As of January 12, Indonesia has banned the export of the unprocessed ores, nickel and bauxite.  The ban may have consequences for investments in the area and could trigger international claims by foreign investors and stakeholders.  This newsletter explores potential remedies under international trade and investment law.

The Indonesian government recently imposed an export ban of the unprocessed ores, nickel and bauxite, which went into effect January 12, 2014 (Indonesia’s Law No. 4/2009 on Minerals and Coal Mining).  The ban is part of an initiative by the Indonesian government to force domestic miners to expand into higher value processing businesses instead of simply shipping raw materials to foreign buyers.  The sale of ores that are not processed to the required levels is now illegal.  Failure to comply with the ban could result in producer companies losing their licenses to mine.

Affected parties, in addition to reviewing the wording of their supply contracts and any relevant charter party (taking note of any relevant procedural requirements, issues of unenforceability and force majeure), should also consider the use of trade and investment treaty dispute resolution mechanisms.

World Trade Organization (WTO) Dispute Settlement

WTO rules disallow export restrictions that have limiting effects on trade and further disallow measures that discriminate against foreign interests.  When a WTO member country introduces measures that violate these rules, any other WTO member government may use the WTO dispute settlement procedure to confirm the violation(s).  Under the WTO system, if a foreign government were to lodge a dispute settlement action against Indonesia’s new export ban and prevail, Indonesia would be required to eliminate its ban or face retaliation from the complaining government.

Investment Treaty Arbitration

While the WTO dispute resolution mechanism can only be activated by a state, investment treaties allow an affected company to bring a claim before a neutral, international tribunal.  In order to benefit from the protections offered by such treaties, the company must have an investment in the country that has implemented the ban.  The substantive protections provided by investment treaties are (for the most part) similar, but any relevant investment treaty with Indonesia must be reviewed carefully as to whether it provides protection in the specific situation.

Investment treaties usually guarantee the following substantive protection standards:

• Promotion of favorable conditions for investors/investments

• Fair and equitable treatment of investors/investments

• Observance of any obligations the host state may have undertaken vis-à-vis the investor/investment

• Most-favored nation treatment, requiring the host state to treat foreign investors/investments no less favourably than investments from any third state

• Protection against expropriation and nationalization

• Requirement to permit the free transfer of funds

Where there is a breach of any of these substantive protection standards, a private investor may be able to initiate arbitration directly against the government.