WORLD TRADE  
ORGANIZATION   
G/TRIMS/W/88 
22 September 2011 
 (11-4566) 
Committee on Trade-Related Investment Measures Original:   English 
  
 
INDONESIA:  CERTAIN LOCAL CONTENT PROVISIONS IN  
THE ENERGY SECTOR (MINING, OIL AND GAS)  
 
Questions from the United States 
 
 
 The following communication, dated 21 September 2011, is being circulated at the request of the Delegation of the United States.  
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 The United States appreciates the res ponses Indonesia has provides 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 United St ates has ongoing concerns regarding Indonesia's 
existing law, and its draft implemen ting 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 Tariffs and Trade (GATT) 1994, as well as the Ge neral Agreement on Trade in Services (GATS).   
  The United States previously submitted ques tions to Indonesia about the 2009 Mining Law 
and its implementing regulations.  Th e law states that operators must "prioritize" the utilization of 
local manpower and 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 in crease the value added of mineral and/or 
coal resources in carrying out  mining, processing, and refi ning 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, equipment, a nd/or supporting materials, as well as 
imported products being sold in Indonesia used for 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 growth of domestic industry through the mining sector … This implies that when 
domestic goods, equipment, and/or supporting materials do not fulfil the above-
mentioned requirements, the [operator] w ill allow the imports of such products.  G/TRIMS/W/88 
Page 2  
 
  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 confirmed the re quirement for operators to conduct processing, 
refining, and smelting activities 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 s upporting materials used for mineral and 
coal mining activities are not available 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 technologies developed outside Indonesia." 
 Based on the responses provided to our questi ons, 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 In donesian products and suppliers. 
 
 In light of the information that has been provi ded, 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?   
2. If domestic goods and imports are both availabl e – and roughly equivalent in quality, 
price, and other factors – must domestic products be selected? 
3. In practice, what is the difference betw een an imported product and an imported 
product already being sold in Indonesia? 
4. Are all mining products covered by these measures? 
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? 
6. If a mining company wishes to hire a civil engineering firm for construction work 
pertaining to a mining project, it would app ear 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? 
7. Please explain how the ban on exportation 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 ar e 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?  
  
  G/TRIMS/W/88 
 Page 3 
 
 
  Presidential Regulation 35/2004 
 
 We note that Indonesia has similar regulations  in the oil and gas sector.  Article 79 of 
Presidential Regulation No. 35/2004, which regulates contractor activities in the upstream oil and gas 
sector, says "contractors must prioritize the use of domestic goods, services, technologies, and 
engineering and design capabilities" and this prioriti zation "shall be carried out if the necessary goods, 
services, technologies, and engineering and design  capabilities have been made or are available 
domestically and satisfy the quality/grade, delivery date, and price requirements in goods and services 
procurement."  
8. Are there any differences between implementa tion of this requirement in the oil and 
gas sector and implementation of the requirement in the mining sector, discussed above? 
9. Please explain how these local preferences ar e administered in BPMIGAS Regulation 
PTK-007, the Work Procedure Manual for Contractors with Production Sharing 
Contracts. 
10. Under what circumstances are imported goods permitted?  Services? 
11. Do these requirements apply to all compani es 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 l ess favorably than like products of national 
origin? 
General Observations 
 
 At a time when the Government of Indonesia 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, harmful to Indonesia's efforts to improve its competitiveness as an investment 
destination. 
 
13. Is there high-level guidance from the governme nt encouraging or requiring ministries 
to implement these kinds of regulations?   
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 u se of domestic products in state activities 
including 1) ministries and regional worki ng 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? 
15. To what extent are these kinds of local 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? 
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