14 June 2022 (closed)
Jakarta Composite Index (7,049.88) +54.44 +0.78%
USD/IDR (14,146) -6.00 -0.04%
EUR/IDR (17,335) +57.05 +0.33%
The government of Japan is most likely to file a complaint to the World Trade Organization (WTO) about Indonesia's recently introduced ban on the export of mineral ore (UU Minerba No. 4 - 2009). Although the WTO is yet to receive a formal letter of protest, Indonesian newspaper Investor Daily reported on Friday (04/04) that Trade Minister Muhammad Lutfi has already received a letter from Japan's Minister of Foreign Affairs in which the step was announced. Japan feels forced to bring the case to the WTO as its industry is affected by the ban.
The export ban is negative for Japan as its domestic industry is highly dependent on the supply of certain raw Indonesian commodities, particularly nickel. Around 50 percent of total nickel imports to Japan originate from Indonesia.
UU Minerba No. 4 - 2009 (known as Indonesia's New Mining Law) has been in effect since 12 January 2014 and prohibits the export of unprocessed minerals, forcing miners to process minerals domestically first. The main aim of the government is to boost value-added exports (and revenues). However, currently Indonesia still lacks sufficient smelting capacity. Although the law was announced in 2009 and miners thus had five years to prepare smelting facilities, Indonesian miners were skeptical about the government's commitment to the new law (as there is a lack of consistent policy in Indonesian politics). Therefore, Indonesian President Susilo Bambang Yudhoyono signed a last-minute regulation which softened the impact of the new law by allowing mining companies to continue exports of copper, manganese, zinc, lead and iron ore concentrate until 2017 under certain (and strict) conditions (these exports will be taxed by a high and progressive imposition of export duties and exporters need to show their commitment to build smelters).
The new and controversial mining law has caused considerable confusion in the mining sector of Indonesia. Also foreign institutions are not in favor of the new law. Fore example, the World Bank presented a negative assessment of the law in the March 2014 edition of its Indonesia Economic Quarterly, claiming that it will hurt trade, limits government revenue and undermines (already) weak investor confidence in Indonesia's mining sector. Moreover, it sees no positive results in other countries where a similar ban has been imposed. Lastly, the ban will burden the country's already fragile trade balance due to the loss of export revenue, while imports rise as capital goods need to be imported to build smelters.