Indonesian mining law and WTO rules may not be enough for trade
Indonesia is binding itself to an international organization that has the ultimate derogative decision-making process, namely the World Trade Organization (WTO) in Geneva.
As a consequence, any national law with international trade impact should ideally comply with the agreed provisions within this organization.
A dissenting measure will possibly be challenged under the WTO Dispute Settlement Body.
The Indonesian Mining Law, along with its export ban, is prone to violating GATT Article XI: 1, which prohibits a member from using any quantitative or other non-tariff means to restrict exports.
While this prohibition is subject to various exceptions, none of these exceptions can be used for promotion of domestic industries.
Prominent cases that involve export bans of natural resources are Canada’s salmon-herring case and the recent Chinese raw materials case.
Both of them invoked the exceptions under GATT Article XX, yet failed to justify their export bans as necessary for conservation purposes rather than for promotion of domestic industry.
As it is conveyed within the preamble of the WTO agreement, the world trade regime recognizes the need for positive efforts to ensure that developing countries benefit from trade for their economic development.
To this end, GATT Article XVIII on Government Assistance to Economic Development allows a member to deviate from certain GATT obligations in order to promote infant industries by using import restrictions.
GATT Part IV on Trade and De- velopment recognizes specifically the need for developing countries to diversify the structure of their economies and to avoid an excessive dependence on the export of primary products.
However, the measures offered under GATT Part IV focus exclusively on the improvement of market access and conditions for both primary and processed products.
On the other hand, among numerous other provisions granting special and differential treatment for developing countries, none of them is concerned with the use of export restrictions as a means for economic development.
With the absence of any specific provision to prohibit the use of export restrictions and with respect to GATT Article XI: 1, concern should shift toward the means and in this case tariffs remain the only lawful means to restrict exports.
The WTO members are still free to claim a larger share in the distribution of its resources through export restraints, as long as the restraints take the forms of duties, not quantitative or other non-tariff measures so, and also not too high as to create an impact similar to an export ban.
Export duties are legitimate means to exercise a member’s sovereignty over its natural resource disposal.
Indonesia has rightly imposed a tax on crude palm oil (CPO) exports.
However, when it comes to the mining sector, quantitative restrictions are imposed instead.
Hence, the pertinent measures should be export duties rather than quantitative restrictions.
‘Jumping the tariff wall’
This “jumping the tariff wall” approach toward FDI may not have tremendous results compared to the coercive export ban, but it’s a safer measure considering the potency of the dispute initiated.
As an addition, revenues from the duties can be channeled toward infrastructure, especially for improvement of electricity services, which is often complained about by many companies that are required to build smelter facilities under the current law.
Whereas, if for some reason the government chooses to hold to its export ban on mining products, according to GATT Article XI: 2 (b), Indonesia should prove that the particular mining products are “essential” to the exports.
If Indonesia resorts to the analytical index of GATT 1994, “essential” is also referred to a product that is an “input” to an important product or industry.
However, the determination of whether a particular product is essential to a member must take into consideration the particular circumstances faced by that member at the time that a member applied the restriction.
One can draw the conclusion that Indonesian domestic industry promotion strategy is somehow twisted.
The CPO, which constitutes a significant portion of our exports while at the same time is an important input to our industries, can be promoted using stringent measures like an export ban.
Meanwhile for mining products, we could use a more lawful measure like export duties. The writer is pursuing a graduate degree at the School of Public Policy, Korea Development Institute.