Apple's Latest Smartphones Still Banned in Indonesia

Squabble over local content leads to government veto

By: Ainur Rohmah

The Indonesian government has upheld its ban on the sale of Apple Inc.’s latest iPhone 16 model following failed negotiations, citing the tech giant’s failure to meet the country’s mandatory local content requirements. As of the end of January, the sleek 18th-generation device remains unavailable in the Indonesian market, marking a continued standoff between Apple and regulatory authorities.

The local content policy, which mandates that a portion of products sold in Indonesia must be sourced or produced domestically, is part of the government’s broader strategy to boost local manufacturing and reduce reliance on imports. Officials have emphasized that compliance with these regulations is non-negotiable, even for global tech leaders like Apple. This decision underscores Indonesia’s commitment to strengthening its domestic industries, though it has left consumers and tech enthusiasts awaiting clarity on when—or if—the iPhone 16 will be approved for sale in the country.

Apple reportedly offered a $1 billion investment proposal during a meeting with the Ministry of Industry in early January, but that was rejected due to concerns over fairness and alignment with the government’s expectations. The government insists that Apple establish local production facilities in line with the practices of its competitors although critics argue that Indonesia's investment climate is not sufficiently friendly toward foreign investors.

"Hopefully in the next week or two, this problem can be resolved," said Investment and Downstream Minister Rosan Roeslani according to Bloomberg on January 21.

The tension between the two sides stems from the Indonesian government's belief that Apple hasn’t fulfilled its 2020-2023 investment commitments, only realizing Rp1.4 trillion (US$8.6 million) of its promised Rp. 1.7 trillion ($10 million) investment. Unlike other smartphone companies, which have invested in local production facilities, Apple has primarily focused on establishing the Apple Developer Academy, a training bootcamp aimed at enhancing IT skills among the public. That was intended to satisfy the country’s local content regulations, which stipulate that at least 40 percent of the components or production processes used by a company must originate in Indonesia.

Febri Hendri Antoni Arif, a spokesperson for the Ministry of Industry, said the government had met with Apple representatives on January 7, over Apple’s unfulfilled investment commitment and its US$1 billion investment proposal for 2024-2026, which included the establishment of an AirTag factory on Batam Island. However, the meeting ended without resolution, with the government finding the proposal lacking in fairness and incompatible with expectations. The government argued that AirTags don’t qualify as components of smartphones, computers, or tablets, and couldn’t be certified. The government is hoping Apple will eventually build a local smartphone production facility.

“There are several factors we consider in these negotiations, such as fairness, alignment with existing regulations, national dignity, and how much the investment can contribute to job creation,” Febri said.

Apple has the financial and technological capacity to meet requirements, even exceeding its competitors, Febri said. “It's just a matter of will.” Apple's Indonesian investment is much smaller than that of other Southeast Asian nations like Vietnam and Singapore, with figures around $15.84 billion and $250 million, respectively. In 2023, total sales of Apple products in Indonesia were estimated at Rp50 trillion, according to the Ministry of Industry. That has led to arguments that Apple is "underestimating" Indonesia, Southeast Asia’s largest economy.

“We believe it’s not difficult for Apple to meet the requirements. Why? Because other manufacturers have managed to do so. They (Apple’s competitors) have built production facilities here. They can produce and use the local supply chain,” Febri said. Apple didn’t respond to a request for comment.

Amid the ongoing uncertainty surrounding investment, the Ministry of Industry recently highlighted Samsung's success in meeting the local content requirement of 40.3 percent, partly through building a local factory. "This is not just about numbers, but also about strengthening the local industry, creating jobs, and transferring technology to Indonesia," the Ministry wrote in an Instagram post.

According to Ministry data, PT. Samsung Electronics Indonesia, which has a factory in Cikarang, West Java, contributed 28 percent of the national production of smartphones, handheld computers, and tablets in 2023, also exporting 1.56 million units of locally produced products to ASEAN countries. Samsung has also established official retail stores across Indonesia. In contrast, Apple does not yet have a factory or official stores in the country. The iPhones available in Indonesia are imported through distributors.

Criticism of TKDN Policy

The back-and-forth negotiations over compliance have sparked a broader debate about the relevance of such policies in an era of globalization. On one hand, the policy aims to protect local industries and increase domestic value-added production. On the other hand, the pressure to meet TKDN requirements is often seen as a burden on foreign investors, particularly global companies like Apple, which are accustomed to international supply chain standards.

Criticism of the local content policy has come from various parties, including the American Chamber of Commerce, which argues that the policy often leads to higher production costs due to the need to purchase more expensive or substandard local materials. The policy’s effectiveness in reducing imports is also questioned. Many affluent Indonesian consumers continue to buy Apple products from abroad, while the black market flourishes, depriving the country of tax revenues. The government is being urged to find a balance between protecting local industries and attracting foreign investment. Instead of being overly protectionist, more flexible policies focused on global collaboration could offer greater benefits.

While Indonesia enforces the protectionist policy, other ASEAN countries like Vietnam have been offering more attractive investment climates. Vietnam provides a range of incentives, such as lower taxes, easier permitting, and high-quality infrastructure. It is home to 35 Apple suppliers, far surpassing Indonesia, which only has one. Despite Indonesia’s larger domestic market, Vietnam is more competitive in integrating into the global supply chain, thanks to wide-ranging free trade agreements and a more productive labor force. Indonesia still faces structural challenges such as complicated bureaucracy, low legal certainty, and lower labor productivity.

Teuku Rifki, an economist at the Economic and Social Research Institute at the University of Indonesia, explained that the manufacturing sector is highly diverse, while the local content policy is applied uniformly. "The policy applied by the Indonesian government tends to be distorting and forced, especially with the 'restriction' on imports. Forcing import restrictions tends to harm consumers and domestic products that require imported raw materials," Teuku told a recent public discussion in Jakarta.

Another weakness is the difficult monitoring and evaluation process, which could lead to rent-seeking behavior and limit competition from the global market, ultimately harming the competitiveness of domestic products. A study by the Economic Research Institute for ASEAN and East Asia (ERIA) found that Indonesia's policy, introduced in 2004, hasn’t reduced imports and instead led to the proliferation of the black market. Rifki pointed out that several countries, including China and other ASEAN nations, are moving away from such policies and instead focusing on developing strategies to integrate their economies into global supply chains.

A report from the Centre for Strategic and International Studies (CSIS) revealed that rigid local content policies only hinder multinational corporate investment in Indonesia. Deni Friawan, an economist at CSIS, noted that Apple’s business model, which relies heavily on the global supply chain, makes it particularly challenging for the company to establish local production facilities compared to other smartphone manufacturers. Rather than enforcing stringent regulations, the government should focus on enhancing local capacity through workforce training, infrastructure development, and technology transfer. The government should also encourage and facilitate collaborations between multinational companies and local suppliers to raise production standards, the study said.