Following pressure from industry stakeholders, the Indonesian Government has implemented two Amendment Regulations (Ministry of Trade Regulation No. 48/2018 (the “First Amendment Regulation”) and Ministry of Trade Regulation No. 80/2018 (the “Second Amendment Regulation”)) to amend Ministry of Trade Regulation No. 82/2017 on the Utilisation of Indonesian Sea Carriage and Insurance for Export of Certain Goods (“Regulation 82”), which was approved in October 2017 and was due to come into effect from 30 April 2018. There were reports following implementation of the First Amendment Regulation that Regulation 82 had been or was to be revoked, however, the Government has instead opted to hold course with some changes to and delays to the implementation of Regulation 82.
The first amendment
The First Amendment Regulation sought to clarify some of the ambiguities created by Regulation 82 (as discussed in our previous Law-Now article) which requires exporters of coal and crude palm oil (“CPO”) from Indonesia (and the import of rice and goods for government procurement to Indonesia) to use vessels “controlled” by Indonesian shipping companies and to procure insurance from Indonesian insurance companies. Crucially, the First Amendment Regulation also provided additional time for the various industries impacted to align their practices to the new rules by postponing the enforcement dates of various parts of Regulation 82.
Requirement to obtain insurance from Indonesian companies
The First Amendment Regulation removes the option previously offered in Regulation 82 to procure insurance from a foreign insurance company in the event that the requisite insurance from an Indonesian insurance company is not available. National (i.e. Indonesian incorporated) insurance companies must be utilised with no exception, although the First Amendment Regulation narrows the scope of insurance companies to be defined as companies providing conventional insurance products and sharia law compliant insurance and provides that such insurance can be obtained from either a national insurance company or a consortium of national insurance companies.
The introduction of the insurance consortium route was an attempt to address concerns that an individual Indonesian insurance company may not be able (or willing) to provide adequate insurance cover itself, while promoting Indonesian insurance products over foreign insurance company offerings. However, this amendment did not address the more general concern of relevant importers and exporters as to whether the Indonesian insurance industry offers the requisite sophisticated insurance products to provide sufficient cover for cargo and this is likely to cause issues for the industry with importers and exporters outside of Indonesia worrying that the insurance covering their cargo does not adequately mitigate cargo risks.
Requirement to use Indonesian controlled vessels
For the mandatory utilisation of vessels controlled by an Indonesian shipping company, the effective date has been postponed from 30 April 2018 until 1 May 2020. The postponement of the effective date for this part of the legislation is consistent with the Indonesian Government’s approach to mandating use of domestic owned vessels for other activities, such as certain offshore drilling works, recognising that the Indonesian shipping industry does not have the capacity to service all Indonesian maritime needs.
The second amendment
The Second Amendment Regulation, which came into force on 1 August 2018, further delays the implementation of certain parts of Regulation 82 and adds an additional requirement for verification of compliance with Regulation 82 before imports or exports are made. The key mandatory requirements to utilize local vessels and insurance companies remain the same.
Verification or technical search
The verification or technical search procedure (explained below) must be carried out before the loading of goods for import or export and can be conducted by authorized surveyors only. An importer or exporter has to submit an application to the designated surveyor to organise the verification procedure. The technical search includes: (i) administrative assessments relating to the use of Indonesian controlled vessels, including the name of the vessel, the type of vessel, vessel capacity and vessel flag; and (ii) administrative assessments relating to the use of Indonesian insurance products, including the name of the insurer, the number and date of the policy, the name of the insured, the type of goods, the cargo shipping route, the name of the transporting vessel and the term of the insurance coverage.
The introduction of mandatory pre-import/export compliance checks demonstrates the Indonesian Government’s insistence that the terms of Regulation 82 are adhered to and its promotion of national shipping and insurance interests.
Postponement of implementation of provisions
The effective date for the mandatory procurement of insurance from an Indonesian insurance company (or consortium) has been postponed until 1 February 2019, having previously been delayed by the First Amendment Regulation to 1 August 2018. The effective date for the mandatory use of Indonesian controlled vessels remains 1 May 2020 as per the First Amendment Regulation. Until such dates, both local and foreign insurance companies and vessels may be engaged. Foreign vessels may still be utilised beyond 1 May 2020 if local vessels are unavailable. The Amendment Regulations provide no further clarity on what “unavailable” in this context means.
No further clarity has been provided on how the legislation will affect existing contracts and the Government has provided little guidance as to how it will support the relevant industries in transitioning to comply with the new requirements. The (extended) postponements should be used as an opportunity for businesses involved in the import and export of the targeted goods to prepare for compliance with the provisions of the new legislation.