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Two years after Indonesia lost a lawsuit concerning its nickel ore export ban brought by the European Union at the World Trade Organization, the country continues to defy WTO rules by refusing to allow the export of raw nickel, with global implications over a silvery-white metal often referred to as "the mother of industry" due to its ability to generate a wide array of derivative products essential to human needs, ranging from utensils to batteries, mobile phones, and vehicles in an increasingly technologically advanced world. Incoming President Prabowo Subianto, who takes office on October 20, has vowed to continue to confront the WTO.
The export ban is the capstone of a policy inaugurated by the government a decade ago to move Indonesia up the value-added chain for a wide variety of other mining commodities including bauxite, copper, tin, and gold out of a belief that for far too long the developed world has prospered by pillaging Indonesia’s vast natural resources on the cheap and exporting them elsewhere to process them into finished products. The government has developed an ambitious investment roadmap for 21 commodities focused on downstream development through 2040, segmented into eight priority sectors: minerals, coal, oil, natural gas, plantations, maritime affairs, fisheries, and forestry. It has prohibited nickel exports since 2020, followed by similar bans on bauxite and copper in 2023. Unfortunately, environmentalists say smelting is responsible for massive environmental degradation. Tailings contain the remains of other rare earths that leach into the ground water, or in the case of smelting operations on the coast, into the sea.
The country is the world’s largest producer of nickel. Because of its abundance, Indonesia aspires to become a global hub for battery manufacturing, particularly in light of the surging demand for electric vehicles, for which nickel is a key component. From 2014 to 2019, production soared from 4.79 million wet metric tons (WMT) to 60.95 million WMT, while exports increased from 3.86 million WMT in 2014 to 30.19 million WMT in 2019.
First ban in 2020
Indonesia first implemented its ore export ban in early 2020, arguing that it was shut out of the value-added chain by producers refining it elsewhere. The Minister of Energy and Mineral Resources accordingly implemented procedures for granting areas, licensing, and reporting in mineral and coal mining activities, and the Minister of Trade issued regulations concerning export provisions for processed and refined mining products.
In January 2021, the European Union challenged Indonesia's export ban and the implementation of domestic processing before the WTO, claiming that the export prohibition, justified by the need for sustainable nickel processing, contravened GATT rules. The provision prohibits any trade bans or restrictions beyond tariffs, taxes, or other levies, regardless of whether they are imposed through quotas, import or export licenses, or other measures. The EU relies on nickel as a primary raw material for stainless steel production, a cornerstone of the EU economy, closely linked to various sectors, including automotive, construction, electronics, and renewable energy.
The WTO accordingly charged that Indonesia had violated dispute settlement provisions on several key assessments including failing to demonstrate an imminent crisis regarding nickel ore shortages, insufficient evidence of reserve levels and demand projections. The dispute panel concluded that the imbalance between supply and demand for Indonesian nickel ore was not substantial enough to be classified as a critical shortage or crisis.
Bara Krishna Hasibuan, Special Adviser to the Minister of Trade on International Trade Agreements, asserted that the defeat in the lawsuit stemmed from the perceived immaturity of Indonesia's downstream industry. Currently, the nickel downstream sector, particularly in steel, is seen as underdeveloped. Nonetheless, the government is preparing to present arguments that Indonesia is actively advancing its domestic downstream capabilities, particularly in the processing of raw minerals such as nickel. "We have established dozens of smelters processing nickel; that is our argument," he stated.
According to the WTO report, Indonesia argued that the ban is temporary and crucial to prevent potential shortages of essential products. Nickel ore is needed domestically to meet the raw material demands for iron and stainless-steel production and also supports the development of the national electric vehicle battery ecosystem. Additionally, Indonesia contended that it must reorganize mining and processing sustainably, with an emphasis on environmental stewardship, as this is critical for conserving finite natural resources.
Analysts warn that Indonesia's downstream nickel development could face significant setbacks if the country loses again in its dispute. Fithra Faisal Hastiadi, Executive Director of Next Policy and an economist at the University of Indonesia, emphasized that Indonesia currently requires nickel to support the country’s integrated electric vehicle battery industry development program and the stainless-steel industry. A loss could disrupt these initiatives and impede the growth of the stainless steel industry. Therefore, Indonesia must present robust arguments and evidence that nickel is essential for supporting national industries and enhancing the welfare of its populace. Furthermore, the country needs to provide strong proof if it utilizes the argument of limited nickel reserves.
President Widodo has expressed concern that Indonesia may again lose. However, he said he remains confident that, by that time, the domestic nickel downstream industry will be well-established, including the battery ecosystem and electric vehicles. "I believe we may lose again. But if we do, the industry will already be in place," Jokowi stated. "Building an industry takes time; I cannot predict if there will be a second appeal. If there is, we must not retreat until the industry is fully established."
The president claimed that the export value of Indonesia's nickel products has surged since the downstream policy implementation, escalating from US$2.1 billion prior to the export ban to US$30 billion following the domestic processing initiatives. The value of nickel ore processed into ferronickel could increase tenfold, while converting it into stainless steel could multiply its value by 19 times, he said.
With the rising demand for the raw material for battery and electric vehicle production, nickel is expected to become increasingly vital. Indonesia commands more than over 20 percent of total global nickel exports and ranks as the second-largest nickel exporter of the steel industry in EU countries. The government is intensifying its downstream policies, asserting that it can generate economic value from natural wealth, create numerous jobs, and boost national revenue.
This downstream initiative is evident in the vigorous efforts by both the government and private sector to establish refining and processing facilities (smelters). Indonesia currently boasts 23 operational smelters, with plans to add seven more this year. The existing smelters comprise 15 nickel smelters, two bauxite smelters, one iron mineral smelter, two copper smelters, and one manganese mineral smelter. Ironically the Ministry of Energy and Mineral Resources’ regulations banning raw ore exports have backfired, with 21 of Indonesia’s smelters owned by Chinese mainland interests instead of Indonesian ones, as Asia Sentinel reported on August 30, 2022, giving China near full control over nickel exports.