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Indonesia: Local Content Rules for Electronic Products

(Sept. 15, 2016) On July 26, 2016, the then Indonesian Minister of Industry, Saleh Husin, signed a new regulation on local content requirements for laptop computers, smartphones, and tablets; it became official the next day. (Permenperin [Regulation of the Ministry of Industry] No. 65, 2016, on Conditions and Procedures for Calculating the Value of the Domestic Components in Cell Phones, Handheld Computers, and Tablets (July 27, 2016), Ministry of Industry website (click on link to see pdf of text) (in Indonesian).) The new regulation establishes methods of calculating whether or not a company has met local content standards; a rule adopted last year requires that, by 2017, manufacturers have no less than 30% of the components of smartphones made in Indonesia. (New Local Content Rule for Smartphones Paves Way for Creative Economy: Minister, JAKARTA GLOBE (Sept. 6, 2016); Khoirul Amin, Govt Prepares Local Content Requirement for 4G Smartphone, JAKARTA POST (Feb. 29, 2016).)

On September 2, the current Minister, Airlangga Hartarto, who replaced Husin, discussed the regulation, stating that it will encourage domestic software developers and stimulate creative businesses. (New Local Content Rule for Smartphones Paves Way for Creative Economy: Minister, supra.) Hartarto added that at present the creative industry in Indonesia increases about 7% each year and that by 2019 it is likely to contribute 7.5% to the gross domestic product of the country. (Id.)

There are several formulae included in the regulation for evaluating how much of any device sold in the country can be considered locally produced. (Id.) One of the plans applies to products that cost Rp6 million (about US$458) or more. It specifies that if a manufacturer includes seven locally made applications or 14 locally created games, each with at least a million users, in addition to 10% locally sourced hardware and 20% local design and firmware development, it can be considered to have a 70% score for a local-content evaluation. Alternately, manufacturers could meet the requirement for local participation through investment in Indonesia; a 30% local-content level could be met with an investment of Rp550-700 billion (about US$42-53.48 million). (Id.)

In the past, Indonesian tech companies have reportedly suffered from a lack of programmers, which has held back their growth. They have asked that the government relax immigration rules for foreign software engineers, so that they can work in Indonesia. Others have noted that it will be difficult to rapidly create a manufacturing supply chain in the country, and as a result, high-quality products may not be legally available, possibly creating a black market for such goods. (Id.)