Legal Alert: New Regulations On The Mandatory Use Of Letter Of Credit In Exporting Certain Goods

/ / 2018, Legal News 2018

Author: Reynalda Basya Ilyas, Randy Hendrika, Fransiskus Xaverius, I Ketut Dharma Putra Yoga

The Government of Indonesia has been consistently trying to optimize foreign exchange from exports and maintain the stability of pricing for natural resources in international markets. As part of this effort, the Indonesian government through the Ministry of Trade (“MoT”) aims to simplify the usage of Letter of Credit (“L/C”) in exporting certain goods through the issuance of MoT Regulation number 94 of 2018 regarding the Provision on the Implementation of L/C in Exporting Certain Goods, as lastly amended by MoT Regulation number 102 of 2018 regarding the amendment of MTR 94/2018 (collectively “MT Regulations”). The MT Regulations came into effect on 7 October 2018.

As a result, a number of previous regulations on the implementation of letter of credit for exporting certain goods will become ineffective, namely (i) MoT Regulation number 67/M-DAG/PER/8/2015 on the Provision of the implementation of L/C for Export Certain Goods and its amendments in MoT Regulation number 04/M-DAG/PER/1/2015; (ii) MoT Regulation number 26/M-DAG/PER/3/2015 regarding the Specific Provisions on the Implementation of L/C to Export Certain Goods.

Terms of Payment

MT Regulations provide that the payment by way of L/C must be made through foreign exchange banks in Indonesia. Other than through a foreign exchange bank, the method of L/C payment may alternatively be received through an export financing institution established by the government by referring to the provision of the Bank Indonesia Regulation regarding Export Foreign Exchange (such as the PT Lembaga Pembiyaan Ekspor Indonesia and PT Indonesian Eximbank). In contrast to the previous regulation, the L/C Regulation also provides that, in absence of price determined by an international market, the price of certain goods in the L/C should also refer to the prices provided by the government.

Types of Certain Goods

From the previous regulation, MTR Regulations reduce the list of certain goods of mineral that are required to use L/C as their payment method in export.

Presently, there are only thirteen (13) types of minerals, seven (7) types of coal and two (2) types of palm oil that are required to use L/C as their export method payment, as follows:

No. Mineral Coal Palm Oil
1. Nickel with content of <1,7% Ni Anthracite; Bituminous Coal Crude Palm Oil (CPO)
2. Washed bauxite with content of ≥42% Al2O3 Fuel coal

 

Crude Palm Kernel Oil (CKPO)
3. Hematite and Magnetite iron concentrate with content of ≥62% Fe and ≤1% TiO2 Others (2701.12.90)
4. Laterite iron concentrate (Goethite, Hematite and magnetite) with content of ≥50% Fe and ≥10% (Al2O3+SiO2) Other coals (2701.19.00)
5. Concentrate of iron sand (lamella magnetite – ilmenite) with content of ≥56% Fe and 1%<TiO2≤25% briquette, ovoid and solid fuel made from coal
6. Iron sand concentrate pellet (lamella magnetite – ilmenite with content of ≥54% Fe and 1%<TiO2≤25% Agglomerate lignite
7. Manganese concentrate with content of ≥49% Mn Agglomerate lignite, destroyed or not
8. Copper concentrate with content of ≥15% Cu
9. Lead concentrate with content of ≥56% Pb
10. Zinc concentrate with content of ≥51% Zn
11. Chromite concentrate with content of ≥40% Cr2O3 and ≥13% Fe
12. Ilmenite concentrate with content of ≥45% TiO2
13. Rutile concentrate with content of ≥90%TiO2

 

In addition, the provision contained in MT Regulations also introduces several exemptions for the use of L/C as a payment method, for certain goods that are in the form of/used for (i) samples that are not to be traded; (ii) scientific research and development; and (iii) as promotion for exhibition purposes abroad.

An exporter may apply and obtain exemption from the mandatory use of L/C provided that the following cumulative requirements are met:

  1. If an agreement, which stipulates payment methods other than the use of L/C, has been entered by and between the Exporter and overseas Purchaser prior to the enactment of MT Regulations; and
  2. The ability of the Exporter to adjust the method of payment to the use of L/C within a certain period of time.

The above exemptions shall obtain approval from the Director of Export and Import Facility of MoT.

Implication for Exporters

Under MTR Regulations, the exporters are required to:

  1. Provide the L/C payment method in the Export Declaration (Pemberitahuan Ekspor Barang/PEB);
  2. Submit a statement letter to the surveyor in accordance with the given format, equipped with a stamp duty; and
  3. Submit monthly report on the realization of export of certain goods no later than the 15th (fifteenth) of every month to the Director General of Foreign Trade Affairs, via online through https://inatrade.kemendag.go.id

In the event exporters fail to meet the above requirements, they may be subject to a written warning, temporarily not allowed to export the goods until the completion of the requirement; or in some cases, the export license and/or business license may be revoked.

 

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