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As cheap, illegal imports gain ground in Indonesia, concerns mount over job losses

Straits Times - June 8, 2024

Linda Yulisman, Jakarta – For many shoppers, the prices are hard to resist. In a small shopping centre in South Jakarta, one-piece sleepwear is sold for as low as 25,000 rupiah (S$2) each, while a two-piece set is 35,000 rupiah.

Such cheap clothes with no labels, or with labels but in Chinese, can be found easily in Jakarta. Consumers told The Straits Times they buy the clothes because of the quality and low price.

"The price gap (between local and imported products) is not much, but the quality matters. The imported products are better than the locally made ones," said 42-year-old Ms Inggrid, who goes by one name. "I don't mind buying imported products."

But these products do not comply with Indonesian rules, meaning they may be illegal imports, according to local business players. For example, some imported clothings do not have labels in Indonesian that contain details such as place of production and care instructions.

Economists said the imports are also detrimental to South-east Asia's largest economy as they compete unfairly with locally made products.

This might reduce sales by domestic manufacturers, leading to factory lay-offs and even closures while also costing the government tax revenue.

In 2023, the Customs and excise office confiscated illegal goods worth 670 billion rupiah at illegal ports in eastern Sumatra, preventing the loss of 500 billion rupiah in tax revenue.

Illegal ports are unguarded points of entry used to smuggle goods. There are more than 1,000 illegal ports in Indonesia, of which 500 are in eastern Sumatra, according to the Customs and excise office.

Mr Bhima Yudhistira, executive director of Jakarta-based Centre of Economic and Law Studies, said the influx of illegally imported products in recent years is already "alarming" as it poses threat to the Indonesian manufacturing industry, and should serve as a warning to authorities.

For instance, it costs about 50,000 rupiah for small-scale garment makers in Bandung, West Java, to make a T-shirt. But an imported one that is illegally sourced and not subject to any duties can be priced as low as 15,000 rupiah.

"The situation, if not mitigated, will deteriorate in the next few years, in line with the rising consumption of the Indonesian middle class," Mr Bhima told ST.

In the past decade, lay-offs in the domestic textile and garment, as well as footwear sectors have risen for several reasons, including the relocation of factories owned by foreign investors to other countries. Illegal imports have added to the pressures faced by local factories, he said.

In 2023, about 360,000 workers were laid off, up from around 25,000 in 2022. In the first quarter of 2024, about 23,000 workers were laid off, compared with around 20,000 in the same period in 2023.

And the capacity utilisation of the textile and garment industry has gradually declined to below 50 per cent at present, down from 70 per cent in the first quarter of 2022, said Mr Redma Gita Wirawasta, chairman of the Association of Indonesian Spun and Filament Yarn Producers. Capacity utilisation refers to the actual output of a factory or industry compared with its potential capacity or output.

Manpower Minister Ida Fauziyah said on May 20 that a number of Indonesian companies could not survive in the highly competitive market, resulting in large-scale lay-offs.

Figures compiled by industry associations show gaps in the values of annual trade in textile, garment and footwear between Indonesia and China. They allege that the gap represents smuggled goods.

For instance, in 2022, China's official figures showed that it exported textile and garments worth US$6.5 billion (S$8.75 billion) to Indonesia, while Indonesia's official import figures from China totalled US$3.5 billion, resulting in a gap of US$2.9 billion.

For the same year, China's footwear exports were US$1.3 billion, 160 per cent higher than Indonesia's official imports of US$484.4 million from China.

"Hang tags and labels put on textile and garment products that are imported should be in Indonesian. Instead, many are in Chinese," said Mr Redma, adding that they indicate illegal imports from China.

Inflows of Chinese illegal imports began in the third quarter of 2022 as China eased its Covid-19 restrictions, he noted.

While locally made products can still compete with legally imported products, the former would not beat much cheaper illegal imports, said Mr Redma.

Chinese imports have enjoyed low or even zero duties in Indonesia with the implementation of the Asean-China Free Trade Agreement since 2012.

Since 2021, however, Indonesia has imposed safeguard duties on clothing and apparel from partner countries, including China, to stem a surge in imports that affect its domestic industry.

Such duties are extra tariffs imposed by a member of the World Trade Organisation if a surge in imports has caused or threatens to cause an injury in the industry that produces similar products domestically.

In the first year of implementation in Indonesia, the duties ranged from 19,260 rupiah to 63,000 rupiah on each item and declined in the second and third years.

The chairman of the Indonesian Footwear Association, Mr Firman Bakri, said domestic footwear makers did not book higher sales during Hari Raya Aidilfitri in 2024, and this is an indication of the disruption from illegal imports.

He said "it is urgent for the government to act against illegal imports", a view supported by Mr Redma.

The illegal trade is being driven in part by logistics businesses in Indonesia that offer "wholesale import" services on e-commerce platforms, according to economists and business groups. One such business describes itself as providing "affordable and efficient" door-to-door import service, handling all the necessary paperwork, including customs permits.

Illegal imports make their way into Indonesia through various ways. The most widely known is via the illegal ports.

They can also come in shipping containers with under-declared volumes, or with goods categories – technically marked by globally standardised harmonised system codes – that have been changed by importers to other categories with lower or zero duties. Both means are used to lower or evade import duties paid to Customs authorities in Indonesia.

As the world's largest archipelago, Indonesia faces an immense challenge in monitoring all shipping activity.

In response to queries from The Straits Times, chief of the Customs and excise office, Mr Askolani, who goes by one name, said his office was working with the police and the navy to tighten supervision to monitor possible illegal imports.

Executive director of the Centre of Reform on Economics Indonesia Mohammad Faisal told ST that the government must also provide better incentives to enable businesses to lower their production costs and gain a more competitive edge in the domestic market.

"The utilisation of current incentives, such as electricity discount, has still been low because they are too complicated and take time to access," he said. "What they need are easily accessed incentives that can address their problems prior to production."

Source: https://www.straitstimes.com/asia/se-asia/as-cheap-illegal-imports-gain-ground-in-indonesia-concerns-mount-over-job-losse