Last week, some overseas media reported that as Indonesia’s textile industry failed to compete with low-priced imports, textile factories were closing down and laying off workers. For this reason, the Indonesian government announced plans to impose tariffs on imported textiles to protect the domestic textile industry.

Indonesia, located in southeast Asia, is the largest economy in ASEAN, and China is Indonesia’s largest trading partner, with bilateral trade volume reaching $124.43 billion in 2023, up 58.6 percent year on year, according to data from China’s General Administration of Customs. China’s exports to Indonesia were $60.67 billion, up 48.1% year on year; China’s imports from Indonesia were $63.76 billion, up 70.1 percent year on year. Trade between the two countries is increasingly close and the scale of trade is constantly expanding.

However, according to recent overseas media reports, due to the impact of imported goods in Indonesia’s domestic textile and footwear industries, the development of the industry has been hindered, and the Indonesian government plans to impose a guarantee tariff of 100% to 200% on such imported goods, in order to protect the development of the domestic industry, which casts a shadow on the later trade exchanges between China and Indonesia.

The Indonesian government promulgated Trade Regulations No. 36 on Import Policies and Regulations in 2023 to strengthen the control of import trade, which came into effect on March 11, 2024. However, with the entry into force of the regulations, some domestic textile and footwear manufacturers in Indonesia are prohibited and restricted raw materials, local factories are difficult to obtain imported raw materials, affecting local factory production, due to the decline in production, can not meet Indonesia’s domestic demand, and further affect the export performance.

In addition, Indonesia, as one of the most difficult countries in the world to clear customs, import product process is more complicated, not only import licenses, but also quotas, SGS certification per vote, etc., the overall import clearance process is complex, which further affects the clearance efficiency of Indonesian imported products. Since the fourth quarter of last year, the strike of container terminal workers in some developed countries has led to the suspension of terminal operations, aggravated congestion in overseas ports, and inefficient cargo handling. In order to alleviate the shortage of raw materials and port congestion for local enterprises, the Indonesian government adjusted the import policy several times from March to May this year, easing import restrictions for specific products. After the relaxation of restrictions, imported textiles, especially downstream textiles, flooded into the Indonesian market, due to the weak competitiveness of domestic enterprises, resulting in a large number of textile enterprises closed down and laid off.

It is understood that due to the impact of geopolitical turmoil, the Russia-Ukraine war and the situation in the Middle East, the demand side is squeezed, logistics is affected, on the other hand, facing competition from China’s textile industry, Indonesia’s textile industry is facing unprecedented pressure, orders are less than half, many factories are operating at less than half. From January to the beginning of June 2024, 10 textile companies have carried out large-scale layoffs, with a total of 13,800 layoffs. Six of the companies were hit by plant closures, while the remaining four laid off workers to improve efficiency.

The person in charge of the relevant industry organizations said that the Indonesian Ministry of Trade and the (Ministry of Finance) Customs in the import restrictions of related products repeatedly, the implementation of the protection of domestic national industry is quite incomplete, resulting in a large number of cheap textile dumping into Indonesia, which has seriously hit Indonesia’s domestic textile industry.

Shinta Kamdani, general chairman of the Indonesian Employers’ Association (APINDO), said the association is investigating the exact reasons for the layoffs in the textile and textile products industry. She pointed out that the textile industry is being affected by the decline in domestic and foreign market demand, which is the main reason for the storm of layoffs in the textile industry. In addition, the problem of illegal textile imports has also hit the industry.

The president of the Federation of Indonesian Workers’ Unions (KSPN) said orders dropped to none at all, leading to the closure of textile factories, which resulted in tens of thousands of workers falling victim to layoffs.

KSPN said that the current situation of large-scale layoffs in the textile industry is still continuing for almost the same reason, orders have fallen to zero, so the government must immediately intervene: restrict the import of textile goods, except for raw materials that do not exist in Indonesia; Eliminate illegal imports of textile goods, which harm the domestic market and result in increasingly unsalable domestic goods.

At present, the domestic textile industry can still survive are mainly export market enterprises. He wants the government to act quickly to address the wave of layoffs that continue to hit the country’s manufacturing plants, not only textile factories but also labor-intensive factories such as shoes, as these layoffs will reduce people’s purchasing power and in turn affect the Indonesian economy.

Eser, executive director of the Indonesian Institute of Economic and Financial Development (INDEF), said that the Indonesian textile industry had an unlimited boom in the 1990s. Adidas, Nike and other international clothing giants have production bases in Indonesia. However, with the transfer of the textile and garment industry, the local industry has been gradually replaced by our country, and now the textile and garment industry is moving to Vietnam and other places, Indonesia’s overall textile competitiveness has been more limited. At present, the Indonesian textile industry is dominated by terminal products, and a large number of raw materials need to be imported.

As the country with the most complete textile and garment industry chain in the world, China has perfect industrial chain products and obvious commodity advantages, and has become Indonesia’s main textile raw material export country. According to customs data, in recent years, China’s overall exports of textile, clothing and footwear products to Indonesia have shown an upward trend. In 2023, the slowdown in export growth to major markets led to a decline in the performance of domestic textile companies in Indonesia, which further led to the local demand for textile and clothing raw materials in Indonesia. From the main export categories, exports to Indonesia are mainly textile raw materials and fabrics. From January to May 2024, textile fabrics exported 1.254 billion US dollars to Indonesia, up 1.27% from the same period last year. In terms of clothing exports, the total domestic knitted and non-knitted clothing and apparel exports to Indonesia from January to May 2024 amounted to US $236 million, an increase of nearly 30% over the same period last year, and the increase is more obvious. The average unit price of clothing exported to Indonesia during the year was $1.38, significantly lower than the overall export price of $3.58.

Although overseas media reported that the export of Chinese textile clothing and footwear products to Indonesia increased significantly, it affected the development of the local textile raw material industry to a certain extent, and even further led to the dismissal of local textile workers. However, not only China’s local exports to Indonesia increased, Thailand and other countries textile and apparel exports to Indonesia are also gradually increasing, and Indonesia’s local products in high energy costs and relatively low wage levels lead to low work efficiency and other factors affect the competitiveness of local textile enterprises.

After the outbreak of the epidemic, the local epidemic prevention and control in Indonesia led to the depressed demand of the textile industry. Some Indonesian textile and garment enterprises raised funds to survive by increasing debts during the epidemic period. However, with the downturn of the Indonesian textile industry in 2023, the profit reduction of the textile industry and the difficulty of account recovery, the capital chain of enterprises is difficult to support. Increasing the risk of bankruptcy of local Indonesian companies; Secondly, in 2023, exports to the world’s major markets will slow down and local enterprises will overstock and turn into layoffs; On the other hand, the textile and garment industry has always been a labor-intensive industry. With the replacement and selection of production equipment in local factories, the production equipment has become more modern, which also increases the possibility of layoffs in local factories in order to reduce production costs. Before, one person in the textile industry operated up to three looms, but now one person operates at least eight looms. Industrial automation is also the main reason for layoffs in local companies.

In addition, the United States in recent years, the demand for textile clothing and footwear products in general, after the epidemic, the United States retail concentrated cover has not happened. As the largest export market of Indonesian textile and garment, this has also dragged down the development of Indonesia’s local textile and garment industry, not to mention Vietnam, India and other countries as emerging textile and garment suppliers have also eaten into Indonesia’s export market to a certain extent.

Overall, there are many reasons for the decline of Indonesia’s textile and garment industry, not only due to the export of our products. For the export tax of our products to Indonesia in the later period, it should still be further observed. Dumping is a policy of selling exports at a lower price in order to occupy the market of the destination country. For an anti-dumping policy, there must be evidence that the importing country is dumping certain products to proceed to the next step. This will take some time to investigate, and we will continue to monitor it closely.