixture (B5,
B7). in order to avoid technical problems and additional costs, a
high fuel quality has to be ensured. It is therefore essential to
increase the fuel quality before adding higher proportions of bio
fuel.

3. Tax incentives for innovation and new technologies

Excise tax for vehicles should be based on CO2 emission to
encourage the use of low CO2 emission vehicles thus creating a
premium price for clean and efficient vehicles as it today is based
on general engine capacity or power-train of vehicles before CO2
limits are soon to be enforced in many parts of the world.
It is also important to promote the availability of cleaner fuel (Euro
3 or 4) in Indonesia which can be used by more advanced and
environmentally friendly engines used in greener vehicles now
available in the international market.

4. Low Cost and Green Car

Regulations on low cost cars and green cars should be separate,
as regulating low cost cars and green cars within one regulation is
not deemed feasible.

EuroCham Automotive Working Group - 2012

EU Automotive Investment in Indonesia

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