WORLD TRADE  
ORGANIZATION  G/TRIMS/W/74 
6 August 2010 
 (10-4201) 
Committee on Trade-Related Investment Measures Original:   English 
  
 
COMMUNICATION FROM INDONESIA 
 
Indonesia's response to questions raised by the European Union and 
 
the United States as contained in document G/TRIMS/W/70  
 
  The following communication, dated 23 June 2010,  is being circulated at the request of the 
Delegation of Indonesia.  
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  Indonesia wishes to refer to the questions raised  by the European Union and the United States 
as communicated in G/TRIMS/W/70 regarding Indonesi a's law applicable to investment activities in 
Indonesia's mineral and coal mining sector (Law No. 4 Year 2009 on Mineral and Coal Mining), and 
it's draft implementing regulations, in relation to the Agreement on Trade-Related Investment 
Measures (TRIMs) and General Agreemen t on Tariffs and Trade (GATT) 1994. 
  With regard to the additional information sought, Indonesia wishes to respond as follows in 
the order of the questions set:  1. Status of Draft Regulations  
 Law No. 4 Year 2009 on Mineral and Coal Mi ning, hereinafter referred to as "Mining Law 
2009", as stipulated on 12 January 2009, replaces Law No. 11 Year 1967 on the Mining Basic Regulations.  It was developed th rough a four and a half-year process prior to its implementation and 
had been informed and discussed with relevant stakeholders.  Mining Law 2009 and its implementing 
regulations have not been translated officially into  English, however, unofficial translation is available 
in several medias.   The implementing regulations of Mining Law 2009 which have been stipulated are: 
 
- Government Regulation No. 22 Year 2010 on Mining Area dated 1 February 2010; 
 - Government Regulation No. 23 Year 2010 on Mineral and Coal Business Activities 
Implementation dated 1 February 2010; 
 
- Minister of Energy and Mineral Resourc es Decree No. 28 Year 2009 on Mineral and 
Coal Mining Service Business Activities dated 30 September 2009;  and 
 - Minister of Energy and Mineral Resources Decree No. 34 Year 2009 on Priority of 
Mineral and Coal Supply for Domes tic Needs dated 31 December 2009. 
 
 Meanwhile, other implementing regulations currently being discussed are: 
 G/TRIMS/W/74 
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  - Government Regulation on the Supervision and Control of Mineral and Coal Mining 
Activity;  and 
 - Government Regulation on Reclamation and Post-Mining. 
 2. Local Content  
 Mining Law 2009 is an improvement of the previously existing Law as it enhances 
transparency.  In the previous Law, the Governme nt acts as shareholder, whereas in Mining Law 2009 
the Government plays the role of regulator in th e license regime.  The new Law brings about a basic 
reformation where the contract system no longer exists and where the Government commits to 
optimize the benefit derived from mining activities fo r the nation and the welfare of its people by 
giving priority to the local community.  Notwith standing this objective, investment opportunities 
remain wide open for foreign investors, subject to  the requirement of holding an Indonesian legal 
entity.  This particular requirement is in line with the Law on Investment. 
 
Prioritizing the Utilization of Local Manpower 
 
 Based on the explanation of Article 106 of Mi ning Law 2009, the term "prioritize" is carried 
out based on the available competence and experti se.  This Article is elaborated further in the 
explanation to Article 86 and 87 of the Government Regulation No. 23 Year 2010. 
 
 Based on Article 86 of the Government Regulation, the use of foreign workers is allowed by submitting an application to be approved by the Minister in charge of mineral and coal mining activities by considering technical aspects and reco mmendations provided the Minister in charge of 
manpower.  These technical evaluations relate to  the explanation of Article 106 of the Mining 
Law 2009 where prioritization is based on competen ce and expertise.  This implies that when 
competence and expertise cannot be met locally, the Mining Business License (IUP) and Special Mining Business License (IUPK) allows for the u tilization of foreign workers who meet such 
requirements.    The prioritization of local workers is aimed at supporting and developing the Indonesian 
workforce, and to provide access to work to reduce the rate of unemployment and increase transfer of 
technology.   
Prioritizing the Utilization of Domestic Goods and Services 
  Based on Article 87 of the Government Re gulation No. 23 Year 2010, the IUP and IUPK 
must prioritize the use of domestic goods, equipments, and/or supporting materials, as well as imported products being sold in Indonesia used fo r mineral and coal mining activities that:  a) meet 
the quality and post-sales service standards, and b)  guarantee the sustainability of supply and timely 
distribution.  The objective is to support the gr owth of domestic industry through the mining sector. 
 
 This implies that when domestic goods, equipm ents, and/or supporting materials do not fulfill 
the above-mentioned requirements, th e IUP and IUPK will allow the im ports 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 view of this, Indonesia believes that the Articles being questioned are consistent with 
Article III of GATT 1994, Article 2 of the TRIMs Ag reement, and Paragraph 1 of the Annex with 
regard to "the obligation to prioritize" the utili zation of local manpower, goods and services.  Thus, it 
provides a basis for implementing such decision if requirements can be met.  G/TRIMS/W/74 
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   Further to the reference to Article III of  GATT 1994, the provision on "prioritizing" the 
utilization of manpower, goods and services is not inc onsistent with National Treatment as it applies 
to both domestic and foreign IU P and IUPK holders.  Subsequently, all the license procedure 
requirements do not differentiate between domes tic and foreign IUP and IUPK holders.  
 
 With regard to Article 2 and Paragraph 1 of the annex of the TRIMs Agreement, Article 87 
states that the IUP and IUPK holder must prior itize the use of domestic goods, equipments, and/or 
supporting materials as well as imported products  which are already sold in Indonesia.  Thus, the 
provision is not inconsistent with the provision of National Treatment and Quantitative Restriction. 
 3. Export Restrictions  
 In principle, it is required for an IU P and IUPK holder to conduct processing and 
refining/smelting activities locally to increase added value.  However, the provision also allows 
foreign companies to conduct such activities given that  they are of Indonesian legal entity.  This is 
motivated by the experience where most Indonesian mi neral and coal exports are in the form of ore 
and are processed outside and then imported back into Indonesia.   Value addition in this provision aims to in crease the quality of the final product of mining 
activities or the utilization of associated minerals .  Conducting the processing and refining/smelting of 
minerals and coal activities locally is expected to result as follows: 
 
a. Development of processing and refining/smelting enterprises in Indonesia; b. Increased employment of local workforce; c. Decreased unemployment; d. Utilization the mining sector  to boost economic growth. 
 
Conformity with WTO Rules 
 
 Article XI of GATT 1994, Article 2 of the TR IMs Agreement and Paragraph 2 Annex of the 
TRIMs Agreement indicate that export prohibition with  regard to value is not allowed.  However, 
there are exceptions to these provisions, such as Ar ticle XI.2 (a) of GATT 1994, which specifies that 
export prohibition or restrictions with the aim to prevent or relieve critical shortages of essential 
products may be undertaken.  Article XX (g) and (i) of GATT 1994 states that export prohibition is 
allowed to avoid over-exploitation of  the environment and to ensure local supply.  In this regard, 
Mining Law 2009 is closely linked with Law No. 41 Year 1994 on Forestry, Law No. 26 year 2007 on Spatial Planning, and Law No. 32 Year 2009 on En vironmental Protection and Management, which 
renders it valid to require processing and refining/smelting activities locally. 
  With regard to meeting domestic needs, Article 5.1 of Mining Law 2009 and Article 84.1 
and 84.3 of Government Regulation No. 23 Year 2010 states that an IUP and IUPK holder is required 
to meet the domestic mineral and coal needs.  The Minister of Energy and Mineral Resources determines if such needs have been met.  This is in line with Article XX (i) of GATT 1994 which 
states that, subject to certain conditions, export pr ohibition or restriction can be implemented to 
guarantee and ensure the essential quantities of such  materials to a domestic processing industry. 
 
 
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