Introduction. Highlights from Previous Years

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2 1 Introduction Highlights from Previous Years In recent years, the government s continuous efforts to reform and improve Indonesia s ease of doing business has successfully propelled the country to 40 th position on the 2018 EODB report. However, recent World Bank data reveals that Indonesia s logistics performance dropped from 3.08 in 2014 to 2.98 in Moreover, out of a total of 163 countries, Indonesia s ranking declined from 53 rd in 2014 to 63 rd in Indonesia thus lags far behind its local neighbours, including Singapore (ranked 5 th ), Malaysia (32 nd ) and Thailand (45 th ). The main indicators in which Indonesia scored lowest in terms of logistics performance were the infrastructure category, with a score of 2.65, and the efficiency of its customs and border clearance, with a score of In this regard, it is vital that the eagerness of the government to push for greater infrastructure development should be supported by a corresponding improvement in the country s customs and border clearance. The market opportunities and potentials for logistics service providers in Indonesia are enormous. Indeed, logistics services operating across the ASEAN region have continued to post double-digit growth in recent years. Research shows that logistics activities in Indonesia in 2016 reached an estimated IDR 2,400 trillion, with an increase of 15.2% predicted by In order to facilitate this growth, a series of deregulation packages were launched in with the goal of streamlining administrative and bureaucratic processes, simplifying import-export requirements, encouraging the establishment of 45 bonded logistics centres across 72 Indonesian locations with the aim of creating a logistics hub in the region, and developing an e-commerce framework for businesses. These efforts were accelerated through the establishment of an official Customs and Excise Reform Team by the Ministry of Finance in late The most recent revision that was made to the Indonesian government s so-called Negative Investment List in 2016 relaxed ownership requirements within a number of transportation and logistics sub-sectors. Most notably, the new revision sets out an increase in equity to 67% for the allowed level of foreign ownership in new freight forwarding and warehousing services, up from the previously allowed level of only 49% in However, it should be noted that prior to 2007, Indonesia supported a more open regime as regards foreign investments within the transportation and logistics sectors. This openness came to an end during the period, when all of the country s logistics services subsequently became subject to a number of minorityownership restrictions, which ended up discouraging new foreign companies from investing in the country. Newly issued Minister of Transportation Regulation No. PM 49/2017 on Freight Forwarding substantially reduces the minimum capital requirements for foreign logistics companies down from the previous level of USD 10 million (as previously regulated under Regulation No. PM 47/2015) to only USD 4 million with 25% paid up capital. Furthermore, this new regulation no longer sets any geographical restrictions upon the operational areas of foreign freight-forwarding companies, which means that the new regulation is in line with the government s broader policy of trying to develop the country s less developed areas. In terms of other sub-sectors, the government has also revoked the capital-ownership requirement for the sea-transportation, shipping-agency, stevedoring and seaport sectors, as stipulated under Minister of Transportation Regulation No. PM 24/2017, which was issued in order to attract investment and to develop businesses, as well as to improve the competitiveness of logistics providers so as to support national economic growth. The EuroCham Transport and Logistics Working Group comprises some of the world s leading companies and these businesses have been operating in Indonesia for several decades within the areas of transportation, logistics, freight forwarding, express-delivery services, shipping lines, airlines and other related sub-sectors. The Working Group promotes an open and constructive dialogue with policymakers within the Indonesia Government, as well as with relevant stakeholders and associations operating in the transportation and logistics sector, in order to continuously explore possibilities for further improvement within these various sectors. The ultimate aim is to enhance Indonesia s competitiveness as an investment destination and it is in this context that we would like to propose a number of measures which we believe should be prioritised.

3 2 EUROCHAM POSITION PAPER 2018 TRANSPORT AND LOGISTICS WORKING GROUP Key Issues Foreign-Investment Regime Prior to 2007, Indonesia supported an open regime as regards foreign investment within the transportation and logistics sector, and during this period, international companies were encouraged to invest in the country. However, in subsequent revisions which were made to the Negative Investment List (DNI / Daftar Negatif Investasi), all of the country s logistics services subsequently became subject to a number of minority-ownership restrictions. It is against this background that we welcome the latest revision to the Negative Investment List. This new revision sets out, among other areas which are addressed, an increase to 67% equity in terms of the allowed level of foreign ownership in freight forwarding and warehousing services. However, we ultimately believe that it would be better to lift the remaining restrictions on various sub-sectors and auxiliary services within the transport and logistics sectors in order to encourage a further large-scale expansion of European companies across Indonesia at a time when the country is looking to enhance its logistics performance. We also believe that such a lifting of restrictions will encourage the establishment of bonded logistics centres in several locations outside of Java and, in addition, improve domestic and international connectivity. Recommendations: We recommend that full foreign ownership is permitted as regards all of the country s transportation and logistics services. This includes international freight-forwarding services, warehousing and distribution services, e-commerce and logistics services and express-delivery services. We would also like to recommend that the government considers taking a wider view in relation to higher policy objectives and assessments of the national interest in order to increase foreign investment in the country. In addition, we would recommend that the government considers a more open regime as regards foreign investment within these sectors, similar to those which are currently implemented in Indonesia s neighbouring countries. Indeed, most ASEAN countries apply much lower investment requirements for foreign freight-forwarding services, while other countries do not differentiate at all between foreign and national freight-forwarding companies as regards minimum capital requirements. In order to improve domestic and international connectivity and encourage a further large-scale expansion of logistics companies across Indonesia at a time when Indonesia is looking to enhance its logistics performance, the government needs to consistently create business certainty for existing companies which are already operating within Indonesia. Predictability is the key to creating a conducive investment climate, while the grandfathering of existing investments is an essential principle as regards the establishment of legal certainty. Taxation of International Transportation Services EuroCham supports ongoing discussions and government openness as regards the streamlining of tax administration and the improvement of the investment climate. In August 2016, the Coordinating Ministry for Economic Affairs publicly announced that the Directorate General of Tax would jointly reassess the industry and evaluate the regulatory frameworks which encompass the process of tax payments and administration within the logistics sector. In this regard, specifically mentioned was the imposition of a withholding tax of 2% (two percent) on four transportation and logistics services sectors through the issuance of Minister of Finance Regulation No. 141/PMK.03/2015, as well as the current duplicative process for commercial invoices and tax invoices that has resulted in an excessive administrative burden. EUROCHAM EUROPEAN BUSINESS CHAMBER OF COMMERCE IN INDONESIA

4 3 Simplifying the process of tax payments and administration, such as in respect to the abovementioned issues, as well as the revision of the current regulatory framework in order to adapt to the needs of the logistics industry, would help to lower logistics costs and streamline the regulatory burden on businesses. a. Article 1 paragraph (6) ak, al, am, ao and bb of Minister of Finance Regulation No. 141/PMK.03/2015 (MoF Regulation No. 141/2015) imposes a withholding tax of 2% (two percent) on transportation and logistics services, something that this particular sector was not subject to prior to the issuance of this regulation. Evidence that the relevant tax has been withheld has to be issued for every transaction in the form of a so-called Withholding Tax Certificate (Bukti Potong). As the nature of the logistics and freight-forwarding business involves huge numbers of daily transactions, often involving negligible amounts of withholding tax, the number of Withholding Tax Certificates that each business entity has to produce can amount to several thousand per month, with no additional revenue benefit for the state. Freight-forwarding services are low-margin businesses, while a number of market studies have shown that the median profit margin in the marketplace amounts to less than 3%. Nevertheless, the 2% calculation of income tax set out in Article No. 23 employs a higher gross-income basis. Moreover, transactions which involve pass-through charges and fees cannot be separated. This results in a larger collection of Withholding Tax under Article 23. Different perceptions among the business community, as well as the Directorate General of Tax, as regards the implementation of MoF Regulation No. 141/2015 has also created issues for other businesses operating in the sector, such as postal, courier and express-delivery services. MoF Regulation No. 141/2015 does not explicitly state that postal, courier and express-delivery services should also be subject to the 2% withholding tax. However, wrong interpretations made by service users, as well as by Directorate General of Tax officers working in the field, as regards the implementation of MoF Regulation No. 141/2015 have led to difficulties being experienced by postal, courier and express-delivery businesses. These wrong interpretations have occurred as a result of service users misunderstanding MoF Regulation No. 141/2015 and treating postal, courier and express-delivery businesses as the following services: Freight-forwarding/expedition services, with the exception of those which are regulated under Article 15 of the Income-Tax Law (Article 1 paragraph [6] letter ba ). Freight-forwarding services (Article 1 paragraph [6] letter ak ). After a series of discussions held with various stakeholders from the impacted industries, the Directorate General of Tax initiated the piloting of the electronic withholding-tax certificate scheme, which aimed to reduce the general administrative burden. However, up to the present time, no changes have yet been made to the regulatory framework which encompasses these various administrative tax-payment processes. b. For every commercial invoice that a company issues, a duplicate tax invoice has to be issued to the Directorate General of Tax. This duplicate administrative procedure is unnecessary, as all of the information which is needed for tax-collection purposes can be found in the original commercial invoice, as stipulated under Regulation No. PER-16/PJ./2014 on Electronic Tax Invoices. As a response aimed at reducing the general administrative burden, the DG Tax is currently developing an electronic system which will integrate the Input VAT system into the e-tax Invoice platform by placing a greater reliance on channels of electronic-data interchange with taxpayers. Only three companies were involved in the pilot stage of this scheme, which was implemented during the third quarter of The scheme was subsequently formally introduced through the issuance of Regulation No. PER- 26/PJ/2017 and Regulation No. 31/PJ/2017. Through this integrated system, companies would no longer require tax invoices from their business partners. However, Regulation No. 31/PJ/2017 will, by 1 April 2018, require all electronic tax invoices to include statements on the delivery of taxable goods or services that also include tax-identification numbers (NIK) or the passport numbers of the relevant customers if they do not have official tax-identification numbers. This provision may well prove challenging to implement among business sectors such as courier services, which have many individual customers, many of whom are not in possession of official tax-identification numbers.

5 4 EUROCHAM POSITION PAPER 2018 TRANSPORT AND LOGISTICS WORKING GROUP c. Most countries worldwide employ a zero rate for international services, including transportation services. This measure is a response to different tax jurisdictions that often utilize different rules in order to determine which of them has the right to tax a given transaction. This creates the risk of double taxation, which ultimately hurts trade. New guidelines issued by the Organisation of Economic Cooperation and Development (OECD) aim to ensure that VAT ends up targeting private consumption and not businesses. 1 Indonesia s previous regime imposed a charge of 10% value-added tax on international freight which, in combination with the various legal interpretations of this requirement, created ambiguity and legal uncertainty among freight forwarders operating in Indonesia. International freight charges should not be subject to VAT, based on Article 4A, Part 3 (j) of Law No.42/2009 on the Third Amendment to Value-Added Tax for Goods and Services and Sales Tax for Luxury Goods. However, double taxation does still occur. Importers are required to pay per import declaration on Notifications of Imported Goods (NoIG), while VAT, income tax and import duty are used as the basis for the calculation of import duties. In addition, the value used in any NoIG includes Cost, Insurance and Freight (CIF). Therefore, VAT is often charged on transportation that the importer has already paid. As a consequence, importers end up paying double amounts of tax on VAT, as Freight-Forwarding Service Companies also collect an additional 1% VAT against transportation and its costs. International freight-forwarding service companies have overseas partners and agents based all over the world, therefore overseas payment transactions must be undertaken. Based on current regulations, transactions of this type become subject to a 10% level of VAT through a process of self-assessment. This VAT cannot be credited, and hence becomes an additional cost which the international freight-forwarding service companies have to bear. Recommendations: In order to provide greater certainty, we recommend that the Directorate General of Tax issue a confirmation letter stating that postal, courier and express-delivery services are among the various types of services that do not need to have Article 23 Income Tax imposed upon them, as regulated by MoF Regulation No. 141/2015. In order to remove redundant and administrative burdens on businesses, the Transport and Logistics Working Group recommends the removal of logistics, freight-forwarding and other transport-related business sectors from MoF Regulation No. 141/2015, Article 1 paragraph (6) letters ak, al, am, ao and bb. We would like to encourage the continuation into 2018 of the socialization program for the integration of the Input VAT system with the e-tax Invoice platform, given that this program was only first introduced to taxpayers towards the end of This integration will reduce the administrative burden involved in the tax payment process, as companies will not be required to manually collect tax invoices from their various business partners. Further adjustments to the automated e-invoicing system could allow for commercial invoices to be considered as sole proof of taxable transactions for the purposes of VAT collection. We believe that Indonesia would substantially benefit from aligning its taxation regime with international best practices, which adhere to a zero rate for international-freight services. We recommend the issuance of detailed guidelines in order to clarify the separation of the international and domestic legs of any international shipments. Currently, objections are often raised with tax authorities as regards what items are chargeable at the 10% VAT rate, as well as what can be reclaimed, as the costs are passed on to end users. We recommend that intra-company charges for international shipments should not be subject to VAT. In order to further increase efficiency and improve the ease of doing business, we encourage the continued development of a simplified tax-payment process, as well as other tax incentives for the transport and logistics sectors 1 OECD (2017), International VAT/GST Guidelines, OECD Publishing, Paris. EUROCHAM EUROPEAN BUSINESS CHAMBER OF COMMERCE IN INDONESIA

6 5 Customs and Cross-Border Procedures Positive steps have been taken by the government in order to reform and improve the regulatory environment for imports and exports in Indonesia. This simplification of the various requirements relating to trade and the country s import-export regime is crucial if Indonesia is going to improve its overall competitiveness and should also ensure the smooth flow of goods, as well as broaden business opportunities throughout the nation in this early implementation stage of the ASEAN Economic Community. The government s efforts in this regard seem in line with the findings of OECD reports, which identified that the various policy areas which have the greatest impact on trade volumes and costs are advance rulings, information availability, formalities and procedures, and inter-agency cooperation. Customs procedures, therefore, have a substantial direct impact on trade costs. Moreover, reports reveal that convoluted customs requirements and lengthy administrative procedures can increase costs in terms of the values of traded goods. Trade-logistics reforms would, therefore, have a notable effect on the ability of businesses to export and import products in a cost-effective way. Overall, customs and trade facilitation play an important role in enhancing cross-border trade relations with other countries. EuroCham applauds Indonesia s efforts as regards aligning the country s customs and border procedures with international standards. We believe that the measures that have been introduced will ultimately lay the foundations for a modernized customs regime which will suit today s tradeand-business needs. This is especially true as Indonesia seeks to further integrate into globalized production networks and move up the value-added production chain. In terms of these issues, Indonesia and the EU are currently negotiating the CEPA, which specifically addresses the matter of trade facilitation while at the same time attempting to ensure effective customs controls. The CEPA will address current best practices as regards the modernization and simplification of rules, as well as procedures which relate to imports and exports. Recommendations: Automation is essential for an efficient and predictable customs-clearance regime. With this goal in mind, we commend the recent implementation of fully automated procedures at the port of Tanjung Priok. We recommend that remaining major airports and seaports follow this laudable example. We would also advise against any need for duplicate hard copies, signatures and stamps. One particular problem has come to light at Tanjung Priok and other major international ports, specifically the requirement for all charges, including port-handling and storage fees, to be paid in cash. This requirement poses significant security and governance risks. We believe that the application of 24/7, fully electronic online procedures for all types of payments, including duties and taxes, will ultimately lower costs for Indonesian industry. This change should be able to cut customs-clearance times by one day. The implementation of 24/7 operations at major airports and seaports around the country would have a major impact in terms of reducing congestion. We would, therefore, like to continue to offer our support for the plan by the Main Customs and Excise Services Office of Soekarno Hatta to implement 24/7 services. However, any such implementation would clearly necessitate that procedural and regulatory changes be made which address the current Indonesian customs regime, specifically: The introduction of pre-arrival clearance, i.e. the commencement of customs-clearance processing prior to the arrival of a vessel or aircraft The general import power of attorney should be evaluated, perhaps on an annual basis, instead of import authorities (via a Letter of Attorney) undertaking such evaluations on a per-shipment basis, as is currently the case. Deferred payments for reliable traders as regards duties and taxes should be allowed (i.e. so that payments can be made after clearance and release). > Next Recommendations

7 6 EUROCHAM POSITION PAPER 2018 TRANSPORT AND LOGISTICS WORKING GROUP We welcome the pilot scheme for the automation of inward and outward cargo manifests, which has been identified by Customs as a quick win that will increase efficiency and improve processing. This pilot scheme resulted in the issuance of Minister of Finance (MoF) Regulation No. 158/PMK.04/2017 on the Delivery of Inward Notices, Inward Manifests and Outward Manifests, which has been effective since 13 December 2017 and which will be gradually implemented across all Customs and Excise Service Offices by 13 November However, bearing in mind that MoF Regulation No. 158/PMK.04/2017 has therefore yet to be implemented across most Customs and Excise Service Offices, customs-clearance delays amounting to at least five days, due to issues which relate to the redress of inward-cargo manifests, remain a long-standing problem in Indonesia. Redress of inward and outward BC 1.1 is currently undertaken manually. The main issue here involves the fact that Indonesian customs use data supplied by the Master Airway Bill (MAWB) or the Master Bill of Lading (MB/L), which is produced by airlines and shipping lines so that it matches up with the data contained within customs-declaration forms (e.g. consignee s name and address, goods description). In this context, even minor errors can give rise to problems. Therefore, we recommend that only volume data (weight and number of pieces) are used, while the MAWB data are not used for customsclearance purposes. Moreover, it would be better for customs-clearance purposes if the data was taken from the House Airway Bill (HAWB) and provided by freight forwarders or importers. In the interim, we recommend that ground-handling agents and airlines are urged to utilize FWB versions 16 or 17. This process could come with clear guidelines which differentiate between minor and major data discrepancies. From the perspective of airlines and carriers, it is impossible to guarantee that all containers and cargo are always shipped at once, owing to various operational factors. As a result, some containers and cargo under one shipment may arrive later than others (resulting in a so-called short shipment or partial shipment). Containers involved in any short-shipment process are subjected to handling charges and storage fees. In order to lower logistics costs, it is crucial to ensure that there is a smooth customs clearance for short-shipped containers so as will allow for partial clearance. A statement from the carrier declaring the reason underlying any short shipments should be enough, given that short shipments take place under the carrier s control. Clear procedures on partial re-exports in cases of short shipments will also further reduce logistics costs and dwelling times. Trans-shipment is a key area for an archipelago like Indonesia. Operational and customs efficiency could be further improved in order to allow for same-day operations, as is the case at other regional hubs such as Port Klang in Malaysia. With this goal in mind, we recommend that a separate trans-shipment category is inserted into the country s customs-information systems so that customs procedures are simplified at the port of trans-shipment. This would allow a given procedure to be completed within two hours, instead of the current procedures, which can take three days. At present, all moves are considered as local moves if goods are only moved between terminals. While the assimilation of such a process into an integrated information system may still be in progress, in cases of inter-island trans-shipments, customs could refer to the status of the respective shipments already on the manifest, as declared by a carrier. This contrasts with the considerable list of additional documents which currently have to be submitted manually. The ongoing revision of Minister of Finance Regulation No. 205/PMK.04/2015 on Procedures for the Imposition of Import Duty under International Agreement or Treaty Frameworks (MoF Reg. No. 205/2015) is aiming to provide greater legal certainty and simplicity for business players that would like to use the FTA-facility scheme offered by the government. The MoF Reg. 205/2015 requires the submission of certain forms (e.g. Form D in case of ATIGA or E in case of ACFTA) when declaring the origins of goods in order to obtain preferential tariffs. These forms are issued by an Issuing Agency in the exporting country. However, for imports of cargo/containers that use Hong Kong as a transhipment hub, other supporting documents are required, including the submission of Non-Manipulation Certificates issued by the China Inspection Company Limited or the Hong Kong/Macau Customs Authority. In practice, it is difficult to acquire this Non-Manipulation Certificate from the authority in Hong Kong. > Next Recommendations EUROCHAM EUROPEAN BUSINESS CHAMBER OF COMMERCE IN INDONESIA

8 7 In order to offer a clearer, more efficient set of procedures and greater certainty, we recommend that in cases where the FTA scheme is utilized in the form of transit or transhipments via non-asean member states, the Directorate General of Customs and Excise should be allowed to accept Statement Letters issued by carrier companies (Shipping Lines, Non Vessel Operator Common Carriers/NVOCC or Airlines) as supporting documents in cases where there are no Non-Manipulation Certificates which prove that no processing has been undertaken in the transit state, with the exception of loading, unloading, storage and other processes which are intended to maintain the quality and/or condition of the goods in question. In addition, as regards Certificates of Origin (COO), we further propose: That the underlying criteria behind the term wholly obtained be clarified so as to avoid multiple interpretations in the field, as this term relates to the origin of goods and FTA COO. If submissions of original COO are required, we would like to suggest that in terms of companies which have received certain facilities from customs, such as MITA, AEO and users of Bonded Logistics Centres, the submission of original COO should be implemented gradually, based on FTA agreement with member states. For example, 18 days for the first year and 15 days for the coming years would be acceptable timeframes. As another alternative, the submission of original COO for MITA, AEO and users of Bonded Logistics Centres could be applied on a transactional basis, whereby the submission of COO is transferred in the form of a soft file or a scanned version for each transaction which is undertaken during the three days after an Import Notification receives a registration number. The Directorate General of Customs and Excise can also negotiate with China on the current difficulties which relate to COO from Indonesia through the ASEAN Secretariat, so as to implement a stipulation on OCP. It should be noted that COO from Indonesia only remain valid for three days from the date of the Bill of Lading and only China implements this policy, which is essentially a different policy from those which are implemented by other countries. It is hoped that the e-coo can also apply to all FTAs and not only to Form-D. Duty refunds for FTA can be implemented in order to allow for a refund process through the submission of a COO within a one-year period, as is also implemented in other Asian countries such as the Philippines, Malaysia, China, Australia, Vietnam and New Zealand. 8. The Finance Minister has issued Regulation No 182/2016 on Import Provisions for Consigned Goods. We appreciate the increase of de minimis from USD 50 to USD 100. However, it is our opinion that the new regulation could potentially lead to lengthy dwelling times at airports. This is due to the additional lead times required for customs clearance processes for courier and postal-service companies. These lengthy lead times result from the introduction of the new value threshold which will replace the weight threshold with complex categorisations of shipments based on value. The distinction between business and personal and additional documentation required, such as power of attorney from customers, is challenging in terms of B2C shipments. After one month of implementation, it is our opinion that challenges have emerged in the field, specifically at Indonesia s largest airport, Soekarno Hatta. The main issue relates to the application system for consigned goods, which is not well suited to the volume of customs documents that must be processed. This system is leading to additional clearance times, which in turn are resulting in goods being stockpiled at warehouses for longer periods. At certain times, certain sensitive items require expedited clearance processing, which is often critical for manufacturing companies in Indonesia. Such shipments have to arrive at the business location of the importer on time so that production is not adversely impacted and manufacturers are not competitively disadvantaged. Based on these facts, conditions and our own observations, we welcome the ongoing efforts that are being made to revise MoF Regulation No. 182/2016. We further propose that procedures be simplified and that applications for pre-arrival clearance be introduced in order to expedite the clearance process. Moreover, the introduction of an application system which best suits the characteristics of time-sensitive consigned goods could be considered. > Next Recommendations

9 8 EUROCHAM POSITION PAPER 2018 TRANSPORT AND LOGISTICS WORKING GROUP 9. The newly issued Director General of Customs Regulation No. 4/BC/2017 on Customs Registration requires that a customs bond is placed at each customs branch level, with the amount of each customs bond being fixed for each type of customs office or branch. Based on Article 41 of the regulation, prior to engaging in customs activities, customs service users acting as a Customs Clearance Service Agency (Pengusaha Pengurusan Jasa Kepabeanan/ PPJK) must deposit a guarantee with the customs office responsible for overseeing said activities. The guarantee should be in the form of cash, a bank guarantee and/or a guarantee from an insurance company. The amount of the guarantee should depend on the type of customs office concerned and should range from IDR 250 million for Customs-and-Excise Main-Service Offices, through IDR 150 million for Type-A Offices to IDR 100 million for Type-B Offices and finally IDR 50 million for Type-C Offices. The implementation of the new customs-bond policy is creating additional costs for logistics companies due to the fact that customs bonds must be deposited in all customs offices. In this regard, it is our view that the previously implemented procedures which involved a centralized customs bond being deposited at the national level were easier to monitor and functioned appropriately. 10. Delays in processing experienced by logistics companies often come as a result of the automatic suspension of PPJK licenses due to a failure to submit the required additional information (such as AWBs, price lists, cargo descriptions or brochures) within one day of an official request being made through a Document Request Note (Nota Permintaan Dokumen/NPD) by the Customs EDI System after the relevant SPPB has been received. The various types of required documents are not predefined prior to such requests being made and therefore logistics companies often require more time in which to gather the requested information from the relevant importers. We would like to suggest the required documents be standardized and predefined prior to requests for submission being made, and that adequate time is allowed for submissions, ideally three to five working days. 11. We believe that the implementation of key international instruments such as the Revised Kyoto Convention of the World Customs Organization, which was ratified by Indonesia in 2014, would offer many benefits. Such benefits would range from trade facilitation for Indonesian manufacturers, faster releases of goods at borders, lower trade costs, increased revenues, the ability to attract more FDI and greater economic competitiveness. These reforms would also enable Indonesia s customs department to strike a balance between its two main objectives, which are trade facilitation and control/security. Therefore, we fully support Indonesian customs as regards the application of such international standards and best practices. Air-Cargo Security Regime We welcome the efforts currently being introduced by the Ministry of Transportation s Directorate General of Civil Aviation (DGCA) to overhaul the current aviation-cargo security regime in Indonesia. We concur with the authorities that it is necessary to clarify and tighten security measures in order to change the mindset that persists within the cargo community. In regard to this issue, the Minister of Transportation recently issued Regulation No. PM 53/2017 on Cargo and Postal Security and Cargo and Postal Supply Chains Lifted by Air (PM 53/2017) in order to improve the regulatory framework for cargo security. Since 2015, postal and cargo security screening for exported goods lifted by air have had to be moved from secure airport areas (known as line 1 ) to the locations of third-party cargo-screening companies which are designated as Regulated Agents by the Ministry of Transportation and which are located outside of the airport area (known as line 2 ). We believe that this move to screening outside of secure airport areas (line 1) could lead to a weakening of the secure supply chain and may require the need for additional secondary screening procedures to be implemented by air carriers and other players in the air-cargo chain prior to uplift. PM 53/2017 requires line 2 locations to be within 5 km of airports main gates, which should have already minimized the security risk as regards transportation from agents screening facilities to secure airport areas. In addition, PM 53/2017 requires inspection agents to possess advanced, dual-view, x-ray facilities for international cargo, as well as to equip any transportation vehicles in their possession with GPS equipment. EUROCHAM EUROPEAN BUSINESS CHAMBER OF COMMERCE IN INDONESIA

10 9 These requirements obviously call for a certain level of investment and the Cargo and Postal Security Inspection Association (APPKINDO) has concluded that such mandatory investment would ultimately lead to higher inspection tariffs, which in turn would add to the logistics costs required for the screening of air-lifted cargo. Furthermore, PM 53/2017 has also now annulled previous provisions which related to lower tariff thresholds. Recommendations: In order to facilitate an efficient logistical flow across Indonesia, we recommend that a more holistic approach be taken to cargo security and also that a whole-supply-chain system is introduced in order to address the issue of cargo security. This system should encompass all parts of the chain, rather than only focusing on screening by Regulated Agents. Other methods of ensuring a secure supply chain include the use of intelligence methods, data analysis and the implementation of screening and physical inspections on a random basis only. The development of an integrated risk-management framework can be undertaken by assessing air-cargo security risks and clearly delineating the responsibilities of each party as regards each process within the air-cargo supply chain. We would also like to encourage the socialization of the newly issued PM 53/2017, as well as the opening of discussions with the relevant stakeholders, including members of the EuroCham Transport and Logistics Working Group, as regards the current air-cargo security regime and the facilitation of exports from Indonesia. Furthermore, the provision of program-level risk-management guidance and documentation in the form of training sessions to all of the relevant stakeholders could further reduce potential security risks within the air-cargo industry. Container Handling and Maximum Stays at Seaports A container terminal yard acts an buffer between vessels and the hinterland for container transfers. In order to achieve shorter ship servicing times within Indonesia, as well as minimum shipping delays and greater throughput at ports, containers in terminal yards should ideally be stored in the most suitable locations. However, such locations are often limited resources and may not always be available. Furthermore, the container process is analogous to a multi-stage flow shop with parallel machines. In recent years, sophisticated information technology has been employed across most of the country s ports. Vehicle Booking Systems have also been implemented in order to allow truck operators to book suitable times for container deliveries, as well as retrieval times, in advance. This type of system provides opportunities for a port to ensure the smoothness of traffic and to have sufficient information early on as regards the demand and availability of storage space within a given yard. The importance of information technology in supply-chain management, specifically in terms of facilitating exchanges of information relating to commercial transactions among enterprises and individuals, and enhancing growth and profitability across the supply chain, has proved vital for Indonesia. The government s recent initiative to reduce dwelling times finally led to the issuance of regulations that set the maximum stay of container in ports at three days. This policy was first introduced through the issuance of Minister of Transport Regulation No. 117/2015 and applied to imports at the port of Tanjung Priok. This policy was followed up by the issuance of Minister of Transport Regulation No. 116/2016, which broadened coverage to also include three additional main ports, specifically the ports of Belawan, Tanjung Perak and Makassar.

11 10 EUROCHAM POSITION PAPER 2018 TRANSPORT AND LOGISTICS WORKING GROUP Finally, Minister of Transportation Regulation No. 25/2017 was issued and confirmed that the maximum stay of container of three days was to be implemented gradually across other Indonesian ports, dependent on port capabilities. This series of regulations stipulate that containers that stay for longer than three days must be transferred outside Line 1 and that an overbrengen cost would be charged to the relevant importers. This practice has led to higher port and overall logistics costs, while the introduction of higher storage charges has already encouraged importers to accelerate their import processes. However, terminal operators have more than enough facilities and storage space for containers to stay within their original terminals for longer periods. Recommendations: We welcome the usage and advancement of information technology in order to increase the efficiency of container handling at ports, as well as the automation of port-information systems. Electronic facilities employed in container terminals could reduce manual efforts and paper flows, facilitate timely information flows and also enhance control, as well as the overall quality of service. The use of computer simulations has also become a standard approach for evaluating the design of complex cargo-handling facilities. We would like to recommend that containers be allowed to stay in their original terminals for a greater number of days if and when terminal operators actually have enough capacity and storage space to accommodate them. The reasoning behind this is an attempt to try and circumvent higher port and overall logistics costs. EuroCham Position Paper 2018: Transport and Logistics Working Group Diclaimer: This publication has been produced with the assistance of the European Union (EU). The contents of this publication are the sole responsibility of European Business Chamber of Commerce in Indonesia (EuroCham) and can in no way be taken to reflect the views of the European Union EUROCHAM EUROPEAN BUSINESS CHAMBER OF COMMERCE IN INDONESIA

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