protection levels were still providing incentives for export of raw materials and if increased 

incentives to industrialize the economy were still being provided.  

Indonesia s trade policy deregulation became a series of NRMP studies, where each 

subsequent study attempted to build on the findings of the previous studies.  One study focused 

on changes to nominal rates of protection to determine how changes in Indonesia s system of 

tariff protection impacted the natural resources base over the past twenty years (NRMP Report 

No. 26).  This study also predicted the natural resources management implications of alternative 

tariff protection scenarios over the period of the second long term development plan.  The study 

findings showed what direction of change is required within the deregulation process to better 

link policy with planning objectives. 

Indonesian research graduates assisted with this study by estimating both nominal and effective 

levels of protection within the Indonesian economy.  Levels of nominal tariff rates and effective 

rates of protection from 1981 to 1993 indicated significant change to the levels of provided 

incentives.  The tradable sectors experienced declines in the level of nominal protection from an 

average of 22% to 13%, with effective protection reductions from 29% to 15%.  Most 

importantly, the effective rate of protection for manufacturing declined from 101% in 1981 to 

44% in 1993.  This compares with 41% and 19% for the primary sectors and 7% and 8% for the 

mining sectors over the same time period. 

While these declines are significant, it is the relativity of protection that is most important.  

During the period of deregulation, dispersion within nominal tariff rates was "cascaded", in the 

sense that goods derived from the finished tradable goods sector received higher levels of 

protection than goods derived from the semi finished and raw material tradable goods sectors.  

For example, textiles and footwear had tariff rates of approximately 24% in 1991, mining 0.92% 

and petroleum negative 45%.  By 1993, levels of offered protection still retained strong 

incentives to export raw materials rather than value added manufactured goods. 

Effective protection levels also reflected a high cascading effect with a definite bias against the 

export of manufactured goods.  The cascading nature of protection indicated that Indonesia s 

trade protection policy in 1993 was still inconsistent with the GOI s stated goals of economic 

development, its objectives for economic development planning, and the constitutional 

requirements for sustainable development.  

Effective protection levels influence the incentive structure, which drives resource flows into and 

out of sectors, and thereby have an impact on the use and management of natural resources, 

including forests.  Both the nominal and effective rates of protection for sectors in the 

Indonesian economy in 1991 showed a bias towards higher protection for manufactured versus 

agricultural sectors, and for import competing versus export competing sectors. 

The NRMP study found that protection was still highly cascaded from the finished to raw 

material sectors.  For example, within the forestry and wood based sectors, there was a bias 

towards higher protection of more processed goods.  Wood and other forest products received 

negative effective protection, whereas the manufactured wood products received significantly 

high levels of effective protection, in some cases nearly 100%.  Among the manufactured wood 

products, the source of high effective protection differs.  For plywood, which was not protected 

by nominal tariffs (1.1%), the source was the subsidy received on wood inputs that arose from 

the export ban on logs and restrictions that necessitated concessionaires to have access to 

downstream log processors.  For other manufactured wood products, the high level of effective 

protection arose from the high tariff on their outputs. 

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