Indonesia’s Malacca Strait ‘toll’ proposal violates UNCLOS. Is there an alternative?

Indonesia drew global attention after Minister of Finance Purbaya Yudhi Sadewa floated the idea of imposing a toll on ships transiting the Strait of Malacca. The outspoken minister said the proposal aligns with President Prabowo Subianto’s directive to position Indonesia as a central player in global trade, much like Iran is doing in the Strait of Hormuz. The thinking behind the controversial proposal is quite straightforward: Indonesia should be able to monetise one of the world’s busiest trade routes. From a national political perspective, it’s an attractive idea because it sounds fiscally appealing, especially when the state budget is already badly strained by the costly Free Nutritious Meals program. It is clearly better than introducing new domestic taxes. Targeting international shipping offers a way to generate additional revenue without further squeezing the Indonesian people. Is it legal? This proposal would fly in the face of both international law and regional precedent, as I show below, and it has certainly drawn attention in Southeast Asia and beyond. Singapore has adamantly refused it. Malaysia is also unlikely to take it up. The idea is deeply controversial. If seriously proposed, it would face fierce opposition through legal, diplomatic, and even economic means. At the very least, it could hurt Indonesia’s credibility. The Strait of Hormuz is literally in the midst of war – it’s not comparable with the Strait of Malacca. Iran’s shipping toll is kind of a retaliatory measure against the US-Israeli offensive against Iran. There is no war in the Strait of Malacca. So, how does international law of the sea actually regulate the management of straits, especially the Strait of Malacca? The Malacca Strait is 520 miles long, with Indonesia, Singapore, and Malaysia as littoral states. It is arguably the world’s most crucial maritime trade route, accounting for up to 40% of global sea-borne trade. It connects the South China Sea to the Indian Ocean, so it is often referred to as a ‘chokepoint’. Chokepoints are narrow waterways that ships from all over the world must pass through. If they’re closed or clogged, it can seriously affect the global economy. As a chokepoint, the Malacca Strait qualifies as a strait to be used for international navigation under the United Nations Convention on the Law of the Sea (UNCLOS). This classification triggers the right to ‘transit passage’ as stipulated in Articles 37-44 of UNCLOS. Essentially, this allows vessels to pass through the strait continuously without delay through the strait, and they cannot be subject to any taxes for such passage. Therefore, the idea of imposing taxes on vessels transiting the Strait of Malacca is inconsistent with UNCLOS, and so Sadewa’s statement is a serious mistake. The better alternative Indonesia has ample regulatory space to profit from the straits. Indonesia could generate non-tax state revenue (penerimaan negara bukan pajak, PNBP) from selling services to support activities in the Straits of Malacca, Sunda, and Lombok. These could include shipping safety, navigational assistance, protection of the surrounding marine environment, and even traffic regulation. In crowded straits that serve as international crossings, the need for such services is obvious. Chokepoints have high traffic density and limited maneuvering space, increasing the risk of accidents. Indonesia could strengthen the regulatory and technical framework for such a scheme to increase non-tax state revenue from the maritime sector. This has a legal basis under Article 43 of UNCLOS, which says that User States and States bordering a strait should, by a cooperative agreement: (a) establish and maintain necessary navigational and safety aids or improvements for international navigation in the strait; and (b) prevent, reduce, and control pollution from ships. The phrase ‘cooperative agreement’ indicates that Indonesia must first make an agreement with Malaysia and Singapore as littoral states. As Minister Purbaya acknowledged during his speech, he would have to get both Singapore and Malaysia on board if Indonesia wanted to impose a technical agreement. Reaching an agreement between the three countries would be complex, and there is likely to be major pushback from the global shipping industry, which relies heavily on the Malacca Strait. A compromise The history of UNCLOS’s formation shows that its arrangements are the result of political compromises. Therefore, if Indonesia wishes to obtain the economic benefits of maritime services from strait management, a more legitimate path would be to reach a compromise through a cooperative mechanism based on international law. The main issue with this Malacca toll proposal is that it conflicts with UNCLOS, which Indonesia has ratified. Indonesia gains many benefits from its archipelagic state identity, as recognised under UNCLOS. As an archipelagic state, Indonesia exercises sovereignty over its territorial waters and enjoys sovereign rights within its EEZ (exclusive economic zone). However, this does not mean that Indonesia can interfere with the right of transit passage guaranteed by UNCLOS as part of the major compromise in its formation. The government must establish a measurable baseline for maritime policy that aligns with UNCLOS, Indonesia’s national interests, and international customary law. The Strait of Malacca is not a space to be filled at the whim of momentary political needs. It is subject to UNCLOS, which, as its preamble states, aims to promote peaceful uses of the seas and oceans for the benefit of all nations. Any derogation of UNCLOS should be seen as a threat to Indonesia’s own maritime sovereignty and territorial integrity. Indonesian officials need to avoid making ambiguous, reactive statements that could have dire consequences for their own country.