Jakarta. President Prabowo Subianto recently announced his plans to make Indonesia’s local content requirement -- something the US had considered to be taxing -- to be “more realistic and flexible”.

Manufacturers in Indonesia are mandated by law to source parts of their components domestically in a move to boost Indonesia’s economy. Prabowo’s predecessor Joko “Jokowi” Widodo, who was in power for a decade, had tightened the regulation in the technology sector. For instance, electronic devices such as 4G-LTE-enabled phones sold in Indonesia must have at least 35 percent of local content. There are even plans to further raise the minimum threshold to 40 percent. 

Prabowo recently gathered Indonesia’s seasoned businessmen, investors, and economists in Jakarta -- about a week after US President Donald Trump's massive reciprocal tariff rollout. Prabowo said that he was a nationalist, but told the forum that it was about time to relax the mandate to improve ease of doing business.

“The policy has good, nationalist intentions. People who have known me for a long time would say I’m the most nationalist person … but we have to be realistic. If we force this local content mandate, we will be less competitive [than other countries],” Prabowo told the forum.

“So I’m on board with making our local content requirements more flexible. Perhaps we should change it to incentives. So please, my ministers, let’s make this rule more realistic,” Prabowo said.

The president, however, did not say what sort of incentives he had in mind. 

American tech giant Apple has been struggling to get the iPhone 16 into the Indonesian market over its failure to comply with the domestic content rule. After a months-long fiasco, Indonesia finally gave its green light for Apple to sell the iPhone 16 in the country starting Friday. 

A report by AmCham Indonesia -- which represented American companies operating in the country --  wrote that the mandate could pose major challenges for industries that require specialized inputs not readily available locally. The report claimed that the policy had resulted in “lower production levels” as companies had to purchase “either more costly or lower-quality materials from local suppliers”.

According to Trump’s executive order, Indonesia will be subject to a 32 percent “reciprocal” tariff starting on April 9. The Trump government said that the rate was only half of what Indonesia had been charging American goods while also taking into account Jakarta’s other non-tariff barriers, including the domestic content rule. A universal 10 percent baseline tariff already came into effect over the weekend.

Indonesia intends to negotiate reciprocal tariffs with the Trump government. Earlier this week, senior minister Airlangga Hartarto signaled that Indonesia was considering proposing to relax the local content mandate on information and communication technologies to sweeten the offer. 

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