WORLD TRADE  
ORGANIZATION   
G/TRIMS/W/100 
6 July 2012 
 (12-3629) 
Committee on Trade-Related Investment Measures Original:   English 
  
 
INDONESIA:  CERTAIN LOCAL CONTENT PROVISIONS IN  
THE ENERGY SECTOR (MINING, OIL AND GAS)  
 
Replies to Questions from the United States
1 
 
 
 The following communication, dated 3 July 2012,  is being circulated at the request of the 
Delegation of Indonesia.  
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Questions 
 
 The United States appreciates the responses Indonesia has provided in document 
G/TRIMS/W/79 in answer to questions posed by the United States and the European Union in 
document G/TRIMS/W/70.  However, the Un ited States has ongoing concerns regarding 
Indonesia's existing law, and its draft implem enting regulations, applicable to investment 
activities in Indonesia's mineral and coal mining sector.  In particular, we have questions related to the disciplines in the Agreement on  Trade-Related Investment Measures (TRIMs 
Agreement) and the General Agreement on Tari ffs and Trade (GATT) 1994, as well as the 
General Agreement on Trade in Services (GATS).   
 
 The United States previously submitted questions to Indonesia about the 2009 Mining Law and its implementing regulations.  The la w states that operators must "prioritize" the 
utilization of local manpower a nd domestic goods and services: 
 
 Article 106 states operators "must prioriti ze the utilization of local manpower 
and domestic goods and services in acco rdance with laws and regulations." 
 Article 102 states that "an operator must increase the value added of mineral 
and/or coal resources in carrying out mining, processing, and refining and 
utilization of the materials and coal." 
 Article 103.1 states that "a production operation must carry out processing and 
refining of the mining process inside the country." 
 In document G/TRIMS/W/74, Indonesia explained the operation of Article 106: 
 
"Based on Government Regulation No. 23 Year 2010, the [operator] must 
prioritize the use of domestic goods, equi pment, and/or supporting materials, as 
well as imported products being sold in Indonesia used for mineral and coal mining activities that a) meet the qualit y and post-sales service standards, and b) 
guarantee the sustainability of supply and timely distribution.  The objective is 
                                                      
1 G/TRIMS/W/88. G/TRIMS/W/100 
Page 2  
 
  to support the growth of domestic i ndustry through the mining sector … This 
implies that when domestic goods, equipment, and/or supporting materials do not fulfil the above-mentioned requirements, the [operator] will allow the imports of such products.  Plans to import must be reported to the Minister in charge of mineral and coal mining and must comply with relevant rules and 
regulations." 
 In G/TRIMS/W/74, Indonesia confirme d the requirement for operators to conduct 
processing, refining, and smelting acti vities locally, per Articles 102 and 103. 
  In G/TRIMS/W/79, Indonesia elaborated on the meaning of the requirement to 
"prioritize" local content: 
 
"As long as the goods, equipment and/or supporting materials used for mineral and coal mining activities are not availabl e in the Indonesian market, the Mining 
Permit Holder or Special Mining Permit Holder may import it, so it does not 
prohibit investors to use any new tech nologies developed outside Indonesia." 
 Based on the responses provided to our questions, the laws and regulations themselves, 
and other materials, it is clear that the policy intent of these measures is to promote domestic production and employment by favouring  Indonesian products and suppliers. 
  In light of the information that has been provided, we would like to get a better 
understanding of the implementation of these measures. 
 
1. How does Indonesia define the term "prioritize?"  Who determines whether 
local goods and services are available, and whether a foreign investor has 
"prioritized" use of those goods and service? 
 
Reply 
 • "Prioritize" in the context of Government Regulation No. 23/2010 encourages companies to 
give preference to domestic goods and services provided that they are available in the Indonesia market and meet the quality and post- sales service standards, as well as having their 
sustainability of supply and timely distribution warranted. 
 • Investors are considered to have prioritized  the use of those goods and services when they 
have given preference to domestic goods, e quipments, services, raw materials and/or 
components as well as imported products sold in Indonesia. 
 
2. If domestic goods and imports are both available – and roughly equivalent in 
quality, price, and other factors – must domestic products be selected? 
 
Reply 
 
 Article 87 of Regulation No. 23/2010 stipulates that investors shall prioritize the use of 
domestic as well as imported goods locally available,  given that they meet the requirements stated 
therein.  In this context both types of products shall be accorded equal priority. 
 
3. In practice, what is the difference between an imported product and an 
imported product already being sold in Indonesia? 
  G/TRIMS/W/100 
 Page 3 
 
 
  Reply 
 
 "Imported products" are products directly im ported by investors from outside Indonesia and 
"imported products being sold in Indonesia" are tho se imported products that are already available for 
sale in Indonesia. 
 
4. Are all mining products covered by these measures? 
 
Reply 
  Law No. 4/2009 and Regulation No. 23/2010 onl y cover mining products in mineral and coal. 
 
5. The information provided indicates that  operators are not permitted to export 
unprocessed or unrefined minerals.  Does this requirement constitute an export 
ban on raw materials?  If not, why not?  
Reply 
 
 Indonesia does not apply import ban on raw mate rials.  The implementing regulations of 
Law No. 4/2009, namely Minister of Energy a nd Mineral Resources Decree  No. 34/2009 require a 
minimum percentage of mining and coal production be  prioritized for domestic needs at a benchmark 
price in accordance with the generally effective pric e in the international market.  The regulation is 
intended to prevent the possible occurrence of s hortage of raw mineral and coal supply in the 
domestic market.  
6. If a mining company wishes to hire a civil engineering firm for construction 
work pertaining to a mining project, it would appear to have to favor local firms 
over foreign joint ventures.  If that is  the case, please explain how the law is 
consistent with Indonesia's national treatment commitment for civil engineering under GATS?  
Reply 
 
 Indonesian national treatment commitment for civil engineering under GATS states that any 
foreign civil engineering firms which are to do bus iness in Indonesia shall establish joint venture with 
local companies.  Elucidation of Government Regul ation No. 20/1994 further stipulates that any joint 
venture is considered as Indonesian legal entity and equal before the la w with any local firm. 
Therefore, Law No. 4/2009 is not inconsis tent with Indonesia's commitment under GATS. 
 
7. Please explain how the ban on exportatio n of raw materials is consistent with 
GATT Article XI, which generally prohibits quantitative restrictions.  In G/TRIMS/W/74, Indonesia refers to Article XI.2 (a) saying that export prohibition or restrictions may be undertaken when aimed at preventing or relieving critical shortages of essential products.  Where in Regulation 23/2010 are authorities required to assess product scarcity or critical shortages?  How 
can this be reconciled with statements in the KEN master plan about Indonesia's 
abundance of natural resources?  
Reply 
 
 Statements in the KEN Master Plan about Indonesia's abundance of natural resources should 
be perceived as a political statement to promote and ma intain national pride.  It should also be noted 
with regard to the need for the country to consider  the sustainablity of such resources.  Without proper 
and careful utilization or exploitation, there are ri sks of such natural resources becoming scarce or 
even depleted.  However, Regulation No. 23/2010 do es not contain a provision on export ban.  On the 
contrary, it allows exportation.  G/TRIMS/W/100 
Page 4  
 
   Article 84 of Regulation No. 23/2010 stipulates that the Minister for Energy and Mineral 
Resources will determine the domestic need for mine ral and coal which includes processing industries 
and direct domestic use.  Further to this provisi on, the Minister for Energy and Mineral Resources 
establishes an annual decision on the domestic need and the minimum sale requirement percentage for 
mineral and coal. 
 
Questions 
 Presidential Regulation 35/2004  
 We note that Indonesia has similar regulatio ns in the oil and gas sector.  Article 79 of 
Presidential Regulation No. 35/2004, which regul ates contractor activities in the upstream oil 
and gas sector, says "contractors must prio ritize the use of domestic goods, services, 
technologies, and engineering and design capabilit ies" and this prioritization "shall be carried 
out if the necessary goods, services, technologies, and engineering and design capabilities have 
been made or are available domestically and sa tisfy the quality/grade, delivery date, and price 
requirements in goods and services procurement."  
8. Are there any differences between implementation of this requirement in the oil 
and gas sector and implementation of the requirement in the mining sector, discussed above?  
Reply 
 
 Government (not Presidential) Regulation No. 35/2004 does not differentiate between the 
implementation of preference to domestic goods/services in the mineral and coal mining sector and that in the oil and gas sector. 
 
9. Please explain how these local p references are administered in BPMIGAS 
Regulation PTK-007, the Work Pro cedure Manual for Contractors with 
Production Sharing Contracts.  
Reply 
 • The Work Procedure Guideline No. 007/2011 i ssued by the Executive Agency for Upstream 
Oil and Gas Business Activities (BPMigas) stipulat e that investor must prioritize the use of 
domestic goods/services/labor. 
 • Investors are required to submit a procur ement, human resource and budget plan which 
contain a work plan for procurement of dom estic goods/services, and personnel management 
activities which form the basis for preparation of the overall Work Program and Budget.  The 
Work Plan is subject to approval by BPMigas. 
 • Every procurement of goods/services should re fer to the APDN Book (Appreciation of the 
Domestic Production) which contains a list of goods/services provided by national oil and gas 
companies. 
 
10. Under what circumstances are impo rted goods permitted?  Services? 
 
Reply 
 
 Goods which are not contained in the lis t of APDN Book can be imported through RIB 
(Rencana Import Barang – Plan to import goods).  In the case of services, import is permitted if the service is not available in Indonesia and the import is conducted in accordance with Indonesia's commitment under the GATS.  G/TRIMS/W/100 
 Page 5 
 
 
  11. Do these requirements apply to all comp anies that have been awarded upstream 
oil and gas projects in Indonesia?  
 
Reply 
  These requirements apply to all companies that have been awarded upstream oil and gas 
projects in Indonesia.  
12. How are these requirements consistent with GATT Article III.4, which provides 
that imported products are to be treated no less favorably than like products of 
national origin? 
 
Reply 
 
 The requirements are intended for the manage ment of procurement a nd use of goods/services 
to support investors' activities, which must be conduc ted in an effective and efficient manner and in 
accordance with the ethical principles of supply chains .  In this regard, effective and efficient use of 
goods/services is translated as using or prioritizing the use of domestic goods/services, the procurement of which is considered more economical.  
Questions 
 
General Observations   At a time when the Government of Indonesi a is prominently trying to attract foreign 
direct investment to Indonesia, and the KEN master plan pursues a laudable goal of 
transforming Indonesia's development, these types of restrictions appear to be multiplying.  
These restrictions are both discriminatory, ha rmful to Indonesia's efforts to improve its 
competitiveness as an investment destination.  
13. Is there high-level guidance from the government encouraging or requiring 
ministries to implement these kinds of regulations?   
Reply 
 
 The KEN Master Plan is intended to advance Indonesia's development plans, among others by 
attracting more direct investments.  Inevitably, development plans involve use and exploitation of 
natural resources.  The measures that govern the use of such natural resources should not be perceived 
as restrictive, rather they are in  place to secure the availability a nd sustainability of those natural 
resources.  Indonesia also consists of a large popula tion with a large share of needs in those natural 
resources.  It is the government's task and responsib ility to work as one and ensure that their needs are 
fulfilled and attended to for many years and ge nerations to come, as any country would do. 
 
14. We note that Presidential instruction 2/2009 regarding the Use of Domestic 
Products in Government Procurement of Goods/Services, as implemented by 
Ministry of Industry Regulation 15/2011, requires the use of domestic products 
in state activities including 1) mi nistries and regional working units, 
2) state-owned or regional-owned enterprises, and 3) cooperation contracts between the government and a business entity.  Are the measures relating to 
mining and to oil and gas examples of implementation of this or similar 
instructions?  
 G/TRIMS/W/100 
Page 6  
 
  Reply 
 
 The provision to use domestic products in st ate activities as implemented by Presidential 
Instruction No. 2/2009 and Minister of Industry Regulation No. 15/2011, is not similar to the implementation of Law No. 4/2009 on mining, and oil and gas. 
 
15. To what extent are these kinds of loca l content preferences being introduced in 
other sectors?  Please identify all such measures, including the criteria and the 
authority responsible for implementing the measure.  Are these requirements mandatory or voluntary in nature?  
Reply 
 
 Preference to use domestic goods/services fo r state activities is also introduced in the 
telecommunication sector through the issuance of Minister of Telecommunication Decree No. 7/2009. Minister of Telecommunication and Information is responsible for its implementation.  The 
requirement is mandatory for government projects. 
 
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