Indonesia's Textile Protection Policy: Strategic Implications for Investors in the Regional Textile and Manufacturing Sectors

Indonesia's textile industry, a cornerstone of its manufacturing base, has long grappled with the dual pressures of global competition and domestic inefficiencies. In 2025, the government introduced a suite of import safeguards-most notably Permendag No. 17/2025 and a safeguard duty regime-to shield local producers from surging cotton fabric imports. These measures, designed to curb the influx of low-cost textiles from China, South Korea, and Hong Kong, represent a strategic recalibration of Indonesia's industrial policy. For investors, the implications are twofold: a potential boost in domestic industry competitiveness and a reconfiguration of investment opportunities in Southeast Asia's textile value chain.

Policy Framework and Immediate Impact

The cornerstone of Indonesia's protectionist strategy is Permendag No. 17/2025, which took effect in August 2025. This regulation mandates that importers of textiles and textile products (TTP) secure an Import Approval (PI), undergo technical verification by independent surveyors, and submit detailed documentation before goods can enter the country. Special provisions apply to free zones, which face temporary relief but must comply with full regulations upon domestic release. Additionally, batik and batik-patterned products are subject to stricter controls, including restrictions on their circulation from free zones into the domestic market according to new import rules.

Complementing these measures, the government imposed safeguard duties on cotton woven fabric imports in December 2025, with tariffs ranging from Rp3,000 to Rp3,300 per meter in the first year. These duties, which decline annually over three years, are exempt for developing WTO members like Malaysia and Thailand but apply retroactively if origin requirements are unmet as reported. The combined effect of these policies has been a sharp reduction in cotton fabric imports. For instance, by October 2025, the industrial confidence index (IKI) for the textile sub-sector had dipped to 49.74%, reflecting a contraction driven by global trade shifts and reduced foreign competition according to analysis.

Domestic Industry Resilience and Competitiveness

The Indonesian government has set an ambitious target: 70% utilization of domestic textile capacity by late 2025. Deputy Minister of Industry Faisol Riza has expressed confidence that the import restrictions will achieve this by curbing the inflow of cheap foreign goods and redirecting demand toward local producers as stated. Early data suggests progress. For example, the textile and garment sector grew by 4.26% year-on-year in 2024, contributing significantly to GDP, while the government's "masterlist facility" incentivizes investment in R&D and vocational training to enhance long-term competitiveness according to industry reports.

However, challenges persist. The October 2025 contraction highlights vulnerabilities, including rising energy costs, logistical bottlenecks, and outdated machinery in some factories. Yet, the policy shift has also spurred innovation. Companies are increasingly adopting digitalization, energy efficiency, and sustainability practices to meet global standards, particularly as Indonesia seeks to expand into markets like the EU and Canada as noted.

Investment Opportunities and Regional Trends

For investors, the policy environment presents both risks and opportunities. The $40 billion textile market in 2025, projected to grow at a 4.29% CAGR to $49.53 billion by 2030, offers a compelling case for long-term investment according to market research. Key opportunities include:

1. Automation and Green Production: Government-backed programs are incentivizing automation and sustainable practices, reducing reliance on manual labor and aligning with global ESG trends.
2. Regional Supply Chain Integration: Industrial hubs like Subang Smartpolitan in West Java are emerging as centers for high-value, sustainable textiles, leveraging Indonesia's labor advantages and strategic trade agreements.
3. Near-Shoring of Activewear Production: Shifts in global sourcing strategies, particularly from China to Java, are creating demand for advanced manufacturing capabilities.

Moreover, Indonesia's regulatory environment has become more investor-friendly in recent months. While import controls remain tight, the government has eased restrictions on 10 key commodity groups to boost trade and investment according to the latest economic update. This duality-protectionism for textiles but openness for other sectors-positions Indonesia as a strategic hub for firms seeking to diversify supply chains.

Challenges and the Path Forward

Despite these positives, investors must navigate challenges. The 239% surge in synthetic filament yarn imports in early 2025, for instance, underscores tensions between protectionist goals and domestic demand for raw materials as reported. Additionally, the seizure of smuggled second-hand clothing in late 2025 highlights enforcement gaps that could undermine policy effectiveness according to year-end review.

To sustain growth, Indonesia must address structural issues such as high energy costs and infrastructure bottlenecks. The government's focus on automation and green production is a step in the right direction, but further reforms-such as streamlining customs procedures and enhancing vocational training-will be critical.

Conclusion

Indonesia's textile protection policy, while contentious, has begun to reshape the industry's competitive landscape. By curbing imports and incentivizing domestic production, the government is laying the groundwork for a more resilient and innovative sector. For investors, the key lies in aligning with firms that can navigate regulatory complexity, leverage sustainability trends, and capitalize on Indonesia's strategic position in Southeast Asia's textile value chain. As the industry moves toward a 70% utilization target, the rewards for early movers could be substantial-provided they are prepared to weather short-term volatility.