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Misguided textile policy

Tempo - September 28, 2019

Jakarta – Expressions of regret for President Joko Widodo came after the domestic textile industry was brought to its knees. The decision to open the door to textile and textile product imports that were taken without proper consideration two years ago has caused losses for local industry.

The domestic textile industry is now being squeezed by imports. The root of the problem is the Ministry of Trade Regulation No. 64/2017 on the import of textiles and textile products. This regulation allows traders holding general import identity permit numbers to import raw materials and fabric. Previously, import permits were only given to producers. Even this was only for the import of raw materials such as filaments or fibers, and these were not to be traded.

The flood of imported products from the across the entire sector has put the domestic industry under pressure. This is seen from the trade balance of textiles and textile products. Although there is still a surplus, the value of imports has risen continued to rise, from US$7.58 billion in 2017 to US$8.68 billion the following year.

This figure could still grow. In 2018, the trade ministry issued Ministry of Trade Regulation No. 28, which was revised by the Ministry of Trade Regulation No. 74, on the implementation of checks of commerce imports outside customs areas inspections. It is this regulation that seems to have been used to bring in more textile and textile imports from overseas.

The original aim of this regulation was to reduce the time for loading and unloading at ports. Imported goods could be immediately transferred to warehouses outside customs areas. But the poor inspection and monitoring turned independent statements about goods imported by importers into a loophole for disguising true import values.

Because imports have flooded the domestic market, local textile factories that are not competitive had been forced to close down. The Indonesian textiles Association says that 19 companies are already in trouble, although only nine textile factories have gone bankrupt and laid off around 2,000 workers. The Indonesian Association of Fiber and Filament Producers says that since June, the demand for filament and fiber has weakened because producers prefer to choose imports.

At the time of sluggish industrial growth, textiles are one of the five industries that is still thriving. In the first half of this year, the industry trade surplus was US$2.38 billion. It is time the government paid special attention so that this sector can make a larger contribution to the trade balance.

Building the domestic industry could start by revoking Ministry of Trade Regulation No. 64/2017. Imports should only be allowed for raw materials that are not present in this country, and only by producers. Proper oversight at bonded logistics centers and outside customs areas is also important to prevent deceit by importers.

If this is not done, there is no point in hoping that investors will invest in the Indonesian textile industry. Industries that are not competitive do not attract investment. Even competing in the domestic market will be difficult, let alone going up against countries like Vietnam and Bangladesh, which each have more than four percent of the global market. After all, the ongoing trade war between China and the United States should be an opportunity to fill the niche in the US market that China is beginning to move out of – the global textile market.

There is no point in expressing regret if there is no corrective action.

Read the Complete Story in this Week's Edition of Tempo English Magazine: https://magz.tempo.co/read/35942/misguided-textile-policy

Source: https://en.tempo.co/read/1253413/misguided-textile-policy