US Raises Concerns Over 'Made in Indonesia' Smartphone Law

The United States is pressing Indonesia to relax local-content rules it believes will handicap efforts of tech firms such as Apple to expand into one of the world's last big markets where demand for high-end smartphone has yet to really take off.

The regulation, which would come into force on Jan. 1, 2017, requires companies that sell smartphones and tablets in the fast-growing economy of 250 million people to produce 40 percent of their content locally.

The office of the U.S. Trade Representative (USTR), America's chief trade negotiator, said it was raising the issue with the Indonesian authorities and in multinational forums.

Critics of the "made in Indonesia" rule, including an influential U.S. business group, say it could increase costs and restrict access to technology.

"The United States shares these concerns, and strongly supports ensuring that information and communications technology, which can be instrumental to economic development, be openly available in Indonesia," said a USTR spokesman in Washington.

Less than a third of Indonesians own a smartphone, a much lower rate than China's almost 80 percent, according to figures from research firm Canalys, making the country a highly attractive market for companies such as Apple Inc and South Korean rival Samsung Electronics Co Ltd.

Samsung has already begun producing phones in Indonesia after opening a factory near Jakarta last year.

Apple's supplier Foxconn, whose flagship listed unit is Hon Hai Precision Co Ltd, has been dragging its feet as it negotiates with the Indonesian government over a proposed investment that would include manufacturing smartphones.

Apple and Samsung did not immediately respond to requests to comment on the local-content rule.

Indonesia's Communications Minister Rudiantara, who is working on the regulation that is due to be finalised by March, could not reached for comment.

Rudiantara told Reuters in January that the regulation would help Indonesia get a share of the roughly $4 billion (roughly Rs. 24,884 crores) in annual domestic smartphone sales and support President Joko Widodo's pledge to switch the country from an economy that mainly consumes products, to one that produces them.

The American Chamber of Commerce (AmCham) raised concerns about the rule in a Feb. 12 letter to Rudiantara.

"We fear that the approach taken in this draft regulation could inadvertently restrict access to new technologies, raise the cost of ICT for Indonesian companies, stimulate grey and black markets for mobile phones, and carry other unintended consequences," AmCham said in the letter, seen by Reuters.

Before last year Indonesia's fledging electronics industry had no smartphone manufacturing.

"One big concern of many companies, and not just American companies, has been that Indonesia lacks the supply chain to produce high quality mobile phones," Lin Neumann, the head of the Indonesian branch of AmCham, told Reuters.

The letter to Rudiantara also warned the rule could contravene international trade law governed by the World Trade Organisation (WTO).

"The policy of forced localization of manufacturing activities could have implications in terms of Indonesia's WTO obligations," the letter said.

The United States, which is currently pursuing four trade cases against Indonesia, has repeatedly raised concerns about Indonesia's rules on local content in investment in the telecommunications sector at the WTO.

© Thomson Reuters 2015