The Danger of Import Relaxation

By: Fami Wibawa | Executive Director, LP3ES, Lecturer at the Faculty of Economics and Business, Syarif Hidayatullah State Islamic University

The Ministry of Trade has issued Regulation No. 8 of 2024 on the Third Amendment to Regulation No. 36 of 2023 on Import Policies and Regulations. This regulation aims to address the bottleneck in the supply of raw materials due to the need for technical considerations as one of the import approval requirements. The hope is that this regulation can resolve the accumulation of containers at ports, which includes the import of various strategic commodities such as steel, textiles, chemical products, electronic products, and other commodities.

It is known that several weeks ago, a "logistics mobility crisis" occurred due to the accumulation of thousands of containers at major Indonesian ports. At Tanjung Priok Jakarta and Tanjung Perak Surabaya ports alone, there were 26,415 containers accumulated, which will certainly increase if combined with those at Belawan Medan, Tanjung Mas Semarang, and other ports (Tempo, May 20, 2024).

Indeed, after the release of Regulation No. 8/2024, the logistics congestion at major ports has gradually decreased. However, since the import relaxation via this regulation is still ongoing (and there is no indication of when it will end), many domestic industries, including those that are struggling to build and develop domestic industries, will be severely impacted. Not only will thousands of job opportunities cease, but the dignity of the nation as a producer will also be compromised.

Misguided Policy

Upon closer examination, there are seven substantive provisions in Regulation No. 8/2024. The first provision is the relaxation of restrictions on 18 commodities that previously required technical considerations. The second provision is the relaxation of restrictions on 11 commodities, including electronics, traditional medicine, and health supplements, cosmetics, and household health supplies, footwear, ready-made clothing, and accessories, bags, valves, lubricant raw materials, certain chemical products (1 HS), textiles, and other finished textile products (1 HS). The third provision is the relaxation of restrictions on containers that arrived at ports between May 10 and May 17, 2024, and are still held at ports. The fourth provision is the exemption from restrictions and limitations on the import of iron and steel products, as well as their derivatives, for business activities with a maximum value of USD 1,500 per shipment, which can be imported by API-P importers without frequency restrictions. The fifth provision is the simplification of requirements for submitting certificates of exemption from restrictions and limitations on the import of goods that are not traded and goods for research and development purposes by API-P importers. The sixth provision is the addition of exemptions from restrictions and limitations for personal items such as mobile phones, laptops, and tablets, with a maximum of two units per shipment, which can be imported in new or used condition, without restrictions on the type and quantity of goods, except for prohibited goods, hazardous goods, and motor vehicles. The seventh provision is the relaxation of restrictions on personal items such as mobile phones, laptops, and tablets, with a maximum of two units per arrival within a year.

From these seven provisions, it is indeed very worrying, even frightening, because it can destroy the foundations of domestic industries that have been built over decades. First, the relaxation of import regulations can make it difficult for domestic industries to compete with imported products that are already guaranteed to be cheaper. The country's ability to manufacture is measured by its ability to reduce the cost of raw materials in the face of high production volumes. Based on the Purchasing Manager's Index (PMI) data for the manufacturing industry, the PMI data for Indonesia shows that in May 2024, the level decreased to 52.1 from 52.9 in April 2024. Although this condition is still within the healthy range in the short term, it is still dangerous in the medium term if not addressed properly.

Second, it is unimaginable how easily and widely imported "daily necessities" such as textiles, electronics, and household goods can flood the market and overwhelm small shops and warungs. Various domestic industries that have been able to meet domestic market demand with quality and relatively affordable prices will be threatened with reducing or even stopping production due to price and variety competition. Consequently, electronic, textile, steel, and other industries with many factories in Indonesia will reduce employment. Instead of creating new job opportunities, domestic industries will contribute to thousands of new unemployed workers.

Third, because the relaxation of import regulations eliminates the need for technical considerations, there are no longer any restrictions on the import of raw materials, semi-finished products, and premium or high-tech products that can be produced domestically. However, imports should only be allowed to meet the needs of raw materials that are not available domestically. Currently, countries with the world's largest manufacturing industries do not randomly import products that can be produced domestically. All of this is done to protect domestic industries that absorb a lot of labor, drive productivity, and innovation, and they will prioritize domestic products before implementing import policies. In fact, a country can become a developed nation with competitive manufacturing capabilities, not by becoming a place for selling products produced by other countries (Wang & Zhao, 2024).

Fourth, the domino effect of the relaxation of import regulations will lead to a decline in domestic supply due to increased interest in national brands, which is also a concern. The decline in demand for domestic manufacturing will again be followed by a decrease in job opportunities, which will lead to an increase in unemployment in Indonesia.

Considering the extremely negative impact of the relaxation of import regulations on domestic manufacturing industries, it is necessary to reconsider the merge between the Ministry of Trade and the Ministry of Industry. Just like a river, the Ministry of Industry is responsible for ensuring that the water flows from the source to the sea. Meanwhile, the Ministry of Trade is responsible for ensuring that the water that reaches the sea is filtered and settled before entering the sea, without polluting it or causing the sea to rise and damage the plants along the river.

The integration of trade and industry issues within one ministry will also maintain the ecosystem. Many countries have combined the trade sector with industry to strengthen the synergy between the two. Japan's Ministry of Economy, Trade, and Industry (METI) is a popular example due to its significant impact on the country's economy. With a single METI ministry, the Japanese government is able to integrate production strategies with trade policies, so that the results of production and trade policies support each other, rather than the opposite. In a broader global context, the integration of industry and trade will promote optimal trade balances and accelerate national economic independence.

Originally published under Creative Commons by 360info™.

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