Introduction

Local content requirements (LCRs) have been used by many countries, both developed and developing, to promote the use of local inputs and support the growth of domestic industries. LCRs applied to primary products are often intended to encourage higher value-added activities, with the aim of promoting indigenous management skills and technological knowhow. This chapter focuses on important recent LCR policies in the world's two largest economies, the United States and China. Indonesia is interesting for our purposes because its laws and regulations include a variety of LCR policies and because it provides a test case for the consistency of such policies with the rules agreed by members of the World Trade Organization (WTO). It begins with a typology of LCRs that distinguishes mandatory measures from incentives-based policies and supply-side policies from demand-side policies. The LCR in the oil and gas sector is estimated to increase the consumer price by 0.4% and thus reduce consumer welfare.