Indonesia destroys $1.3M of illegal imports, cracks down on underground economy
Jakarta, Indonesia — Cellphones, electric pots and pans, and car washing machines were among goods worth $1.3 million destroyed Monday by the Indonesian Trade Ministry in West Java. Alcoholic drinks with an ethyl alcohol or ethanol content ranging from 5% to 20% were also destroyed.
The ministry demolished the goods as part of the government’s crackdown on illegal imports, a major issue that experts say stems from Indonesia’s unpreparedness for the ASEAN-China Free Trade Agreement signed 15 years ago.
Trade Minister Zulkifli Hasan said the goods did not comply with state regulations and lacked a surveyor’s report, goods registration number, or import approval, and exceeded import quotas or failed to meet Indonesian national standards.
This is the third operation conducted by the Trade Ministry, following operations at the Cikarang customs and excise storage area in West Java and at Jakarta’s Cengkareng Port.
On August 6, the Trade Ministry disclosed that $2.9 million of illegal imports were found at the Cikarang facility. The Trade Ministry confiscated 20,000 textile rolls. The National Police seized 1,883 bales of used clothing, while customs’ officers at Tanjung Priok port seized 3,044 bales of used clothing. In addition, hundreds of carpets, towels, cosmetics, footwear and more than 6,500 electronics were seized.
Since its establishment in July, the Anti-Illegal Imports Task Force has been investigating illegal import schemes, collecting data and seizing illegal goods.
The head of the Indonesian National Police’s criminal investigation unit, Wahyu Widada, said, "Illegal imports not only harm the country in terms of revenue loss, but also has an impact on small and medium scale entrepreneurs."
Mohammad Faisal, executive director of the Center on Reform of Economics, links the current problem to Indonesia’s unpreparedness when it signed the ASEAN-China Free Trade Agreement 15 years ago.
"Indonesia’s domestic industries were not ready to compete with China’s competitive products in the local market. Indonesia had a huge domestic market and very low trade barriers then. It’s not just tariff barriers but also the non-tariff barriers were very limited. So that's why it's actually easy for foreign suppliers to enter the Indonesian market," Faisal said.
According to recent data from the Ministry of Cooperatives and Small and Medium-sized Enterprises (SMEs), approximately 50% of imported textiles and textile products are unregistered. That means the state loses out on $399 million from unpaid taxes and excise duties.
In 2022, China exported $3.95 billion of textiles to Indonesia but only $2.04 billion of Chinese textile imports were recorded. Overall, the financial loss is equal to the potential creation of 67,000 jobs and over $762 million in gross domestic product. Indonesia’s GDP in 2023, according to the World Bank, was $1.37 trillion.
Zulkifli said one of the major obstacles to fighting illegal imports is the existence of an underground economy. The Minister of Cooperatives and SMEs, Teten Masduki, said that almost 30% to 40% of goods sold in Indonesian markets are involved in the underground economy and therefore the state does not receive taxes on them.
As a result, Zulkifli added that Indonesia’s tax ratio is lower than other developed Asian nations such as South Korea, Japan and China.
"Imagine if we sent illegally imported goods to South Korea or China. Don't expect that to happen, it's impossible. That’s why these nations can become developed countries. If our “house” continues to get burglarized, how can we move forward?" he said.
Zulfkli announced in late June a plan to impose stiff tariffs of up to 200% on some products. The plan, which is still under review, initially was announced as an import duty on Chinese goods, but the minister said later the duties would apply to all countries.
Indonesia’s Shopping Center Retail and Tenant Association has detected shops suspected of selling illegally imported goods online across North Sumatra to East Java, and some have opened shops at Jakarta’s wholesale shopping centers.
Budihardjo Iduansjah, chairman of the association, said "These Chinese entrepreneurs store their goods at local warehouses and sell them online. But now many have started selling at shops including at International Trade Centers."
During a visit to shops suspected of selling illegally imported goods from China, VOA spotted clothing with labels written in Mandarin that were sold for $1 each. A seller there admitted that he and many other sellers sold their goods online and shipped the clothes in bulk to resellers across the country.
Zulkifli claims that the investigations carried out by his task force have caused many foreign nationals suspected of dealing in illegal imports to leave.
He plans to work with universities to research the root causes of illegal imports. He is confident that the illegal imports crackdown will continue under President-elect Prabowo Subianto, who will be inaugurated in October.
The ministry demolished the goods as part of the government’s crackdown on illegal imports, a major issue that experts say stems from Indonesia’s unpreparedness for the ASEAN-China Free Trade Agreement signed 15 years ago.
Trade Minister Zulkifli Hasan said the goods did not comply with state regulations and lacked a surveyor’s report, goods registration number, or import approval, and exceeded import quotas or failed to meet Indonesian national standards.
This is the third operation conducted by the Trade Ministry, following operations at the Cikarang customs and excise storage area in West Java and at Jakarta’s Cengkareng Port.
On August 6, the Trade Ministry disclosed that $2.9 million of illegal imports were found at the Cikarang facility. The Trade Ministry confiscated 20,000 textile rolls. The National Police seized 1,883 bales of used clothing, while customs’ officers at Tanjung Priok port seized 3,044 bales of used clothing. In addition, hundreds of carpets, towels, cosmetics, footwear and more than 6,500 electronics were seized.
Since its establishment in July, the Anti-Illegal Imports Task Force has been investigating illegal import schemes, collecting data and seizing illegal goods.
The head of the Indonesian National Police’s criminal investigation unit, Wahyu Widada, said, "Illegal imports not only harm the country in terms of revenue loss, but also has an impact on small and medium scale entrepreneurs."
Mohammad Faisal, executive director of the Center on Reform of Economics, links the current problem to Indonesia’s unpreparedness when it signed the ASEAN-China Free Trade Agreement 15 years ago.
"Indonesia’s domestic industries were not ready to compete with China’s competitive products in the local market. Indonesia had a huge domestic market and very low trade barriers then. It’s not just tariff barriers but also the non-tariff barriers were very limited. So that's why it's actually easy for foreign suppliers to enter the Indonesian market," Faisal said.
According to recent data from the Ministry of Cooperatives and Small and Medium-sized Enterprises (SMEs), approximately 50% of imported textiles and textile products are unregistered. That means the state loses out on $399 million from unpaid taxes and excise duties.
In 2022, China exported $3.95 billion of textiles to Indonesia but only $2.04 billion of Chinese textile imports were recorded. Overall, the financial loss is equal to the potential creation of 67,000 jobs and over $762 million in gross domestic product. Indonesia’s GDP in 2023, according to the World Bank, was $1.37 trillion.
Zulkifli said one of the major obstacles to fighting illegal imports is the existence of an underground economy. The Minister of Cooperatives and SMEs, Teten Masduki, said that almost 30% to 40% of goods sold in Indonesian markets are involved in the underground economy and therefore the state does not receive taxes on them.
As a result, Zulkifli added that Indonesia’s tax ratio is lower than other developed Asian nations such as South Korea, Japan and China.
"Imagine if we sent illegally imported goods to South Korea or China. Don't expect that to happen, it's impossible. That’s why these nations can become developed countries. If our “house” continues to get burglarized, how can we move forward?" he said.
Zulfkli announced in late June a plan to impose stiff tariffs of up to 200% on some products. The plan, which is still under review, initially was announced as an import duty on Chinese goods, but the minister said later the duties would apply to all countries.
Indonesia’s Shopping Center Retail and Tenant Association has detected shops suspected of selling illegally imported goods online across North Sumatra to East Java, and some have opened shops at Jakarta’s wholesale shopping centers.
Budihardjo Iduansjah, chairman of the association, said "These Chinese entrepreneurs store their goods at local warehouses and sell them online. But now many have started selling at shops including at International Trade Centers."
During a visit to shops suspected of selling illegally imported goods from China, VOA spotted clothing with labels written in Mandarin that were sold for $1 each. A seller there admitted that he and many other sellers sold their goods online and shipped the clothes in bulk to resellers across the country.
Zulkifli claims that the investigations carried out by his task force have caused many foreign nationals suspected of dealing in illegal imports to leave.
He plans to work with universities to research the root causes of illegal imports. He is confident that the illegal imports crackdown will continue under President-elect Prabowo Subianto, who will be inaugurated in October.