The trade balance deficit reached US$ 8.56 billion throughout 2018, even though it recorded a surplus of US$ 11.84 billion in the previous year. The rising import value of 20.15 percent to US$ 188.63 billion contributed to the deficit, while export value only rose 6.65 percent to US$ 180.06 billion.
The increase in imports in 2018 was contributed by iron and steel imports, which rose 28.31 percent to US$ 10.25 billion compared to the previous year. This import value accounted for 6.45 percent of the total national non-oil and gas imports.
The invasion of steel imports has been visible since the issuance of Minister of Trade Regulation No. 22/2018 on Provisions for the Import of Iron or Steel, Alloy Steel, and Derivative Products. This regulation, which was issued on 1 February 2018, removed some provisions from the previous regulation, such as inspection in the customs area and the removal of recommendations from the Ministry of Industry.
The real goal was to reduce dwelling time for goods in the port, but it instead opened the gap for the entry of steel imports by replacing the Harmonized System (HS) from carbon steel to alloy steel.
In order to reduce import duty, PT Krakatau Steel Tbk President Director Silmy Karim said the HS for carbon steel was changed into alloy steel by adding boron layer. Carbon steel imports are subject to import duty of 10 percent-15 percent. With the addition of a very thin layer of boron, the carbon steel resembles alloy steel and gets an import duty of 0 percent-5 percent.
In addition, importers obtain a 10-percent rebate from their home countries. As a result, local steel products become less competitive. In a matter of months since the regulation was issued, the steel imports rose 59 percent in the first quarter of 2018 compared to the same period last year.
“The transfer of HS numbers from carbon steel to alloy steel is making importers free of import duty. We lost 25-28 percent. It’s impossible to compete,” Silmy said during a recent special interview with Katadata.co.id.
After being pressured by the domestic steel industry, the Ministry of Trade revoked the regulation No. 22/2018 at the end of December 2018. It was replaced by another regulation No. 110/2018, which took effect from 23 January 2019.
The regulation returned the inspection provisions for iron and steel imports from outside the customs area (post-border) to the customs area (border) through Bonded Logistic Centres (PLB). It also returned the technical considerations from the Minister of Industry.
According to the Head of the Institute for Technology and Economic Policy Studies (INSTEPS) Mas Wigrantoro Roes Setiyadi, the revocation of regulation No. 22/2018 would not stop the steel imports. Domestic steel demand will continue to increase in 2019, while domestic production capacity has not increased in a short time.