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Indonesia: New Regulatory Updates on the Obligation to Use Indonesian Vessels for Certain Exports and Imports

In the midst of the global pandemic Covid-19, the Indonesian Government has finally issued a new regulation on the use of national sea transport for the export and import of certain goods, replacing the previous regulation (Minister of Trade Regulation Number 82 of 2017 as lastly amended by the Minister of Trade Regulation Number 80 of 2018), on which we reported here.

The Government's previous regulations requiring the use of national sea transport for export and import activities relating to certain goods, including coal and crude palm oil exports and rice imports, were considered by relevant industry players to be disruptive to export and import activities in Indonesia. It is expected that this regulation will answer a number of these concerns.

Under this new regulation, the Minster of Trade Regulation Number 40 of 2020 on Provisions for the Use of National Sea Transport and National Insurance for the Export and Import of Certain Goods (MOT Reg 40/2020), the requirement to use vessels operated by Indonesian shipping companies now only applies to vessels with a capacity of not more than 15,000 DWT (deadweight tonnage). The export and import activities that are subject to this regulation remain the same, namely the export of coal and crude palm oil, and the import of rice and goods for government procurement.

The effect of this regulation is that the export and import of these goods by vessels with a capacity of more than 15,000 DWT are now exempt and do not need to be performed on vessels owned or chartered by Indonesian shipping companies.

Despite the above shift on the mandatory use of national vessels, the obligation to obtain insurance services from Indonesian insurance companies for the export and import of certain goods remains in force as from 1 February 2019.

The MOT Reg 40/2020 entered into force on 1 May 2020. Whilst many companies focus their efforts on dealing with Covid-19 and cashflow difficulties, it is important to remain alive to regulatory developments such as this, which could have a significant impact on the operations of certain businesses.

Key Provisions

The main provisions of the MOT Reg 40/2020 are set out below.

Mandatory Use of National Vessels

The regulation requires the use of vessels owned or leased by Indonesian shipping companies for the export of coal and crude palm oil, and for the import of rice and goods for government procurement. The vessels can be leased by Indonesian shipping companies by way of bareboat, time charter, voyage charter, contract of affreightment or other leasing contract. This is a welcome clarification as it was not clear in the previous regulation whether the relevant vessel needed to be Indonesian owned or flagged or whether it was sufficient for the vessel to be chartered by an Indonesian company.

The obligation to use national vessels only applies to the exporter of coal or crude palm oil and the importer of rice or goods for government procurement, in each case using a vessel with loading capacity up to 15,000 DWT. These exporters and importers must submit information relating to the use of national vessels electronically to the Directorate General of Foreign Trade (DGFT) before the vessels berth at Indonesian ports.

All exporters and importers of these goods must also report on the performance of their export and import activities to the DGFT through INATRADE, the online system managed by the Ministry of Trade.

Mandatory Use of National Insurance Services

It is mandatory for exporters of coal and crude palm oil and importers of rice and goods for government procurement to use marine cargo insurance services from Indonesian insurance companies or the Government's export financing institution. Exporters and importers must include cost and freight, and details of the insurance policy when filing their export or import declarations.

Mandatory Verification by Surveyor for Coal Export and Rice Import

The regulation provides that exporters of coal and importers of rice must first follow a verification procedure by way of an inspection of the goods and the use of national insurance services conducted by a surveyor prior to loading. The surveyor report can only be issued if the result of the administrative verification shows that the exporter or importer is using national insurance services.

Sanctions

Non-compliance by entities that are subject to the provisions under this regulation may result in administrative sanctions ranging from the suspension of exports and imports to revocation of relevant business licenses.

Exemption

The obligation to use national vessels and national insurance services shall not apply to the export or import of the following:

  1. sample goods which are not intended for trade;
  2. goods for the purposes of scientific research and development;
  3. imported goods that are rejected by domestic buyers and then re-exported with the maximum quantity corresponding to the quantity declared in the import notification;
  4. goods exported or imported across land borders; and
  5. goods for charitable, social or cultural purposes.

The above exemptions apply only if the exporter or importer has received approval from the DGFT.

Conclusion

The latest regulation brings some welcome clarity and makes clear that the requirement to use Indonesian vessels will not apply to the vast majority of Indonesian exports, which are typically on vessels which exceed the new DWT threshold. It is of course possible that the position will be revisited again in the future, but for now this news will likely be welcomed by the majority of industry stakeholders.

For more information, please contact;

Adam Richardson
Partner, Singapore
T +65 6411 5327
E adam.richardson@hfw.com

Sri Hartati Rahayu
Partner, Jakarta
+6221 5080 4401
sri.rahayu@hfw.com

Indra Prawira
Associate, Jakarta
+6221 5080 4405
indra.prawira@hfw.com

We are working with clients across our international network to help them minimise the impact of COVID-19 on their business and to prepare for what's next. To find out more, visit our dedicated Covid-19 hub.

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