Indonesia Fights against “Forced Exports”

Indonesia will not only face the challenge of “forced exports”, but also conditional exports from the European Union. The commodities are not only related to nickel and palm oil, but also cement, iron-steel and aluminum.

KOMPAS/HERU SRI KUMORO

President Joko Widodo delivered a briefing in the Kompas100 CEO of the Powered by East Ventures forum at the State Palace, Jakarta, Friday (2/12/2022).

Back in the VOC monopoly era under the Dutch administration, there was such a thing as forced labor and forced cultivation. In this modern era, the forced export appears again. We are forced to export our commodities against our will.

The statement was made by President Joko “Jokowi” Widodo in the 13th Kompas100 CEO Forum, which carried the theme "Making a Light in a Challenging Year", which was held at the State Palace, Central Jakarta, on Friday (2/12/2022). The statement was related to Indonesia's defeat in the lawsuit filed by the European Union against its nickel export ban at the Dispute Settlement Body (DSB) of the World Trade Organization.

In the final report on the decision of the WTO panel on dispute number DS 592 on 17 Oct. 2022, the nickel export-ban policy and the obligation to process and refine nickel for Indonesia were deemed to have violated WTO provisions Article XI.1 GATT 1994. The WTO panel also rejected Indonesia's defense regarding limited nickel reserves and the implementation of environmental-based mining governance.

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Despite losing at the DBS level, Indonesia can still appeal through the Appellate Body of the WTO. Indonesia still has enough time, because the Appellate Body is currently still in a vacuum due to the United States having blocked the appointment of new judges since 2019.

President Jokowi is firm: Indonesia will appeal. The President wants to make Indonesia a developed country, which can create products with high added value from its downstream industry; a country that can make other countries reliant on it.

According to the President, Indonesia is rich in natural-resource potential. Many countries depend on Indonesia. So, it is not surprising that many state leaders called him when Indonesia banned the export of coal, nickel and crude palm oil (CPO) and a number of their derivative products.

Certainly, they will not allow developing countries to become developed countries.

Jokowi has clear reasons for banning the exports of the three commodities. All three are urgently needed domestically. Coal is needed to fuel steam-power plants.

A CPO export ban is needed to cope with scarcity and rising cooking oil prices. Nickel ore is needed to supply raw materials for the stainless-steel industry and support the development of the national electric-vehicle battery ecosystem.

“The so-called developed countries also want to maintain their status as developed countries. Certainly, they will not allow developing countries to become developed countries," said Jokowi.

KOMPAS/ELSA EMIRIA LEBA

Nickel piles that will be processed by a nickel -based nickel -based Nickel Nickel Industry Industry Industry manufacturing and smelter factory in Konawe, Southeast Sulawesi, Monday (2/25/2019).

Indonesia has banned exports of nickel ore since early 2020. The Central Statistics Agency noted that in during 2020-August 2022 period, Indonesia's exports of nickel ore dropped dramatically. Meanwhile, exports of derivative products increased significantly.

In 2020, the export value of nickel derivative products amounted to only US$808.4 million. Then in 2021 and January-August 2022, the value increased to $1.28 billion and $3.59 billion, respectively. Exports of other nickel derivative products, namely ferronickel, also increased. In 2020, its export value totaled $4.74 billion. Then in 2021 and January-August 2022, the value increased to $7.09 billion and $8.76 billion.

Dispute

Apart from nickel, the EU has also discriminated against CPO and its derivative products, especially biodiesel. The EU has removed Indonesia's main export commodity from the list of new and renewable energy in order to realize the Renewable Energy Direction (RED) II policy.

Indonesia also fought back. At the end of 2019, Indonesia sued the EU for this discrimination via the international trade body’s DBS. Currently, Indonesia is waiting for the DBS’s final DBS decision, which is expected to be announced at the end of 2022 or early 2023. Indonesia has also prepared a win-lose scenario.

Indonesia will appeal if it loses against the EU. Indonesia will avoid an appeal through the Multi-Party Interim Appeal Arbitration Arrangement (MPIA). MPIA is an alternative appeal initiated by the EU and its supporting countries, so it is feared that it will accommodate EU interests more. In addition, Indonesia also cannot choose arbitrators outside of the 10 arbitrators who have joined the MPIA.

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However, if Indonesia loses, it will appeal through the DBS at the WTO. Apart from appeals, there are also other scenarios that Indonesia can implement, namely through a mutually agreed solution mechanism or seeking and agreeing on mutually beneficial solutions together.

In fact, Indonesia and the EU have a forum in resolving disputes, namely the negotiation forum for the Comprehensive Economic Partnership Agreement between Indonesia and the EU (IEU-CEPA). In this forum, Indonesia can ask for the EU's commitment to re-invest to increase the added value of Indonesia's raw commodities, including nickel.

The challenge going forward is not only about forced exports, but also conditional exports.

This dispute or trade conflict will continue in the future. In fact, the tension may increase when the EU starts implementing RED III, the general preference tariff scheme plus (GSP+), the Carbon Border Adjustment Mechanism (CBAM) and digital-product passports.

Its commodities are not only related to nickel and palm oil, but also cement, steel, aluminum, fertilizers, electrical equipment, textiles and textile products, as well as furniture and handicrafts. The challenge going forward is not only about forced exports, but also conditional exports.

This article was translated by Hendarsyah Tarmizi.