US think tank slams Indonesia for ‘protectionist’ tech laws

A US-based think tank today issued a report slamming Indonesia for “protectionist policies” that will hurt tech innovation.

The not-for-profit Information Technology and Innovation Foundation (ITIF) branded Indonesia’s smartphone prduction law for 4G devices as a protectionist move that will have repercussions around the world.

“Every nation wants to be a leader in innovation because it is the main driver of economic growth in the 21st century,” says Nigel Cory, a trade policy analyst at ITIF and author of the report (PDF link). “But using negative-sum, protectionist policies to get there hurts global innovation. In the long run, it may even damage the very countries embracing these practices because they miss out on the opportunity to raise productivity in all sectors instead of in just a few high-tech ones.”

The think tank calls the regulation one of the “10 worst manifestations of innovation mercantilism” anywhere in the world in the past 12 months.

Mercantilism is the economic theory that trade generates wealth and is stimulated by accumulating profitable balances, which a government should encourage by means of protectionism. ITIF says countries that try to expand their tech production via protectionist and trade-distorting measures run the risk of damaging tech firms around the world, and in the long run, may undermine their own interests.

See: 10 headlines that rocked Indonesia’s tech world this year

Policing people’s data

In July, Indonesia introduced policies that require 4G smartphones sold in the nation to contain 30 percent local apps and components by January 2017, rising to 40 percent in 2019. Wireless modems using 4G networks will also need minimum local production of 40 percent by 2017. The policy goes beyond manufacturing and component assembly and aims for 20 percent of the hardware and software to stem from research and development conducted inside Indonesia’s borders.

Critics of the regulation say this is wishful thinking on the part of the government as it would surely prove difficult to quantify. One major challenge is that the law would require foreign tech firms to set up design and development centers in the archipelago.

The report highlights that Indonesia also moved ahead with plans for online data to be stored on servers in the country. In mid-2015, the nation’s tech ministry released a draft regulation that implements a 2012 ecommerce law that requires local storage of data for “the purpose of law enforcement, protection, and enforcement of national sovereignty to the data of its citizens.” The law also requires the disclosure of software source code to the government.

Photo credit: RC Cipriano

Consumers will bear the burden