THE STATE'S POSITION AS A BUYER IN THE PERSPECTIVE OF
INTERNATIONAL TRADE LAW
1.0 Introduction:
International trade law is one of the areas of law that is developing very quickly. The
increasingly diverse demands of human needs give birth to trade relations between
countries. Trade relations that are established start from a simple model in the form of
barter, buying and selling goods, even larger and more complex trade relations. The
establishment of an international trade relationship not only aims to meet the needs of a
country but also to expand the market and increase the production of goods and foreign
exchange through export activities to other countries to increase economic sector growth
and absorb labor, even to develop human skills in the field of technology.
In international trade law, There are several subjects of international trade law. The
state as one of the legal subjects in international trade law has an important role in the
development of international trade forms including regulations related to international trade
transactions.
The establishment of relationships between subjects of international trade law has a
positive impact, such as increasing the country's economic growth, increasing foreign
exchange through import duties and other fees on exports and imports, meeting the needs of
the country through imports, increasing cooperation between countries, opening up
employment opportunities, as well as improving the quality of life of the country increase
scientific and technological progress (Detik.com, 2021). However, international trade also
brings negative impacts that every country must be aware of, such as the disruption of the
production of domestic goods as a result of the influx of imported goods which can result in
huge losses for local entrepreneurs, the creation of dependency relationships with other
countries, the emergence of unfair competition as a result of free trade, the lower economic
growth of the country if it is unable to compete with foreign products (Detik.com, 2021).
Indonesia also actively participates in international trade relations with other
countries with the aim of meeting the needs of the country and society, even to provide the
needs of other countries, both in the form of goods and services. Being located between
two continents and two oceans gives Indonesia an advantage in international trade.
99
In relation to international trade, Indonesia has established trade relations with
several countries, such as Germany, China, Canada and so on. Indonesia and Germany
have had a long-standing partnership. Some of Indonesia's leading products exported to
Germany include palm oil, machinery, footwear, electronic equipment, rubber, coffee-tea
and spices (Embassy of the Republic of Indonesia in Berlin, Federal Republic of Germany,
2018). As a reciprocal relationship, Indonesia also imports several German products, such
as manufactured goods, communication equipment, chemical goods, metal products and so
on (Embassy of the Republic of Indonesia in Berlin, Federal Republic of Germany, 2018).
Indonesian export products are also sent to Canada, including rubber products,
apparel, spare parts for electronic equipment and machinery, nickel, cocoa, coffee and so
on (Embassy of the Republic of Indonesia, Ottawa, 2020). Indonesia also imports cereal
products, fertilizers, aluminum, iron ore, and so on from Canada (Embassy of the Republic
of Indonesia, Ottawa, 2020).
Indonesia also has a partnership relationship with China. Both countries have
consistently increased cooperation in the trade sector. The cooperation established by
Indonesia and China is expected to increase exports of potential products owned by
Indonesia to China (Ministry of Trade of the Republic of Indonesia, 2019). Even during the
Covid-19 pandemic, Indonesia and China agreed to strengthen vaccine cooperation, travel
corridor arrangements and national economic recovery (Kompas.com, 2020).
In relation to the State as a legal subject, the State Sovereignty Theory is known, as
George Jellinek argues that "the law is not created by God or the King, but the State"
(Silalahi, 2015). This theory illustrates that law is a manifestation of the will of a State and
places the State as the holder of the law supreme power, including the power to utilize
territory, enforce laws and pursue all matters aimed at the security and welfare of its
citizens (Silalahi, 2015).
In the capacity of the State as the supreme power holder, the State is required to
consistently apply the principle of non-discrimination, especially with regard to
government policies affecting export-import activities by private traders (Mastromatteo,
2017). The application of the principle of non-discrimination provides equal opportunities
for parties involved in trade activities to conduct trade transactions in a State's territory,
including state-owned enterprises that actively participate in international trade activities.
In the application of law in a State, several fundamental principles are also known as
introduced by Professor Aleksander Goldštajn, including 1) the principle of the freedom of
contract; 2) the principle of pacta sunt servanda; and 3) the principle of the use of
arbitration (Asnawi, & Hudiata, 2017). This principle illustrates that the State as a legal
subject has the authority to apply the principle of freedom of contract, including the
principle of freedom to determine the method of dispute resolution which can be realized in
the choice of forum and choice of law in one of the clauses.
The State as a subject of international law is understood to have sovereignty to
regulate goods or services that leave and enter its territory. With the sovereignty possessed
by the State, a State has the authority to form regulations that bind legal subjects, objects
and legal events that occur in its territory (Adolf, 2006). This authority usually occurs in the
state's position as a trader. This raises questions if the state's position is not as a seller but as
a buyer. There needs to be clarity regarding the position of the state as a buyer in
international trade law. In connection with the position of the state as a buyer, there needs to
be clarity regarding the method of dispute resolution that can be pursued if the State
experiences losses related to the purchase of goods in international trade.
This research when compared with Some of the previous studies have similarities in
terms of topics, which both examine the regulation of international trade, but the focus of
the study is different. This paper emphasizes the legality of the State as a buyer in
international trade law and the form of dispute resolution that can be taken in the event of a
loss related to the purchase of goods by the State under international trade law.
The previous study was conducted by Deden Rafi Syafiq Rabbani in 2021, examining
the "Critical Review of the Trade Facilitation Agreement (TFA)". World Trade
Organization (WTO) Analysis of the Implementation of International Trade Policy in
Indonesia" (Rabbani, 2021). In this case, the focus of the research is the implementation of
international trade policies in Indonesia based on the presence of the TFA which has a
significant impact on international trade traffic, especially with regard to Indonesia as a
member of the WTO, as well as the normative regulation of the TFA in Indonesia which has
been regulated in several legal products both in laws and presidential regulations so that the
implementation of the presence of the TFA affects the control of foreign trade and export-
import policies. Yana Sylvana, et al in 2020, studied "The Role of the WTO in Mediating the
Palm Oil Dispute Between Indonesia and the European Union" (Sylvana et al, 2020). In
this case, the focus of the research is the role of the WTO as a dispute resolution body
between Indonesia and the European Union. Muhammad Rafi Darajati in 2020 studied
"State Obedience to International Trade Law" (Darajati, 2020). The focus of this study is on
why a country needs to obey international trade law when conducting international trade
101
activities.
This writing aims to identify, analyze and elaborate on the legality of the State as a
buyer in international trade law as well as the form of dispute resolution that can be pursued
in the event of a loss related to the purchase of goods by the State under international trade
law. In order to realize the purpose of writing, this paper will systematically discuss the
substance relevant to the focus of the problem. First, the regulation of the legality of the
State as a buyer in international trade law is presented. Second, the form of dispute
resolution that can be pursued in the event of a loss related to the purchase of goods by the
State under international trade law.
2.0 Research Methods:
This writing starts from the results of the search for legal material using normative
research methods. In this research, a study is carried out on the provisions relating to the
laws and regulations concerning the State. As a buyer in international trade law and dispute
resolution can be done if there is a loss related to the purchase of goods by the State under
international trade law. This normative legal research is focused on the position of the State
as a buyer in international trade law and dispute resolution can be done after a dispute
arises, through a statutory approach, analytical and conceptual approach to primary legal
materials, secondary law and tertiary legal materials for further analysis.
3.0 Results And Discussion
1.
The State's Position as a Buyer in International Trade Law:
The State is the subject of international trade law. In general, it can be understood
that the State is the only legal subject that has sovereignty which makes it a perfect legal
subject. This causes the State to have Full Legal Personality because only the State is able
to support all rights and obligations in the international sphere (Salain, 2019).
State sovereignty is closely related to international trade activities. International trade
can be understood as the exchange of goods, services, or capital across national borders.
This activity is also known as exporting, which is selling and/or sending goods or services
abroad, and importing, which is buying and receiving goods or services from abroad
(Wijaya, Nopiandri, & Habiburrokhman, 2017).
With the attribute of sovereignty, the State has the authority to make (regulators) that
bind other legal subjects both individuals and companies, binding objects and legal events
that occur within its territory including trade relations that occur within the territory of the
state. The state also indirectly plays a role in the formation of international organizations
that give birth to international trade rules.
In the context of the relationship between the State and the State in international trade
law, the sovereignty possessed by the state places all states in the same position; parallel or
coordinative (Sunyowati, 2013). The coordinative structure adopted in inter-state relations
in international trade law is as follows International law provides an opportunity for
countries to jointly with other countries to enter into international agreements to regulate
trade transaction relations between countries. International trade agreements can be
preceded by international economic agreements first. International economic and trade
agreements are either bilateral or multilateral. Bilateral international trade agreements are
carried out by 2 (two) countries, such as between Indonesia and Japan which formed the
Economic Partnership Agreement (EPA) in the fields of trade and investment (JETRO
Indonesia, 2020). This bilateral agreement was signed on August 20, 2007 under the name
Agreement between the Republic of Indonesia and Japan for an Economic Partnership. The
international trade agreement is used as a basic tariff preference scheme between Indonesia
and Japan. The Indonesian government ratified the Agreement between the Republic of
Indonesia and Japan for an Economic Partnership through Presidential Regulation No. 36
of 2008 concerning the Agreement between the Republic of Indonesia and Japan regarding
an Economic Partnership and followed up with several Minister of Finance Regulations,
including PMK Number 94/PMK.011/2008 concerning Modalities for Reducing Import
Duty Tariffs (Giman, 2015).
The WTO Agreement is one of examples of multilateral international trade
agreements. Indonesia is one of the member countries of the WTO. The WTO Agreement is
the source of law for agreements international trade agreements established by member
countries (be it bilateral, regional or multilateral). The General Council of the WTO
stipulates that there should be transparency when WTO member countries form Regional
Trade Agreements (RTAs) (The WTO, 2011). Article XVI:3 of the Marrakesh Agreement
(the agreement that established the WTO) states that when there is a conflict between the
WTO Agreement and other WTO Multilateral Agreements, the provisions of the Marrakesh
Agreement shall prevail. Likewise, when Indonesia forms an agreement with Japan, the
substance must not conflict with the WTO Agreement because both are WTO member
countries.
103
Examples of economic and trade agreements The above-mentioned international
regulations are used by countries as a source of law when conducting international trade
transactions as outlined in the form of international contracts. Therefore, in international
trade relations, the state not only acts as a regulator but also as a seller and buyer. In
relation to the state's position as a buyer, generally the state with its state companies can
enter into trade transactions with other countries. This is closely related to the essence of
trade transactions, namely fundamental freedom.
To carry out the function as a buyer, the state can utilize the following agencies state-
owned enterprises (Mattoo, Rocha, & Ruta, 2020), for example through Perseroan
(hereafter "Persero"). The role of SOEs or State Enterprises has now grown significantly
(Kowalski, & Rabaioli, 2017).
The State's position as a purchaser is closely related to the principles of jure imperii
and jure gestionis. Referring to the principle of jure imperii, it can be understood that the
actions of legal entities will be protected by state immunity if the action is a government
action or executive authority (Sefriani, 2012). However, the institution will lose its
immunity if it carries out jure gestionis, which is a business or commercial transaction
(Lantang, 2013).
Referring to this principle, it can be understood that immunity can be owned by a
State in relation to actions taken as a form of government action. However, the immunity
owned by the State will be lost if the State carries out commercial activities.
In general, the State through SOEs performs the task of organizing public benefits in
the form of providing high-quality and adequate goods and/or services for the fulfillment of
the lives of many people as specified in Article 2 paragraph (1) letter c of Law Number 19
of 2003 concerning State-Owned Enterprises (hereinafter "SOE Law"). With the purpose
of SOEs, every business result from SOEs can fulfill the needs of the community.
The same thing is also regulated in the provisions of Article 12 of the BUMN Law
which basically regulates the purpose of establishing a Persero is to provide goods and / or
services that are of high quality and strong competitiveness and make a profit. Referring to
the provisions of Article 12 of the BUMN Law, it can be understood that the Persero as an
entity representing the State is required to be able to meet market demand through the
provision of high-quality and highly competitive goods and / or services both in domestic
and international markets.
In the context of SOEs as representatives of the State, the main objective that must be
achieved is to organize public benefits by providing goods and/or services for the
fulfillment of the lives of many people. The main objective of SOEs overrides the goal of
making profits in international trade relations.
The regulation of SOEs is determined based on Article XVII of the General Agreement
on Tariffs and Trade 1994 (hereinafter GATT 1994). The provisions of this article
essentially establish the obligations of GATT 1994 member states in relation to the
activities of State Trading Enterprises (SOEs) which provide an obligation for member
states to consistently apply the principle of non-discrimination, especially with regard to
government policies affecting export-import activities by private traders (Mastromatteo,
2017).
This notification requirement does not apply to import-export activities that need to
be immediately used either by the government or companies as specified above and not for
resale or used to produce goods for sale. In this provision, it can be understood that the
State has an obligation in the form of reporting or notification related to the import-export
activities the existence of SOEs to the Goods Trade Council. However, this notification
requirement does not apply to import-export activities that require immediate use by the
government or company.
Based on the explanation above, it can be understood that the State is one of the
subjects of international trade law. The State can make international trade agreements and
contracts. When a State wants to make an international trade contract and acts as a buyer
through a state-owned enterprise or state enterprises, it has an obligation in the form of
reporting or notification related to the existence of the BUMN itself to the Goods Trade
Council as an implementation of the principle of non-discrimination and as a form of
transparency in international trade relations. This is in accordance with the WTO principle
which requires the State to provide equal treatment to other countries including in
international trade practices (Purwanti, 2020).
2.
Parties to a Trade Contract International
As previously described, the state as a public legal entity can become a legal subject
in an international contract by changing its status as a private legal entity. By changing its
status as a private legal entity, the State can carry out civil relationships, such as leasing,
buying and selling (International) which are not subject to international law transformed
into international contracts (Mardiana, 2017).
105
When the state is a private legal entity, the party to the international contract is the
state-owned company and will be subject to civil law regulations. Article 1654 of the Civil
Code states: "All legally established legal entities, as well as private persons, have the
power to perform civil acts, without prejudice to legislation that modifies that power, limits
it or subjects it to certain procedures." To the extent that the SOE in question is established
in the form of a PT, it can be qualified as a private entity. PT based on Article 1 Point 1 of
Law No. 40 of 2007 concerning Limited Liability Companies (PT) is a legal entity which is
an alliance of capital, established based on an agreement, conducting business activities
with authorized capital which is entirely divided into shares and fulfills the requirements
stipulated in this law and its implementing regulations.
To carry out the function as a buyer (buyer) in international trade relations
involving the State and private entities, usually based on an international trade contract,
where the state often creates state-owned legal entities. In a contract (whether national or
international) the parties must have equal standing, it is not possible for one party to be a
company or legal entity while the other party is a state-owned legal entity another State.
The State downgrades its personality to that of a State-owned company/legal entity in order
to enter into international trade contracts (either as a seller or buyer) with other
companies/legal entities (whether State-owned or private). For example, when Indonesia
established state-owned enterprises engaged in various economic fields.
There are various examples of state-owned companies established in Indonesia: PT
Kimia Farma Tbk, PT Kereta Api Indoonesia, PT BNI Tbk, PT Garuda Indonesia, PT
Jamsostek and others. These SOEs can conduct international buying and selling transactions
with other countries and foreign private legal entities as outlined in international trade
contracts. International trade contracts made by the State will be subject to the provisions of
international civil law governing contractual relations.
According to Professor Aleksander Goldštajn, there are several fundamental
principles in international trade relations that are transformed into contracts, including 1)
the principle of the freedom of contract; 2) the principle of pacta sunt servanda; and 3) the
principle of the use of arbitration (Asnawi & Hudiata, 2017). Referring to these basic
principles, it can be understood that in the context of the State as a buyer, the state has the
freedom to make trade contracts with the subject of international trade law.
In relation to the principle of freedom of contract, it can be understood that the state
as a party to international trade has the freedom to make an international trade
agreement/contract; free to determine the content and extent of the agreement, rights and
obligations in the contract, the desired form of contract and even the form of settlement
that will be taken in the event of a conflict in the future. The contents of the agreement then
become law for the parties who agree and are bound by the agreement. This statement is in
accordance with the principle of pacta sunt servanda. International contracts made in the
context of the state as a buyer can also determine the choice of dispute settlement method
to be pursued by the parties, including the choice of law and the choice of forum for
settlement dispute (choice of forum) (Amalia, Sabrie, & Dian, 2018)
3.
Dispute Resolution in the Event of Loss Related to the State's Purchase of Goods
under International Trade Law:
Relationships in international trade are complex. All relationships that occur in the
process of international trade have the potential to give birth to a dispute involving the
subjects of international trade law, including the state.
In general, a trade dispute is often resolved through negotiation (Mawanda, &
Muhshi, 2019). If the parties do not find a solution through negotiation, they may resort to
other dispute resolution methods such as arbitration or court settlement.
The choice of dispute resolution method that can be pursued by the parties is
generally determined in the agreement clause between the parties. The parties to the
agreement usually choose one of the legal systems (choice of law) or choose a dispute
resolution institution (choice of forum), including submitting disputes to Alternative Dispute
Resolution (hereinafter "ADR") or Alternative Dispute Resolution (hereinafter "APS")
(Suparman, 2018).
Referring to Huala Adolf's thoughts, there are several principles in international trade
dispute resolution, including: 1) Principle agreement of the parties (Consensus); 2) The
principle of free choice of means of dispute resolution; 3) The principle of freedom of
choice of law; 4) Principle of good faith; and 5) Principle of Exhaustion of Local Remedies
(Adolf, 2006). These principles provide space for parties to freely determine and agree on
the method chosen as an effort to resolve disputes, including determining the law chosen
and deemed appropriate by emphasizing the good faith of the parties and resolving a dispute
through the national law of a country before submitting a dispute to an international dispute
resolution institution.
In principle, the dispute resolution forum in international trade law is the same as the
forum in international dispute resolution in general. Dispute resolution forums that can be
chosen by the parties to the dispute include negotiation, mediation, conciliation, arbitration,
107
dispute resolution through law or court, or other dispute resolution methods chosen or
agreed upon by the parties, as specified in the provisions of Article 33 of the Charter of the
United Nations. These methods have been recognized as dispute resolution methods in the
legal systems of various countries.
The state as a buyer has the freedom to determine the method of dispute resolution
that will be pursued when making an international sale and purchase contract with a party
merchant. The settlement method is then set out in a clause that determines the choice of
law and the choice of dispute resolution institution (choice of forum).
The choice of law is related to the law that will be used by the dispute resolution
forum (court or arbitration) to determine the validity of a contract, interpret the agreement
in the contract, determine whether a performance has been performed or not, and to
determine the legal consequences of a violation of the contract (Hutabarat, 2016). Choice of
law by the contracting parties is freely limited. The freedom of the contracting parties in
determining the choice of law to resolve disputes over the implementation of their contracts
is limited by general principles in international civil law. The general principles in question,
there is lex loci contractus, namely the legal system used is the legal system where the
contract is signed; lex loci solutionis, namely the legal system used is the legal system
where the contract is executed; (Khairandy, 2006) The Proper Law of Contract Theory
determines the legal system used is the legal system that has the closest and real connection
with the transaction in the contract; (Khairandy, 2006) and The Most Characteristic
Connection Theory which determines that the legal system used is the legal system of the
contracting party who performs the most characteristic performance (Syahrin, 2017)
Meanwhile, the choice of law by the contracting party is the legal system of the contracting
party forum is identical to the choice of forum or the location of the dispute resolution
institution. For example, if the parties choose the method of settlement through the court,
then in which region of the country the court is located or if the parties choose arbitration,
then which arbitration institution will be chosen. Is the arbitration institution in Singapore,
New York, London or Indonesia. Of course, the selection of the place of dispute resolution
institution refers to the principles of international civil law. For example, the principle of
actor sequitur forum rei, namely the case or dispute is filed in the territory of the defendant
State (Pratidina, 2015).
The inclusion of choice of law, choice of dispute settlement and choice of forum
clauses in an international trade or sale contract provides a guarantee of legal certainty for
the parties that make it. In the event of a dispute, the parties already have an agreement on
the method of settlement, choice of law and choice of forum. International trade contract
disputes tend to be resolved through arbitration. The disputing parties tend to choose
arbitration because it provides party autonomy to the parties to determine the legal
instruments used, the number of arbitrators, is more efficient and effective in terms of cost
and time, of course it is confidential because it is not open to the public the arbitration
process (Jović, 2019).
When the parties agree on the method of resolving their dispute through arbitration
and select an arbitral body, for example Singapore International Arbitration Center
(SIAC) then they can choose the type of international legal instrument used as the Rule of
Procedures (ROP). There are several international legal instruments that regulate
arbitration, namely: International Chamber of Commerce (ICC) Rules of Arbitration 2021
and United Nations Commission on International Trade Law (UNCITRAL) Model Law on
International Commercial Arbitration 2006.
In relation to the State as a buyer, it can be understood that the trade relationship that
occurs between the State as a buyer and a trader is a contractual relationship. The
relationship also regulates the settlement method agreed upon by the parties as an
implementation of the principles of freedom of contract, including the principle of choice of
dispute settlement, either choice of law or choice of forum.
4.0 Conclusion:
Based on the explanation above, it can be understood that the State is one of the
subjects of international trade law. In international trade law, the State can act as a buyer
through state-owned enterprises or state enterprises with obligations in the form of reporting
or notification related to the existence of the SOE itself to the Goods Trade Council as an
implementation of the principle of non-discrimination and non-discrimination as a form of
transparency in international trade relations. In relation to the State as a buyer, it can be
understood that the trade relationship that occurs between the State as a buyer and the trader
is a contractual relationship. The relationship also regulates the settlement method agreed
upon by the parties as an implementation of the principles of freedom of contract, including
the principle of choice of dispute settlement, either choice of law or choice of forum.
The establishment of relationships between subjects of international trade law has a
109
positive impact, such as increasing the country's economic growth, increasing foreign
exchange through import duties and other fees on exports and imports, meeting the needs of
the country through imports, increasing cooperation between countries, opening up
employment opportunities, as well as improving the quality of life of the country increase
scientific and technological progress (Detik.com, 2021). However, international trade also
brings negative impacts that every country must be aware of, such as the disruption of the
production of domestic goods as a result of the influx of imported goods which can result in
huge losses for local entrepreneurs, the creation of dependency relationships with other
countries, the emergence of unfair competition as a result of free trade, the lower economic
growth of the country if it is unable to compete with foreign products (Detik.com, 2021).
Indonesia also actively participates in international trade relations with other
countries with the aim of meeting the needs of the country and society, even to provide the
needs of other countries, both in the form of goods and services. Being located between
two continents and two oceans gives Indonesia an advantage in international trade.
In relation to international trade, Indonesia has established trade relations with
several countries, such as Germany, China, Canada and so on. Indonesia and Germany
have had a long-standing partnership. Some of Indonesia's leading products exported to
Germany include palm oil, machinery, footwear, electronic equipment, rubber, coffee-tea
and spices (Embassy of the Republic of Indonesia in Berlin, Federal Republic of Germany,
2018). As a reciprocal relationship, Indonesia also imports several German products, such
as manufactured goods, communication equipment, chemical goods, metal products and so
on (Embassy of the Republic of Indonesia in Berlin, Federal Republic of Germany, 2018).
Indonesian export products are also sent to Canada, including rubber products,
apparel, spare parts for electronic equipment and machinery, nickel, cocoa, coffee and so
on (Embassy of the Republic of Indonesia, Ottawa, 2020). Indonesia also imports cereal
products, fertilizers, aluminum, iron ore, and so on from Canada (Embassy of the Republic
of Indonesia, Ottawa, 2020).
Indonesia also has a partnership relationship with China. Both countries have
consistently increased cooperation in the trade sector. The cooperation established by
Indonesia and China is expected to increase exports of potential products owned by
Indonesia to China (Ministry of Trade of the Republic of Indonesia, 2019). Even during the
Covid-19 pandemic, Indonesia and China agreed to strengthen vaccine cooperation, travel
corridor arrangements and national economic recovery (Kompas.com, 2020).
In relation to the State as a legal subject, the State Sovereignty Theory is known, as
George Jellinek argues that "the law is not created by God or the King, but the State"
(Silalahi, 2015). This theory illustrates that law is a manifestation of the will of a State and
places the State as the holder of the law supreme power, including the power to utilize
territory, enforce laws and pursue all matters aimed at the security and welfare of its
citizens (Silalahi, 2015).
In the capacity of the State as the supreme power holder, the State is required to
consistently apply the principle of non-discrimination, especially with regard to
government policies affecting export-import activities by private traders (Mastromatteo,
2017). The application of the principle of non-discrimination provides equal opportunities
for parties involved in trade activities to conduct trade transactions in a State's territory,
including state-owned enterprises that actively participate in international trade activities.
In the application of law in a State, several fundamental principles are also known as
introduced by Professor Aleksander Goldštajn, including 1) the principle of the freedom of
contract; 2) the principle of pacta sunt servanda; and 3) the principle of the use of
arbitration (Asnawi, & Hudiata, 2017). This principle illustrates that the State as a legal
subject has the authority to apply the principle of freedom of contract, including the
principle of freedom to determine the method of dispute resolution which can be realized in
the choice of forum and choice of law in one of the clauses.
The State as a subject of international law is understood to have sovereignty to
regulate goods or services that leave and enter its territory. With the sovereignty possessed
by the State, a State has the authority to form regulations that bind legal subjects, objects
and legal events that occur in its territory (Adolf, 2006). This authority usually occurs in the
state's position as a trader. This raises questions if the state's position is not as a seller but as
a buyer. There needs to be clarity regarding the position of the state as a buyer in
international trade law. In connection with the position of the state as a buyer, there needs to
be clarity regarding the method of dispute resolution that can be pursued if the State
experiences losses related to the purchase of goods in international trade.
This research when compared with Some of the previous studies have similarities in
terms of topics, which both examine the regulation of international trade, but the focus of
the study is different. This paper emphasizes the legality of the State as a buyer in
international trade law and the form of dispute resolution that can be taken in the event of a
loss related to the purchase of goods by the State under international trade law.
The previous study was conducted by Deden Rafi Syafiq Rabbani in 2021, examining
111
the "Critical Review of the Trade Facilitation Agreement (TFA)". World Trade
Organization (WTO) Analysis of the Implementation of International Trade Policy in
Indonesia" (Rabbani, 2021). In this case, the focus of the research is the implementation of
international trade policies in Indonesia based on the presence of the TFA which has a
significant impact on international trade traffic, especially with regard to Indonesia as a
member of the WTO, as well as the normative regulation of the TFA in Indonesia which has
been regulated in several legal products both in laws and presidential regulations so that the
implementation of the presence of the TFA affects the control of foreign trade and export-
import policies. Yana Sylvana, et al in 2020, studied "The Role of the WTO in Mediating the
Palm Oil Dispute Between Indonesia and the European Union" (Sylvana et al, 2020). In
this case, the focus of the research is the role of the WTO as a dispute resolution body
between Indonesia and the European Union. Muhammad Rafi Darajati in 2020 studied
"State Obedience to International Trade Law" (Darajati, 2020). The focus of this study is on
why a country needs to obey international trade law when conducting international trade
activities.
This writing aims to identify, analyze and elaborate on the legality of the State as a
buyer in international trade law as well as the form of dispute resolution that can be pursued
in the event of a loss related to the purchase of goods by the State under international trade
law. In order to realize the purpose of writing, this paper will systematically discuss the
substance relevant to the focus of the problem. First, the regulation of the legality of the
State as a buyer in international trade law is presented. Second, the form of dispute
resolution that can be pursued in the event of a loss related to the purchase of goods by the
State under international trade law.
2.0 Research Methods:
This writing starts from the results of the search for legal material using normative
research methods. In this research, a study is carried out on the provisions relating to the
laws and regulations concerning the State. As a buyer in international trade law and dispute
resolution can be done if there is a loss related to the purchase of goods by the State under
international trade law. This normative legal research is focused on the position of the State
as a buyer in international trade law and dispute resolution can be done after a dispute
arises, through a statutory approach, analytical and conceptual approach to primary legal
materials, secondary law and tertiary legal materials for further analysis.
3.0 Results And Discussion
1.
The State's Position as a Buyer in International Trade Law:
The State is the subject of international trade law. In general, it can be understood
that the State is the only legal subject that has sovereignty which makes it a perfect legal
subject. This causes the State to have Full Legal Personality because only the State is able
to support all rights and obligations in the international sphere (Salain, 2019).
State sovereignty is closely related to international trade activities. International trade
can be understood as the exchange of goods, services, or capital across national borders.
This activity is also known as exporting, which is selling and/or sending goods or services
abroad, and importing, which is buying and receiving goods or services from abroad
(Wijaya, Nopiandri, & Habiburrokhman, 2017).
With the attribute of sovereignty, the State has the authority to make (regulators) that
bind other legal subjects both individuals and companies, binding objects and legal events
that occur within its territory including trade relations that occur within the territory of the
state. The state also indirectly plays a role in the formation of international organizations
that give birth to international trade rules.
In the context of the relationship between the State and the State in international trade
law, the sovereignty possessed by the state places all states in the same position; parallel or
coordinative (Sunyowati, 2013). The coordinative structure adopted in inter-state relations
in international trade law is as follows International law provides an opportunity for
countries to jointly with other countries to enter into international agreements to regulate
trade transaction relations between countries. International trade agreements can be
preceded by international economic agreements first. International economic and trade
agreements are either bilateral or multilateral. Bilateral international trade agreements are
carried out by 2 (two) countries, such as between Indonesia and Japan which formed the
Economic Partnership Agreement (EPA) in the fields of trade and investment (JETRO
Indonesia, 2020). This bilateral agreement was signed on August 20, 2007 under the name
Agreement between the Republic of Indonesia and Japan for an Economic Partnership. The
international trade agreement is used as a basic tariff preference scheme between Indonesia
and Japan. The Indonesian government ratified the Agreement between the Republic of
Indonesia and Japan for an Economic Partnership through Presidential Regulation No. 36
of 2008 concerning the Agreement between the Republic of Indonesia and Japan regarding
113
an Economic Partnership and followed up with several Minister of Finance Regulations,
including PMK Number 94/PMK.011/2008 concerning Modalities for Reducing Import
Duty Tariffs (Giman, 2015).
The WTO Agreement is one of examples of multilateral international trade
agreements. Indonesia is one of the member countries of the WTO. The WTO Agreement is
the source of law for agreements international trade agreements established by member
countries (be it bilateral, regional or multilateral). The General Council of the WTO
stipulates that there should be transparency when WTO member countries form Regional
Trade Agreements (RTAs) (The WTO, 2011). Article XVI:3 of the Marrakesh Agreement
(the agreement that established the WTO) states that when there is a conflict between the
WTO Agreement and other WTO Multilateral Agreements, the provisions of the Marrakesh
Agreement shall prevail. Likewise, when Indonesia forms an agreement with Japan, the
substance must not conflict with the WTO Agreement because both are WTO member
countries.
Examples of economic and trade agreements The above-mentioned international
regulations are used by countries as a source of law when conducting international trade
transactions as outlined in the form of international contracts. Therefore, in international
trade relations, the state not only acts as a regulator but also as a seller and buyer. In
relation to the state's position as a buyer, generally the state with its state companies can
enter into trade transactions with other countries. This is closely related to the essence of
trade transactions, namely fundamental freedom.
To carry out the function as a buyer, the state can utilize the following agencies state-
owned enterprises (Mattoo, Rocha, & Ruta, 2020), for example through Perseroan
(hereafter "Persero"). The role of SOEs or State Enterprises has now grown significantly
(Kowalski, & Rabaioli, 2017).
The State's position as a purchaser is closely related to the principles of jure imperii
and jure gestionis. Referring to the principle of jure imperii, it can be understood that the
actions of legal entities will be protected by state immunity if the action is a government
action or executive authority (Sefriani, 2012). However, the institution will lose its
immunity if it carries out jure gestionis, which is a business or commercial transaction
(Lantang, 2013).
Referring to this principle, it can be understood that immunity can be owned by a
State in relation to actions taken as a form of government action. However, the immunity
owned by the State will be lost if the State carries out commercial activities.
In general, the State through SOEs performs the task of organizing public benefits in
the form of providing high-quality and adequate goods and/or services for the fulfillment of
the lives of many people as specified in Article 2 paragraph (1) letter c of Law Number 19
of 2003 concerning State-Owned Enterprises (hereinafter "SOE Law"). With the purpose
of SOEs, every business result from SOEs can fulfill the needs of the community.
The same thing is also regulated in the provisions of Article 12 of the BUMN Law
which basically regulates the purpose of establishing a Persero is to provide goods and / or
services that are of high quality and strong competitiveness and make a profit. Referring to
the provisions of Article 12 of the BUMN Law, it can be understood that the Persero as an
entity representing the State is required to be able to meet market demand through the
provision of high-quality and highly competitive goods and / or services both in domestic
and international markets.
In the context of SOEs as representatives of the State, the main objective that must be
achieved is to organize public benefits by providing goods and/or services for the
fulfillment of the lives of many people. The main objective of SOEs overrides the goal of
making profits in international trade relations.
The regulation of SOEs is determined based on Article XVII of the General Agreement
on Tariffs and Trade 1994 (hereinafter GATT 1994). The provisions of this article
essentially establish the obligations of GATT 1994 member states in relation to the
activities of State Trading Enterprises (SOEs) which provide an obligation for member
states to consistently apply the principle of non-discrimination, especially with regard to
government policies affecting export-import activities by private traders (Mastromatteo,
2017).
This notification requirement does not apply to import-export activities that need to
be immediately used either by the government or companies as specified above and not for
resale or used to produce goods for sale. In this provision, it can be understood that the
State has an obligation in the form of reporting or notification related to the import-export
activities the existence of SOEs to the Goods Trade Council. However, this notification
requirement does not apply to import-export activities that require immediate use by the
government or company.
Based on the explanation above, it can be understood that the State is one of the
subjects of international trade law. The State can make international trade agreements and
contracts. When a State wants to make an international trade contract and acts as a buyer
115
through a state-owned enterprise or state enterprises, it has an obligation in the form of
reporting or notification related to the existence of the BUMN itself to the Goods Trade
Council as an implementation of the principle of non-discrimination and as a form of
transparency in international trade relations. This is in accordance with the WTO principle
which requires the State to provide equal treatment to other countries including in
international trade practices (Purwanti, 2020).
2.
Parties to a Trade Contract International
As previously described, the state as a public legal entity can become a legal subject
in an international contract by changing its status as a private legal entity. By changing its
status as a private legal entity, the State can carry out civil relationships, such as leasing,
buying and selling (International) which are not subject to international law transformed
into international contracts (Mardiana, 2017).
When the state is a private legal entity, the party to the international contract is the
state-owned company and will be subject to civil law regulations. Article 1654 of the Civil
Code states: "All legally established legal entities, as well as private persons, have the
power to perform civil acts, without prejudice to legislation that modifies that power, limits
it or subjects it to certain procedures." To the extent that the SOE in question is established
in the form of a PT, it can be qualified as a private entity. PT based on Article 1 Point 1 of
Law No. 40 of 2007 concerning Limited Liability Companies (PT) is a legal entity which is
an alliance of capital, established based on an agreement, conducting business activities
with authorized capital which is entirely divided into shares and fulfills the requirements
stipulated in this law and its implementing regulations.
To carry out the function as a buyer (buyer) in international trade relations
involving the State and private entities, usually based on an international trade contract,
where the state often creates state-owned legal entities. In a contract (whether national or
international) the parties must have equal standing, it is not possible for one party to be a
company or legal entity while the other party is a state-owned legal entity another State.
The State downgrades its personality to that of a State-owned company/legal entity in order
to enter into international trade contracts (either as a seller or buyer) with other
companies/legal entities (whether State-owned or private). For example, when Indonesia
established state-owned enterprises engaged in various economic fields.
There are various examples of state-owned companies established in Indonesia: PT
Kimia Farma Tbk, PT Kereta Api Indoonesia, PT BNI Tbk, PT Garuda Indonesia, PT
Jamsostek and others. These SOEs can conduct international buying and selling transactions
with other countries and foreign private legal entities as outlined in international trade
contracts. International trade contracts made by the State will be subject to the provisions of
international civil law governing contractual relations.
According to Professor Aleksander Goldštajn, there are several fundamental
principles in international trade relations that are transformed into contracts, including 1)
the principle of the freedom of contract; 2) the principle of pacta sunt servanda; and 3) the
principle of the use of arbitration (Asnawi & Hudiata, 2017). Referring to these basic
principles, it can be understood that in the context of the State as a buyer, the state has the
freedom to make trade contracts with the subject of international trade law.
In relation to the principle of freedom of contract, it can be understood that the state
as a party to international trade has the freedom to make an international trade
agreement/contract; free to determine the content and extent of the agreement, rights and
obligations in the contract, the desired form of contract and even the form of settlement
that will be taken in the event of a conflict in the future. The contents of the agreement then
become law for the parties who agree and are bound by the agreement. This statement is in
accordance with the principle of pacta sunt servanda. International contracts made in the
context of the state as a buyer can also determine the choice of dispute settlement method
to be pursued by the parties, including the choice of law and the choice of forum for
settlement dispute (choice of forum) (Amalia, Sabrie, & Dian, 2018)
3.
Dispute Resolution in the Event of Loss Related to the State's Purchase of
Goods under International Trade Law:
Relationships in international trade are complex. All relationships that occur in the
process of international trade have the potential to give birth to a dispute involving the
subjects of international trade law, including the state.
In general, a trade dispute is often resolved through negotiation (Mawanda, &
Muhshi, 2019). If the parties do not find a solution through negotiation, they may resort to
other dispute resolution methods such as arbitration or court settlement.
The choice of dispute resolution method that can be pursued by the parties is
generally determined in the agreement clause between the parties. The parties to the
agreement usually choose one of the legal systems (choice of law) or choose a dispute
resolution institution (choice of forum), including submitting disputes to Alternative Dispute
117
Resolution (hereinafter "ADR") or Alternative Dispute Resolution (hereinafter "APS")
(Suparman, 2018).
Referring to Huala Adolf's thoughts, there are several principles in international trade
dispute resolution, including: 1) Principle agreement of the parties (Consensus); 2) The
principle of free choice of means of dispute resolution; 3) The principle of freedom of
choice of law; 4) Principle of good faith; and 5) Principle of Exhaustion of Local Remedies
(Adolf, 2006). These principles provide space for parties to freely determine and agree on
the method chosen as an effort to resolve disputes, including determining the law chosen
and deemed appropriate by emphasizing the good faith of the parties and resolving a dispute
through the national law of a country before submitting a dispute to an international dispute
resolution institution.
In principle, the dispute resolution forum in international trade law is the same as the
forum in international dispute resolution in general. Dispute resolution forums that can be
chosen by the parties to the dispute include negotiation, mediation, conciliation, arbitration,
dispute resolution through law or court, or other dispute resolution methods chosen or
agreed upon by the parties, as specified in the provisions of Article 33 of the Charter of the
United Nations. These methods have been recognized as dispute resolution methods in the
legal systems of various countries.
The state as a buyer has the freedom to determine the method of dispute resolution
that will be pursued when making an international sale and purchase contract with a party
merchant. The settlement method is then set out in a clause that determines the choice of
law and the choice of dispute resolution institution (choice of forum).
The choice of law is related to the law that will be used by the dispute resolution
forum (court or arbitration) to determine the validity of a contract, interpret the agreement
in the contract, determine whether a performance has been performed or not, and to
determine the legal consequences of a violation of the contract (Hutabarat, 2016). Choice of
law by the contracting parties is freely limited. The freedom of the contracting parties in
determining the choice of law to resolve disputes over the implementation of their contracts
is limited by general principles in international civil law. The general principles in question,
there is lex loci contractus, namely the legal system used is the legal system where the
contract is signed; lex loci solutionis, namely the legal system used is the legal system
where the contract is executed; (Khairandy, 2006) The Proper Law of Contract Theory
determines the legal system used is the legal system that has the closest and real connection
with the transaction in the contract; (Khairandy, 2006) and The Most Characteristic
Connection Theory which determines that the legal system used is the legal system of the
contracting party who performs the most characteristic performance (Syahrin, 2017)
Meanwhile, the choice of law by the contracting party is the legal system of the contracting
party forum is identical to the choice of forum or the location of the dispute resolution
institution. For example, if the parties choose the method of settlement through the court,
then in which region of the country the court is located or if the parties choose arbitration,
then which arbitration institution will be chosen. Is the arbitration institution in Singapore,
New York, London or Indonesia. Of course, the selection of the place of dispute resolution
institution refers to the principles of international civil law. For example, the principle of
actor sequitur forum rei, namely the case or dispute is filed in the territory of the defendant
State (Pratidina, 2015).
The inclusion of choice of law, choice of dispute settlement and choice of forum
clauses in an international trade or sale contract provides a guarantee of legal certainty for
the parties that make it. In the event of a dispute, the parties already have an agreement on
the method of settlement, choice of law and choice of forum. International trade contract
disputes tend to be resolved through arbitration. The disputing parties tend to choose
arbitration because it provides party autonomy to the parties to determine the legal
instruments used, the number of arbitrators, is more efficient and effective in terms of cost
and time, of course it is confidential because it is not open to the public the arbitration
process (Jović, 2019).
When the parties agree on the method of resolving their dispute through arbitration
and select an arbitral body, for example Singapore International Arbitration Center
(SIAC) then they can choose the type of international legal instrument used as the Rule of
Procedures (ROP). There are several international legal instruments that regulate
arbitration, namely: International Chamber of Commerce (ICC) Rules of Arbitration 2021
and United Nations Commission on International Trade Law (UNCITRAL) Model Law on
International Commercial Arbitration 2006.
In relation to the State as a buyer, it can be understood that the trade relationship that
occurs between the State as a buyer and a trader is a contractual relationship. The
relationship also regulates the settlement method agreed upon by the parties as an
implementation of the principles of freedom of contract, including the principle of choice of
dispute settlement, either choice of law or choice of forum.
119
4.0 Conclusion:
Based on the explanation above, it can be understood that the State is one of the
subjects of international trade law. In international trade law, the State can act as a buyer
through state-owned enterprises or state enterprises with obligations in the form of reporting
or notification related to the existence of the SOE itself to the Goods Trade Council as an
implementation of the principle of non-discrimination and non-discrimination as a form of
transparency in international trade relations. In relation to the State as a buyer, it can be
understood that the trade relationship that occurs between the State as a buyer and the trader
is a contractual relationship. The relationship also regulates the settlement method agreed
upon by the parties as an implementation of the principles of freedom of contract, including
the principle of choice of dispute settlement, either choice of law or choice of forum.
The establishment of relationships between subjects of international trade law has a
positive impact, such as increasing the country's economic growth, increasing foreign
exchange through import duties and other fees on exports and imports, meeting the needs of
the country through imports, increasing cooperation between countries, opening up
employment opportunities, as well as improving the quality of life of the country increase
scientific and technological progress (Detik.com, 2021). However, international trade also
brings negative impacts that every country must be aware of, such as the disruption of the
production of domestic goods as a result of the influx of imported goods which can result in
huge losses for local entrepreneurs, the creation of dependency relationships with other
countries, the emergence of unfair competition as a result of free trade, the lower economic
growth of the country if it is unable to compete with foreign products (Detik.com, 2021).
Indonesia also actively participates in international trade relations with other
countries with the aim of meeting the needs of the country and society, even to provide the
needs of other countries, both in the form of goods and services. Being located between
two continents and two oceans gives Indonesia an advantage in international trade.
In relation to international trade, Indonesia has established trade relations with
several countries, such as Germany, China, Canada and so on. Indonesia and Germany
have had a long-standing partnership. Some of Indonesia's leading products exported to
Germany include palm oil, machinery, footwear, electronic equipment, rubber, coffee-tea
and spices (Embassy of the Republic of Indonesia in Berlin, Federal Republic of Germany,
2018). As a reciprocal relationship, Indonesia also imports several German products, such
as manufactured goods, communication equipment, chemical goods, metal products and so
on (Embassy of the Republic of Indonesia in Berlin, Federal Republic of Germany, 2018).
Indonesian export products are also sent to Canada, including rubber products,
apparel, spare parts for electronic equipment and machinery, nickel, cocoa, coffee and so
on (Embassy of the Republic of Indonesia, Ottawa, 2020). Indonesia also imports cereal
products, fertilizers, aluminum, iron ore, and so on from Canada (Embassy of the Republic
of Indonesia, Ottawa, 2020).
Indonesia also has a partnership relationship with China. Both countries have
consistently increased cooperation in the trade sector. The cooperation established by
Indonesia and China is expected to increase exports of potential products owned by
Indonesia to China (Ministry of Trade of the Republic of Indonesia, 2019). Even during the
Covid-19 pandemic, Indonesia and China agreed to strengthen vaccine cooperation, travel
corridor arrangements and national economic recovery (Kompas.com, 2020).
In relation to the State as a legal subject, the State Sovereignty Theory is known, as
George Jellinek argues that "the law is not created by God or the King, but the State"
(Silalahi, 2015). This theory illustrates that law is a manifestation of the will of a State and
places the State as the holder of the law supreme power, including the power to utilize
territory, enforce laws and pursue all matters aimed at the security and welfare of its
citizens (Silalahi, 2015).
In the capacity of the State as the supreme power holder, the State is required to
consistently apply the principle of non-discrimination, especially with regard to
government policies affecting export-import activities by private traders (Mastromatteo,
2017). The application of the principle of non-discrimination provides equal opportunities
for parties involved in trade activities to conduct trade transactions in a State's territory,
including state-owned enterprises that actively participate in international trade activities.
In the application of law in a State, several fundamental principles are also known as
introduced by Professor Aleksander Goldštajn, including 1) the principle of the freedom of
contract; 2) the principle of pacta sunt servanda; and 3) the principle of the use of
arbitration (Asnawi, & Hudiata, 2017). This principle illustrates that the State as a legal
subject has the authority to apply the principle of freedom of contract, including the
principle of freedom to determine the method of dispute resolution which can be realized in
the choice of forum and choice of law in one of the clauses.
The State as a subject of international law is understood to have sovereignty to
121
regulate goods or services that leave and enter its territory. With the sovereignty possessed
by the State, a State has the authority to form regulations that bind legal subjects, objects
and legal events that occur in its territory (Adolf, 2006). This authority usually occurs in the
state's position as a trader. This raises questions if the state's position is not as a seller but as
a buyer. There needs to be clarity regarding the position of the state as a buyer in
international trade law. In connection with the position of the state as a buyer, there needs to
be clarity regarding the method of dispute resolution that can be pursued if the State
experiences losses related to the purchase of goods in international trade.
This research when compared with Some of the previous studies have similarities in
terms of topics, which both examine the regulation of international trade, but the focus of
the study is different. This paper emphasizes the legality of the State as a buyer in
international trade law and the form of dispute resolution that can be taken in the event of a
loss related to the purchase of goods by the State under international trade law.
The previous study was conducted by Deden Rafi Syafiq Rabbani in 2021, examining
the "Critical Review of the Trade Facilitation Agreement (TFA)". World Trade
Organization (WTO) Analysis of the Implementation of International Trade Policy in
Indonesia" (Rabbani, 2021). In this case, the focus of the research is the implementation of
international trade policies in Indonesia based on the presence of the TFA which has a
significant impact on international trade traffic, especially with regard to Indonesia as a
member of the WTO, as well as the normative regulation of the TFA in Indonesia which has
been regulated in several legal products both in laws and presidential regulations so that the
implementation of the presence of the TFA affects the control of foreign trade and export-
import policies. Yana Sylvana, et al in 2020, studied "The Role of the WTO in Mediating the
Palm Oil Dispute Between Indonesia and the European Union" (Sylvana et al, 2020). In
this case, the focus of the research is the role of the WTO as a dispute resolution body
between Indonesia and the European Union. Muhammad Rafi Darajati in 2020 studied
"State Obedience to International Trade Law" (Darajati, 2020). The focus of this study is on
why a country needs to obey international trade law when conducting international trade
activities.
This writing aims to identify, analyze and elaborate on the legality of the State as a
buyer in international trade law as well as the form of dispute resolution that can be pursued
in the event of a loss related to the purchase of goods by the State under international trade
law. In order to realize the purpose of writing, this paper will systematically discuss the
substance relevant to the focus of the problem. First, the regulation of the legality of the
State as a buyer in international trade law is presented. Second, the form of dispute
resolution that can be pursued in the event of a loss related to the purchase of goods by the
State under international trade law.
2.0 Research Methods:
This writing starts from the results of the search for legal material using normative
research methods. In this research, a study is carried out on the provisions relating to the
laws and regulations concerning the State. As a buyer in international trade law and dispute
resolution can be done if there is a loss related to the purchase of goods by the State under
international trade law. This normative legal research is focused on the position of the State
as a buyer in international trade law and dispute resolution can be done after a dispute
arises, through a statutory approach, analytical and conceptual approach to primary legal
materials, secondary law and tertiary legal materials for further analysis.
3.0 Results And Discussion
1.
The State's Position as a Buyer in International Trade Law:
The State is the subject of international trade law. In general, it can be understood
that the State is the only legal subject that has sovereignty which makes it a perfect legal
subject. This causes the State to have Full Legal Personality because only the State is able
to support all rights and obligations in the international sphere (Salain, 2019).
State sovereignty is closely related to international trade activities. International trade
can be understood as the exchange of goods, services, or capital across national borders.
This activity is also known as exporting, which is selling and/or sending goods or services
abroad, and importing, which is buying and receiving goods or services from abroad
(Wijaya, Nopiandri, & Habiburrokhman, 2017).
With the attribute of sovereignty, the State has the authority to make (regulators) that
bind other legal subjects both individuals and companies, binding objects and legal events
that occur within its territory including trade relations that occur within the territory of the
state. The state also indirectly plays a role in the formation of international organizations
that give birth to international trade rules.
In the context of the relationship between the State and the State in international trade
123
law, the sovereignty possessed by the state places all states in the same position; parallel or
coordinative (Sunyowati, 2013). The coordinative structure adopted in inter-state relations
in international trade law is as follows International law provides an opportunity for
countries to jointly with other countries to enter into international agreements to regulate
trade transaction relations between countries. International trade agreements can be
preceded by international economic agreements first. International economic and trade
agreements are either bilateral or multilateral. Bilateral international trade agreements are
carried out by 2 (two) countries, such as between Indonesia and Japan which formed the
Economic Partnership Agreement (EPA) in the fields of trade and investment (JETRO
Indonesia, 2020). This bilateral agreement was signed on August 20, 2007 under the name
Agreement between the Republic of Indonesia and Japan for an Economic Partnership. The
international trade agreement is used as a basic tariff preference scheme between Indonesia
and Japan. The Indonesian government ratified the Agreement between the Republic of
Indonesia and Japan for an Economic Partnership through Presidential Regulation No. 36
of 2008 concerning the Agreement between the Republic of Indonesia and Japan regarding
an Economic Partnership and followed up with several Minister of Finance Regulations,
including PMK Number 94/PMK.011/2008 concerning Modalities for Reducing Import
Duty Tariffs (Giman, 2015).
The WTO Agreement is one of examples of multilateral international trade
agreements. Indonesia is one of the member countries of the WTO. The WTO Agreement is
the source of law for agreements international trade agreements established by member
countries (be it bilateral, regional or multilateral). The General Council of the WTO
stipulates that there should be transparency when WTO member countries form Regional
Trade Agreements (RTAs) (The WTO, 2011). Article XVI:3 of the Marrakesh Agreement
(the agreement that established the WTO) states that when there is a conflict between the
WTO Agreement and other WTO Multilateral Agreements, the provisions of the Marrakesh
Agreement shall prevail. Likewise, when Indonesia forms an agreement with Japan, the
substance must not conflict with the WTO Agreement because both are WTO member
countries.
Examples of economic and trade agreements The above-mentioned international
regulations are used by countries as a source of law when conducting international trade
transactions as outlined in the form of international contracts. Therefore, in international
trade relations, the state not only acts as a regulator but also as a seller and buyer. In
relation to the state's position as a buyer, generally the state with its state companies can
enter into trade transactions with other countries. This is closely related to the essence of
trade transactions, namely fundamental freedom.
To carry out the function as a buyer, the state can utilize the following agencies state-
owned enterprises (Mattoo, Rocha, & Ruta, 2020), for example through Perseroan
(hereafter "Persero"). The role of SOEs or State Enterprises has now grown significantly
(Kowalski, & Rabaioli, 2017).
The State's position as a purchaser is closely related to the principles of jure imperii
and jure gestionis. Referring to the principle of jure imperii, it can be understood that the
actions of legal entities will be protected by state immunity if the action is a government
action or executive authority (Sefriani, 2012). However, the institution will lose its
immunity if it carries out jure gestionis, which is a business or commercial transaction
(Lantang, 2013).
Referring to this principle, it can be understood that immunity can be owned by a
State in relation to actions taken as a form of government action. However, the immunity
owned by the State will be lost if the State carries out commercial activities.
In general, the State through SOEs performs the task of organizing public benefits in
the form of providing high-quality and adequate goods and/or services for the fulfillment of
the lives of many people as specified in Article 2 paragraph (1) letter c of Law Number 19
of 2003 concerning State-Owned Enterprises (hereinafter "SOE Law"). With the purpose
of SOEs, every business result from SOEs can fulfill the needs of the community.
The same thing is also regulated in the provisions of Article 12 of the BUMN Law
which basically regulates the purpose of establishing a Persero is to provide goods and / or
services that are of high quality and strong competitiveness and make a profit. Referring to
the provisions of Article 12 of the BUMN Law, it can be understood that the Persero as an
entity representing the State is required to be able to meet market demand through the
provision of high-quality and highly competitive goods and / or services both in domestic
and international markets.
In the context of SOEs as representatives of the State, the main objective that must be
achieved is to organize public benefits by providing goods and/or services for the
fulfillment of the lives of many people. The main objective of SOEs overrides the goal of
making profits in international trade relations.
The regulation of SOEs is determined based on Article XVII of the General Agreement
on Tariffs and Trade 1994 (hereinafter GATT 1994). The provisions of this article
125
essentially establish the obligations of GATT 1994 member states in relation to the
activities of State Trading Enterprises (SOEs) which provide an obligation for member
states to consistently apply the principle of non-discrimination, especially with regard to
government policies affecting export-import activities by private traders (Mastromatteo,
2017).
This notification requirement does not apply to import-export activities that need to
be immediately used either by the government or companies as specified above and not for
resale or used to produce goods for sale. In this provision, it can be understood that the
State has an obligation in the form of reporting or notification related to the import-export
activities the existence of SOEs to the Goods Trade Council. However, this notification
requirement does not apply to import-export activities that require immediate use by the
government or company.
Based on the explanation above, it can be understood that the State is one of the
subjects of international trade law. The State can make international trade agreements and
contracts. When a State wants to make an international trade contract and acts as a buyer
through a state-owned enterprise or state enterprises, it has an obligation in the form of
reporting or notification related to the existence of the BUMN itself to the Goods Trade
Council as an implementation of the principle of non-discrimination and as a form of
transparency in international trade relations. This is in accordance with the WTO principle
which requires the State to provide equal treatment to other countries including in
international trade practices (Purwanti, 2020).
2.
Parties to a Trade Contract International
As previously described, the state as a public legal entity can become a legal subject
in an international contract by changing its status as a private legal entity. By changing its
status as a private legal entity, the State can carry out civil relationships, such as leasing,
buying and selling (International) which are not subject to international law transformed
into international contracts (Mardiana, 2017).
When the state is a private legal entity, the party to the international contract is the
state-owned company and will be subject to civil law regulations. Article 1654 of the Civil
Code states: "All legally established legal entities, as well as private persons, have the
power to perform civil acts, without prejudice to legislation that modifies that power, limits
it or subjects it to certain procedures." To the extent that the SOE in question is established
in the form of a PT, it can be qualified as a private entity. PT based on Article 1 Point 1 of
Law No. 40 of 2007 concerning Limited Liability Companies (PT) is a legal entity which is
an alliance of capital, established based on an agreement, conducting business activities
with authorized capital which is entirely divided into shares and fulfills the requirements
stipulated in this law and its implementing regulations.
To carry out the function as a buyer (buyer) in international trade relations
involving the State and private entities, usually based on an international trade contract,
where the state often creates state-owned legal entities. In a contract (whether national or
international) the parties must have equal standing, it is not possible for one party to be a
company or legal entity while the other party is a state-owned legal entity another State.
The State downgrades its personality to that of a State-owned company/legal entity in order
to enter into international trade contracts (either as a seller or buyer) with other
companies/legal entities (whether State-owned or private). For example, when Indonesia
established state-owned enterprises engaged in various economic fields.
There are various examples of state-owned companies established in Indonesia: PT
Kimia Farma Tbk, PT Kereta Api Indoonesia, PT BNI Tbk, PT Garuda Indonesia, PT
Jamsostek and others. These SOEs can conduct international buying and selling transactions
with other countries and foreign private legal entities as outlined in international trade
contracts. International trade contracts made by the State will be subject to the provisions of
international civil law governing contractual relations.
According to Professor Aleksander Goldštajn, there are several fundamental
principles in international trade relations that are transformed into contracts, including 1)
the principle of the freedom of contract; 2) the principle of pacta sunt servanda; and 3) the
principle of the use of arbitration (Asnawi & Hudiata, 2017). Referring to these basic
principles, it can be understood that in the context of the State as a buyer, the state has the
freedom to make trade contracts with the subject of international trade law.
In relation to the principle of freedom of contract, it can be understood that the state
as a party to international trade has the freedom to make an international trade
agreement/contract; free to determine the content and extent of the agreement, rights and
obligations in the contract, the desired form of contract and even the form of settlement
that will be taken in the event of a conflict in the future. The contents of the agreement then
become law for the parties who agree and are bound by the agreement. This statement is in
accordance with the principle of pacta sunt servanda. International contracts made in the
context of the state as a buyer can also determine the choice of dispute settlement method
127
to be pursued by the parties, including the choice of law and the choice of forum for
settlement dispute (choice of forum) (Amalia, Sabrie, & Dian, 2018)
3.
Dispute Resolution in the Event of Loss Related to the State's Purchase of
Goods under International Trade Law:
Relationships in international trade are complex. All relationships that occur in the
process of international trade have the potential to give birth to a dispute involving the
subjects of international trade law, including the state.
In general, a trade dispute is often resolved through negotiation (Mawanda, &
Muhshi, 2019). If the parties do not find a solution through negotiation, they may resort to
other dispute resolution methods such as arbitration or court settlement.
The choice of dispute resolution method that can be pursued by the parties is
generally determined in the agreement clause between the parties. The parties to the
agreement usually choose one of the legal systems (choice of law) or choose a dispute
resolution institution (choice of forum), including submitting disputes to Alternative Dispute
Resolution (hereinafter "ADR") or Alternative Dispute Resolution (hereinafter "APS")
(Suparman, 2018).
Referring to Huala Adolf's thoughts, there are several principles in international trade
dispute resolution, including: 1) Principle agreement of the parties (Consensus); 2) The
principle of free choice of means of dispute resolution; 3) The principle of freedom of
choice of law; 4) Principle of good faith; and 5) Principle of Exhaustion of Local Remedies
(Adolf, 2006). These principles provide space for parties to freely determine and agree on
the method chosen as an effort to resolve disputes, including determining the law chosen
and deemed appropriate by emphasizing the good faith of the parties and resolving a dispute
through the national law of a country before submitting a dispute to an international dispute
resolution institution.
In principle, the dispute resolution forum in international trade law is the same as the
forum in international dispute resolution in general. Dispute resolution forums that can be
chosen by the parties to the dispute include negotiation, mediation, conciliation, arbitration,
dispute resolution through law or court, or other dispute resolution methods chosen or
agreed upon by the parties, as specified in the provisions of Article 33 of the Charter of the
United Nations. These methods have been recognized as dispute resolution methods in the
legal systems of various countries.
The state as a buyer has the freedom to determine the method of dispute resolution
that will be pursued when making an international sale and purchase contract with a party
merchant. The settlement method is then set out in a clause that determines the choice of
law and the choice of dispute resolution institution (choice of forum).
The choice of law is related to the law that will be used by the dispute resolution
forum (court or arbitration) to determine the validity of a contract, interpret the agreement
in the contract, determine whether a performance has been performed or not, and to
determine the legal consequences of a violation of the contract (Hutabarat, 2016). Choice of
law by the contracting parties is freely limited. The freedom of the contracting parties in
determining the choice of law to resolve disputes over the implementation of their contracts
is limited by general principles in international civil law. The general principles in question,
there is lex loci contractus, namely the legal system used is the legal system where the
contract is signed; lex loci solutionis, namely the legal system used is the legal system
where the contract is executed; (Khairandy, 2006) The Proper Law of Contract Theory
determines the legal system used is the legal system that has the closest and real connection
with the transaction in the contract; (Khairandy, 2006) and The Most Characteristic
Connection Theory which determines that the legal system used is the legal system of the
contracting party who performs the most characteristic performance (Syahrin, 2017)
Meanwhile, the choice of law by the contracting party is the legal system of the contracting
party forum is identical to the choice of forum or the location of the dispute resolution
institution. For example, if the parties choose the method of settlement through the court,
then in which region of the country the court is located or if the parties choose arbitration,
then which arbitration institution will be chosen. Is the arbitration institution in Singapore,
New York, London or Indonesia. Of course, the selection of the place of dispute resolution
institution refers to the principles of international civil law. For example, the principle of
actor sequitur forum rei, namely the case or dispute is filed in the territory of the defendant
State (Pratidina, 2015).
The inclusion of choice of law, choice of dispute settlement and choice of forum
clauses in an international trade or sale contract provides a guarantee of legal certainty for
the parties that make it. In the event of a dispute, the parties already have an agreement on
the method of settlement, choice of law and choice of forum. International trade contract
disputes tend to be resolved through arbitration. The disputing parties tend to choose
arbitration because it provides party autonomy to the parties to determine the legal
instruments used, the number of arbitrators, is more efficient and effective in terms of cost
and time, of course it is confidential because it is not open to the public the arbitration
129
process (Jović, 2019).
When the parties agree on the method of resolving their dispute through arbitration
and select an arbitral body, for example Singapore International Arbitration Center
(SIAC) then they can choose the type of international legal instrument used as the Rule of
Procedures (ROP). There are several international legal instruments that regulate
arbitration, namely: International Chamber of Commerce (ICC) Rules of Arbitration 2021
and United Nations Commission on International Trade Law (UNCITRAL) Model Law on
International Commercial Arbitration 2006.
In relation to the State as a buyer, it can be understood that the trade relationship that
occurs between the State as a buyer and a trader is a contractual relationship. The
relationship also regulates the settlement method agreed upon by the parties as an
implementation of the principles of freedom of contract, including the principle of choice of
dispute settlement, either choice of law or choice of forum.
4.0 Conclusion:
Based on the explanation above, it can be understood that the State is one of the
subjects of international trade law. In international trade law, the State can act as a buyer
through state-owned enterprises or state enterprises with obligations in the form of reporting
or notification related to the existence of the SOE itself to the Goods Trade Council as an
implementation of the principle of non-discrimination and non-discrimination as a form of
transparency in international trade relations. In relation to the State as a buyer, it can be
understood that the trade relationship that occurs between the State as a buyer and the trader
is a contractual relationship. The relationship also regulates the settlement method agreed
upon by the parties as an implementation of the principles of freedom of contract, including
the principle of choice of dispute settlement, either choice of law or choice of forum.
The establishment of relationships between subjects of international trade law has a
positive impact, such as increasing the country's economic growth, increasing foreign
exchange through import duties and other fees on exports and imports, meeting the needs of
the country through imports, increasing cooperation between countries, opening up
employment opportunities, as well as improving the quality of life of the country increase
scientific and technological progress (Detik.com, 2021). However, international trade also
brings negative impacts that every country must be aware of, such as the disruption of the
production of domestic goods as a result of the influx of imported goods which can result in
huge losses for local entrepreneurs, the creation of dependency relationships with other
countries, the emergence of unfair competition as a result of free trade, the lower economic
growth of the country if it is unable to compete with foreign products (Detik.com, 2021).
Indonesia also actively participates in international trade relations with other
countries with the aim of meeting the needs of the country and society, even to provide the
needs of other countries, both in the form of goods and services. Being located between
two continents and two oceans gives Indonesia an advantage in international trade.
In relation to international trade, Indonesia has established trade relations with
several countries, such as Germany, China, Canada and so on. Indonesia and Germany
have had a long-standing partnership. Some of Indonesia's leading products exported to
Germany include palm oil, machinery, footwear, electronic equipment, rubber, coffee-tea
and spices (Embassy of the Republic of Indonesia in Berlin, Federal Republic of Germany,
2018). As a reciprocal relationship, Indonesia also imports several German products, such
as manufactured goods, communication equipment, chemical goods, metal products and so
on (Embassy of the Republic of Indonesia in Berlin, Federal Republic of Germany, 2018).
Indonesian export products are also sent to Canada, including rubber products,
apparel, spare parts for electronic equipment and machinery, nickel, cocoa, coffee and so
on (Embassy of the Republic of Indonesia, Ottawa, 2020). Indonesia also imports cereal
products, fertilizers, aluminum, iron ore, and so on from Canada (Embassy of the Republic
of Indonesia, Ottawa, 2020).
Indonesia also has a partnership relationship with China. Both countries have
consistently increased cooperation in the trade sector. The cooperation established by
Indonesia and China is expected to increase exports of potential products owned by
Indonesia to China (Ministry of Trade of the Republic of Indonesia, 2019). Even during the
Covid-19 pandemic, Indonesia and China agreed to strengthen vaccine cooperation, travel
corridor arrangements and national economic recovery (Kompas.com, 2020).
In relation to the State as a legal subject, the State Sovereignty Theory is known, as
George Jellinek argues that "the law is not created by God or the King, but the State"
(Silalahi, 2015). This theory illustrates that law is a manifestation of the will of a State and
places the State as the holder of the law supreme power, including the power to utilize
territory, enforce laws and pursue all matters aimed at the security and welfare of its
citizens (Silalahi, 2015).
131
In the capacity of the State as the supreme power holder, the State is required to
consistently apply the principle of non-discrimination, especially with regard to
government policies affecting export-import activities by private traders (Mastromatteo,
2017). The application of the principle of non-discrimination provides equal opportunities
for parties involved in trade activities to conduct trade transactions in a State's territory,
including state-owned enterprises that actively participate in international trade activities.
In the application of law in a State, several fundamental principles are also known as
introduced by Professor Aleksander Goldštajn, including 1) the principle of the freedom of
contract; 2) the principle of pacta sunt servanda; and 3) the principle of the use of
arbitration (Asnawi, & Hudiata, 2017). This principle illustrates that the State as a legal
subject has the authority to apply the principle of freedom of contract, including the
principle of freedom to determine the method of dispute resolution which can be realized in
the choice of forum and choice of law in one of the clauses.
The State as a subject of international law is understood to have sovereignty to
regulate goods or services that leave and enter its territory. With the sovereignty possessed
by the State, a State has the authority to form regulations that bind legal subjects, objects
and legal events that occur in its territory (Adolf, 2006). This authority usually occurs in the
state's position as a trader. This raises questions if the state's position is not as a seller but as
a buyer. There needs to be clarity regarding the position of the state as a buyer in
international trade law. In connection with the position of the state as a buyer, there needs to
be clarity regarding the method of dispute resolution that can be pursued if the State
experiences losses related to the purchase of goods in international trade.
This research when compared with Some of the previous studies have similarities in
terms of topics, which both examine the regulation of international trade, but the focus of
the study is different. This paper emphasizes the legality of the State as a buyer in
international trade law and the form of dispute resolution that can be taken in the event of a
loss related to the purchase of goods by the State under international trade law.
The previous study was conducted by Deden Rafi Syafiq Rabbani in 2021, examining
the "Critical Review of the Trade Facilitation Agreement (TFA)". World Trade
Organization (WTO) Analysis of the Implementation of International Trade Policy in
Indonesia" (Rabbani, 2021). In this case, the focus of the research is the implementation of
international trade policies in Indonesia based on the presence of the TFA which has a
significant impact on international trade traffic, especially with regard to Indonesia as a
member of the WTO, as well as the normative regulation of the TFA in Indonesia which has
been regulated in several legal products both in laws and presidential regulations so that the
implementation of the presence of the TFA affects the control of foreign trade and export-
import policies. Yana Sylvana, et al in 2020, studied "The Role of the WTO in Mediating the
Palm Oil Dispute Between Indonesia and the European Union" (Sylvana et al, 2020). In
this case, the focus of the research is the role of the WTO as a dispute resolution body
between Indonesia and the European Union. Muhammad Rafi Darajati in 2020 studied
"State Obedience to International Trade Law" (Darajati, 2020). The focus of this study is on
why a country needs to obey international trade law when conducting international trade
activities.
This writing aims to identify, analyze and elaborate on the legality of the State as a
buyer in international trade law as well as the form of dispute resolution that can be pursued
in the event of a loss related to the purchase of goods by the State under international trade
law. In order to realize the purpose of writing, this paper will systematically discuss the
substance relevant to the focus of the problem. First, the regulation of the legality of the
State as a buyer in international trade law is presented. Second, the form of dispute
resolution that can be pursued in the event of a loss related to the purchase of goods by the
State under international trade law.
2.0 Research Methods:
This writing starts from the results of the search for legal material using normative
research methods. In this research, a study is carried out on the provisions relating to the
laws and regulations concerning the State. As a buyer in international trade law and dispute
resolution can be done if there is a loss related to the purchase of goods by the State under
international trade law. This normative legal research is focused on the position of the State
as a buyer in international trade law and dispute resolution can be done after a dispute
arises, through a statutory approach, analytical and conceptual approach to primary legal
materials, secondary law and tertiary legal materials for further analysis.
3.0 Results And Discussion
1.
The State's Position as a Buyer in International Trade Law:
The State is the subject of international trade law. In general, it can be understood
133
that the State is the only legal subject that has sovereignty which makes it a perfect legal
subject. This causes the State to have Full Legal Personality because only the State is able
to support all rights and obligations in the international sphere (Salain, 2019).
State sovereignty is closely related to international trade activities. International trade
can be understood as the exchange of goods, services, or capital across national borders.
This activity is also known as exporting, which is selling and/or sending goods or services
abroad, and importing, which is buying and receiving goods or services from abroad
(Wijaya, Nopiandri, & Habiburrokhman, 2017).
With the attribute of sovereignty, the State has the authority to make (regulators) that
bind other legal subjects both individuals and companies, binding objects and legal events
that occur within its territory including trade relations that occur within the territory of the
state. The state also indirectly plays a role in the formation of international organizations
that give birth to international trade rules.
In the context of the relationship between the State and the State in international trade
law, the sovereignty possessed by the state places all states in the same position; parallel or
coordinative (Sunyowati, 2013). The coordinative structure adopted in inter-state relations
in international trade law is as follows International law provides an opportunity for
countries to jointly with other countries to enter into international agreements to regulate
trade transaction relations between countries. International trade agreements can be
preceded by international economic agreements first. International economic and trade
agreements are either bilateral or multilateral. Bilateral international trade agreements are
carried out by 2 (two) countries, such as between Indonesia and Japan which formed the
Economic Partnership Agreement (EPA) in the fields of trade and investment (JETRO
Indonesia, 2020). This bilateral agreement was signed on August 20, 2007 under the name
Agreement between the Republic of Indonesia and Japan for an Economic Partnership. The
international trade agreement is used as a basic tariff preference scheme between Indonesia
and Japan. The Indonesian government ratified the Agreement between the Republic of
Indonesia and Japan for an Economic Partnership through Presidential Regulation No. 36
of 2008 concerning the Agreement between the Republic of Indonesia and Japan regarding
an Economic Partnership and followed up with several Minister of Finance Regulations,
including PMK Number 94/PMK.011/2008 concerning Modalities for Reducing Import
Duty Tariffs (Giman, 2015).
The WTO Agreement is one of examples of multilateral international trade
agreements. Indonesia is one of the member countries of the WTO. The WTO Agreement is
the source of law for agreements international trade agreements established by member
countries (be it bilateral, regional or multilateral). The General Council of the WTO
stipulates that there should be transparency when WTO member countries form Regional
Trade Agreements (RTAs) (The WTO, 2011). Article XVI:3 of the Marrakesh Agreement
(the agreement that established the WTO) states that when there is a conflict between the
WTO Agreement and other WTO Multilateral Agreements, the provisions of the Marrakesh
Agreement shall prevail. Likewise, when Indonesia forms an agreement with Japan, the
substance must not conflict with the WTO Agreement because both are WTO member
countries.
Examples of economic and trade agreements The above-mentioned international
regulations are used by countries as a source of law when conducting international trade
transactions as outlined in the form of international contracts. Therefore, in international
trade relations, the state not only acts as a regulator but also as a seller and buyer. In
relation to the state's position as a buyer, generally the state with its state companies can
enter into trade transactions with other countries. This is closely related to the essence of
trade transactions, namely fundamental freedom.
To carry out the function as a buyer, the state can utilize the following agencies state-
owned enterprises (Mattoo, Rocha, & Ruta, 2020), for example through Perseroan
(hereafter "Persero"). The role of SOEs or State Enterprises has now grown significantly
(Kowalski, & Rabaioli, 2017).
The State's position as a purchaser is closely related to the principles of jure imperii
and jure gestionis. Referring to the principle of jure imperii, it can be understood that the
actions of legal entities will be protected by state immunity if the action is a government
action or executive authority (Sefriani, 2012). However, the institution will lose its
immunity if it carries out jure gestionis, which is a business or commercial transaction
(Lantang, 2013).
Referring to this principle, it can be understood that immunity can be owned by a
State in relation to actions taken as a form of government action. However, the immunity
owned by the State will be lost if the State carries out commercial activities.
In general, the State through SOEs performs the task of organizing public benefits in
the form of providing high-quality and adequate goods and/or services for the fulfillment of
the lives of many people as specified in Article 2 paragraph (1) letter c of Law Number 19
of 2003 concerning State-Owned Enterprises (hereinafter "SOE Law"). With the purpose
of SOEs, every business result from SOEs can fulfill the needs of the community.
135
The same thing is also regulated in the provisions of Article 12 of the BUMN Law
which basically regulates the purpose of establishing a Persero is to provide goods and / or
services that are of high quality and strong competitiveness and make a profit. Referring to
the provisions of Article 12 of the BUMN Law, it can be understood that the Persero as an
entity representing the State is required to be able to meet market demand through the
provision of high-quality and highly competitive goods and / or services both in domestic
and international markets.
In the context of SOEs as representatives of the State, the main objective that must be
achieved is to organize public benefits by providing goods and/or services for the
fulfillment of the lives of many people. The main objective of SOEs overrides the goal of
making profits in international trade relations.
The regulation of SOEs is determined based on Article XVII of the General Agreement
on Tariffs and Trade 1994 (hereinafter GATT 1994). The provisions of this article
essentially establish the obligations of GATT 1994 member states in relation to the
activities of State Trading Enterprises (SOEs) which provide an obligation for member
states to consistently apply the principle of non-discrimination, especially with regard to
government policies affecting export-import activities by private traders (Mastromatteo,
2017).
This notification requirement does not apply to import-export activities that need to
be immediately used either by the government or companies as specified above and not for
resale or used to produce goods for sale. In this provision, it can be understood that the
State has an obligation in the form of reporting or notification related to the import-export
activities the existence of SOEs to the Goods Trade Council. However, this notification
requirement does not apply to import-export activities that require immediate use by the
government or company.
Based on the explanation above, it can be understood that the State is one of the
subjects of international trade law. The State can make international trade agreements and
contracts. When a State wants to make an international trade contract and acts as a buyer
through a state-owned enterprise or state enterprises, it has an obligation in the form of
reporting or notification related to the existence of the BUMN itself to the Goods Trade
Council as an implementation of the principle of non-discrimination and as a form of
transparency in international trade relations. This is in accordance with the WTO principle
which requires the State to provide equal treatment to other countries including in
international trade practices (Purwanti, 2020).
2.
Parties to a Trade Contract International
As previously described, the state as a public legal entity can become a legal subject
in an international contract by changing its status as a private legal entity. By changing its
status as a private legal entity, the State can carry out civil relationships, such as leasing,
buying and selling (International) which are not subject to international law transformed
into international contracts (Mardiana, 2017).
When the state is a private legal entity, the party to the international contract is the
state-owned company and will be subject to civil law regulations. Article 1654 of the Civil
Code states: "All legally established legal entities, as well as private persons, have the
power to perform civil acts, without prejudice to legislation that modifies that power, limits
it or subjects it to certain procedures." To the extent that the SOE in question is established
in the form of a PT, it can be qualified as a private entity. PT based on Article 1 Point 1 of
Law No. 40 of 2007 concerning Limited Liability Companies (PT) is a legal entity which is
an alliance of capital, established based on an agreement, conducting business activities
with authorized capital which is entirely divided into shares and fulfills the requirements
stipulated in this law and its implementing regulations.
To carry out the function as a buyer (buyer) in international trade relations
involving the State and private entities, usually based on an international trade contract,
where the state often creates state-owned legal entities. In a contract (whether national or
international) the parties must have equal standing, it is not possible for one party to be a
company or legal entity while the other party is a state-owned legal entity another State.
The State downgrades its personality to that of a State-owned company/legal entity in order
to enter into international trade contracts (either as a seller or buyer) with other
companies/legal entities (whether State-owned or private). For example, when Indonesia
established state-owned enterprises engaged in various economic fields.
There are various examples of state-owned companies established in Indonesia: PT
Kimia Farma Tbk, PT Kereta Api Indoonesia, PT BNI Tbk, PT Garuda Indonesia, PT
Jamsostek and others. These SOEs can conduct international buying and selling transactions
with other countries and foreign private legal entities as outlined in international trade
contracts. International trade contracts made by the State will be subject to the provisions of
international civil law governing contractual relations.
According to Professor Aleksander Goldštajn, there are several fundamental
137
principles in international trade relations that are transformed into contracts, including 1)
the principle of the freedom of contract; 2) the principle of pacta sunt servanda; and 3) the
principle of the use of arbitration (Asnawi & Hudiata, 2017). Referring to these basic
principles, it can be understood that in the context of the State as a buyer, the state has the
freedom to make trade contracts with the subject of international trade law.
In relation to the principle of freedom of contract, it can be understood that the state
as a party to international trade has the freedom to make an international trade
agreement/contract; free to determine the content and extent of the agreement, rights and
obligations in the contract, the desired form of contract and even the form of settlement
that will be taken in the event of a conflict in the future. The contents of the agreement then
become law for the parties who agree and are bound by the agreement. This statement is in
accordance with the principle of pacta sunt servanda. International contracts made in the
context of the state as a buyer can also determine the choice of dispute settlement method
to be pursued by the parties, including the choice of law and the choice of forum for
settlement dispute (choice of forum) (Amalia, Sabrie, & Dian, 2018)
3.
Dispute Resolution in the Event of Loss Related to the State's Purchase of
Goods under International Trade Law:
Relationships in international trade are complex. All relationships that occur in the
process of international trade have the potential to give birth to a dispute involving the
subjects of international trade law, including the state.
In general, a trade dispute is often resolved through negotiation (Mawanda, &
Muhshi, 2019). If the parties do not find a solution through negotiation, they may resort to
other dispute resolution methods such as arbitration or court settlement.
The choice of dispute resolution method that can be pursued by the parties is
generally determined in the agreement clause between the parties. The parties to the
agreement usually choose one of the legal systems (choice of law) or choose a dispute
resolution institution (choice of forum), including submitting disputes to Alternative Dispute
Resolution (hereinafter "ADR") or Alternative Dispute Resolution (hereinafter "APS")
(Suparman, 2018).
Referring to Huala Adolf's thoughts, there are several principles in international trade
dispute resolution, including: 1) Principle agreement of the parties (Consensus); 2) The
principle of free choice of means of dispute resolution; 3) The principle of freedom of
choice of law; 4) Principle of good faith; and 5) Principle of Exhaustion of Local Remedies
(Adolf, 2006). These principles provide space for parties to freely determine and agree on
the method chosen as an effort to resolve disputes, including determining the law chosen
and deemed appropriate by emphasizing the good faith of the parties and resolving a dispute
through the national law of a country before submitting a dispute to an international dispute
resolution institution.
In principle, the dispute resolution forum in international trade law is the same as the
forum in international dispute resolution in general. Dispute resolution forums that can be
chosen by the parties to the dispute include negotiation, mediation, conciliation, arbitration,
dispute resolution through law or court, or other dispute resolution methods chosen or
agreed upon by the parties, as specified in the provisions of Article 33 of the Charter of the
United Nations. These methods have been recognized as dispute resolution methods in the
legal systems of various countries.
The state as a buyer has the freedom to determine the method of dispute resolution
that will be pursued when making an international sale and purchase contract with a party
merchant. The settlement method is then set out in a clause that determines the choice of
law and the choice of dispute resolution institution (choice of forum).
The choice of law is related to the law that will be used by the dispute resolution
forum (court or arbitration) to determine the validity of a contract, interpret the agreement
in the contract, determine whether a performance has been performed or not, and to
determine the legal consequences of a violation of the contract (Hutabarat, 2016). Choice of
law by the contracting parties is freely limited. The freedom of the contracting parties in
determining the choice of law to resolve disputes over the implementation of their contracts
is limited by general principles in international civil law. The general principles in question,
there is lex loci contractus, namely the legal system used is the legal system where the
contract is signed; lex loci solutionis, namely the legal system used is the legal system
where the contract is executed; (Khairandy, 2006) The Proper Law of Contract Theory
determines the legal system used is the legal system that has the closest and real connection
with the transaction in the contract; (Khairandy, 2006) and The Most Characteristic
Connection Theory which determines that the legal system used is the legal system of the
contracting party who performs the most characteristic performance (Syahrin, 2017)
Meanwhile, the choice of law by the contracting party is the legal system of the contracting
party forum is identical to the choice of forum or the location of the dispute resolution
institution. For example, if the parties choose the method of settlement through the court,
then in which region of the country the court is located or if the parties choose arbitration,
139
then which arbitration institution will be chosen. Is the arbitration institution in Singapore,
New York, London or Indonesia. Of course, the selection of the place of dispute resolution
institution refers to the principles of international civil law. For example, the principle of
actor sequitur forum rei, namely the case or dispute is filed in the territory of the defendant
State (Pratidina, 2015).
The inclusion of choice of law, choice of dispute settlement and choice of forum
clauses in an international trade or sale contract provides a guarantee of legal certainty for
the parties that make it. In the event of a dispute, the parties already have an agreement on
the method of settlement, choice of law and choice of forum. International trade contract
disputes tend to be resolved through arbitration. The disputing parties tend to choose
arbitration because it provides party autonomy to the parties to determine the legal
instruments used, the number of arbitrators, is more efficient and effective in terms of cost
and time, of course it is confidential because it is not open to the public the arbitration
process (Jović, 2019).
When the parties agree on the method of resolving their dispute through arbitration
and select an arbitral body, for example Singapore International Arbitration Center
(SIAC) then they can choose the type of international legal instrument used as the Rule of
Procedures (ROP). There are several international legal instruments that regulate
arbitration, namely: International Chamber of Commerce (ICC) Rules of Arbitration 2021
and United Nations Commission on International Trade Law (UNCITRAL) Model Law on
International Commercial Arbitration 2006.
In relation to the State as a buyer, it can be understood that the trade relationship that
occurs between the State as a buyer and a trader is a contractual relationship. The
relationship also regulates the settlement method agreed upon by the parties as an
implementation of the principles of freedom of contract, including the principle of choice of
dispute settlement, either choice of law or choice of forum.
4.0 Conclusion:
Based on the explanation above, it can be understood that the State is one of the
subjects of international trade law. In international trade law, the State can act as a buyer
through state-owned enterprises or state enterprises with obligations in the form of reporting
or notification related to the existence of the SOE itself to the Goods Trade Council as an
implementation of the principle of non-discrimination and non-discrimination as a form of
transparency in international trade relations. In relation to the State as a buyer, it can be
understood that the trade relationship that occurs between the State as a buyer and the trader
is a contractual relationship. The relationship also regulates the settlement method agreed
upon by the parties as an implementation of the principles of freedom of contract, including
the principle of choice of dispute settlement, either choice of law or choice of forum.
The establishment of relationships between subjects of international trade law has a
positive impact, such as increasing the country's economic growth, increasing foreign
exchange through import duties and other fees on exports and imports, meeting the needs of
the country through imports, increasing cooperation between countries, opening up
employment opportunities, as well as improving the quality of life of the country increase
scientific and technological progress (Detik.com, 2021). However, international trade also
brings negative impacts that every country must be aware of, such as the disruption of the
production of domestic goods as a result of the influx of imported goods which can result in
huge losses for local entrepreneurs, the creation of dependency relationships with other
countries, the emergence of unfair competition as a result of free trade, the lower economic
growth of the country if it is unable to compete with foreign products (Detik.com, 2021).
Indonesia also actively participates in international trade relations with other
countries with the aim of meeting the needs of the country and society, even to provide the
needs of other countries, both in the form of goods and services. Being located between
two continents and two oceans gives Indonesia an advantage in international trade.
In relation to international trade, Indonesia has established trade relations with
several countries, such as Germany, China, Canada and so on. Indonesia and Germany
have had a long-standing partnership. Some of Indonesia's leading products exported to
Germany include palm oil, machinery, footwear, electronic equipment, rubber, coffee-tea
and spices (Embassy of the Republic of Indonesia in Berlin, Federal Republic of Germany,
2018). As a reciprocal relationship, Indonesia also imports several German products, such
as manufactured goods, communication equipment, chemical goods, metal products and so
on (Embassy of the Republic of Indonesia in Berlin, Federal Republic of Germany, 2018).
Indonesian export products are also sent to Canada, including rubber products,
apparel, spare parts for electronic equipment and machinery, nickel, cocoa, coffee and so
on (Embassy of the Republic of Indonesia, Ottawa, 2020). Indonesia also imports cereal
products, fertilizers, aluminum, iron ore, and so on from Canada (Embassy of the Republic
141
of Indonesia, Ottawa, 2020).
Indonesia also has a partnership relationship with China. Both countries have
consistently increased cooperation in the trade sector. The cooperation established by
Indonesia and China is expected to increase exports of potential products owned by
Indonesia to China (Ministry of Trade of the Republic of Indonesia, 2019). Even during the
Covid-19 pandemic, Indonesia and China agreed to strengthen vaccine cooperation, travel
corridor arrangements and national economic recovery (Kompas.com, 2020).
In relation to the State as a legal subject, the State Sovereignty Theory is known, as
George Jellinek argues that "the law is not created by God or the King, but the State"
(Silalahi, 2015). This theory illustrates that law is a manifestation of the will of a State and
places the State as the holder of the law supreme power, including the power to utilize
territory, enforce laws and pursue all matters aimed at the security and welfare of its
citizens (Silalahi, 2015).
In the capacity of the State as the supreme power holder, the State is required to
consistently apply the principle of non-discrimination, especially with regard to
government policies affecting export-import activities by private traders (Mastromatteo,
2017). The application of the principle of non-discrimination provides equal opportunities
for parties involved in trade activities to conduct trade transactions in a State's territory,
including state-owned enterprises that actively participate in international trade activities.
In the application of law in a State, several fundamental principles are also known as
introduced by Professor Aleksander Goldštajn, including 1) the principle of the freedom of
contract; 2) the principle of pacta sunt servanda; and 3) the principle of the use of
arbitration (Asnawi, & Hudiata, 2017). This principle illustrates that the State as a legal
subject has the authority to apply the principle of freedom of contract, including the
principle of freedom to determine the method of dispute resolution which can be realized in
the choice of forum and choice of law in one of the clauses.
The State as a subject of international law is understood to have sovereignty to
regulate goods or services that leave and enter its territory. With the sovereignty possessed
by the State, a State has the authority to form regulations that bind legal subjects, objects
and legal events that occur in its territory (Adolf, 2006). This authority usually occurs in the
state's position as a trader. This raises questions if the state's position is not as a seller but as
a buyer. There needs to be clarity regarding the position of the state as a buyer in
international trade law. In connection with the position of the state as a buyer, there needs to
be clarity regarding the method of dispute resolution that can be pursued if the State
experiences losses related to the purchase of goods in international trade.
This research when compared with Some of the previous studies have similarities in
terms of topics, which both examine the regulation of international trade, but the focus of
the study is different. This paper emphasizes the legality of the State as a buyer in
international trade law and the form of dispute resolution that can be taken in the event of a
loss related to the purchase of goods by the State under international trade law.
The previous study was conducted by Deden Rafi Syafiq Rabbani in 2021, examining
the "Critical Review of the Trade Facilitation Agreement (TFA)". World Trade
Organization (WTO) Analysis of the Implementation of International Trade Policy in
Indonesia" (Rabbani, 2021). In this case, the focus of the research is the implementation of
international trade policies in Indonesia based on the presence of the TFA which has a
significant impact on international trade traffic, especially with regard to Indonesia as a
member of the WTO, as well as the normative regulation of the TFA in Indonesia which has
been regulated in several legal products both in laws and presidential regulations so that the
implementation of the presence of the TFA affects the control of foreign trade and export-
import policies. Yana Sylvana, et al in 2020, studied "The Role of the WTO in Mediating the
Palm Oil Dispute Between Indonesia and the European Union" (Sylvana et al, 2020). In
this case, the focus of the research is the role of the WTO as a dispute resolution body
between Indonesia and the European Union. Muhammad Rafi Darajati in 2020 studied
"State Obedience to International Trade Law" (Darajati, 2020). The focus of this study is on
why a country needs to obey international trade law when conducting international trade
activities.
This writing aims to identify, analyze and elaborate on the legality of the State as a
buyer in international trade law as well as the form of dispute resolution that can be pursued
in the event of a loss related to the purchase of goods by the State under international trade
law. In order to realize the purpose of writing, this paper will systematically discuss the
substance relevant to the focus of the problem. First, the regulation of the legality of the
State as a buyer in international trade law is presented. Second, the form of dispute
resolution that can be pursued in the event of a loss related to the purchase of goods by the
State under international trade law.
2.0 Research Methods:
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This writing starts from the results of the search for legal material using normative
research methods. In this research, a study is carried out on the provisions relating to the
laws and regulations concerning the State. As a buyer in international trade law and dispute
resolution can be done if there is a loss related to the purchase of goods by the State under
international trade law. This normative legal research is focused on the position of the State
as a buyer in international trade law and dispute resolution can be done after a dispute
arises, through a statutory approach, analytical and conceptual approach to primary legal
materials, secondary law and tertiary legal materials for further analysis.
3.0 Results And Discussion
1.
The State's Position as a Buyer in International Trade Law:
The State is the subject of international trade law. In general, it can be understood
that the State is the only legal subject that has sovereignty which makes it a perfect legal
subject. This causes the State to have Full Legal Personality because only the State is able
to support all rights and obligations in the international sphere (Salain, 2019).
State sovereignty is closely related to international trade activities. International trade
can be understood as the exchange of goods, services, or capital across national borders.
This activity is also known as exporting, which is selling and/or sending goods or services
abroad, and importing, which is buying and receiving goods or services from abroad
(Wijaya, Nopiandri, & Habiburrokhman, 2017).
With the attribute of sovereignty, the State has the authority to make (regulators) that
bind other legal subjects both individuals and companies, binding objects and legal events
that occur within its territory including trade relations that occur within the territory of the
state. The state also indirectly plays a role in the formation of international organizations
that give birth to international trade rules.
In the context of the relationship between the State and the State in international trade
law, the sovereignty possessed by the state places all states in the same position; parallel or
coordinative (Sunyowati, 2013). The coordinative structure adopted in inter-state relations
in international trade law is as follows International law provides an opportunity for
countries to jointly with other countries to enter into international agreements to regulate
trade transaction relations between countries. International trade agreements can be
preceded by international economic agreements first. International economic and trade
agreements are either bilateral or multilateral. Bilateral international trade agreements are
carried out by 2 (two) countries, such as between Indonesia and Japan which formed the
Economic Partnership Agreement (EPA) in the fields of trade and investment (JETRO
Indonesia, 2020). This bilateral agreement was signed on August 20, 2007 under the name
Agreement between the Republic of Indonesia and Japan for an Economic Partnership. The
international trade agreement is used as a basic tariff preference scheme between Indonesia
and Japan. The Indonesian government ratified the Agreement between the Republic of
Indonesia and Japan for an Economic Partnership through Presidential Regulation No. 36
of 2008 concerning the Agreement between the Republic of Indonesia and Japan regarding
an Economic Partnership and followed up with several Minister of Finance Regulations,
including PMK Number 94/PMK.011/2008 concerning Modalities for Reducing Import
Duty Tariffs (Giman, 2015).
The WTO Agreement is one of examples of multilateral international trade
agreements. Indonesia is one of the member countries of the WTO. The WTO Agreement is
the source of law for agreements international trade agreements established by member
countries (be it bilateral, regional or multilateral). The General Council of the WTO
stipulates that there should be transparency when WTO member countries form Regional
Trade Agreements (RTAs) (The WTO, 2011). Article XVI:3 of the Marrakesh Agreement
(the agreement that established the WTO) states that when there is a conflict between the
WTO Agreement and other WTO Multilateral Agreements, the provisions of the Marrakesh
Agreement shall prevail. Likewise, when Indonesia forms an agreement with Japan, the
substance must not conflict with the WTO Agreement because both are WTO member
countries.
Examples of economic and trade agreements The above-mentioned international
regulations are used by countries as a source of law when conducting international trade
transactions as outlined in the form of international contracts. Therefore, in international
trade relations, the state not only acts as a regulator but also as a seller and buyer. In
relation to the state's position as a buyer, generally the state with its state companies can
enter into trade transactions with other countries. This is closely related to the essence of
trade transactions, namely fundamental freedom.
To carry out the function as a buyer, the state can utilize the following agencies state-
owned enterprises (Mattoo, Rocha, & Ruta, 2020), for example through Perseroan
(hereafter "Persero"). The role of SOEs or State Enterprises has now grown significantly
(Kowalski, & Rabaioli, 2017).
The State's position as a purchaser is closely related to the principles of jure imperii
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and jure gestionis. Referring to the principle of jure imperii, it can be understood that the
actions of legal entities will be protected by state immunity if the action is a government
action or executive authority (Sefriani, 2012). However, the institution will lose its
immunity if it carries out jure gestionis, which is a business or commercial transaction
(Lantang, 2013).
Referring to this principle, it can be understood that immunity can be owned by a
State in relation to actions taken as a form of government action. However, the immunity
owned by the State will be lost if the State carries out commercial activities.
In general, the State through SOEs performs the task of organizing public benefits in
the form of providing high-quality and adequate goods and/or services for the fulfillment of
the lives of many people as specified in Article 2 paragraph (1) letter c of Law Number 19
of 2003 concerning State-Owned Enterprises (hereinafter "SOE Law"). With the purpose
of SOEs, every business result from SOEs can fulfill the needs of the community.
The same thing is also regulated in the provisions of Article 12 of the BUMN Law
which basically regulates the purpose of establishing a Persero is to provide goods and / or
services that are of high quality and strong competitiveness and make a profit. Referring to
the provisions of Article 12 of the BUMN Law, it can be understood that the Persero as an
entity representing the State is required to be able to meet market demand through the
provision of high-quality and highly competitive goods and / or services both in domestic
and international markets.
In the context of SOEs as representatives of the State, the main objective that must be
achieved is to organize public benefits by providing goods and/or services for the
fulfillment of the lives of many people. The main objective of SOEs overrides the goal of
making profits in international trade relations.
The regulation of SOEs is determined based on Article XVII of the General Agreement
on Tariffs and Trade 1994 (hereinafter GATT 1994). The provisions of this article
essentially establish the obligations of GATT 1994 member states in relation to the
activities of State Trading Enterprises (SOEs) which provide an obligation for member
states to consistently apply the principle of non-discrimination, especially with regard to
government policies affecting export-import activities by private traders (Mastromatteo,
2017).
This notification requirement does not apply to import-export activities that need to
be immediately used either by the government or companies as specified above and not for
resale or used to produce goods for sale. In this provision, it can be understood that the
State has an obligation in the form of reporting or notification related to the import-export
activities the existence of SOEs to the Goods Trade Council. However, this notification
requirement does not apply to import-export activities that require immediate use by the
government or company.
Based on the explanation above, it can be understood that the State is one of the
subjects of international trade law. The State can make international trade agreements and
contracts. When a State wants to make an international trade contract and acts as a buyer
through a state-owned enterprise or state enterprises, it has an obligation in the form of
reporting or notification related to the existence of the BUMN itself to the Goods Trade
Council as an implementation of the principle of non-discrimination and as a form of
transparency in international trade relations. This is in accordance with the WTO principle
which requires the State to provide equal treatment to other countries including in
international trade practices (Purwanti, 2020).
2.
Parties to a Trade Contract International
As previously described, the state as a public legal entity can become a legal subject
in an international contract by changing its status as a private legal entity. By changing its
status as a private legal entity, the State can carry out civil relationships, such as leasing,
buying and selling (International) which are not subject to international law transformed
into international contracts (Mardiana, 2017).
When the state is a private legal entity, the party to the international contract is the
state-owned company and will be subject to civil law regulations. Article 1654 of the Civil
Code states: "All legally established legal entities, as well as private persons, have the
power to perform civil acts, without prejudice to legislation that modifies that power, limits
it or subjects it to certain procedures." To the extent that the SOE in question is established
in the form of a PT, it can be qualified as a private entity. PT based on Article 1 Point 1 of
Law No. 40 of 2007 concerning Limited Liability Companies (PT) is a legal entity which is
an alliance of capital, established based on an agreement, conducting business activities
with authorized capital which is entirely divided into shares and fulfills the requirements
stipulated in this law and its implementing regulations.
To carry out the function as a buyer (buyer) in international trade relations
involving the State and private entities, usually based on an international trade contract,
147
where the state often creates state-owned legal entities. In a contract (whether national or
international) the parties must have equal standing, it is not possible for one party to be a
company or legal entity while the other party is a state-owned legal entity another State.
The State downgrades its personality to that of a State-owned company/legal entity in order
to enter into international trade contracts (either as a seller or buyer) with other
companies/legal entities (whether State-owned or private). For example, when Indonesia
established state-owned enterprises engaged in various economic fields.
There are various examples of state-owned companies established in Indonesia: PT
Kimia Farma Tbk, PT Kereta Api Indoonesia, PT BNI Tbk, PT Garuda Indonesia, PT
Jamsostek and others. These SOEs can conduct international buying and selling transactions
with other countries and foreign private legal entities as outlined in international trade
contracts. International trade contracts made by the State will be subject to the provisions of
international civil law governing contractual relations.
According to Professor Aleksander Goldštajn, there are several fundamental
principles in international trade relations that are transformed into contracts, including 1)
the principle of the freedom of contract; 2) the principle of pacta sunt servanda; and 3) the
principle of the use of arbitration (Asnawi & Hudiata, 2017). Referring to these basic
principles, it can be understood that in the context of the State as a buyer, the state has the
freedom to make trade contracts with the subject of international trade law.
In relation to the principle of freedom of contract, it can be understood that the state
as a party to international trade has the freedom to make an international trade
agreement/contract; free to determine the content and extent of the agreement, rights and
obligations in the contract, the desired form of contract and even the form of settlement
that will be taken in the event of a conflict in the future. The contents of the agreement then
become law for the parties who agree and are bound by the agreement. This statement is in
accordance with the principle of pacta sunt servanda. International contracts made in the
context of the state as a buyer can also determine the choice of dispute settlement method
to be pursued by the parties, including the choice of law and the choice of forum for
settlement dispute (choice of forum) (Amalia, Sabrie, & Dian, 2018)
3.
Dispute Resolution in the Event of Loss Related to the State's Purchase of
Goods under International Trade Law:
Relationships in international trade are complex. All relationships that occur in the
process of international trade have the potential to give birth to a dispute involving the
subjects of international trade law, including the state.
In general, a trade dispute is often resolved through negotiation (Mawanda, &
Muhshi, 2019). If the parties do not find a solution through negotiation, they may resort to
other dispute resolution methods such as arbitration or court settlement.
The choice of dispute resolution method that can be pursued by the parties is
generally determined in the agreement clause between the parties. The parties to the
agreement usually choose one of the legal systems (choice of law) or choose a dispute
resolution institution (choice of forum), including submitting disputes to Alternative Dispute
Resolution (hereinafter "ADR") or Alternative Dispute Resolution (hereinafter "APS")
(Suparman, 2018).
Referring to Huala Adolf's thoughts, there are several principles in international trade
dispute resolution, including: 1) Principle agreement of the parties (Consensus); 2) The
principle of free choice of means of dispute resolution; 3) The principle of freedom of
choice of law; 4) Principle of good faith; and 5) Principle of Exhaustion of Local Remedies
(Adolf, 2006). These principles provide space for parties to freely determine and agree on
the method chosen as an effort to resolve disputes, including determining the law chosen
and deemed appropriate by emphasizing the good faith of the parties and resolving a dispute
through the national law of a country before submitting a dispute to an international dispute
resolution institution.
In principle, the dispute resolution forum in international trade law is the same as the
forum in international dispute resolution in general. Dispute resolution forums that can be
chosen by the parties to the dispute include negotiation, mediation, conciliation, arbitration,
dispute resolution through law or court, or other dispute resolution methods chosen or
agreed upon by the parties, as specified in the provisions of Article 33 of the Charter of the
United Nations. These methods have been recognized as dispute resolution methods in the
legal systems of various countries.
The state as a buyer has the freedom to determine the method of dispute resolution
that will be pursued when making an international sale and purchase contract with a party
merchant. The settlement method is then set out in a clause that determines the choice of
law and the choice of dispute resolution institution (choice of forum).
The choice of law is related to the law that will be used by the dispute resolution
forum (court or arbitration) to determine the validity of a contract, interpret the agreement
in the contract, determine whether a performance has been performed or not, and to
determine the legal consequences of a violation of the contract (Hutabarat, 2016). Choice of
149
law by the contracting parties is freely limited. The freedom of the contracting parties in
determining the choice of law to resolve disputes over the implementation of their contracts
is limited by general principles in international civil law. The general principles in question,
there is lex loci contractus, namely the legal system used is the legal system where the
contract is signed; lex loci solutionis, namely the legal system used is the legal system
where the contract is executed; (Khairandy, 2006) The Proper Law of Contract Theory
determines the legal system used is the legal system that has the closest and real connection
with the transaction in the contract; (Khairandy, 2006) and The Most Characteristic
Connection Theory which determines that the legal system used is the legal system of the
contracting party who performs the most characteristic performance (Syahrin, 2017)
Meanwhile, the choice of law by the contracting party is the legal system of the contracting
party forum is identical to the choice of forum or the location of the dispute resolution
institution. For example, if the parties choose the method of settlement through the court,
then in which region of the country the court is located or if the parties choose arbitration,
then which arbitration institution will be chosen. Is the arbitration institution in Singapore,
New York, London or Indonesia. Of course, the selection of the place of dispute resolution
institution refers to the principles of international civil law. For example, the principle of
actor sequitur forum rei, namely the case or dispute is filed in the territory of the defendant
State (Pratidina, 2015).
The inclusion of choice of law, choice of dispute settlement and choice of forum
clauses in an international trade or sale contract provides a guarantee of legal certainty for
the parties that make it. In the event of a dispute, the parties already have an agreement on
the method of settlement, choice of law and choice of forum. International trade contract
disputes tend to be resolved through arbitration. The disputing parties tend to choose
arbitration because it provides party autonomy to the parties to determine the legal
instruments used, the number of arbitrators, is more efficient and effective in terms of cost
and time, of course it is confidential because it is not open to the public the arbitration
process (Jović, 2019).
When the parties agree on the method of resolving their dispute through arbitration
and select an arbitral body, for example Singapore International Arbitration Center
(SIAC) then they can choose the type of international legal instrument used as the Rule of
Procedures (ROP). There are several international legal instruments that regulate
arbitration, namely: International Chamber of Commerce (ICC) Rules of Arbitration 2021
and United Nations Commission on International Trade Law (UNCITRAL) Model Law on
International Commercial Arbitration 2006.
In relation to the State as a buyer, it can be understood that the trade relationship that
occurs between the State as a buyer and a trader is a contractual relationship. The
relationship also regulates the settlement method agreed upon by the parties as an
implementation of the principles of freedom of contract, including the principle of choice of
dispute settlement, either choice of law or choice of forum.
4.0 Conclusion:
Based on the explanation above, it can be understood that the State is one of the
subjects of international trade law. In international trade law, the State can act as a buyer
through state-owned enterprises or state enterprises with obligations in the form of reporting
or notification related to the existence of the SOE itself to the Goods Trade Council as an
implementation of the principle of non-discrimination and non-discrimination as a form of
transparency in international trade relations. In relation to the State as a buyer, it can be
understood that the trade relationship that occurs between the State as a buyer and the trader
is a contractual relationship. The relationship also regulates the settlement method agreed
upon by the parties as an implementation of the principles of freedom of contract, including
the principle of choice of dispute settlement, either choice of law or choice of forum.
