Maximizing International Trade Agreement:
The Role of Distribution Services in Supporting Indonesia
Economic GrowthBy:
Ms. Siti Tri Joelyartini
Mr. Geovani Kusuma
Ms. Ria Devika Hayuningtias
Presented in Trade in Sevices Forum
23 November 2016, Hotel Le Meridien, Jakarta, Indonesia
OUTLINE
I. Why Distribution Services?
II. Classification of distribution services in international Trade
III. Indonesia’s Commitments in Distribution Services under FTAs and the GATS
IV. Performance of Distribution Services in Indonesia
V. Government Regulation concerning Retail Services
VI. Implication of commitments’ and measures of Distribution Services
VII. Conclusions & Recommendations
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I. Why Distribution Services?
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I. Why Distribution Services?
Distribution is the critical part of the value chain that links producers
(farmers, food processors and manufacturers) to the end-consumers.
With a 14.34 per cent share in the country’s GDP in 2010 the value of
wholesale and retail trade reached some 331 billion Rupiah.
Distribution is a labor-intensive sector in Indonesia. It employs around
17% of total workforce and grows steadily over the last decade and
scoring average 7% of annual growth, which is higher than average
national growth, 5.8%.
Opportunity in distribution sector remained high, especially for micro,
small, medium enterprises, since it is relatively easy to set up a business
in this sector, for example by establishing small retail shop with limited capital and employee.
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II. Classification of Distribution
Services in International
Trade
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II. CLASSIFICATIONS OF DISTRIBUTION SERVICES SECTOR
DISTRIBUTION SERVICES
Retailing Services (CPC 631+632+6111+6113+6121)
Commission Agents’
Services (CPC 621)
Wholesale Trade
Services (CPC 622)
Franchising (CPC 8929)
Other Distribution
Services
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Commission Agents’
Services (CPC 621)
On Agricultural raw materials and live animals (CPC 62111)
On Food Products, Beverages and Tobacco (CPC 62112)
On Fuels, Metals, Ores, Timber, Building Materials and
Industrial and Technical Chemicals (CPC 62113)
On Machinery, Industrial Equipment and Vehicles other than
Motor Vehicles, Bicycles and Motorcycles (CPC 62114)
On Furniture, Household Goods, Hardware and Ironmongery
(CPC 62115)
On Textiles, Clothing and Footwear (CPC 62116)
On Pharmaceutical and Medical Goods and Cosmetics (CPC
62117)
On Goods n.e.c (CPC 62118)
Wholesale Trade
Services (CPC 622)
On Agricultural Raw Materials and Live Animals (CPC 6221)
On Food, Beverages and Tobacco (CPC 6222)
On Textiles, Clothing and Footwear (CPC 6223)
On Household Appliances, Articles and Equipment (CPC
6224)
On Pharmaceutical and Medical Goods and Cosmetics (CPC
6225)
On Miscellaneous Consumer Goods (CPC 6226)
On Intermediatts, other than agricultural; On Waste and
Scrap and Materials for Recycling (CPC 6227)
On Machinery, Equipment and Supplies (CPC 6228)
Retailing Services (CPC
631+632+6111+6113+
6121)
On Food, Beverages and Tobacco (CPC 6310)
On Pharmaceutical and Medical Goods and Cosmetics (CPC
6321)
On Textiles, Clothing, Footwear and Leather Goods (CPC
6322)
On Household Appliances, Articles and Equipment (CPC
6323)
On Hardware, Paints, Varnishes and Lacquers, Glass, Construction
Materials and do-it-yourself Materials and Equipment (CPC 6324)
On Office Equipment, Books, Newspapers and Stationery and
Photographic, Optical and Precision Equipment (CPC 6325)
Other Specialized Retail Sales of Non-Food Products (CPC
6329)
Wholesale Trade Services of Motor Vehicles (CPC 61111)
Retail Sales of Motor Vehicles (CPC 61112)
Sales of Parts and Accessories of Motor Vehicles (CPC 61130)
Sales of Motorcycles and Snowmobiles and Related Parts
and Accessories (CPC 61210)
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III. Indonesia’s Commitments in Distribution
Services under FTAs and the GATS
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INDONESIA’S COMMITMENTS FOR DISTRIBUTION SERVICES
Indonesia’s commitments at The 9th Package of ASEAN Framework Agreement on Services (AFAS 9) :
1. Wholesale Trade Services of Food, Beverages and Tobacco with Minimum Space above 5000 m2 (CPC 6222), FDI through joint venture up to 51%
2. Wholesale Trade Services of Textile, Clothing and Footwear with Minimum Space Above 5000 m2 (CPC 6223), FDI through jointventure up to 51%
3. Direct Selling (Multi Level Marketing), FDI through joint venture up to 51%
Indonesia’s commitments at ASEAN-Japan CEP:
1. Wholesale Trade Services of Food, Beverages and Tobacco with Minimum Space above 5000 m2 (CPC 6222)
2. Wholesale Trade Services of Textile, Clothing and Footwear with Minimum Space above 5000 m2 (CPC 6223)
For the above-mentioned subsectors, FDI is only permitted to operate in Kalimantan, Sulawesi, Nusa Tenggara, Maluku and Papua but only operate in capital regency. It shall establish distribution supporting facilities. Foreign investors have the obligation to cooperate with at least 100 Indonesian SMEs yearly and all wholesalers shall maintain 80:20 configuration (80 is for local products). Mode 1 and Mode 4 are still unbound.
3. Wholesale Services (CPC 6111, 6224, 6228) related to the distribution of automobile (excl.motor cycle), household electrical appliances, office machineries, construction machineries supplied by a Japanese company in Indonesia, Mode 3 commitment shall be reviewed 10 years after the agreement enters into force. Mode 1,2,4 are still unbound
4. Retail sales of food, beverages and tobacco with space between 1200 up to 5000 m2 (only supermarket) (CPC 6310), FDI is allowed through joint venture up to 35%. Mode 1 and 4 are still unbound
5. Franchise Services (CPC 8929) limited only franchisor, FDI is allowed through joint venture up to 51%
6. Direct Selling (Multi Level Marketing), Mode 1 and 2 are “none” while Mode 3 and 4 are “unbound”
Indonesia has not committed the
Distribution Services Sector at: Multilateral Fora
ASEAN-China TIS
ASEAN-Australia-NZ FTA
ASEAN-India TIS
ASEAN-Korea ATS
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IV. Distribution Services in Indonesia
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Direct Job Creation
• In agro-based developing economies where traditional retail (traditional market)
dominant: a major contribution to job creation because of the ease of creating a
small retail outlet.
Impact Importance for Manufacturing Competitiveness
• The productivity and efficiency of distribution services greatly affects the prices of
goods and services distributed. The competitiveness of producers of manufactured
goods is also impacted by their access to efficient and competitive distribution
services.
Development
of distribution
services
The Development
of National
Economy
1. Direct
contribution in the
output and labor
2. Impact
* multiplier effects
* infrastructure services
a. The Role of Distribution Services11
b. Structure of Retail Sector in Indonesia
Retail Structure in Indonesia (according to its management system)
Traditional Retail
- Traditional management system;
- Operated by individuals;
- Consumers could bargain the product prices.
Modern Retail
- Modern store management system;
- A large amount of capital;
- Prices are fixed beforehand or fixed price that is imprinted in every product.
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c. The Development of E-Retailing in Indonesia
Before the 1960s, traditional retail was in form of independent retailers
1960 – 1990, modern retail came up in various formats such as mass merchandiser and grocery
1990 – 2000,
the development of Convenience Store, High Class Department Store,Branded Boutique (High Fashion) and Cash and Carry
2000 – 2010,
the era of e‐retailing. The electronic‐based retailers or e‐retailing began to develop such as MultipolarGroup with LIPPOSHOP, Sanur, Click and Drag and Gramedia on‐line
2010 – Present,
it is the era of e‐retailing and specialized market enlargement
Source: Document 2013/SOM2/GOS/WKSP/009
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d. INDONESIA RETAIL MARKET GROWTH14
e. Indonesia Retail Sales Value Share (%)
Source: Euromonitor
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f. Indonesia: sales in Modern Retailers
(IDR Trillions)16
g. STRI for Distribution Services by Category of
Restriction
Source: Ueno, A. et al. (2014), “Services Trade Restrictiveness Index (STRI): Distribution Services”, OECD Trade Policy Papers, No. 173, OECD Publishing, Page 16.
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h. Qualitative Analysis Result12 Services Sectors
No Services SectorShare of Domestic
Demand (%)Conclusion Based on
I-O Table
1 Business Services 102,43 excess demand
2 Communication Services 100,24 excess demand
3
Construction and Related Enggineering Services
100,04 excess demand
4 Distribution Services 84,50 excess supply
5 Educational Services 100,64 excess demand
6 Environmental Services 2782,73 excess demand
7 Financial Services 102,94 excess demand
8 Health Related and Social Services 101,98 excess demand
9 Tourism and Travel Related Services 100,94 excess demand
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Recreational, Cultural and Sporting Services
95,71 excess supply
11 Transport Services 106,54 excess demand
12 Other Services not included elsewhere 100,01 excess demand
PRESISI INDONESIA ResearchSource: Indonesia I-O Table 2010, BPS (2015), processed.
Share of Domectic Demand is a percentage from Domestic Demand towards Domestic Output
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i. Wholesale and Retail Exporters
(Mode 3)
No Business Type of Business Destination Country
1 Metro department store Department store Singapore, Malaysia, China
2 Alfamart Grocery retail Vietnam (*block by regulation)
3 Es Teler 77 Fast Food Restaurant Malaysia, Singapore, Australia
4 J.Co Donuts & Coffee Bakery retail Malaysia and Singapore
5 Edward Forrer Shoes Shoes chain store Australia, Malaysia, Hawaii
6 Ayam Bakar Wong Solo Restaurant Malaysia
7 Bakso Kota Cak Man Restaurant Timor Leste
8 Kebab Turki Baba Rafi Restaurant Malaysia
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V. Government Regulation concerning
Retail Services
Regulations governing the relationship between traditional and modern
retail (e.g. location/spatial planning).
The regulations governing the relationship between traditional and
modern retails is stated in the Presidential Regulation Number 112 Year
2007 and the Minister of Trade Regulation Number 53/M‐DAG/PER/12/2008
on the Guidance of Organization and Supervision of the Traditional Market,
Shopping Center, and Modern Store.
The Ministry is currently preparing the regulation related to the electronic trade (ecommerce) that will regulate the electronic‐based retail
transaction.
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Several Indonesian regulations play an important role in modern retail expansion:
MOT Regulation No. 70/2013 and its amendment, Regulation No. 56/2014, “Guidelines for Structuring and Development of Traditional Markets, Shopping Malls, and Modern Stores/Outlets” :
Limits private label items sold in modern outlets to only 15 percent of stock keeping units (SKU).
Modern stores must sell a maximum of 80% domestic products, for specialty stores,stand alone brand/ outlet where product uniformity through global value chain is required, have yet to have a production base in Indonesia, and originated from a particular country to provide the demand of that country’s citizen in Indonesia.
Ownership of retail outlets is limited to 150 stores. Companies exceeding this cap must franchise. Retailers operating more than 150 stores prior to regulation’s implementation (MOT 56/2014 implemented September 17, 2014) are permitted to continue operating with that number of stores. Stores that sell lessthan 80% of locally produced products will be provided a grace period of two years to adapt.
V. Government Regulation concerning Retail
Services21
Presidential Regulation No. 44/2016 Concerning Business Fields that are Closed and are Conditionally Open for Investment :
Referring to this regulation, retail sector in various product still requires 100%local capital.
Regulation regarding supermarket with sales floor area less than 1200m2 andminimarket with sales floor area of less than 400m2 including ConvenienceStore and Community Store also requires 100% local capital.
As for Department Store (Retail) with sales floor area of 400m2 - 2000m2,requires foreign investment up to 67% and a special permit from the Ministryof Trade with the following requirements: (i) located inside a mall and not asa standalone; and (ii) the addition of outlet stores will be based on exportperformance (performance pay).
And the requirement for trade distributor not affiliated with production is 67%maximum foreign capital.
V. Government Regulation concerning Retail
Services22
VI. Implication of
commitments’ and measures of Distribution
Services
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Opportunity:
Creating opportunity for distribution foreign investor especially
wholesale services.
Challenges for foreign investor in Indonesia:
Using domestic products;
limitations on ownership;
lack of transparency with regard to rule of law.
VI. Implication of commitments’ and
measures of Distribution Services24
VII. Conclusions &
Recommandations
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Retailing services sector that composed of several sub-sectors with
varying characteristics (e.g. food retail, fast moving consumer goods,
clothing, ets) requires government awarness, supports and action in order
to create more efficient regulations.
Reducing services restrictions can boost economic growth in Indonesia.
Less restriction in the services sectors and more open services trade and
investment will lead to efficient and high quality services. This will give
Indonesian services supplier opportunities to enter foreign market
particularly in distribution services.
Indonesia’s well-established services suppliers who have accessed abroad market have to maintain services standard and quality in order to gain bigger market.
Conclusions26
Recommendations
Government needs to engage with private stakeholders in developing
regulations.
Government needs to deregulate its restrictive domestic regulations that
cause difficulties for foreign services suppliers to be established in
Indonesia.
Government of Indonesia needs to learn best practices from other
countries who have similar circumstances with consideration of
stakeholders.
Private business and government need to be more active in developing
SMEs.
Indonesia distribution services suppliers need to improve their
competitiveness in order to compete in foreign market.
Modernizing retailing services needs to be supported by the government in
improving domestic infrastructure, such as telecommunication, internet
access, supply chain, delivery and electronic payment systems.
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Thank You
Terima Kasih
Merci
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