It is unclear as to whether this regulation will replace existing requirements or how local content will be measured.
Indonesia needs a bigger share of the $3 billion in annual phone imports to reduce its trade deficit, said Minister for Communications Rudiantara, who like many Indonesians goes by one name. "This phone is $600-$700, so we want $250-$300 of that to go to Indonesia," he said, pointing to his iPhone.
Local content could include design through intellectual property fees in addition to manufacturing of handsets, Rudiantara said. He declined to give further details on the way the percentage of local content would be calculated.
Around a fifth of local content would have to be research and development, meaning companies would need to have a design development center in addition to manufacturing, said Industry Minister Saleh Husin.
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Critics of the 'Made in Indonesia' rule, including the American Chamber of Commerce, say the requirement is confusing and could increase costs, restrict access to technology and violate World Trade Organization (WTO) obligations.
The U.S. Trade Representative is raising these concerns with the Indonesian government and the WTO.
But Polytron is optimistic about the move, and expects its mobile division to make its first profit since it started in 2011 by the end of the year.
"Our support from the government is the promise that other 4G brands cannot sell in Indonesia if local content is not 30 percent. Polytron is already at 35 percent. If Polytron gets to 40 percent local content, [the government told us] there is a possibility the local content requirement will go to 40 percent," Polytron spokesman Kadarusman said.
He declined to comment on how the local content percentage was calculated.
Rudiantara said that after hearing of complaints, he was "undecided" on whether the required local content would be 40 percent, which he previously told companies. He planned to release a draft of the regulation in mid-April to give companies time to raise concerns.
He said higher costs would make it difficult for Indonesia to compete purely on manufacturing, but hoped his switch to include research and development would help.
"I'm not crazy. Ministers should have nationalism, but not chauvinistic nationalism," Rudiantara said. "If Indonesia competes only on producing hardware, it's going to be difficult."