WORLD TRADE ORGANIZATION Committee on Trade-Related Investment Measures G/TRIMS/W/61 8 May 2009 (09-2263) Original: English COMMUNICATION FROM THE EUROPEAN COMMUNITIES AND THE UNITED STATES Certain New and Proposed Measures by Indonesia Addressing Local Content in Investment in the Telecommunications Sector The following communication, dated 6 May 2009, is being circulated at the request of the Delegations of the European Communities and the United States. The United States and the European Communities are concerned about existing and new and proposed measures applicable to investment in Indonesia's telecommunications sector, and in particular whether these measures are in conformity with the Agreement on Trade-Related Investment Measures (TRIMs Agreement) and the General Agreement on Tariffs and Trade (GATT) 1994. We understand that the Ministry of Communications and Information Technology of Indonesia has recently issued a decree 07/PER/M.KOMINFO/01/2009 which appears to set out local content requirements of 30 to 50 per cent in the wireless broadband sector (the "wireless broadband decree"). Indonesia has in Article 18b of Ministry of Communication and Information Technology Decree 38/PER/M.KOMINFO/9/2007 (amending Decree 11/PER/M.KOMINFO/04/2007) regarding the provision of universal telecommunication service obligation, introduced a local content requirement (Capital Expenditure Requirement, CAPEX) of a minimum of 35 per cent (20 per cent in case the provider uses the 2,3 GHz radio frequency spectrum). It seems that these local content obligations are enforced through the licenses given to telecommunication service operators. We further understand that a draft decree is being considered by the Ministry of Communications and Information Technology that appears to require all telecommunications operators to source locally a minimum of 30 per cent of their capital expenditures (the "draft telecommunications decree", attached to this submission). We would appreciate clarification on the status of these decrees and their provisions, any enforcement actions taken under these decrees or their provisions and, to the extent they may include provisions falling within the scope of the illustrative list of TRIMs inconsistent with article III and article XI of GATT 1994, steps Indonesia is taking to remove them. We have been unable to locate an official translation of the wireless broadband decree in an official WTO language. However, we understand Article 17 of this decree to state: 1. Telecommunication equipment used for wireless broadband service as mentioned in Chapter 16 occupying radio frequency 2.3 GHz and 3.3 GHz must fulfil local requirement at least 30 per cent for subscriber station and 40 per cent for base station.
Page 2 2. Gradually, telecommunication equipment used for wireless broadband service telecommunication equipment mentioned in clause 1 must fulfil local content requirement at least 50 per cent in the next 5 years. Further, we have attached to this submission an unofficial translation of the draft telecommunications decree. We draw Members attention to article 2, paragraph 1, which appears to require that telecommunications operators use domestic components as a minimum of 30 per cent of their total capital expenditures. Capital expenditures are defined as "cost spent by telecommunication operators in order to acquire capital goods for telecommunication infrastructure development". Further, Article 3, paragraph 5 clarifies that domestic inputs are to be distinguished from foreign inputs on the following basis: "Telecommunication material/device based on country of origin", "Manpower based on citizenship", and "Working equipment based on ownership". Companies are required to assess their compliance with these provisions and report to the Government; these reports are subject to verification by the Government or by private institutions appointed by the Government. In accordance with Article VI of the TRIMs Agreement, we request Indonesia to provide translations of the above-referenced decrees to the Committee for review. We also request Indonesia to address the following questions: 1. With regard to Decree 38/PER/M.KOMINFO/9/2007, the application of local content is done through a self-assessment calculation in accordance with the "applicable provisions", Article 18 b (3). What are these applicable provisions? How are otherwise these local content requirements enforced? What will be the consequence for a company which fails to meet the local content requirement? Can Indonesia please explain how these local content requirements are consistent with Article II of the TRIMS and the annex? 2. With respect to the wireless broadband decree, please describe the manner in which the local content of the telecommunications equipment will be assessed. What will be the consequence for a company which fails to meet the local requirement? Have there been instances of enforcement actions taken under this provision? 3. The wireless broadband decree seems to contemplate that the local requirement will increase from 30/40 per cent to 50 per cent over the next five years. What is the schedule for this increase? Why does Indonesia consider this increase to be necessary? 4. Please explain the manner in which, in Indonesia's view, the local requirement of the wireless broadband decree is consistent with Article II of the TRIMs Agreement, and the annex (illustrative list). 5. What is the current status of the draft telecommunications decree? Is Indonesia of the view that this draft decree, as currently constituted, is consistent with Article II of the TRIMs Agreement and the annex (illustrative list) as well as Article III of the GATT? If so, what is the basis for this conclusion? If not, what steps are being taken to amend or withdraw this draft decree? 6. Pursuant to article 5, paragraph 2 of the draft telecommunications decree, the government may employ a private survey institution to verify whether the local content requirement has been met. Given the sensitive nature of the information being evaluated, how does Indonesia propose to ensure that such information is protected from public release?
Page 3 DRAFT MINISTER OF COMMUNICATIONS AND INFORMATION TECHNOLOGY OF THE REPUBLIC OF INDONESIA REGULATION OF THE MINISTER OF COMMUNICATIONS AND INFORMATION TECHNOLOGY NUMBER:... REGARDING PROCEDURES FOR THE ASSESSMENT OF DOMESTIC COMPONENT CONTENT (TKDN) IN TELECOMMUNICATION OPERATION BY THE GRACE OF THE ONE ALMIGHTY GOD MINISTER OF COMMUNICATIONS AND INFORMATION TECHNOLOGY Considering: In view of: a. Whereas in the context of effective use of domestic production, it is necessary to arrange the utilization of domestic production in telecommunication operation activities; b. Whereas the arrangement of domestic production utilization is intended to empower and develop domestic telecommunication supporting industries; c. Whereas the empowerment and development of domestic telecommunication supporting industries are intended to improve competitiveness of domestic goods/services and to provide economic benefits for the interest of national economy; d. Whereas to provide reference to the utilization of products of domestic telecommunication supporting industries, it is necessary to prepare technical guidelines for the utilization of domestic products with regard to telecommunication operation activities; e. Whereas based on consideration as intended in sub-articles a, b, c, and d, it is necessary to issue a Ministerial Regulation. 1. Law Number 36 Year 1999 regarding Telecommunication (State Gazette of the Republic of Indonesia Year 1999 Number 154, Supplement to the State Gazette of the Republic of Indonesia Number 3881); 2. Government Regulation Number 52 Year 2000 regarding Telecommunication Operation (State Gazette of the Republic of Indonesia Year 2000 Number: 107, Supplement to the State Gazette of the Republic of Indonesia Number: 3980); 3. Regulation of the President of the Republic of Indonesia Number: 9 Year 2005 regarding the Position, Duties, Functions, Organizational Structure and Working Procedures of State Ministries of the Republic of Indonesia as amended with Regulation of the President of the Republic of Indonesia Number: 94 Year 2006; 4. Regulation of the President of the Republic of Indonesia Number: 10 Year 2005 regarding the Position, Duties, Functions, Organizational Structure and Working Procedures of State Ministries of the Republic of Indonesia as amended by Regulation of the President of the Republic of Indonesia Number: 72 Year 2007;
Page 4 5. Ministerial Decree Number: KM.20 Year 2001 regarding Telecommunication Network Operation as most recently amended with Regulation of the Minister of Communications and Information Technology Number: 06/P/M.Kominfo/O4/2008; 6. Ministerial Decree Number: KM.21 Year 2001 regarding Telecommunication Service Operation as most recently amended with Regulation of the Minister of Communications and Information Technology Number: 07/P/M.Kominfo/O4/2008; 7. Regulation of the Minister of Communications and Information Technology Number: 01/P/M.KOMINFO/4/2005 regarding Organization and Working Procedures of the Ministry of Communications and Information Technology; 8. Regulation of the Minister of Communications and Information Technology Number: 03/P/M.KOMINFO/4/2005 regarding Adjustment of Terms in Several Decrees/Regulations of the Minister of Communications on Special Contents in the Post and Telecommunication Sector; 9. Ministerial Regulation No. 07/PER/M.KOMINFO/2/2006 regarding Provision on the use of 2.1 GHz radio frequency band for Cellular Mobile Network Operation; 10. Regulation of the Minister of Industry No: 11/M.Ind/PER/3/2006 regarding Technical Guidelines for the utilization of domestic production. HAS DECIDED: To Stipulate : REGULATION OF THE MINISTER OF COMMUNICATIONS AND INFORMATION TECHNOLOGY REGARDING PROCEDURES FOR THE ASSESSMENT OF DOMESTIC COMPONENT CONTENT (TKDN) IN TELECOMMUNICATION OPERATION. Referred to herein as: CHAPTER I GENERAL PROVISIONS Article 1 1. Telecommunication Operation shall be activities with regard to telecommunication provision and services that enable the operation of communication; 2. Telecommunication network operation shall be activities with regard to telecommunication network provision and service that enable the operation of telecommunication; 3. Telecommunication service operation shall be activities with regard to telecommunication service provision and service that enable the operation of telecommunication; 4. Telecommunication Operator shall be telecommunication network and or service operator; 5. Capex (capital expenditures) shall be the amount of cost spent by telecommunication operators in order to acquire capital goods for telecommunication infrastructure development; 6. Telecommunication supporting industries shall be the industry producing goods and/services that support telecommunication activities;
Page 5 7. Industry shall be economic activities intended to produce goods, through raw material processing, goods manufacture/assembly process from raw material or components thereof causing changes in characteristics, forms, and or functions of the goods so as to have higher utilization and economic values, including technical service industry activities closely related thereto, and information and technology industry; 8. Domestic products shall be goods/services including design and engineering produced or made by the companies making investment and manufacturing in Indonesia, the production or manufacturing process of which enables the use of imported raw materials/components; 9. Domestic Component contents (TKDN) shall be the amount of domestic components contained in the goods, services, and combination of goods and services; 10. Domestic components with regard to goods shall be the use of raw materials, design and engineering containing elements of manufacture, fabrication, assembly, and finishing of work performed in Indonesia; 11. Domestic component with regard to services shall be services provided in Indonesia by using domestic experts and software; 12. Domestic component with regard to combination of goods and services shall be the use of raw materials, design and engineering containing elements of manufacture, fabrication, assembly, and finishing of work as well as services performed in Indonesia by using domestic experts and software; 13. Self assessment of TKDN by telecommunication operators shall be the calculation of results of TKDN for capital expenditures (capex) assessed by the telecommunication operators themselves; 14. Clarification shall be activities of requesting further explanation from telecommunication operators regarding self-assessment of TKDN; 15. Verification shall be activities with regard to the verification of the results of self-assessment of TKDN conducted by Telecommunication Operators; CHAPTER II OBLIGATIONS OF LICENSE HOLDERS Article 2 1. Every telecommunication operator shall be obligated to use domestic component (KDN) at the minimum of 30 per cent of total capital expenditures (capex) in telecommunication network development. 2. Capital expenditures (capex) as intended in paragraph (1) shall be the amount of expenditures on the cost spent by telecommunication operators in order to acquire capital goods for telecommunication infrastructure development. 3. Capital goods acquisition cost as intended in the aforementioned paragraph (2) shall not include cost for land procurement, building development, building lease, building/structure maintenance and employees' salary. 4. Building construction and land procurement as intended in paragraph (3) shall be intended for the purpose of office building.
Page 6 CHAPTER III DOMESTIC COMPONENT CONTENTS Article 3 1. Percentage of Domestic Component contents (TKDN) with regard to capital expenditure (capex) as intended in article (2) shall be calculated based on the ratio of total capex subtracted by foreign capex to total capex. 2. Formulation of TKDN on capex as intended in paragraph (1) shall be based in the following ratio: % TKDN (capex) = Total capex Foreign capex x 100% Total capex or % TKDN (capex) = Domestic capex x 100% Total capex 3. Capital expenditure (capex) as intended in paragraph (1) shall include expense cost with regard to: a. Engineering. Cost spent for engineering activities with regard to telecommunication infrastructure development. b. Telecommunication Material /Device. Telecommunication material/device acquisition cost used in telecommunication infrastructure development. c. Manpower. Cost for manpower directly involved in telecommunication infrastructure development. d. Working Equipment. Work equipment procurement cost used in telecommunication infrastructure development. e. Supporting Service Cost. Cost for the provision of supporting services in telecommunication infrastructure development (among other things such as topography survey cost, transportation cost, installation fee, etc.). 4. Format and element of calculation of TKDN as intended in the aforementioned paragraphs (2) and (3) shall be as follows:
Page 7 N Components of Capex Value of Capex (IDR) KDN Capex (IDR) KLN Capex (IDR) % of TKDN (a) (b) (c) (d) 1. Engineering b1 c1 d1 2. Telecommunication Material/Device b2 c2 d2 3. Manpower b3 c3 d3 4. Working Equipment b4 c4 d4 5. Supporting Services b5 c5 d5 (e) = (c)/( b ) or (b-d)/( b ) e1 = c1/ b or (b1-d1)/ b e2 = c2/ b or (b2-d2)/ b e3 = c3/ b or (b3-d3)/ b e4 = c4/ b or (b4-d4)/ b e5 = c5/ b or (b5-d5)/ b Total b = b1+...+b5 c = c1+...+c5 d = d1+...+d5 e = c / b or ( b - d )/ b % of TKDN (capex) = Total capex Foreign capex x 100% = ( b - d ) x 100% Total capex b or % of TKDN (capex) = Domestic Capex x 100% = c x 100% Total capex b 5. Basis for the categorization of Domestic Component (KDN) and Foreign Component (KLN) as intended in paragraph (4) shall be calculated by considering the following components: a. Telecommunication material/device based on country of origin; b. Manpower based on citizenship; c. Working equipment based on ownership; 6. The value of domestic component (KDN) capex as intended in paragraph (4) shall be calculated based on the following formula: Value of KDN Capex = (acquisition value for capex component) x % of TKDN capex 7. Telecommunication operators may use percentage of TKDN telecommunication material/device as intended in paragraph (6) of domestic goods and services supplier being the vendor of telecommunication operator in telecommunication infrastructure development and or show domestic expenditures receipts; 8. Percentage of TKDN of telecommunication material/device provided by domestic goods and services supplier as intended in paragraph (7) must have been ratified by the relevant agency or independent survey institution appointed by the government;
Page 8 9. In the event that local content found in the procurement of telecommunication material/goods/device reaches the amount of 40 per cent, the value of KDN for capex shall be assessed at 100 per cent. CHAPTER IV SELF-ASSESSMENT AND VERIFICATION OF DOMESTIC COMPONENT CONTENT Article 4 1. Telecommunication operator shall be obligated to calculate and conduct self-assessment on the results of TKDN capex as intended in article (2). 2. Self-assessment on the results of TKDN as intended in paragraph (1) shall be conducted based on accountable data from: a) Proprietary data; b) Data owned by goods/services industry (vendor); or c) List of inventory of domestic goods/services issued by the Government. 3. In the event that in conducting self-assessment on the results of TKDN as intended in paragraph (1), the telecommunication operator fails to appropriately account for its supporting data, the component presented in the self-assessment shall be declared as foreign component. Article 5 1. The Director General may verify the validity of the results of TKDN subject to selfassessment by the telecommunication operator. 2. In conducting verification as intended in paragraph (1), the Director General may use independent survey institution which is competent in its field and has been appointed by the Government. 3. Verification shall be conducted by using post audit system on an annual basis. CHAPTER V REPORTING Article 6 1. The results of TKDN subject to Self-Assessment as intended in Article 5 paragraph (1) must be reported to the Director General at the end of year. 2. Report on the Result of Domestic Component Content (TKDN) as intended in paragraph (1) must comply with the format as intended in the Attachments hereto. 3. Progress Report on Domestic Component content (TKDN) as intended in paragraph (1) must be completed with statement claiming that the report made is valid and accurate as well as signed by the President Director on a stamp duty. Article 7 1. The Director General may establish a team assigned to conduct coordination, supervision, and evaluation on the implementation of guidelines for the utilization of domestic products. 2. Team as intended in paragraph (1) may conduct monitoring and preside over the production process as well as the implementation of domestic product. 3. Team as intended in paragraph (1) shall report the results of the implementation of duties as intended in paragraphs (1) and (2) to the Minister.
Page 9 CHAPTER VI SANCTION Article 8 The telecommunication Operator violating the provisions hereof shall be subject to sanction in accordance with the applicable provisions of laws and regulations. CHAPTER VII CLOSING PROVISIONS Article 9 This Regulation shall come into effect as from the date of its stipulation. Stipulated in: J A K A R T A On: =================================== MINISTER OF COMMUNICATIONS AND INFORMATION TECHNOLOGY MOHAMMAD NUH C.C to: 1. The Coordinating Minister for the Economy; 2. The Minister of Finance; 3. The Minister of Law and Human Rights; 4. The State Secretary; 5. The Head of State Audit Board; 6. The Head of National Police; 7. The Attorney General of the Republic of Indonesia; 8. The Provincial Governors throughout Indonesia; 9. The Secretary General, Inspector General, the Director Generals and the Heads of Agencies in the environment of the Ministry of Communications and Information Technology; 10. The Head of Bureau and Heads of Central Agencies in the environment of the Secretary General of the Ministry of Communications and Information Technology.
Page 10 ATTACHMENT : REGULATION OF THE MINISTER OF COMMUNICATIONS AND INFORMATION TECHNOLOGY Number : /PER/M.KOMINFO/../ On : Criteria for the Calculation of Domestic Component Content (TKDN) I. Composition of Domestic Component contents (TKDN) DESCRIPTION KDN KLN WEIGHT % % % 1. Engineering 10 2. Telecommunication Material /device 50 3. Workers 15 4. Working equipment 10 5. Supporting services 15 Total 100 TKDN % II. Criteria for Domestic Component 1. Engineering a. Citizenship b. Working on Network Operation project c. Execution of work by third party 2. Telecommunication Network Material/Device a. Country of origin of the devices manufacturer b. Meeting the applicable document requirements c. Telecommunication material/device value is calculated upon arrival at the location 3. Manpower a. Types of citizenship: - Foreign - Local b. Status/position in the project c. Payment system by using third party service 4. Working equipment No Ownership Percentage of TKDN 1) Domestic 100 per cent 2) Domestic + Foreign 75 per cent + proportion of share ownership 3) Foreign 0 per cent
5. Supporting Services a. Project Management b. Construction Service c. Training Service d. Consultant Service e. Transportation Service f. Public Service G/TRIMS/W/61 Page 11
Page 12 ATTACHMENT : REGULATION OF THE MINISTER OF COMMUNICATION AND INFORMATIONS Number : /PER/M.KOMINFO/../ On : FORMAT OF THE REPORTING OF RESULTS OF DOMESTIC COMPONENT CONTENTS (TKDN) ASSESSMENT ON THE NETWORK OPERATOR N Capex Component Capex Value (IDR) KDN Capex (IDR) KLN Capex (IDR) 1. Engineering b1 c1 d1 2. Telecommunication Material/Devices b2 c2 d2 3. Workers b3 c3 d3 4. Working equipment b4 c4 d4 5. Supporting Services b5 c5 d5 Total b = b1+...+b5 c = c1+...+c5 d = d1+...+d5 % of WEIGHT 10 50 15 10 15 100 % of TKDN e1 = c1/ b or (b1-d1)/ b e2 = c2/ b or (b2-d2)/ b e3 = c3/ b or (b3-d3)/ b e4 = c4/ b or (b4-d4)/ b e5 = c5/ b or (b5-d5)/ b e = c / b or ( b - d )/ b... (place)...,... (date and month)..., 20... Signed on a Rp.6000.- stamp duty DIRECTOR OF PT...