Starting next year, all cell phones imported for distribution in Indonesia will be obliged to use at least some locally made components in a bid to spur the development of the domestic industry.
Industry Ministry director for electronics and telematics industry Ignatius Warsito said on Wednesday that the government would go ahead with the plan, although many cell phone importers oppose it.
Cell phone importers must either set up their own manufacturing facilities or hand over assembly to local original equipment manufacturers (OEM), according to Trade Minister Regulation No. 38 issued in 2013.
Warsito said the government would be strict in implementing the rule and revoke the import license of any importer who failed to comply. "This measure aims to help boost the production capacity of our local cell phone industry [...] Our target is for half of [annual] cell phone demand to be produced locally by 2017," he told reporters at his office.
As an incentive to make domestic production financially competitive, the government will pay the import duties of cell phone components. Some cell phone makers have complained about uncompetitive import tax rules in Indonesia, with import duty for cell phones set at 0 per cent, while duty for components is as much as 15 per cent, discouraging investment.
Warsito said that parallel to the measure, the Communications and Information Ministry had demanded that smartphones equipped with 4G LTE technology use 40 per cent local content by 2017, or they will not be distributed in Indonesia.
These arrangements are among the latest moves by the government to spur industrial growth in Indonesia, Southeast Asia's largest economy and the most populous country.
With half of the population entering the middle class, the country has become one of the world's biggest and most promising cell phone markets. In 2013, the government tightened prerequisites for importation, including by requiring distributors to register as importers and reveal annual import plans, creating a more conducive climate for investment by preventing illegal imports.
As of the end of last year, more than 10 foreign and domestic producers had set up facilities in Indonesia, including PT Hartono Istana Teknologi, which manufactures cell phones under the Polytron brand, PT Teradata Indonusa, which assembles tablets and smartphones under the Axioo brand and PT Arga Mas Lestari, which assembles tablets under the Advan brand.
South Korean giant Samsung and Chinese smartphone maker Oppo are reportedly also set to build facilities here .
Several OEMs, such as PT Sat Nusapersada, already supply to overseas brands.
The local supporting industry is capable of producing various cell phone components such as LCDs, batteries, keypads, casing, chargers and cameras. But other items, such as integrated circuits, still depend on imports. Indonesia Cell Phone Association (APSI) secretary-general Ina Hutasoit said cell phone importers, some of which are authorised dealers of foreign brands, were ready to comply with the domestic assembling requirement. However, she said, they urged the government to set the quota at less than the planned 40 per cent.