Client Alert. Corporate/Trade Jakarta. The Use of Letters of Credit for Certain Goods - Is This a Form of Export Control Mechanism?

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Gordon Moore
6 years ago
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1 Jakarta Client Alert The Use of Letters of Credit for Certain Goods - Is This a Form of Export Control Mechanism? April 2015 On 5 January 2015, the Ministry of Trade ( MOT ) issued Regulation of Minister of Trade No. 04/M-DAG/PER/1/2015 on Provisions on The Use of Letters of Credit for Certain Goods ( Regulation 4 ). Regulation 4 came into effect on 1 April I. Background of Regulation In theory, Regulation 4 was issued to support efforts to conserve natural resources, encourage increased added value to the national economy and the development of industry, improve business in an orderly and effective implementation of certain goods export policy by making payment by Letter of Credit ("L/C") a requirement of export. In addition, to increase the optimization and accuracy of foreign exchange earnings from exports and stabilize the increase export prices of certain goods which are natural resources in the international market and need to ensure business certainty by using L/C as a payment instrument of export of certain goods. II. Definition of L/C Regulation 4 provides a specific definition of L/C. Article 1.2 defines L/C as a promise from the issuing bank to pay the recipient if the recipient submits to the issuing bank documents in accordance with the requirements of the L/C. III. Would it be a Form of Export Control? Despite the theoretical background mentioned above, one may argue that Regulation 4 may be a form of export control simply because it is not common for payment using L/C for certain goods listed below. Regulation 4 stipulates that payment for the export of certain goods must be done through L/C and the prices listed in the L/C must be equal to the lower of world's market prices. The payment must also be received through a Foreign Exchange Banks in domestic country. Exporters that export the certain goods stipulated in Regulation 4 must include the L/C method of payment in the Export Declaration (Pemberitahuan Ekspor Barang). The surveyor appointed by the Minister must check the document on the payment of L/C to export certain goods which required to be equipped with the surveyor report. The surveyor may only issue a report if the export of certain goods has fulfilled the document on the payment of L/C and the surveyor's report should state that payment would be made using an L/C.

2 There is no restriction on types of L/C that can be used for payment for certain goods. Exporters can use a generally available form of LC. Furthermore, there is no reporting requirement for use of the L/C because the payment will be included in the Export Declaration that will be checked at the time of export. With regard to the implementation of Regulation 4, MOT has socialized Regulation 4 in its office and Customs & Excise has prepared for the implementation by publicizing Regulation 4 in all of its offices in Indonesia. As a consequence, if goods that will be exported do not comply with the requirement to have payment made by L/C and mention payment by L/C the its Export Declaration, then the goods can not be exported. IV. Exports Goods For Which Payment Must Be Made Through L/C a. Minerals 1. Iron Concentrate (hematite, magnetite, pyrite) with 62 % Fe 2. Iron Concentrate (goethite/laterite) with 51 % Fe and (Al203+SiO2) 10% ex ex ex ex Manganese Concentrate with 49% Mn ex Copper Telluride ex Copper Concentrate with 15% Cu ex Lead Concentrate with 57 % Pb ex Zinc Concentrate 52 % Zn ex Ilmenite Concentrate Fe 58% (sand shape) and Fe 56% (pellets shape) ex Anode Slime ex Smelter grade alumina 98% Al2O3 ex Chemical Grade Alumina 90% Al2O3 ex Chemical Grade of Aluminum Hydroxide 90% Al(OH)3 13. Nickel hydroxide - Mix Hydroxide Precipitate (MHP) 25% Ni ex ex NiS 40% Ni in powder ex Nickel Oxide ( NiO) with Ni 70% ex The Use of Letters of Credit for Certain Goods - Is This a Form of Export Control Mechanism? April 2015

3 16. Nickel Sulfide - Mix Sulfide Precipitate (MSP) 45% Ni ex Silver in powder form with 99% Ag ex Silver in the form of lumps, ingots or cast bars with 99% Ag ex Gold in powder form 99% Au ex Gold in the form of lumps with 99% Au ex Gold in the form of ingots or cast bars with 99% Au 22. Nickel Pig Iron in the form of lumps with 23. Nickel Pig Iron in the form of ingots with ex ex ex Sponge Ferro Nickel (FeNi) 25. Nickel in the form of lumps, nuggets, luppens with level of Ferro Nickel (FeNi) 26. Nickel Pig Iron (NPI) in the form of ingots or cast bars with 27. Ferro Nickel (FeNi) in the form of lumps with Ni 10% 28. Ferro Nickel (FeNi) in the form of ingots with Ni 10% 29. Copper in the form of cathode with 99% Cu 30. Copper in the form of ingots or cast bars with 99% Cu ex ex Copper in the form of slabs 99% Cu ex Copper in the form of powder (nonlamellar structure) with 99% Cu 33. Copper in the form of powder (lamellar structure) with 99% Cu 34. Ni Mate in the form of lumps with Ni 70% ex ex Ni Mate in the form of powder Ni 70% 3 The Use of Letters of Credit for Certain Goods - Is This a Form of Export Control Mechanism? April 2015

4 36. Ni Mate in the form of granules Ni 70% 37. Ni Mate in the form of ingots or cast bars Ni 70% 38. Ni Mate in the form of slab with Ni 70% 39. Nickel in the form of powder Ni 93% ex Metal Al 99% in the form of ingots or cast bars 41. Pure Tin content no bars with Stannum (sn) least 99.93% in a form other than bars or other bars made from Pure Tin Bars 42. Tin Solder containing Stannum (Sn) not exceeding 99.7% in the form of bars or other forms used for soldering and welding 43. Alloys Tin content no solder containing Stannum (Sn) with the highest of 96% in the form of bars or other shapes that are not used for soldering and welding ex ex ex ex ex ex b. Coals Coal; briquettes, ovoid and such solid fuel made from coal Coal, whether or not ground, but not agglomerated: Anthracite Bituminous coal Coal fuel Others Others coal Briquettes, ovoid and such solid fuels The Use of Letters of Credit for Certain Goods - Is This a Form of Export Control Mechanism? April 2015

5 For further information please contact Wimbanu Widyatmoko Managing Partner Mochamad Fachri Partner Riza Fadhli Buditomo Associate Partner Hadiputranto, Hadinoto & Partners The Indonesia Stock Exchange Building, Tower II, 21 st Floor Sudirman Central Business District Jl. Jenderal Sudirman Kav Jakarta Indonesia Tel: Fax: made from coal Lignite, whether or not agglomerated, excluding jet 6. - Lignite, whether or not ground, but not agglomerated Lignite agglomerated c. Petroleum and Natural Gas 1. Crude Oil Condensate Liquefied Natural Gas (LNG) Compressed Natural Gas (CNG) Vacuum residue ex d. Palm Oil 1. Crude Palm Oil (CPO) Crude Palm Kernel Oil (CPKO) Hadiputranto, Hadinoto & Partners. All rights reserved. Hadiputranto, Hadinoto & Partners is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a partner means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an office means an office of any such law firm. This may qualify as Attorney Advertising requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. 5 The Use of Letters of Credit for Certain Goods - Is This a Form of Export Control Mechanism? April 2015

Client Alert September 2017

Trade Jakarta Client Alert September 2017 The Government Issues New Regulation on Payment and Delivery of Goods in Export Import Activities For More Information: Riza Buditomo Partner +62 21 2960 8569