Market Study on Industry 4.0 Trade Obstacles in ASEAN
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Study Report Market Study on Industry 4.0 Trade Obstacles in ASEAN Prepared for: Mission of Canada to the Association of Southeast Asian Nations March 2022 CONFIDENTIAL Disclaimer: This report was produced by the Asian Trade Centre with references from sources believed to be accurate and reliable at the time of publication. The ATC is not liable for any loss or damage resulting from opinion, errors, inaccuracies, or omissions affecting any part of the content.
Market Study on Industry 4.0 Trade Obstacles in ASEAN
Table of Contents
List of Abbreviations and Acronyms ................................................................................................................... 2
Executive Summary ............................................................................................................................................... 3
A. Brief Overview of Market Access Obstacles in Selected ASEAN Countries ......................................... 4
Table I. Global Rankings by Structure and Drivers of Production of Selected ASEAN Countries in the
Readiness for the Future of Production Report 2018........................................................................................ 4
B. Country Reports of Selected ASEAN Countries ....................................................................................... 5
Table II. “Toolkit” of Industry 4.0 Technologies in Advanced Manufacturing Sector ........................................ 5
Singapore .............................................................................................................................................................. 6
Figure I. Overview of the Smart Industry Readiness Index ............................................................................... 6
Malaysia ................................................................................................................................................................ 7
Figure II. Overview of Industry4WRD Readiness Assessment Criteria ............................................................ 7
Indonesia............................................................................................................................................................... 8
a. Country-specific Barriers ......................................................................................................................... 8
b. Sector-specific Barriers ............................................................................................................................ 9
c. Digital Barriers ....................................................................................................................................... 12
Thailand .............................................................................................................................................................. 15
a. Country-specific Barriers ....................................................................................................................... 15
b. Sector-specific Barriers .......................................................................................................................... 16
c. Digital Barriers ....................................................................................................................................... 17
Vietnam ............................................................................................................................................................... 20
a. Country-specific Barriers ....................................................................................................................... 20
b. Sector-specific Barriers .......................................................................................................................... 20
c. Digital Barriers ....................................................................................................................................... 23
C. Market Entry Considerations .................................................................................................................... 25
Conclusion ............................................................................................................................................................ 27
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
List of Abbreviations and Acronyms
ADB Asian Development Bank
AI artificial intelligence
AR augmented reality
APEC Asia-Pacific Economic Cooperation
ASEAN Association of Southeast Asian Nations
BSN Badan Standardisasi National (Indonesia)
CBPR APEC Cross-Border Privacy Rules System
CPTPP Comprehensive and Progressive Agreement for Trans-Pacific Partnership
GDP gross domestic product
EU European Union
GDPR General Data Protection Regulation
HS Harmonized Commodity Description and Coding System/Harmonized System
ICT information and communications technology
Industry 4.0 Fourth Industrial Revolution/4IR
IoT Internet of Things
IP intellectual property
IPR intellectual property rights
LCRs local content requirements
MSMEs micro, small, and medium enterprises
R&D research and development
STAMEQ Directorate for Standards, Metrology and Quality (Vietnam)
TISI Thai Industrial Standards Institute (Thailand)
VAT value-added tax
VR virtual reality
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
Executive Summary
In recent years, Southeast Asia has seen itself as a key player in global production networks. Elevated supply chain pressures
driven by trade tensions between major economies and the ongoing COVID-19 pandemic have led firms to look for alternate
markets to minimize risk and build resilience. These shifts also highlight another trend in the use of digital solutions and other
disruptive technologies in manufacturing activities, opening opportunities for foreign suppliers like those in Canada to bring
their goods to the region. While this may be the case and the markets are ripe for greater trade and investments for advanced
manufacturing processes, the region has yet to fully unlock this untapped potential towards industrial transformation mainly
due to high market entry barriers that remain in place for most of these countries.
The purpose of this short study is to assess these trade barriers that could act as potential constraints to the adoption of
Industry 4.0 technologies in the advanced manufacturing sectors of select economies of the Association of Southeast Asian
Nations (ASEAN). This report aims to help Canadian firms better understand the potential regulatory challenges when entering
the region as well as offer insights to Canadian policymakers and trade officials on trade obstacles, particularly barriers to
digital trade across sectors of interest to identify areas for cooperation to improve market access for Canadian companies.
Part A provides a general overview of market access barriers in key ASEAN countries. Overall, this study finds that while all
ASEAN member states have policy blueprints to drive the industrial transformation towards Industry 4.0, regulatory
impediments continue to exist such as local content requirements, import restrictions, cross-border data flow restrictions, and
data localization rules, among others. This is mainly because of the varying levels of development among members of the
bloc and that such Industry 4.0 masterplans are still at the early stages of implementation.
Part B delves deeper into a country-by-country stock take of these obstacles. The country reports are divided into two main
groups. The first set of country reports features Singapore and Malaysia and provide a brief overview of their state of readiness
to leverage Industry 4.0 as both countries are generally understood to have relatively low trade barriers. On the other hand,
the second set in Indonesia, Thailand, and Vietnam takes a more substantive assessment of these countries’ current state of
readiness and adoption of Industry 4.0 in their manufacturing activities. For the latter part, trade barriers are distinguished
specific to the country, sectors of interest, and those that could impact digital trade.
The report concludes with Part C offering some best practices on market entry considerations following suggestions made
from stakeholders consulted for this report. For businesses, these include utilizing preferential trade arrangements of Canada
and those in ASEAN, making good use of government resources on trade promotion services present both in Canada and the
region, and adopting a more flexible way of doing business in a region known for its dynamism and diversity. There is also
scope for increased cooperation and a greater role for policymakers to engage in both policy advocacy and market awareness-
raising initiatives to facilitate ease of trade and address some of these underlying concerns faced by Canadian businesses.
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
A. Brief Overview of Market Access Obstacles in Selected ASEAN Countries
Manufacturing has significantly shaped the economic growth trajectory of Southeast Asia in recent decades. As a whole, the
Association of Southeast Asian Nations (ASEAN) accounts for 5 percent of global manufacturing activity with 60 percent of
which concentrated in five sectors namely food and beverage, chemicals, electronics, automotive, and rubber and plastic
products.1 Some estimates also suggest the regional bloc’s manufacturing potential has around USD250 billion to USD275
billion in incremental value at stake by 2028 by embracing the Fourth Industrial Revolution or Industry 4.0 technologies.
However, the level of Industry 4.0 technology adoption and readiness varies across member-states. Developed countries, like
Singapore, are at more advanced stages of applying advanced manufacturing technologies while newly industrialized
countries, including Indonesia and Vietnam, are at nascent stages of applications. 2 The table below (Table I) shows the
rankings of ASEAN markets selected for this study in the 2018 Readiness for the Future of Production Report. This report
from the World Economic Forum profiled 100 countries across key indicators that determine their level of readiness for
advanced manufacturing activities.
Table I. Global Rankings by Structure and Drivers of Production of Selected ASEAN Countries in the
Readiness for the Future of Production Report 2018 3
Structure of Production Drivers of Production
& Investment
Global Trade
Environment
& Innovation
Sustainable
Technology
Institutional
Framework
Complexity
Resources
Ranking
Ranking
Demand
Overall
Overall
Human
Capital
Scale
Country
Indonesia 38th 73rd 6th 59th 61st 55th 61st 69th 94th 15th
Malaysia 20th 30th 7th 22nd 23rd 21st 7th 30th 60th 17th
Singapore 11th 11th 22nd 2nd 6th 2nd 1st 1st 56th 14th
Thailand 12th 33rd 3rd 35th 41st 53rd 20th 51st 49th 28th
Vietnam 48th 72nd 17th 53rd 90th 70th 13th 53rd 87th 39th
Economies at advanced stages of applications namely Singapore and Malaysia provide a range of incentives and policy
support to encourage the adoption of Industry 4.0 technologies in their manufacturing sector. Correspondingly, these countries
exhibit few technical barriers to entry in technology adoption.
Conversely, those at the early or mid-stages of development still face significant barriers in leveraging their potential to scale
up their advanced manufacturing industries. These include low intensity in research and development (R&D) and other
innovation-driven initiatives, lack of highly and technically skilled workforce, perception of domestic stakeholders towards
Industry 4.0 adoption, financing gaps particularly for micro, small, and medium enterprises (MSMEs), and the current
infrastructure gap, among others. Across the region, varying levels of political stability also influence investment and the pace
of economic development.
Domestic policy considerations also play a role as countries in the region still adopt varying levels of restrictions such as local
content requirements (LCRs), cross-border data transfer restrictions, data localization rules, and a host of other trade barriers
that adversely limit the pace of adoption of advanced technologies as well as overall productivity.
The following sections provide a closer look at these different trade barriers across key ASEAN economies to help
policymakers, trade officials, and businesses from Canada gain a better understanding of the current regulatory environment
as well as market access challenges when entering these countries.
1
https://www3.weforum.org/docs/FOP_Readiness_Report_2018.pdf
2
https://www.kearney.com/documents/20152/1849225/Accelerating+4IR+in+ASEAN.pdf/c1fd001b-a5cb-4a96-c73b-e666c0b88692
3
https://www3.weforum.org/docs/FOP_Readiness_Report_2018.pdf
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
B. Country Reports of Selected ASEAN Countries
The country reports are divided into two main groups: the first group includes Singapore and Malaysia while the second half
comprises Indonesia, Thailand, and Vietnam. The reports for the first two countries provide a general overview of their state
of readiness to leverage Industry 4.0 as both countries are well understood to have relatively low barriers in enabling digital
transformation in their respective manufacturing sectors.
On the other hand, the reports for Indonesia, Thailand, and Vietnam takes a more substantive assessment of their current
regulatory landscapes in embracing Industry 4.0 for the identified manufacturing verticals per market. For this part, trade
barriers are classified into three categories:
• Country-specific barriers. The report starts with a short description of the current manufacturing dynamics of the
country including relevant policy plans the government has implemented. It then identifies general barriers that affect
the use of Industry 4.0 technologies across all sectors such as R&D gaps, capacity constraints, and lack of access
to finance, to name a few.
• Sector-specific barriers. This section covers regulations that could affect the use, adoption, and importation of
foreign goods and services with potential Industry 4.0 applications into the country. For illustrative purposes, this part
also identifies Industry 4.0 technologies based on the “toolkit” below that could be affected due to such regulations
or conditions in place.
• Digital trade barriers: The last part highlights specific laws and regulations that could adversely affect the
development of digital trade in the country such as technology transfer requirements, digital services tax, cross-border
data flow restrictions, and data localization rules, among other barriers, including their potential implications.
For the purpose of this study, the sector-specific barriers section of the country reports identifies Industry 4.0 technologies
likely to be affected by existing laws and regulations. The “toolkit” below is a summary of these trends to provide businesses
with a reference point when reading this report. The selection of such technologies was done following consultations with the
Mission of Canada to the Association of Southeast Asian Nations in identifying areas most relevant for Canadian businesses.
Table II. “Toolkit” of Industry 4.0 Technologies in Advanced Manufacturing Sector
Advanced manufacturing Description
technologies
Additive Manufacturing technology that creates three-dimensional solid objects from a computer
manufacturing design file using a series of additive or layered development frameworks (e.g. 3D printing)
Artificial Technology which allows machines to perform tasks as well as demonstrate the ability to
intelligence (AI) learn and think similar to human intelligence (e.g. chatbot)
Augmented or Virtual reality is the technology that provides almost real and/or believable experiences
virtual reality synthetically or virtually, while augmented reality enhances the real world by superimposing
(AR/VR) computer-generated information on top of it (e.g. metaverse, VR gaming)
Automation Any technology that substitutes human labor, especially those that are predictable and
routine to increase quality and quantity of output at a reduced cost (e.g. driverless cars)
Big data Use of advanced analytic techniques to examine large and diverse data sets to uncover
analytics patterns, correlations, and relevant insights (e.g. predictive analytics)
Internet of Network of equipment and devices connected to the internet which allows the gathering
Things (IoT) and analyzing of data (“speak with each other”) to achieve a particular task (e.g. smart city
management)
Robotics A form of automation that involves the design, construction, and use of machines to
perform, usually repetitive, tasks done traditionally by human beings. (e.g. industrial robots)
Virtual modeling Creation of virtual representation of physical objects (e.g. digital twins)
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
Singapore
Singapore is the frontrunner among its regional neighbors on the level of readiness for advanced manufacturing activities due
to its general openness to business, high-quality talent pool, regulatory certainty, developed infrastructure systems, and strong
government support towards innovation, among other factors. At the same time, manufacturing-specific initiatives in the
country have a track record of focusing on capacity development, immersive overseas business missions, and smart readiness
index.4 As a consequence, Singapore does not have that many trade barriers for manufacturers doing business in the country.
Driving these relatively favorable conditions are comprehensive strategies in place that focus on capability development,
industry transformation, and reskilling the workforce. For instance, the government, with inputs from stakeholders, developed
the Singapore Smart Industry Readiness Index, the first of its kind globally, which profiles 12 industries against a variety of
indicators to allow manufacturers to self-assess their level of Industry 4.0 preparedness and transformation (Figure I).
Figure I. Overview of the Smart Industry Readiness Index 5
Furthermore, the city-state’s manufacturing capabilities have evolved considerably with competencies today in high-value
areas of manufacturing such as R&D and product design. As such, it remains one of the leading exporters of high-tech products
across different benchmarks with a relatively mature ecosystem of key industries such as aerospace, pharmaceuticals and
medical technology, petrochemicals, and transportation. Some of the world’s largest semiconductor companies have
fabrication plants in the country which also helped the growth of sub-suppliers across Singapore.6 Moving forward, state
planners committed to injecting SGD3.2 billion in R&D in advanced manufacturing and engineering to scale up the innovation
capacity of companies pursuing Industry 4.0 applications. 7
Singapore also has a dedicated body, the Future Economy Council, which develops Industry 4.0 industry transformation maps
that provide information on technology impacts, career pathways, the skills required for different occupations, and reskilling
options for different sectors.8 Private enterprises also benefit from a generous state program that incentivizes firms to
undertake skills development initiatives. Singapore provides subsidies to firms for employee training course fees and absentee
payroll salary costs with higher incentives awarded for courses that are certified by the government. 9 Massive investments in
the education system have also been an advantage for manufacturers. Almost all of Singapore’s higher educational institutions
have their own Industry 4.0 programs providing a venue for strong industry-academe collaboration.10
4
https://www.kearney.com/documents/20152/1849225/Accelerating+4IR+in+ASEAN.pdf/c1fd001b-a5cb-4a96-c73b-e666c0b88692
5
https://www.edb.gov.sg/en/about-edb/media-releases-publications/advanced-manufacturing-release.html
6
https://www.business-sweden.com/globalassets/insights/reports/trade/southeast-asias-big-shift.pdf
7
https://www.edb.gov.sg/en/business-insights/insights/singapore-a-leading-manufacturing-hub.html
8
https://www.mti.gov.sg/ITMs/Overview
9
https://www.adb.org/sites/default/files/publication/671711/industry-skills-development-southeast-asia.pdf
10
Intercedent Asia. (February 2021). Industry 4.0 in ASEAN: Opportunity Assessment for Canadian Suppliers.
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
The standardization process has also been kept largely in line with emerging technologies and best practices on international
standards for such applications. Enterprise Singapore, the national standards body, and the industry-led Singapore Standards
Council have developed and reviewed over 168 standards and technical references in 2019. Around 91 of these standards
were new, with close to 70 percent focused on emerging areas most of which were in smart manufacturing to support Industry
4.0 adoption. For example, the Infocomm Media Development Authority sets out minimum technical requirements for IoT
devices that use low power wide area network technologies. Another one is a 2016 technical reference framework on design
principles, general architectural requirements, IoT reference model, and IoT reference architecture developed to operationalize
the Smart Nation Singapore initiative.11 A government-industry-supported website was also launched providing a single
reference point on key standards, use cases, and training courses to support businesses adopting Industry 4.0 solutions. 12
It is important to keep in mind that while Singapore has low levels of trade barriers for advanced manufacturing activities,
businesses should closely monitor regulatory and industry developments that could affect their operations. For instance, the
growing number of standards, including those with Industry 4.0 applications, are being increasingly developed by non-
traditional standard-setting bodies (i.e. not intergovernmental) potentially increasing the adjustment costs for foreign firms to
follow different technical regulations and best practices depending on the country which they manufacture or export their
products. Foreign enterprises should also be mindful of provisions under the Protection from Online Falsehoods and
Manipulation Act which regulate the spread of online false information due to its potential extraterritorial repercussions.
Malaysia
Malaysia is well-positioned towards embracing digital transformation in its large manufacturing sector. With a well-educated
talent pool and relatively superior infrastructure than its neighbors (except Singapore) among its key attributes, Kuala Lumpur
is often seen by observers as second to Singapore in its level of readiness to overcome challenges that could hinder its broader
ambitions to level up its manufacturing competitiveness. The country is a major hub for high-technology exports with most of
the large manufacturing firms, particularly electrical components, situated in the Penang region.13
The government introduced the National Policy on Industry 4.0, more commonly referred to as Industry4WRD, as its national
blueprint to leverage Industry 4.0 to modernize its manufacturing sector and position the country as a strategic partner and
primary destination for advanced technology solutions and investments. Under the master plan, Malaysia will prioritize the
development of manufacturing activities in the aerospace, chemicals, electrical and electronics, machinery and equipment,
and medical devices verticals. It has also taken its cue from neighboring Singapore in developing a readiness criteria model
to guide manufacturers to gauge their level of preparedness (Figure II).
Figure II. Overview of Industry4WRD Readiness Assessment Criteria 14
11
https://www.dfat.gov.au/sites/default/files/australia-singapore-digital-trade-standards-research-report.pdf
12
http://standardsi40.sg/
13
Intercedent Asia. (February 2021). Industry 4.0 in ASEAN: Opportunity Assessment for Canadian Suppliers.
14
https://www.miti.gov.my/miti/resources/National%20Policy%20on%20Industry%204.0/Industry4WRD_Booklet.pdf
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
While Malaysia has the key ingredients to transform its industrial base and shift to higher value-added activities in the long
run, the country still experiences its obstacles in fully embracing Industry 4.0 in its manufacturing sector. Some of the perceived
challenges include regulatory and administrative burden, shortage of highly skilled workforce, and limited access to finance
especially for MSMEs. 15 For instance, a 2018 World Bank report points out that the country’s education system and workforce
training programs are not yet preparing workers with the right skills for the digital economy and that firms experience issues
with access to capital in the early stages of growth.16
One of its key areas of constraint is the domestic human capital where the reskilling and upskilling have failed to keep pace
with the dynamics of digital technology in the country. Malaysia has a skills incentives platform under its “Skills Upgrading
Program” which provides grants to cover training fees for MSMEs for skills development. However, the country still lacks a
detailed Industry 4.0 skills roadmap to streamline its existing initiatives on reskilling and upskilling as well as for proper
coordination with the private sector and other stakeholders.17 Addressing these capacity gaps would enable more efficient and
productive use of Malaysia’s key resources and improve productivity in more innovative activities including advanced
manufacturing.
Indonesia
a. Country-specific Barriers
Indonesia is characterized as being at the nascent stage of developing its advanced manufacturing sector. This is partly due
to the slow adoption of advanced technologies including Industry 4.0 applications such as additive manufacturing, big data
analysis, and the Internet of Things. To capture these opportunities, the country launched the “Making Indonesia 4.0” initiative
in 2018 to improve labor productivity and facilitate the transition of its manufacturing capacity to five priority sectors, namely
food and beverage, automotive, textiles, electronics, and chemicals.18
While Indonesia boasts a large working population and made inroads to further develop its manufacturing prowess, the country
is beset with challenges that could risk its productivity potential and hinder the wider application of advanced technologies in
its domestic manufacturing sector. As highlighted in the first market study, Indonesia has the largest manufacturing sector in
the region owing to its large and low-cost workforce. While this may be the case, it has long been observed that the country’s
manufacturing is predominantly undertaken to meet local demand rather than for exporting purposes. Hence, Jakarta rates
poorly in comparison with its neighbors in terms of the amount and quality of high-technology exports or goods which require
high R&D intensity such as aerospace products, computers, pharmaceuticals, and electric machinery.19
State-led innovation funding is at best described as lacking proper strategy. For instance, while some 80 percent of government
research funding are channeled through different ministries as part of the regular budget allocations, less than half is spent on
actual research, most covering the cost of salaries and operations, scientific and technological services, training, and research
facilities leading to relatively low research output.20
At a macro level, Indonesia continues to enjoy substantial manufacturing investments from overseas sources with the trend
likely to continue partly due to the ongoing shifts of production capacity from China and elsewhere to other markets like those
in ASEAN. In the context of this report, Canadian firms have made substantial investments in the country over the years. In
2019, manufacturing investments from Canada poured into three key markets in the region, namely Vietnam (USD25 billion)
Singapore (USD22 billion, 2018 latest available), and Indonesia (USD10 billion).21
At a more granular level, financing remains a potent challenge for private sector investments, particularly those that will support
the purchase, research, and adoption of advanced manufacturing technologies. A broad range of MSMEs still lacks access to
formal credit. For larger firms, while the government offers incentives to priority sectors for foreign investments, there is
currently no comprehensive incentives menu such as tax exemptions, subsidies, and funding support for Industry 4.0
technology adoption. Furthermore, export financing is limited to domestic enterprises which could explain the stunted growth
of high-technology exports over the years. 22
15
http://science-gate.com/IJAAS/Articles/2021/2021-8-7/1021833ijaas202107006.pdf
16
https://www.worldbank.org/en/country/malaysia/publication/malaysias-digital-economy-a-new-driver-of-development
17
Intercedent Asia. (February 2021). Industry 4.0 in ASEAN: Opportunity Assessment for Canadian Suppliers.
18
https://www.kemenperin.go.id/download/19347
19
Intercedent Asia. (February 2021). Industry 4.0 in ASEAN: Opportunity Assessment for Canadian Suppliers.
20
Intercedent Asia. (February 2021). Industry 4.0 in ASEAN: Opportunity Assessment for Canadian Suppliers.
21
Intercedent Asia. (February 2021). Industry 4.0 in ASEAN: Opportunity Assessment for Canadian Suppliers.
22
https://www.kemenperin.go.id/download/19347
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
Indonesia also faces significant headwinds on its capacity development. Industry observers have noted the lack of appreciation
on the part of both the government and private sector on the importance and future role of digital skills. As such, reskilling and
upskilling are failing to keep pace with the dynamics of digital technology in the country resulting in limited talent availability
and persistent gaps between the quality of the country’s education system and the needs of the industry.23 Another capacity
constraint is Indonesia’s current state of infrastructure whereby the lack of significant infrastructure investments in recent years
has resulted in an uneven infrastructure network.24 This problem is compounded with the archipelagic nature of the country
which increases the costs of doing business, particularly in logistic needs and connectivity challenges.
Consultations with industry stakeholders also highlighted the country’s relatively rigid regulatory environment towards foreign
investments. Some key concerns include the mandatory local content requirements across different manufacturing activities,
the overly broad product coverage of halal certification rules, high minimum foreign investment thresholds, and the current
export ban on raw materials. While the government has drawn such measures in a bid to protect the local industry, especially
MSMEs, they are likewise seen as potential impediments to attracting foreign investments. Lack of strong public-private
engagement in the trade policy formulation process also remains a sticking point for the foreign business community.25 As
such, foreign firms, including those from Canada, often put a high amount of paid-up capital as well as compliance costs to
fully enter the Indonesian market. In other cases, they would simply look for alternative markets in the region with a relatively
more favorable and stable regulatory environment.
b. Sector-specific Barriers
This section provides a brief overview of domestic regulatory policies that could act as trade barriers to each identified priority
sector. Industry 4.0 technologies that may likely be affected by such regulations are also included to provide a better illustration.
Priority sector Technology that Trade barriers and implications to foreign suppliers
may be affected
Additive manufacturing AI AR/VR Automation Big data analytics IoT Robotics Virtual modeling
Aerospace Not applicable Standards and technical regulations
As of writing, there are no standards or technical regulations specific to Industry
4.0 technologies or such applications in the aerospace sector in Indonesia.
Nevertheless, firms should closely monitor regulatory developments, particularly
from the national standard-setting authority, Badan Standardisasi Nasional
(BSN), to mitigate any compliance risks as the government has acknowledged
the role of Industry 4.0 in its ongoing efforts to introduce reforms in its
standardization policies.26
Restrictions in purchase or adoption of capital goods/equipment and/or
foreign technology
Local content requirements: Certain product groups manufactured in
Indonesia are subject to minimum local sourcing requirements. While the
aerospace sector is not explicitly included, some equipment used in aerospace
manufacturing are affected such as computing machinery and parts and
accessories; (ii) parts for TV, radio and telephone equipment; and radar and
radio apparatus; (iii) other transport equipment and parts; (iv) television and
radio transmitters; television, video and digital cameras; telephone sets, and; (v)
internet telecommunications services.27 To mitigate any compliance risks arising
from LCRs, foreign companies could require their local content partners to
undertake appropriate integrity diligence and contractual obligations, among
other strategies, to ensure goods meet the minimum local content thresholds. It
is important to note that such measures could increase compliance costs for
both firms and ultimately result in higher prices of goods.
23
https://www.adb.org/sites/default/files/publication/671876/benefits-industry-skills-development-indonesia.pdf
24
https://www.adb.org/sites/default/files/publication/575806/innovate-indonesia-unlocking-growth.pdf
25
Consultations by project implementers with industry stakeholders
26
https://www.iso.org/files/live/sites/isoorg/files/news/Events/docs/NSS_Indonesia.pdf
27
https://www.oecd-ilibrary.org/finance-and-investment/oecd-investment-policy-reviews-indonesia-2020_b56512da-en
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
Priority sector Technology that Trade barriers and implications to foreign suppliers
may be affected
Additive manufacturing AI AR/VR Automation Big data analytics IoT Robotics Virtual modeling
Restrictions on used capital goods: Manufacturers in Indonesia are allowed
to import second-hand capital goods to be used in electronics, machinery, and
transport industries. Given the limited coverage of product groups, foreign firms
providing used technology as a capital good should review if their equipment is
eligible as it is worth noting that HS Code 88 on “Aircraft, spacecraft, and parts
thereof” is not included in the current list of covered product groups.28
Extractives Not applicable Standards and technical regulations
As of writing, there are no standards or technical regulations specific to Industry
4.0 technologies or such applications in the extractives sector in Indonesia.
Nevertheless, firms should closely monitor regulatory developments, particularly
from the national standard-setting authority BSN to mitigate any compliance
risks as the government has acknowledged the role of Industry 4.0 in its ongoing
efforts to introduce reforms in its standardization policies.29
Restrictions in purchase or adoption of capital goods/equipment and/or
foreign technology
Data localization requirements: Data collection in certain economic activities
may be subject to Indonesia’s data localization requirements. For instance,
those involved in energy and mineral resources are required to have physical
electronic systems inside the country. See Digital Barriers for more details.
Local content requirements: Certain product groups manufactured in
Indonesia including machinery for mining, quarrying, and construction, and parts
thereof are subject to minimum local sourcing requirements.30 To mitigate any
compliance risks arising from LCRs, foreign companies could require their local
content partners to undertake appropriate integrity diligence and contractual
obligations, among other strategies, to ensure goods meet the minimum local
content thresholds. It is important to note that such measures could increase
compliance costs for both firms and ultimately result in higher prices of goods.
Restrictions on imported goods: Mining companies in Indonesia can only
directly import foreign equipment and raw materials if local goods are
unavailable and if such foreign goods being locally sold in Indonesia are deemed
substandard and low in supply. Together with the LCRs, this requirement could
adversely affect the continuous supply of advanced manufacturing equipment
not easily available in the domestic market but necessary for advancing Industry
4.0 applications in the sector.31
Restrictions on used capital goods: Manufacturers in Indonesia are allowed
to import second-hand capital goods to be used in electronics, machinery, and
transport industries. Given the limited coverage of product groups, foreign firms
providing used technology as a capital good should review if their equipment is
eligible since certain mining equipment and machinery are included.32
General Not applicable Standards and technical regulations
manufacturing
As of writing, there are no standards or technical regulations specific to Industry
4.0 technologies or such applications in the manufacturing sector in Indonesia.
Nevertheless, firms should closely monitor regulatory developments, particularly
from the national standard-setting authority BSN to mitigate any compliance
28
http://www.apbi-icma.org/uploads/files/KUMPULAN%20FOTO/HBA/Translated_Permendag_118_Th._2018.pdf
29
https://www.iso.org/files/live/sites/isoorg/files/news/Events/docs/NSS_Indonesia.pdf
30
https://www.oecd-ilibrary.org/finance-and-investment/oecd-investment-policy-reviews-indonesia-2020_b56512da-en
31
http://www.apbi-icma.org/uploads/files/old/2018/06/PERMEN-ESDM-25-Tahun-2018-English-Version-.pdf
32
http://www.apbi-icma.org/uploads/files/KUMPULAN%20FOTO/HBA/Translated_Permendag_118_Th._2018.pdf
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
Priority sector Technology that Trade barriers and implications to foreign suppliers
may be affected
Additive manufacturing AI AR/VR Automation Big data analytics IoT Robotics Virtual modeling
risks as the government has acknowledged the role of Industry 4.0 in its ongoing
efforts to introduce reforms in its standardization policies.33
Restrictions in purchase or adoption of capital goods/equipment and/or
foreign technology
Local content requirements: Certain product groups manufactured in
Indonesia are subject to minimum local sourcing requirements, in some cases
as a condition for manufacturers to avail government support. For example,
manufacturers of electric vehicles are eligible to access fiscal and non-fiscal
incentives if they meet the LCR of at least 35 percent for vehicles with four or
more wheels and at least 40 percent for two- or three-wheelers. In
pharmaceutical and medical equipment, contents used during R&D stage should
be at least 25 percent sourced locally and at the production process shall be at
least 35 percent. Another separate regulation also requires 4G
telecommunication devices to fulfill a 30 percent LCR but also offers reduction of
sourcing requirements depending on the size of foreign investment. In the case
of investments worth at least USD77 million, the LCR would be scrapped.34 To
mitigate any compliance risks arising from LCRs, foreign companies could
require their local content partners to undertake appropriate integrity diligence
and contractual obligations, among other strategies, to ensure goods meet the
minimum local content thresholds. It is important to note that such measures
could increase compliance costs for both firms and ultimately result in higher
prices of goods.
Import licensing requirements: Indonesia maintains non-automatic import
licensing requirements on a broad range of products including electronics which
may be critical in aiding Industry 4.0 technologies. This means importers must
meet additional criteria to be able to bring goods such as cell phones, handheld
computers, and tablets inside the country to the point that most firms may find
the process burdensome. For example, importers of such electronic devices
must have at least three distributors to qualify for an importer license since they
are not permitted to sell the same goods directly to retailers or consumers. Other
regulations also require 4G device importers to provide evidence of contributions
to the development of the domestic device industry or cooperation with domestic
manufacturing, design, or research firms. Exporters of information and
communication technology (ICT) goods should work closely with their
counterparts in Indonesia on developing a compliance strategy to meet such
requirements and avoid incurring penalties.35
Restrictions on manufactured goods: Only a handful of industries are allowed
to import manufactured goods in the form of complementary goods, goods for
the purpose of market testing, and goods for after-sales service. They include
those in the (i) maritime, transportation equipment, and defense equipment
industry; (ii) electronics and telematics industry, and; (iii) textile, leather, and
footwear industry, among others. Foreign suppliers should review whether their
target industry allows them to import such materials.36
Restrictions on used capital goods: Manufacturers in Indonesia are allowed
to import second-hand capital goods to be used in electronics, machinery, and
transport industries. Given the limited coverage of product groups, foreign firms
33
https://www.iso.org/files/live/sites/isoorg/files/news/Events/docs/NSS_Indonesia.pdf
34
https://www.oecd-ilibrary.org/finance-and-investment/oecd-investment-policy-reviews-indonesia-2020_b56512da-en
35
https://www.privacyshield.gov/article?id=Indonesia-Prohibited-Restricted-Imports
36
https://www.globalcompliancenews.com/2021/08/18/indonesia-minister-of-trade-imposes-more-restrictions-on-the-import-of-finished-products-by-
manufacturers-is-it-time-to-restructure-02082021-2/
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
Priority sector Technology that Trade barriers and implications to foreign suppliers
may be affected
Additive manufacturing AI AR/VR Automation Big data analytics IoT Robotics Virtual modeling
providing used technology as a capital good should review if their equipment, as
well as the nature of their local clients or partners, are eligible. It is important to
note that only direct user companies, reconditioning companies, and
remanufacturing companies in Indonesia can import second-hand capital
goods.37
c. Digital Barriers
This part provides a general overview of policies related to digital trade in Indonesia. While not exhaustive, the following
domestic regulatory landscape offers insights on the likely effects of such digital trade barriers to Canadian businesses
providing goods and services related to Industry 4.0.
Trade barriers Description Potential implications
Cross-border data flow In general, organizations are prohibited to transfer The current regulatory framework
restrictions personal data outside Indonesia without the consent on cross-border data transfer is
of the data subject and permission from the Ministry governed by different rules while
Government Regulation of Communication and Informatics or an authorized the government deliberates on
No. 71/2019: government agency.38 putting in place an overarching
Implementation of data privacy law.
Electronic Systems and Moreover, a proposed data privacy law seeks to allow
Transactions the cross-border transfer of personal data if (i) the In its current form, the proposed
receiving destination has adequate data protection Personal Data Protection Act is
Minister of Communication laws; (ii) if there is a treaty between Indonesia and the silent as to whether it will revoke
and Informatics Regulation recipient country which allows data transfer; (iii) if or amend the current
No. 20/2016: Personal there is a data transfer agreement for the transferor to requirements and conditions of
Data Protection in impose equivalent or higher data protection how cross-border data flow should
Electronic Systems obligations on the transferee; or (iv) if consent is be made under the existing
collected.39 regulations.40 Firms should closely
Proposed Personal Data monitor this development in order
Protection Act to align their corporate data
privacy rules with government
requirements.
If the current language of the draft
law was approved in the final
version, Canada-based firms
could transfer data in and out of
Indonesia as long as they meet
one of the conditions. It is
important to note that there is no
existing bilateral data transfer
agreement between Canada and
Indonesia to date. And while there
is an existing Asia-Pacific
Economic Cooperation (APEC)
Cross-Border Privacy Rules
(CBPR) System, which could help
firms to certify their data privacy
and transfer management
37
http://www.apbi-icma.org/uploads/files/KUMPULAN%20FOTO/HBA/Translated_Permendag_118_Th._2018.pdf
38
https://sites-herbertsmithfreehills.vuturevx.com/208/26111/compose-email/cross-border-data-transfers--an-indonesian-law-update.asp
39
https://rouse.com/insights/news/2021/data-privacy-q-a-indonesia
40
https://sites-herbertsmithfreehills.vuturevx.com/208/26111/compose-email/cross-border-data-transfers--an-indonesian-law-update.asp
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
Trade barriers Description Potential implications
systems at par with international
standards, only Canada is a party
to the CBPR System even though
both countries are APEC
members.
Data localization The current policy framework requires certain sectors Studies have shown the economic
requirements in Indonesia that keep “strategic electronic data” to costs of data localization
set up physical data storage systems in the country. measures in key developing
Government Regulation These industries which are deemed to hold “strategic markets including Indonesia. A
No. 71/2019: electronic data” include those in the government, recent estimate pointed out the
Implementation of energy and mineral resources, transportation, finance, cost of data residency
Electronic Systems and healthcare, information technology and requirements would reduce
Transactions communication, food, defense, and other sectors as Indonesia’s GDP by -0.1
may be identified by the president.41 percent.42
However, it is important to keep in mind that the The language of the regulation is
regulation also stipulates those businesses, also either vague or broad and
regardless of whether they fall under Indonesia’s data firms may need to seek
residency rules, should allow government clarification with legal experts and
“supervision” including granting access to electronic the government to prevent
systems and data for monitoring and law enforcement incurring penalties. For instance,
purposes. “strategic electronic data” is not
clearly defined in the regulation.
Data privacy and To date, Indonesia manages its data privacy through It was widely reported that the
protection laws a patchwork of regulations including that governing government initially targeted the
public information, financial transactions, and enactment of the proposed bill by
Electronic Information and healthcare-related data. This is because it has yet to end-2021 but the ongoing
Transactions Law No. pass into law an overarching data privacy regime in pandemic could delay such
19/2016 the country.43 implementation.
Law on Health No. As a general rule, organizations are required to Furthermore, given the absence
36/2009 secure the consent of data subjects to process their of a data protection authority as of
personal data. However, the existing regulations allow writing, the responsibility to
Government Regulation data processing without the consent of data subjects monitor and regulate data
No. 71/2019: in certain circumstances. In contrast, the proposed protection is shared by different
Implementation of law seeks to require the consent of owners to process agencies depending on the sector
Electronic Systems and personal data. with the Ministry of
Transactions Communication and Informatics
To date, the Electronic Information and Transactions as the de facto lead agency. This
Minister of Communication Law No. 19/2016 is the main reference point for data creates confusion among
and Informatics Regulation privacy and personal data protection while a proposed businesses as to which agency to
No. 20/2016: Personal law is under deliberation. approach when data privacy
Data Protection in issues emerge.
Electronic Systems
Minister of Health
Regulation No.
269/MENKES/PER/III/200
8
Proposed Personal Data
Protection Act
Digital services tax Foreign digital providers are required to charge 10 Foreign digital providers that
percent value-added tax (VAT) on the supply of digital conduct online trade or
41
https://www.globalcompliancenews.com/2019/11/07/indonesia-new-regulation-electronic-systems-transactions-20191028/
42
https://www.brookings.edu/wp-content/uploads/2018/03/digital-economy_meltzer_lovelock_web.pdf
43
https://rouse.com/insights/news/2021/data-privacy-q-a-indonesia
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
Trade barriers Description Potential implications
Government Regulation in goods or services in Indonesia or to Indonesian transactions will have to ensure
Lieu of Law No. 1/2020 customers outside the country. Furthermore, digital their administrative processes can
providers who meet certain criteria may be appointed handle the VAT collection,
Minister of Finance by tax authorities as a VAT collector who must submit reporting, and settlement
Regulation No. 48 of 2020 quarterly electronic reports on the VAT collection.44 requirements. They include any
foreign firms that supply intangible
goods or services, e-commerce
operators, or e-commerce
players. The scope of foreign
intangible goods and services
stretches out to cover almost
every possible usage that can be
delivered in a digitalized format
which could potentially affect firms
selling Industry 4.0-aiding
technologies online.45 As such,
customers should expect price
increases of around 10 percent or
higher than current prices for any
such goods or services sold.
Subject to administrative
procedures, Canada-based
contractors should also review the
existing tax treaty between
Canada and Indonesia and see
how they can claim tax relief.
Source code disclosure Service providers developing any software for a Policies requiring the disclosure of
government agency are required to submit the source source codes are often pursued
Government Regulation code and documentation of the software concerned on national security grounds.
No. 82/2012: Electronic either to the government agency itself or a third While this may be reasonable,
Systems and Transactions party.46 foreign technology providers may
Operation be wary to bring in their services
On a related note, it is noteworthy to keep in mind that in the country for fear of
the government introduced a draft regulation in 2015 intellectual property (IP) theft and
seeking to require firms to disclose source code if cybercrime. This may also
they supply services related to public services as a potentially impede the security of
condition for market access. However, there has been proprietary information as well as
no significant development on this issue since then.47 impair the safety and reliability of
information technology systems.48
Technology transfer Indonesia’s patent law has a local manufacturing While technology transfer is not a
requirements requirement. Patent holders are obliged to precondition for market entry,
manufacture products or use patented processes in except for pharmaceuticals, the
Patent Law No. 13/2016 the country to encourage technology transfer and law’s provisions could prevent the
foster domestic innovation. Failure to comply will patenting of products that are not
result in the revocation of the patent or the issuance manufactured in Indonesia.
of a compulsory license that will allow others to
produce or use the patented technology.49 As for the pharmaceutical sector,
foreign firms can be barred from
Separate regulations require foreign pharmaceutical the local market even if they are
companies to manufacture locally or entrust a market leaders in globally
company already registered as a manufacturer in recognized good manufacturing
44
https://conventuslaw.com/report/indonesia-digital-services-tax/
45
https://www.internationaltaxreview.com/article/b1ngz37n2ts6ct/taxing-the-digital-economy-in-indonesia
46
http://www.cuts-geneva.org/pdf/WTOSSEA2018-Study-Data_Flows_Localisation_Source_Code.pdf
47
https://www.usitc.gov/publications/332/pub4716.pdf
48
https://ecipe.org/wp-content/uploads/2018/10/TDS2018-BriefingNote_AI_Trade_Policy.pdf
49
https://ecipe.org/dte/database/
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CONFIDENTIALMarket Study on Industry 4.0 Trade Obstacles in ASEAN
Trade barriers Description Potential implications
Indonesia to obtain drug approvals for them. For and distribution practices and
instance, current rules contain a technology transfer provide high-quality
requirement and require local manufacturing in pharmaceutical products to
Indonesia of all pharmaceutical products that are five Indonesian patients.
years past patent expiration.50
The requirement to locally
manufacture or authorize local
counterparts to obtain regulatory
approvals on their behalf could
also risk providing proprietary
technology to potential domestic
competitors.
Thailand
a. Country-specific Barriers
Thailand is a regional industrial powerhouse with a strong automotive manufacturing base that underpins a sizeable part of its
broader manufacturing sector. In comparison with its neighbors, Thailand has made significant policy strides to prepare itself
for digital transformation being one of the first countries in the region to unveil a national strategy focused on responding to
the challenges of the Fourth Industrial Revolution.
Under its “Thailand 4.0” initiative, the Kingdom aims to revamp its current industrial policy towards a more innovation-driven
economic model. The government will also further develop its current industry clusters (i.e. agriculture and biotechnology,
automotive, electronics, food, medical and wellness tourism) and scale up new ones (i.e. aviation and logistics, biofuels and
biochemicals, digital industry, robotics).51
While Thailand has seen rapid progress in this area, capacity constraints persist that could hinder its potential as well as
productivity. In general, a large segment of the country’s manufacturing activities is still involved in the low end of the value
chain.52 In other words, the Kingdom remains an assembler and producer of lower value-added items as compared with other
more relatively industrialized countries which can build and export high-technology goods. For instance, while its automotive
industry is a prime user of robots, digitalization is still nascent elsewhere risking the adoption and diffusion of Industry 4.0
technologies in its wider manufacturing sector. A 2021 government report shows that only 25 percent of factories in Thailand
currently use robotics, automation, and system integration.53
R&D is also an essential pillar of the government’s digital transformation agenda for its large manufacturing base. However,
public spending on R&D remains low accounting for only around 1.1 percent of its GDP. Most of the funds are traditionally
channeled to its key growth sectors and not widely distributed to other industries which may otherwise require significant public
investments for the necessary Industry 4.0 transition.54
Despite increasing wages over the years, the country’s talent pool falls short when it comes to Industry 4.0 readiness adversely
affecting the modernization of its manufacturing sector. As indicated in the first study, the education system lacks resources,
and there is no strong government-led coordination. Consequently, there is a lack of awareness among the workforce, which
in turn results in low domain expertise and insufficient numbers of knowledge workers.55
Furthermore, the quality of transport and logistical infrastructure remains relatively insufficient to fully realize the country’s
potential as a regional hub. 56 It is noteworthy to point out that the government has launched a comprehensive infrastructure
development plan to address the persistent infrastructure gap both in its urban centers and the countryside. 57 More still needs
to be done to address these underlying concerns to ensure Thailand’s competitive edge and fully develop itself as a regional
hub for advanced manufacturing.
50
https://www2.itif.org/2012-international-tech-transfer-testimony.pdf
51
https://www.boi.go.th/upload/content/Thailand,%20Taking%20off%20to%20new%20heights%20@%20belgium_5ab4f8113a385.pdf
52
Intercedent Asia. (February 2021). Industry 4.0 in ASEAN: Opportunity Assessment for Canadian Suppliers.
53
https://www.bangkokpost.com/business/2193091/bid-to-boost-tech-among-small-manufacturers
54
Intercedent Asia. (February 2021). Industry 4.0 in ASEAN: Opportunity Assessment for Canadian Suppliers.
55
Intercedent Asia. (February 2021). Industry 4.0 in ASEAN: Opportunity Assessment for Canadian Suppliers.
56
https://www.stimson.org/2021/thailand-country-profile/
57
https://www.pwc.com/th/en/deals/assets/pwc-th-infrastructure-market-update-and-outlook.pdf
15
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