The Proliferation of Global Value Chains: Trade policy considerations for Indonesia

The report examines how Indonesia can optimize its role in global value chains (GVCs) to move toward higher value-adding activities. It identifies key internal governance factors, such as market diversification and standards compliance, and external factors, including labour market stability, connectivity, and contract enforceability. The author argues that GVC participation does not automatically lead to economic or social upgrading and requires a coherent strategy involving R&D, innovation systems, and the reduction of regulatory inconsistencies to ensure sustainable growth.

• Indonesia's participation in GVCs is significant, with intermediate goods making up more than 75% of its exports over the last two decades, although the import content of its exports (17.77%) is lower than that of peers like China, Thailand, and Vietnam.
• The Government of Indonesia (GoI) has used export restrictions, such as a 20% tax on 65 types of raw materials in the mining sector, to stimulate domestic downstream industry, but these measures face challenges including unrealistic timeframes and legal disputes.
• Market diversification is recommended to reduce vulnerability to demand shocks and broaden learning opportunities for domestic firms, as relying on a single buyer can limit the scope of upgrading.
• Standards compliance is a critical entry requirement for GVCs; however, the costs of certification and training are often prohibitive for smallholders, necessitating government support for conformance infrastructure.
• Indonesia's trade policy is characterized by a wide tariff overhang, with an average bound tariff of 37.5% compared to an applied tariff of 6.8%, but frequent ad hoc changes to applied tariffs create costly business uncertainties.
• Labour market volatility, including frequent strikes and disputes over minimum wages and outsourcing, is a constraint to GVC competitiveness; the report suggests balancing business profits with worker welfare through productivity improvements.
• Connectivity remains a major comparative disadvantage for Indonesia, with infrastructure quality ranked as the second lowest in Asia, affecting the timeliness of sourcing and delivering intermediate goods.
• Contract enforceability is a significant weakness, with Indonesia ranking 144th out of 185 countries in 2011, which hinders the country's ability to move into knowledge-intensive GVC segments.
• Economic upgrading (moving to higher value-added activities) does not automatically result in social upgrading and may marginalize low-skilled workers as production becomes more capital and skill-intensive.
• To achieve sustainable upgrading, Indonesia needs a stronger national innovation system, as R&D expenditure in 2009 was only 0.08% of GDP, far below the developing East Asia and Pacific average of 1.47%.

APA

Tijaja, J. P. (2012). The Proliferation of Global Value Chains: Trade policy considerations for Indonesia. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/global_value_chains_indonesia.pdf

Chicago

Tijaja, Julia Puspadewi. The Proliferation of Global Value Chains: Trade policy considerations for Indonesia. International Institute for Sustainable Development, 2012. https://www.iisd.org/system/files/publications/global_value_chains_indonesia.pdf.

Wikipedia

{{cite report |last1=Tijaja |first1=Julia Puspadewi |title=The Proliferation of Global Value Chains: Trade policy considerations for Indonesia |publisher=International Institute for Sustainable Development |date=December 2012 |url=https://www.iisd.org/system/files/publications/global_value_chains_indonesia.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{tijaja2012proliferation, author = {Tijaja, Julia Puspadewi}, title = {{The Proliferation of Global Value Chains: Trade policy considerations for Indonesia}}, institution = {International Institute for Sustainable Development}, year = {2012}, month = dec, url = {https://www.iisd.org/system/files/publications/global_value_chains_indonesia.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }