VZCZCXRO6802
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #1388/01 1360856
ZNR UUUUU ZZH
R 160856Z MAY 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 4748
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 0519
RUEHBY/AMEMBASSY CANBERRA 0752
RUEHBJ/AMEMBASSY BEIJING 4086

UNCLAS SECTION 01 OF 05 JAKARTA 001388 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR EB/TPP/MTA, EB/TPP/IPE AND EAP/MTS 
TREASURY FOR IA-CIORCIARI 
SINGAPORE FOR BAKER 
USDOC FOR BERLINGETTE/4430 
DEPT PASS USTR DKATZ, WEISEL, BAE 
 
E.O. 12958: N/A 
TAGS: ETRD KIPR EINV ECON EMIN KCOR ID
SUBJECT: USTR FINDS IPR PROGRESS, CHALLENGES IN INDONESIA 
 
REF: A) Jakarta 1212 - New Investment Law; 
 
     B) Jakarta 1326 - East Java-China Trade 
 
¶1. (SBU) Summary.  Visiting USTR officials Barbara Weisel and David 
Katz reviewed efforts related to intellectual property rights (IPR) 
protection and enforcement in Indonesia during their May 3-4 visit 
to Jakarta.  Members of the National IPR Task Force noted that 
difficult and ongoing challenges remained to improve policy 
coordination by the Task Force, and U.S. business leaders reported 
that prosecutions and convictions of IPR pirates remains low, and 
dialog with private industry, especially on pharmaceuticals is weak. 
 The Chairman of the Investment Coordinating Board (BKPM) Muhammed 
Lutfi, in response to concerns that foreign investors will need a 
letter of recommendation from BKPM to obtain a work visa (and thus a 
"backdoor" approval) under the new investment law, said that the 
BKPM will set up an immigration office in its headquarters to 
facilitate.  A garment industry buyer said competition and 
transshipments from China are hurting Indonesia's textiles and 
garments sector, while a mining industry representative said that 
mining is "flat on its back" in Indonesia, despite high 
prospectivity, due to the unfriendly business climate.  In meetings 
with ASEAN, Katz emphasized cooperation between the U.S. Food and 
Drug Administration and ASEAN on pharmaceuticals issues.  USTR is 
also encouraging ASEAN members to attend a Sanitary and 
Phytosanitary workshop in Vietnam in July to learn more about 
irradiation of tropical fruits to improve access to the U.S. market. 
 End Summary. 
 
IPR: Progress and Challenges 
---------------------------- 
 
¶2. (SBU) During a May 3-4 visit to Jakarta, visiting Assistant U.S. 
Trade Representative (AUSTR) Barbara Weisel and USTR Director for 
Southeast Asia and Pacific Affairs David Katz met with the American 
business community, the National IPR Task Force, IPR advisors, ASEAN 
officials, a member of Parliament's Commission VI, and a prominent 
member of the Indonesian Chamber of Commerce.  At a May 3 AmCham 
lunch, business representatives gave an update on several issues, 
with emphasis on the continuing challenges of intellectual property 
rights (IPR) enforcement in Indonesia.  The head of the AmCham IPR 
Committee noted several problems in the IPR area: 
 
-- The National IPR Task Force still does not have a reliable 
budget.  It also does not have a forum for dialog and consultation 
with the private sector. 
 
-- Customs Law 10/95 was finally amended in November 2006 and allows 
for Customs to take action without having to get court permission in 
advance.  It still requires implementing regulations, however. 
(Note: Embassy learned from Customs Human Resources Department Head 
and former IPR Division Head Okto Irianto, that Minister Mulyani 
will review the draft regulations for further inter-ministry 
discussion.) 
 
-- Legal reform overall still lacks transparency, enforcement and 
decisions need to be made public.  Judges need more training in IPR. 
 More deterrence is needed for IPR piracy. 
 
National IPR Task Force: Still New 
---------------------------------- 
 
¶3. (SBU) In a meeting with the National IPR Task Force (TF) on May 
4, USTR Weisel congratulated Indonesia on remaining on the Watch 
List, and noted that the formation of the IPR TF was big news. 
Ansori Sunungan, the Director for Copyrights and Industrial Design, 
said that the IPR TF has the goal of coordinating among relevant 
agencies, show the seriousness of the GOI, and perform public 
outreach and education to support IPR development in Indonesia. 
Cooperation among law enforcement agencies remains a huge problem. 
There is a view here that "piracy creates jobs," Ansori admitted. 
"The high U.S. price for genuine DVDs is also challenging for the 
market here," he argued.  For Global IP Day on April 26, Indonesia 
held a series of seminars and events, including an "integrity 
awards" ceremony at which Vice President Kalla was the keynote 
speaker.  Kalla praised creativity and innovation in his speech, and 
spoke of the importance of legal protections. 
 
¶4. (SBU) The National IPR TF plans to meet at least once a month, 
and report every six months directly to President Yudhoyono.  The 
IPR TF has five priorities through 2009, to be carried out by 
 
JAKARTA 00001388  002 OF 005 
 
 
special working groups: 
 
-- Law enforcement issues (Regulation 2004/29); 
 
-- Review and analyze applicable regulations; 
 
-- Outreach and public relations; 
 
-- Human resources and capacity building; 
 
-- International Cooperation. 
 
¶5. (SBU) The IPR TF also plans to set up a Secretariat.  AUSTR 
Barbara Weisel asked about the TF's budget.  Ansori responded that 
the budget is authorized under Presidential Decree No 4/2006 Article 
11 "All costs associated with IPR Task Force activities is levied on 
the Ministry of Justice and Human Rights budget."  The IPR TF has 
submitted its budget request to the Ministry of Finance, but has not 
yet received its own dedicated funding.  The IPR TF is also looking 
at other budget sources as well.  There will be a Ministerial level 
meeting with the IPR TF at least once a year, and three Ministers 
are very actively engaged: Coordinating Minister for the Economy 
Boediono, Trade Minister Pangestu, and the Minister of Law and Human 
Rights. Ministry of Trade's Ambassador Halida Miljani urged U.S. 
assistance in improving data collection on IPR violations, better 
case management and training of judges in IPR matters.  Halida said 
her goal is for all police, prosecutors and judges to have the same 
level of knowledge on IPR. 
 
Food and Pharmaceuticals IPR Issues 
----------------------------------- 
 
¶6. (SBU) Pharmaceuticals companies continue to face challenges and 
complain there is "no level playing field" as domestic companies do 
not have to comply with World Health Organization codes and 
standards, while foreign companies do.  One AmCham member claimed 
there is a nasty pattern of regulatory discrimination against 
foreign investors.  Other representatives expressed their concern 
that the GOI requirement that all branded pharmaceuticals include 
the generic name of the medicine on the label at 80% of the size of 
the brand name, and in the same font and color as the brand name, 
could have a major impact.  Expert panels on nutrition do not 
reflect the greater body of science.  The views of the experts are 
often not shared, and industry is not permitted to respond or put 
forth a position.  It is not clear how "experts" are selected for 
the panel: they seem intended to simply create an artificial trade 
barrier.  One drug company representative said there is "no 
transparency" on pricing and labeling issues for pharmaceuticals. 
"Not only are the GOI's doors closed, they are locked," she noted. 
 
 
Halal: Lack of Standards and Certifiers 
--------------------------------------- 
 
¶7. (SBU) There is no standard or guidance for halal certification 
and labeling in Indonesia, and a lack of certifiers, which affects 
both the food and drug sectors.  The Ministries are not 
communicating well with each other. USTR Weisel noted that this is a 
global problem, with no agreement between religious groups and no 
international halal standard.  Industry currently pays a nominal fee 
for certifiers, but may eventually have to pay a much higher fee per 
unit.  ASEAN may need to discuss having at least a regional halal 
standard.  Currently, there is no consistency across borders. 
Weisel noted the importance that the religious standards of halal 
are met, but suggested that it would be useful to explore ways to 
agree on a regional or international standard of halal to avoid 
creating another non-tariff trade barrier. 
 
Optical Discs: More Enforcement Needed 
-------------------------------------- 
 
¶8. (SBU) One of the Embassy's IPR advisors noted that there are 29 
registered Optical Disc (OD) factories in Indonesia with a potential 
capacity to produce at least 500 million ODs.  Industry estimates 
the annual legal requirement domestically at only around 15 million 
ODs.  Despite Customs efforts and a licensing requirement for 
imports of optical-grade polycarbonate, large quantities continue to 
be smuggled in each year to support illegal manufacture.  When OD 
factories were registered and required to engrave Source 
Identification Codes (SID) on production line molds, however, many 
 
JAKARTA 00001388  003 OF 005 
 
 
factories have resorted to obscuring the engraved SID codes using 
heat resistant resins and they continue to produce illegal ODs. 
Factory inspectors are having difficulties.  They have been kept 
waiting outside for 30 minutes or more while factories "clean up." 
When they finally enter, machines are warm but managers deny they 
are active. 
 
¶9. (SBU) The Ministry of Industry representative said the Ministry 
lacks sufficient law enforcement support.  It has the power of 
inspection but not the power to enter the factories, which only the 
police can do.  The head of the AmCham IPR committee noted that 
President Yudhoyono has received the National IPR Task Force report, 
but has not yet made any public comment on the report or a statement 
on the need for improved IPR enforcement.  In a subsequent meeting 
on May 5, the Embassy's two IPR advisors and a regional investigator 
for the recording industry association (IFPI) said the lack of 
continuity and documentation of raids is an ongoing problem.  There 
is no timeline on what raids will occur where, and no follow-up 
through prosecution by the courts.  The actions taken thus far by 
the GOI have received - deservedly - a lot of recognition and 
credit.  But we need to measure results by the actual reduction in 
the availability of pirated material. 
 
¶10. (SBU) AUSTR Weisel noted with regret that Ratu Plaza, a center 
for pirated OD vendors, was back up and running after two weeks of 
closure, with a pirated copy of the just-released movie "Spiderman 
3" available for $0.45.  The IPR advisors said that change to the 
high-profile malls must be done incrementally, to gradually change 
out pirates with vendors of genuine goods.  Gambling, narcotics and 
OD piracy had been three major sources of funding for the police. 
Now only OD piracy remains.  The IFPI investigator believes that OD 
pirates have invested $400-500 million in pirated OD production in 
Indonesia. 
 
End-User Piracy and Microsoft MOU 
--------------------------------- 
 
¶11. (SBU) Microsoft representatives lamented that Indonesia has the 
third worst software piracy in the world after Zimbabwe and Vietnam. 
 The Memorandum of Understanding signed in November 2006 had as a 
goal for the Government of Indonesia (GOI) to take steps to replace 
the estimated 87% pirated software on GOI computers by March 31, 
¶2007.  MS offered an 80% discount to put legitimate software on all 
GOI computers, estimate at 510,000 units.  Total cost would be 
approximately $45 million, a savings to the GOI of $260 million. 
 
¶12. (SBU) However, the Ministry of Information and Communications 
Technology did not put in a request for funds for the MOU in the 
2007 budget, and in March 2007, the Business Competition Supervisory 
Commission (KPPU) urged the GOI to annul the deal in an advisory, 
stating it violated the 1999 Monopolies Law.  Although not as strong 
as a formal KPPU ruling, the advisory has shaken the GOI.    The 
KPPU said that many computers in the GOI were using open-source 
software, and that the MOU would "hand Microsoft a monopoly."  The 
KPPU said the GOI and MS could face sanctions if it pursued the MOU. 
 
 
¶13. (SBU) Former MICT Minister Sofyan Djalil has subsequently said 
MICT would have to review the estimate of 510,000 computers and 
asked if the National Bureau of Statistics (BPS) could do it. 
Microsoft has countered that if the estimate of 510,000 computers 
was too high, it would adjust its price accordingly at the 
discounted rate.  (Comment: The stalled MOU reflects a lack of 
ownership in the GOI for solving pirated software use in the 
government.  It is unclear which Ministry has the lead.  The GOI 
does not currently appear to have any alternative strategy to the 
MOU.) 
 
Textiles and Garments: 
China Challenge 
---------------------- 
 
¶14. (SBU) A representative of the garment industry noted that there 
is not one brand or manufacturer her that does not understand the 
challenge of China.  Indonesia has a window of opportunity to be 
number two, but has to deal with the transshipment problem first 
(reftel B).  The industry representative reported that growth in 
Indonesia-based production of just one international brand was 40% 
last year. 
 
 
JAKARTA 00001388  004 OF 005 
 
 
Mining: "Flat on Its Back" 
-------------------------- 
 
¶15. (SBU) A representative of a major mining company noted that the 
mining industry is "flat on its back" in Indonesia.  The Director 
General for Mines recently stated at an international conference 
that foreign investors may need to partner with a state-owned 
company that will have 51% ownership.  The GOI is considering 
requiring mining firms to process their ore domestically.  Under 
current law, they have the option to export ore or process it 
domestically.  In some cases, illegal miners outnumber legal ones. 
Indonesia is in the top ten for geologic prospectivity but near the 
bottom as an attractive place to invest, according to a widely 
respected industry survey.  Data from Chile that poverty has been 
alleviated by 40% in areas surrounding mines falls on deaf ears 
here.  Significant elements of the legislative and executive 
branches of the GOI seem to prefer to deal with Chinese, Korean and 
politically well-connected domestic investors such as Bakrie.  They 
are not interested in U.S. investment right now.  Mining and other 
extractive industries are very concerned about Article 33 of the new 
investment law, which criminalizes tax disputes (reftel).  This 
article was not in the GOI's original draft, but inserted by 
Parliament. 
 
Investment Issues: Negative List Pending 
---------------------------------------- 
 
¶16. (SBU) In a meeting with the Chairman of the Investment 
Coordinating Board (BKPM) Muhammad Lutfi, Lutfi said the new 
investment law is not necessarily better than what we had in 1967. 
Much of Indonesia's current problems with the business climate are 
not related to laws or regulations, but implementation at the local 
level.  "The problem is at the bottom of the pyramid," Lutfi noted. 
"We can't control the harassing behavior of the Echelon IV and V 
officials."  Lutfi said that the new negative list would be very 
progressive, but would not give a timeline for its completion.  He 
criticized Trade Minister Pangestu for asking line ministries for a 
wish list for the negative list, stating this would only open it up 
for expansion.  (Note: There is no love lost between Lutfi and Trade 
Minister Pangestu.)  On the controversy surrounding the need for a 
letter of recommendation for foreign investors to receive employment 
visas (reftel A), Lutfi said that there will be an immigration 
office in the BKPM itself.  Only foreigners who "misbehave" will 
have any difficulty.  Regarding one-stop shops, eventually they will 
be in every province that needs one. 
 
¶17. (SBU) In a meeting with Parliamentary Commission VI (Trade, 
Industry, Cooperatives and State-Owned Enterprisses) Chairman Didik 
¶J. Rachbini, he noted that the new investment law will bring three 
levels of openness: completely open, open with conditions, and 
closed.  The composition of the negative list is now in the hands of 
the GOI.  Some national groups have criticized the new investment 
law is too liberal.  The issue of natural resources is still under 
discussion for implementing regulations.  If a sector is located in 
one province only, it will be the decision of the provincial 
government.  If an investment crosses two or more sectors, the 
central government will be responsible.  However, all FDI will be 
managed by the central government.  The BKPM will eventually open 
provincial offices. 
 
¶18. (SBU) The DPR looked at the investment laws of several other 
countries while crafting the law.  Rachbini opined that the labor 
law amendments were very sensitive, and he was not optimistic about 
any near-term progress, though he said there could be some progress 
on labor in Special Economic Zones (SEZs) He said that nine or ten 
provinces are competing for SEZs.  USTR Weisel asked about local 
awareness of these investment issues.  Rachbini said there is not 
much awareness about the investment debates in the capital.  When he 
travels home, he noted, "There are three things people worry about, 
the price of rice, the price of corn and the price of sugar." 
 
ASEAN Issues: Pharmaceuticals and SPS 
------------------------------------- 
 
¶19. (SBU) In meetings with ASEAN officials, USTR David Katz focused 
on the next steps to follow up the initial contact between U.S. Food 
and Drug Administration (FDA) and ASEAN on pharmaceuticals issues. 
The FDA suggested working through the Global Cooperation Group (GCG) 
of the International Conference on Harmonization (ICH).  FDA experts 
will participate in a GCG meeting in Japan in the fall and could 
 
JAKARTA 00001388  005 OF 005 
 
 
potentially meet with ASEAN afterwards.  Katz noted that it is rare 
for the FDA to engage with international experts outside the ICH 
framework, so ASEAN should take advantage of this opportunity.  Ms. 
Giang Le Chau, the ASEAN Secretariat's Senior Officer of Standards 
and Conformance, appreciated the need to follow up but cautioned 
about some ASEAN sensitivity with the ICH, which is supported by 
multinational corporations.  She says that even if the initial 
pretext for the FDA to come to the region is the ICH, discussions 
with ASEAN should be portrayed as "government-to-government, 
regulator-to-regulator" talks.  She thought it would be useful to 
develop a list of project for which ASEAN needs technical assistance 
and provide that to the FDA. 
 
¶20. (SBU) Katz was not certain that such a list of assistance needs 
would be a useful way to proceed, thinking that policy discussion 
with the FDA, at least initially, would be useful to lay the 
groundwork for more technical talks.  Katz suggested that if the FDA 
and ASEAN were to engage in further discussions, this might improve 
the prospects for further collaboration in the future.  The initial 
key is to get the FDA out to ASEAN.  The ASEAN delegation had a 
successful visit to the FDA Center for Drug Analysis and Research 
(CDER) Forum in Washington in April.  USTR and the ASEAN 
Secretariat, along with members of the ASEAN Consultative Committee 
 
SIPDIS 
for Standards and Quality (ACCSQ) Pharmaceutical Products Working 
Group (PPWG), will need to develop next steps for work under the 
TIFA on the ASEAN Common Technical Dossier for pharmaceuticals 
registration and approvals procedures.  Katz also made a pitch for 
multinational corporations to be included in the dialogue sessions 
with the ASEAN Working Group on Pharmaceutical Products.  Giang 
noted there have been problems in the past resulting in restrictions 
that only permitted ASEAN nationals to attend.  However, she thought 
the Chairman of the group was showing signs of softening on this 
tough position. 
 
¶21. (SBU) On Sanitary and Phytosanitary (SPS) issues, APHIS is 
proceeding with the workshop in Ho Chi Minh City, Vietnam in July on 
the irradiation of fruits and has sent invitations to all ASEAN 
Member Countries except one.  Mr. Somsak Pippopinyo, Head of Natural 
Resources Unit, said that the ASEAN Secretariat was willing to be 
helpful to inform member countries of the event, but was not certain 
of its role.  They expressed a willingness to inform the ASEAN 
Experts on SPS Issues of the seminar, when it meets June 18-19 in 
Kuala Lumpur, and asked whether APHIS would like to make a 
presentation at the workshop.  Katz said APHIS liked the idea of 
working at the regional level to be efficient at explaining the 
requirements for access to the US market for fresh fruits.  However, 
he doubted if APHIS had a budget to support an extra trip.  He 
promised the Secretariat to provide the list of acceptances for the 
seminar. 
 
¶22. (U) USTR contributed to and cleared on this message. 
 
HEFFERN