Losing in Dispute Can Hamper Downstream Operations

The downstream program is considered to be able to be hampered if Indonesia loses the nickel dispute at the WTO. However, Indonesia can look for other Solutions.

KOMPAS/MOHAMAD FINAL DAENG

A worker inspects ferronickel products processed from nickel ore at the PT Aneka Tambang (Antam) factory in Pomalaa, Kolaka Regency, Southeast Sulawesi, Friday (11/5/2011).

JAKARTA, KOMPAS — National nickel downstream could be hampered if Indonesia loses the nickel dispute case at the World Trade Organization (WTO). This will also affect Indonesia’s Integrated Electric Vehicle Battery Industry Development program and its stainless steel industry.

Next Policy Executive Director as well as an economist from the University of Indonesia, Fithra Faisal Hastiadi, on Tuesday (22/11/2022), said that Indonesia is currently in dire need of nickel to support the integrated electric battery industry development program and the stainless steel industry. If the country loses the dispute, the program could be disrupted and hampered, while the growth of the stainless steel industry will slow down.

Therefore, in filing the appeal, Indonesia must have strong reasons and evidence that nickel is needed domestically to support the national industry and people's welfare. In addition, Indonesia also needs to provide strong evidence if using the argument of limited nickel reserves.

Indonesia, Fithra further said, also still has enough time to prepare appeal materials considering that the WTO Appellate Body (AB) is still in a vacuum. This is because the United States has blocked the appointment of new judges since 2019.

“However, if later it still loses its appeal at the WTO AB, Indonesia can look for other opportunities and solutions through negotiations on the Indonesia-EU Comprehensive

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Economic Cooperation Agreement (IEU-CEPA). For example, Indonesia can ask the EU to invest in the nickel processing sector or products made from nickel in Indonesia," he said when contacted from Jakarta.

Last Monday, Energy and Mineral Resources (ESDM) Minister Arifin Tasrif said Indonesia had lost against the EU in the WTO Dispute Settlement Body (DSB) regarding Indonesia's nickel export ban in 2020. In the final report on the WTO panel decision on dispute number DS 592 on 17 Oct. 2022, the nickel export ban policy and the obligation to process and refine nickel for Indonesia violated the WTO provision Article XI.1 GATT 1994.

The WTO panel also rejected Indonesia's defense regarding the limited number of national nickel reserves and the implementation of environmental-based mining governance. However, according to Arifin, the decision does not yet have permanent legal force so that Indonesia can appeal. Indonesia will also continue to strive to maintain nickel downstream (Kompas, 22/11/2022).

The Trade Ministry has the same opinion. Despite reluctance to reveal the plans and materials for the appeal, the director general of international trade negotiations at the Trade Ministry, Djatmiko Bris Witjaksono, said Indonesia could still submit objections to the DSB decision.

KOMPAS/ELSA EMIRIA LEBA

Piles of nickel raw materials to be processed by a nickel-based processing and refining plant or smelter owned by PT Virtue Dragon Nickel Industry in Konawe, Southeast Sulawesi, Monday (25/2/2019)

Nickel-palm oil consensus

Indonesia has banned export of nickel ore since early 2020. The ban to increase the added value of nickel has brought benefits to Indonesia. Statistics Indonesia (BPS) noted that in the August 2020 to 2022 period, Indonesia's export of nickel ore dropped dramatically. Meanwhile, nickel derivative products increased significantly. During that period, Indonesia had no nickel ore export income. In fact, in 2019, Indonesia's nickel ore export value reached US$1.097 billion. The export value of nickel and its derivative products has increased significantly. In 2020, the value was $808.4 million, then in 2021 and January-August 2022, the value increased to $1.28 billion and $3.59 billion respectively.

This also applied to other nickel derivative products, namely ferronickel. In 2020, the export value was $4.74 billion. Then in 2021 and January-August 2022, the value increased to $7.09 billion and $8.76 billion respectively. In addition, nickel in Indonesia is currently also needed for the development of the electric vehicle battery industry. Meanwhile in the EU, nickel is needed to produce stainless steel. The EU is the world's second largest steel producer after China. EU production of stainless steel averages 139.3 million tonnes per year or about 7.3 percent of the total global production. The steel industry is the backbone of the EU because it is closely linked to various industrial sectors, such as the automotive, construction, electronics and renewable industries. This commodity contributed $19 billion and absorbed around 230,000 direct and indirect workers.

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An expert on governance and international diplomacy as well as a research assistant for Columbia-Harvard China and the World Program, William Yuen Yee, is of the opinion that the EU and Indonesia can sit together to produce a consensus. The EU can recognize Indonesia's progress in increasing crude palm oil (CPO) and its derivatives to negotiate limited exports of nickel ore.

The EU must also open the market to increase imports of CPO and its derivative products that have sustainable certificates. In exchange, Indonesia has to export a limited amount of nickel ore to the EU.

"With the possibility that Indonesia will lose at the WTO, it is hoped that the palm oil-nickel concession will convince Indonesia to adjust the nickel ore export ban," he said. (The Diplomat, 2 Nov. 2022).

Strengthening the argument

Indonesia must strengthen the argument for the appeal regarding the decision. A number of things can also be done if Indonesia still loses the appeal, among others, by increasing export tariffs in the national interest.

A mining law observer from Tarumanagara University, Ahmad Redi, when contacted on Tuesday (22/11), said the DSB WTO decision regarding nickel was part of Indonesia's challenge in encouraging nickel downstream. In the appeal, Indonesia must find another strategy so that the arguments made are more convincing to the WTO.

"Indonesia must be able to convince the appellate board at the WTO, for example, that this is not only in national interest, but also global. This is related to the development of the nickel-based battery industry. So, it's not a limitation, but an optimization of nickel to contribute to the development of electric vehicles in the world as part of the energy transition," said Redi.

Indonesia must be able to convince the appellate board at the WTO, for example, that this is not only in national interest, but also global.

According to Redi, even though in the end the policy will still be declared a violation, the government needs to improve regulations. Another strategy, for example, is increasing royalties and export duties. Chairman of the Association of Indonesian Mining Experts (Perhapi) Rizal Kasli said his party continues to support the government's efforts to downstream natural resources. Efforts to appeal by strengthening the argument is also the right step.

According to Rizal, whatever the final WTO decision will be, the most important thing to maintain is certainty about the current investment. The government must secure the nickel ore supply chain for industries that have and will grow smelters and refineries.

Besides being able to increase export tariffs, the government can also regulate the amount of production through a work plan and budget for mining license holders. The Energy and Mineral Resources Ministry can limit production to maintain the age of domestic nickel reserves.

This article was translated by Hyginus Hardoyo.