| Commentary by Wayne Forrest
Indonesia lost an important case at the WTO filed by the European Union (EU) on November 30 over its nickel export ban dating back to 2019. The importance of the case has less to do with nickel than other products.
President Jokowi had anticipated the result in September of this year when he said: “It looks like we will lose at the WTO, but it’s fine, the industry is already built”. He was referring to the increase in mostly Chinese-made smelters and stainless-steel facilities built in the last 5-10 years as the export ban came into effect.
The WTO found that Indonesia had violated several key provision of the 1994 GATT agreement that ensures nations trade freely with each other in all products with temporary restrictions allowed only under certain conditions. Indonesia argued it had met those conditions, but the WTO found otherwise. Assuming most readers of these page do not desire an “in the weeds” commentary (that can be found by clicking here), I will simply report that Indonesia’s arguments that its export restrictions were temporarily necessary because of a “critical shortage” of material needed for domestic processing and that the country is at an early stage of development were not credible. The panel found that there was not a lack of supply and their was no local quota on nickel mining, Indonesia is a middle income developing country, and that the ban was not temporary, having been in effect for 7 years.
President Jokowi is certainly correct that the WTO decision may not have a great consequence for nickel. Indonesia had good leverage when it enacted the export ban in 2014. Its now a leading exporter of stainless steel and its on its way to being the same in batteries (utilizing nickel) for electric vehicles. Jokowi reacted to the November 30 with his customary bravado: “We don’t want to continue exporting raw materials even if we lost at the WTO, it is alright,” the president known as Jokowi said in a speech in Jakarta on Wednesday. He went on to say, “If we step back and stop down-streaming, we will never become a developed country. We will not stop.”
The last statement is the key to understanding the current “mindset” of not only the President but all his top policy makers. Indonesia is contemplating other export bans believing they are the only way to bring value-added investment. There is currently a proposed ban on all exports of tin, bauxite, nickel pig iron, ferro nickel and copper concentrates. Some of these involve “moving the goal posts” of what is considered to have the “right stuff” to be exported. For example, Indonesia has not exported raw tin for quite some time. The ingots that are currently exported contain 99.9% pure tin. Similarly nickel pig iron and copper concentrates have also been considered export worthy as they contain a high value added as refined products. Apparently, that is now not enough value, and these products could be banned. The definition of what is “down-streaming” fluctuates.
If this banning continues, I am concerned it will spill over into other exports such as rubber or coffee, even though Indonesia never needed a ban to attract plenty of rubber manufacturing investment and it would be crazy to export cans of ground coffee, or roasted beans as retail prices would be twice as expensive as they are now in importing countries.
Indonesia plans to appeal the WTO decision but based on similar cases, experts believe they won’t succeed. In 2021 the US, EU, and Japan won a case against China’s restriction of rare earth minerals. Based on that ruling Indonesia would have to have an active quantitative quota or mining ban on nickel, copper, bauxite, tin or any other mining product to get an exemption, something that they have no interest in doing.
The case brings to my mind several important adages:
President Jokowi told a business conference recently that he wanted Indonesia to emulate South Korea and Taiwan and not follow the example of Latin America. The essence of his philosophy is import substitution, export bans, and the production of manufactured products that make the world dependent on Indonesia. President Suharto had similar plans, but he didn’t have an industry to focus on such as electric vehicles. Both leaders ached for their country to achieve developed status. With its own large market, Indonesia can do this without uneconomic shortcuts and heavy interventionism. It could stay within WTO rules by using export levies rather than bans to keep more raw materials at home to incentivize investment. It could do more to strengthen the rule of law, end the tax “hustle” that many foreign firms complain about, allow the importation of used equipment, and refocus the national curriculum away from religion and towards STEM. Picking fights with the WTO is not Indonesia’s best look.
The writer is indebted to Bill Sullivan’s December article in Coal Asia, “Indonesia and the WTO On a Collision Course”.
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