The law, including the new Manpower Act, provides for collective bargaining, and the Manpower Ministry promoted it within the context of Pancasila. The law allows for workers' organizations that register with the Government to conclude legally binding collective labor agreements (CLAs) with employers and exercise other trade union functions. In companies without unions, the Government discouraged workers from utilizing nongovernmental outside assistance, such as during consultations with employers over company regulations. Instead, the Manpower Ministry preferred that workers seek its assistance and stated that its role was to protect workers. However, there were credible reports that for many domestic and foreign-owned companies, ministry consultations with workers were perfunctory at best and usually only occurred with management-selected workers.

According to the Manpower Ministry, as of October, there were 9,097 CLAs in effect between unions and private companies. According to this data, 25 percent of companies with over 10 employees had collective labor agreements. Company regulations, allowed for under government regulations, substituted for CLAs in another 36,170 companies, many of which did not have union representation. In addition, there were 59 labor agreements in effect between unions and state enterprises, and another 65 agreements between non-unionized workers and state enterprises. The new Manpower Act requires that employers and workers form bipartite bodies (joint employer/worker committees), but the Manpower Ministry did not complete implementing regulations and the number of bipartite bodies did not increase significantly.

The new Manpower Act stipulates that if CLA negotiations are deadlocked, the Institution for Industrial Relations Dispute Settlement should settle the matter. According to regulations, agreements are for 2 years and can be extended for 1 year. According to NGOs involved in labor issues, the provision of collective bargaining agreements in practice often did not go beyond the legal minimum standards established by the Government, and employers often presented the agreements to worker representatives for signature rather than negotiation.

All workers, whether or not they are union members, have the legal right to strike, except for public sector workers and those involved in public safety activities. The law allows workers in these categories to carry out strikes only if such actions would not disrupt public interests or endanger public safety. State enterprise employees rarely exercised the right to strike, but private sector strikes were common. Unions or workers' representatives must provide 7 days notice in order carry out a legal strike. The law calls for mediation by local Manpower Ministry officials, but does not require government approval of strikes. In previous years, workers and employers rarely followed dispute settlement procedures in practice and workers rarely gave formal notice of the intent to strike because Manpower Ministry procedures were slow and had little credibility among workers. At year's end, it was unclear whether passage of the Manpower Act would change this situation.

During the year, strikes occurred across a wide range of industries, but declined in frequency. From January to October, the Manpower Ministry recorded 134 strikes involving 56,464 workers, continuing a steady decline since 2000. Observers speculated that depressed economic conditions, fears of job loss, and gradual worker and employer adjustment to the new labor relation's environment contributed to the decline in strikes. The vast majority of Government-recorded strikes involved nonunion workers.

During the year, police and prosecutors in Bandung dropped legal action against and released from custody five labor activists arrested in September 2002 during protests over pending labor legislation.

On March 23, an independent union representing former employees at the Shangri-La Hotel in Jakarta settled a long-standing dispute stemming from a 2000 strike that included violence against workers, detention of workers, and the dismissal of some 580 employees. Worker representatives had brought this case before the ILO, which criticized the Government's response and called for the hotel to reinstate the employees. As part of the settlement, 72 union members, who had not accepted a previous severance package, reportedly received payments equivalent to 4 to 6 years' salary. The hotel also dropped its civil suit against union leaders, and in return, the union dropped its suit seeking reinstatement of the workers.

The Solidarity Center documented cases in which foreign employers in the garment and footwear industry, representing Korean, Japanese, Chinese, and Taiwanese owners, fled the country as the industry contracted in order to avoid making legally required severance payments to workers. One such case involved the garment factory P.T. Elaine, whose Taiwanese managing partners left the country without making wage and severance payments to 300 workers. Subsequently, workers occupied the factory in an attempt to guarantee that proceeds from the sale of equipment would be used to compensate workers.

Labor activists also reported that factory managers in some locations employed persons to intimidate and assault trade union members who attempted to organize legal strike actions. According to detailed trade union accounts, the management of agro-business PT First Mujur Plantation and Industry (PT FMPI) in North Sumatra hired 100 persons to prevent a legal strike action announced by the SBSI union for November 12. SBSI planned the strike to protest unpaid wages and other violations of labor law. On November 11, these persons abducted and severely beat 5 trade union leaders. On November 12, they delivered the union leaders to a local police station, where police began investigating charges against the labor leaders for inciting criminal activity. By November 15, the police released the labor leaders and did not pursue criminal charges. The SBSI leaders dropped their protests and demands against PT FMPI.

Thousands of employees from the state-owned aircraft manufacturer P.T. Dirgantara Indonesia held demonstrations in Bandung and Jakarta from July through October, following the company's announcement of a 6-month shutdown with reduced pay for 6,000 workers. Union leaders, supported by the Manpower Ministry, argued that the shutdown violated legal requirements for bipartite consultations with workers.

Since 1996, unions affiliated with the KSPSI could collect union dues directly through payroll deductions (the "check-off" system), rather than having the Manpower Ministry collect dues and transfer them to the KSPSI. Implementation of this system remained uneven. Unions other than the KSPSI alleged difficulties in having companies set up a check-off system for their members.

The police and military continued to intervene in labor matters, usually to protect employers' interests, although a shift away from open intervention and demonstrations of force by uniformed troops to less visible measures continued. In June, four police detectives in Surabaya allegedly abducted and beat three workers from the PT Maspion Company in an attempt to force them to confess to stealing company merchandise. The East Java police arrested the detectives following complaints from the workers. However, the police accepted an ILO worker rights training program initiated during this period.

Regional and national labor dispute resolution committees adjudicated charges of anti-union discrimination, and their decisions could be appealed to the State Administrative Court. However, due to a history of adverse decisions for labor and the long time necessary to process disputes, sometimes requiring years, many unions believed that these committees were not realistic alternatives for settling disputes. As a result, workers frequently presented their grievances directly to KOMNASHAM, the DPR, or NGOs. Administrative decisions in favor of dismissed workers usually took the form of monetary awards, but rarely reinstated workers. The law required that employers obtain the approval of the labor dispute resolution committee before firing workers, but employers often ignored the law in practice. On December 16, the DPR enacted the Labor Disputes Act, which mandates the establishment of substantially new dispute settlement procedures, including a system of labor courts. The ILO assisted the Government in the development of the Act.

There are seven bonded, or export processing zones (EPZs), in the country. The labor laws apply in EPZs, although nongovernmental observers believed there was stronger anti-union sentiment in EPZs. Working conditions in Batam's modern export electronics sector appeared better than the national average. In recent years, unions had increased success in organizing plants and negotiating with companies in the Batam EPZ. The Indonesian Metalworkers' Union (SPMI) succeeded in establishing a regional office and organizing some 7,000 workers in Batam during this period. However, trade unions in Batam raised concerns over insufficient wages, excessive overtime, and employer opposition to organizing efforts, including reprisals against workers who attempted to form unions.