Indonesia: New regulation stipulating that exporters of certain products must be supported by letters of credit issued by domestic banks
Description
On 5 March 2009, the Government of Indonesia imposed a regulation concerning the use of domestically issued letters of credit. The following three categories of goods are covered by this regulation: (i) Crude Palm Oil (CPO), (ii) Mined Goods (included are steel ores, coal, nickel, copper, aluminum); and (iii) Cocoa, Coffee, and Rubber. If the export value of such goods exceeds US$ 1,000,000, payment must be made by opening a Letter of Credit in a Domestic Foreign Exchange Bank. If the value of such exports is lower than US$ 1,000,000, another method of payment may be employed, with the proviso that a Domestic Foreign Exchange Bank be used. Such export proceeds, either for the payment by using a Letter of Credit or any other method, must be channeled through or received by a Domestic Foreign Exchange Bank (a foreign exchange bank operating under and in compliance with the prevailing laws and regulations of the Republic of Indonesia).
Any Evidence-Based Deliberation:
| Question | Result |
|---|---|
| Is there anything in the public record to suggest that evidence of the effectiveness of the proposed measure was considered during official deliberations? | Don't know |
| Is there any evidence that alternatives to the proposed measure were considered? | Don't Know |
| Is there anything in the public record that suggests that empirical evidence informed the comparison across the alternatives available to government? | Don't Know |
| Was such evidence identified? | Don't Know |
| Is such evidence publicly available? | Don't Know |
| Did the official decision-maker in question provide an explanation as to why a chosen measure was favoured over alternatives? | Don't Know |
| Is there any evidence to suggest that potentially affected trading partners were consulted before the measures were taken? | Don't Know |
| Is there any evidence that safeguards have been put in place to ensure that implementation of the initiative is transparent and non-discriminatory? | Don't Know |
| Did the government state its intention to review the measure within one year of implementation? | Don't Know |
Date Discovered: 10/06/2009
Implemented: Yes
Date of inception: 1 Apr 2009
GTA Evaluation: Red
Source:
Measure listed as verified, see Annex I, WTO monitoring report 26 March 2009.
Additional sources: HPRP Newsletter http://www.hplaw.co.id/newsletter/?p=159
Government Response: The main objective of this regulation is to ensure and smooth foreign exchange transaction from natural resource based export by requiring mandatory L/C for every export shipment. The regulation covers primary products in the form of raw materials or intermediary goods, including: coffee, CO, cocoa, rubber, mining products, and tin. For every export activity, the exporter is required to notify the L/C number and date of issue, or other method of payment, and to report the domestic foreign exchange bank to which the export proceeds was transferred. The regulation was to be implemented on March 5, 2009. However, with the downward revisions in export projections due to the worsening impact of the global crisis, in order to minimize the effect on export flows due to changes in regulations, the implementation has been modified whereby all exports under this regulation will in the first stage be subject to mandatory reporting requirements where the bank account and domestic foreign exchange bank whereby the proceeds will go id requires to be attached for every shipment. In addition 1. For coffee, cocoa and rubber, mandatory L/C requirements for exports exceeding $1 million will be implemented September 1, 2009. 2. For CPO and mining products, L/C requirements for exports exceeding $1 million will be from April 1, 2009 with exception to those with long term contracts until September 1,2009 (to give time for adjustment of contract). This regulation mandating the use of L/C is also part of the policy package related to trade financing. Payment of exports by L/C will benefit exporters and buyers, giving assurance of payment for exporters from buyers, in combination with the trade financing package which the government is currently working on. The Indonesian Export Insurance Agency and Export Credit Agency will be recapitalized, and its capacity improved. Furthermore, the regulation will be regularly reviewed to ensure that in its implementation, it does not cause unnecessary costs of impediments to trade whilst keeping in mind the wider objective of efficiency of foreign exchange transaction.
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