Jakarta – When it comes to the problems faced by Indonesian industry, the same words crop up again and again: smuggling and soaring imports.
Metal products manufacturers say the impact has been particularly severe in their industry, claiming that last year alone they lost 20 percent of their domestic market share.
"Imports, both legal and illegal, have resulted in a decrease in our sales from 420,000 tons in 2004 to less than 300,000 tons last year," Indonesian Galvanized Iron Sheet Manufacturers Association chairman Rudy Syamsuddin said after a Friday breakfast meeting with Industry Minister Fahmi Idris.
The Indonesian market requires up to 500,000 tons of galvanized iron sheet annually.
Rudy said the drop in local sales was the result of transshipment of Indian products through Port Klang, Malaysia, and smuggling through Medan, North Sumatra. Transshipment is a process whereby imported products are reexported, partly or wholly, to other countries.
By transshipping the metal products through Malaysia, they are subject to import duty of only 5 percent as required under the ASEAN Free Trade Agreement. Imports of the same products from non-ASEAN countries are subject to 15 percent import duty.
"With such a low import duty, these products are 20 percent cheaper than local ones," Rudy said, adding that under-invoicing was also a problem, leading to even more undercutting of Indonesian products.
The association says that local manufacturers are now selling their products at below production cost in order to stay afloat. Rudy urged the government to impose an additional surcharge on top of the import duty to help the local industry survive, and to be stricter about verifying the true origin of imports.
Association member Thomas H. Wibowo said the spread between the import duties on raw materials and those on manufactured goods was too narrow to protect local industry. The import duties imposed on raw materials for galvanized iron range from 7.5 to 12.5 percent, while imports of used iron sheet are charged at 15 percent.
Industry Minister Fahmi Idris said his officials would collaborate with relevant institutions to tackle surging imports and smuggling, and push for an increase in import duties.
Indonesia's metal products industry has been in the doldrums for the last couple of years, although exports of such products increased to US$634.1 million last year compared to $604.6 million in 2004.
In addition to transshipped Indian products, the domestic market has been flooded by Chinese made products, leading to fewer orders for local metal product manufacturers.