5.

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Significant Barriers to U.S. Exports

By Indonesian law, foreign companies cannot engage in wholesale or retail distribution of foreign or domestic goods, only Indonesia companies have this right. An Indonesian company is defined as comprised of 51 percent Indonesian ownership and a board of directors consisting of mostly Indonesian nationals.

Foreign firms must select an Indonesian agent or distributor to market their products in Indonesia. The foreign company may only appoint one sole agent for the entire country, while an Indonesian firm may enter into several sole agency agreements.

Import Licenses: Since 1986, import licensing requirements have been relaxed in a series of deregulation packages, the most recent of which were issued in May 1990 and June 1991. Items still subject to import licensing include some agricultural commodities (rice, sorghum, sugar), alcoholic beverages, and some iron and steel products. Remaining import licensing requirements may be waived in some cases for companies importing goods to be incorporated into subsequent exports. The importation of most types of completely built-up passenger vehicles is forbidden. Tariffs and surcharges have often replaced licenses as the preferred method of protecting certain domestically produced goods. trade and investment market-opening has progressed, accompanied by more rapid economic growth, U.S. exports to Indonesia have increased.

As

Services Barriers: Services barriers abound, although there has been some loosening of restrictions, particularly in the financial sector. Foreign banks, securities firms, and life and property insurance companies are permitted to form joint ventures with local companies; in all cases, the capitalization requirements are higher than for domestic firms. Foreign companies incorporated in Indonesia may issue stocks and bonds through the capital market. Foreigners are permitted to purchase up to 49 percent of all non-bank shares listed on the stock exchange.

Foreign attorneys may serve as consultants and technical advisors. However, attorneys are admitted to the bar only if they have graduated from an Indonesian legal faculty or from an institution recognized by the government as equivalent. Foreign accountants may serve as consultants and technical advisors to local accounting firms. Air express companies are not permitted to own equity in firms providing courier services, although they may arrange with local firms to provide services in their name and provide expatriate staff to the local firms.

Indonesia imposes a quota on the number of foreign films which may be imported in a given year and restrictions are placed on their distribution within the country. All U.S. films must be imported by a group of six fully

Indonesian-owned companies. In September 1990 the Motion Picture Export Association of America established a representative office in Indonesia. U.S. film producers would like to distribute their films directly or, as an interim

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measure, establish joint ventures for this purpose.

Standards, Testing, Labelling, and Certification: In May 1990 the government of Indonesia issued a decree which stated that the Department of Health must make a decision within one year of receiving a complete application for registration of a new foreign pharmaceutical product. Under the national drug policy of 1983, a foreign firm may register prescription pharmaceuticals only if they both incorporate high technology and are products of the registering company's own research. Foreign pharmaceutical firms have complained that copied products sometimes become available on the local market before their products are registered.

Investment Barriers: Although deregulation has reduced the difference in treatment between foreign and domestic investors, national treatment for foreign investments does not exist. With the qualified exception of new investment on Batam Island, foreign investment must be in the form of joint ventures. Usually with minimum Indonesian equity of 15 percent. With very limited exceptions, foreign partners must divest over a period of time to achieve majority Indonesian ownership, according to the law. Although wholesale distribution of products manufactured by a joint venture is permitted, retailing is closed to foreign investors.

Most foreign investment must be approved by the Capital Investment Coordinating Board (BKPM). Line departments handle investment in the oil and gas, non-oil minerals, financial, and forest concession sectors. BKPM maintains a list of sectors closed to further foreign and/or domestic investment. There are several provisions under which foreigners may exploit or occupy land in Indonesia, but only Indonesians may own land. There are numerous restrictions on the employment of expatriates by both domestic and foreign/joint venture firms.

Government Procurement Practices: Most large government contracts are financed by bilateral or multilateral donors who specify procurement procedures. For large projects funded by the government, international competitive bidding practices are generally followed. Under a 1984 Presidential Instruction ("Inpres-8") on government-financed projects, the government generally requires concessional financing which at least meets the following criteria: 3.5 percent interest and a 25 year repayment period which includes years' grace. Foreign firms bidding on certain government-sponsored construction or procurement projects must agree to purchase and export the equivalent in selected Indonesian products. Government departments and institutes and state and regional government corporations are required to utilize domestic goods and services to the extent they are available (this is not mandatory for foreign aid-financed goods and services procurement). An October 1990 government regulation exempts state-owned enterprises which have offered shares to the public through the stock exchange from government procurement regulations; as of October 1991 one such enterprise had made a public offering.

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6. Export Subsidies Policies

Indonesia has joined the GATT Subsidies Code and eliminated export loan interest subsidies as of April 1, 1990. As part of its drive to increase non-oil and gas exports, the government permits restitution of VAT paid by a producing exporter on purchases of materials for manufacturing export products. Exemptions from or drawbacks of import duties are available for goods incorporated into exports.

7. Protection of U.S. Intellectual Property

Indonesia is a member of the World Intellectual Property Organization and is a party to certain sections of the Paris Convention for the Protection of Intellectual Property. It is not a signatory to the Berne Convention for the Protection of Literary and Artistic Works, but is considering adhering to it. Indonesia has made progress in intellectual property protection, but it remains on the U.S. Trade Representatives's Special 301 "watch list" under the provisions of the 1988 Omnibus Trade and Competitiveness Act.

Patents: In November 1989 Indonesia enacted its first patent law which came into effect on August 1, 1991. Implementing regulations clarified several areas of concern, but others remain including compulsory licensing provisions, a relatively short term of protection, and a provision which allows importation of 50 specific products by non-patent holders. The patent law and accompanying regulations include product and process protection for both pharmaceuticals and chemicals.

Trademarks: The government has submitted to Parliament a trademark bill which it hopes will become law by April 1992; in the interim, a new trademark regulation broadening the definition of well-known marks was issued in May 1991. Several U.S. companies have trademark cases pending before the Indonesian Supreme Court. The new law is expected to improve significantly existing law which makes cancellation of trademarks registered in bad faith difficult after a nine-month opposition period.

Copyrights: On August 1, 1989 a bilateral copyright agreement with the United States went into effect extending national treatment to each other's copyrighted works. Enforcement of the ban on pirated audio cassettes and textbooks has been vigorous; in September 1991 the government initiated a crackdown on pirated videos. The government has also conducted raids against software pirates, prompting retail outlets to take pirated material off their shelves. The government has demonstrated that it wants to stop copyright piracy and that it is willing to work with copyright holders toward this end. Enforcement to date has significantly reduced losses from pirated property, but problems still exist.

New Technologies: Biotechnology and integrated circuits are not protected under Indonesian intellectual property laws. Indonesia has, however, participated in a World Intellectual Property Organization conference on the

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protection of integrated circuits and is considering introducing legislation.

Impact: It is not possible to estimate the extent of losses to U.S. industries due to inadequate intellectual property protection, but U.S. industry has placed considerable importance on improvement of Indonesia's intellectual property regime.

Private sector workers, including those in

export-processing zones, are free to form or join unions without previous authorization, but in order to bargain on behalf of employees a union must meet the requirements for legal recognition and register with the Department of Manpower. Less than 6 percent of the 76 million member work force is organized. The All Indonesia Workers Union (SPSI), which groups together private sector workers, is the only recognized intersectoral trade union body. Unions draw up

their own constitutions and rules and elect their representatives under close government scrutiny.

All unionized workers, with the exception of civil servants, have a legal right to strike. With a few exceptions, civil servants and employees of state enterprises must belong to the Indonesian Corps of Civil Servants (KORPRI), a nonunion association, and do not have the right to strike. By government regulation, a separate and compulsory dispute resolution and appeals process exists for civil servants and public employees to protect their interests.

b.

The Right to Organize and Bargain Collectively

Collective bargaining is provided for by law, but only registered trade unions can engage in it. Once an employer is notified that 25 employees have joined the union, it is under a statutory obligation to bargain. Workers can organize without restriction in private enterprises. There are no laws which prevent bargaining from taking place in export processing zones, but no companies in the zones which have SPSI units have negotiated collective bargaining agreements. If the State has a partial interest, the enterprise is considered to be in the public domain, but this does not legally limit organizing. There is a significant number of government/private joint ventures which have labor unions and bargain collectively. Regulations forbid employers from harassing employees because of union membership.

C. Prohibition of Forced or Compulsory Labor

Forced labor is strictly prohibited.

d. Minimum Age for Employment of Children

The Department of Manpower acknowledges that there is a class of children under age 14, which is the legal minimum age for employment, who, for socio-economic reasons, must work.

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Special protections exist for children aged 7 to 14 and such employment must be with the permission of the child's parent or guardian. Employers are required to ensure that these children have access to junior high education within the framework of the compulsory schooling law. The Department of Manpower conducts periodic inspections and can impose sanctions for violations.

The law establishes 7-hour workdays and 40-hour workweeks with a half-hour of rest for each 4 hours of work. Minimum wages are established by region by Wage Councils working under the supervision of the National Wages Council. An extensive body of labor law and regulation provides workers with vacation pay, maternity leave, public holidays, overtime and sick pay, severance and service pay, etc. Workers also receive transportation and food allowances and holiday bonuses. Workers in more modern facilities receive health benefits, social security contributions, and free meals. extensive body of law and regulation provides for minimum standards of industrial health and safety.

f. Rights in Sectors with U.S. Investment

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Application of legislation and practice governing worker rights is largely dependent upon whether a particular business or investment is characterized as private or public. U.S. investment in Indonesia is concentrated in the petroleum and related industries, primary and fabricated metals (mining), and pharmaceuticals sectors.

Foreign participation in the petroleum sector is largely in the form of production sharing contracts between the foreign companies and the state oil and gas company, Pertamina, which retains control over all activity. All employees of foreign companies under this arrangement are considered state employees and thus all legislation and practice regarding state employees generally applies to them. Employees of foreign companies operating in the petroleum sector are organized in KORPRI. Employees of these state enterprises enjoy most of the protection of Indonesian labor laws but, with some exceptions, they do not have the right to strike, join labor organizations, or negotiate collective agreements. Some companies operating under other contractual arrangements, such as contracts of work and, in the case of the mining sector, cooperative coal contracts, do have unions and collective bargaining agreements.

Regulations pertaining to child labor and child welfare are applicable to employers in all sectors. Employment of children and concerns regarding child welfare are not considered major problem areas in the petroleum and fabricated metals sectors.

Legislation regarding minimum wages, hours of work, overtime, fringe benefits, health and safety etc. applies to all sectors. The best industrial and safety record in Indonesia is found in the oil and gas sector.