The Indonesian Ministry of Defence (MoD) has outlined an objective to enhance foreign engagement with in-country countertrade and offset requirements in 2021 to support the development of national industries.
The MoD said in recently published targets for 2021 that during the year it aims to “enhance promotion of co-operation” between local firms and foreign contractors in the defence sector.
The MoD said such co-operation will be geared towards “increasing industry capability” and will be channelled into three activities: countertrade, local content, and offsets.
These activities reflect Indonesian legal requirements, which were enacted in 2012 to support foreign defence contractor engagement with local industry.
Under this legislation – UU No.16 2012 on the Defence Industry (otherwise known as ‘Law 16’) – the existence of countertrade, local content, and/or offset can be worth no less than 85% of the value of the main defence contract. Of this 85%, 50% should be through countertrade and 35% should be through local content/offsets.
Countertrade includes both defence and commercial products. In the commercial sector, Indonesia favours the countertrade of products including palm oil, rubber, machinery, coffee, cocoa, textile products, tea, footwear, fish, furniture, fruits, plastics, resins, paper, and spices.
Local content encompasses local manufacturing activity – including components, structures, and systems – related to the main defence contract and also exports into foreign supply chains. Offsets include foreign technology transfers into Indonesia to support work on production and sustainment.
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