INDONESIA – EU NICKEL DISPUTE
Writer: Hendra Manurung is currently a doctoral candidate in international relations at Padjadjaran University, Bandung, West Java.
In mid-January 2021, the Indonesian government then formed a panel and strengthened the lobbying strategy that was oriented towards increasing the added value of the nickel user industry in Indonesia and the European Union (EU) simultaneously. This step was taken in response to the EU’s decision to file a dispute with the World Trade Organization (WTO) regarding Indonesia’s policy to restrict nickel ore exports. Starting January 1, 2020, the Indonesian government decided to ban the export of nickel with a grade of less than 1.7% (trade.ec.europa.eu). Nickel ore with a concentration lower that 1.7% may only be exported provided that the holder of the production permit has used nickel with such level of concentration in at least 30% of its total input capacity in the purifying facility; and that it has built or is building a purifying facility, whether independently or in cooperation with others.
While the EU industry has reached its lowest level of stainless steel production in 10 years, Indonesia is set to become the second-largest producer in the world after China, fueled by unfair and illegal advantages like the ones challenged in this dispute (eurometal.net, Jan.15, 2021).
The EU considers Indonesian regulations related to the Minerals and Coal Law which makes it difficult for Brussels to be competitive in the steel industry, especially in the management of the stainless steel industry. This EU nickel commodity has a lower productivity value than Indonesia. Thus, the EU considers this will disrupt the energy productivity of the blue continent stainless steel.
Jakarta regrets that Brussels will continue the dispute process. As the largest country in the Southeast Asia region and a country that complies with international law, Indonesia will follow each dispute process according to international rules. Most likely, Indonesia will fight for its rights to international organizations against the EU.
On 22 November 2019, the EU requested consultations with Indonesia pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), Article XXII:1 of the General Agreement on Tariffs and Trade 1994 (GATT 1994), and Article 4.1 of the Agreement on Subsidies and Countervailing Measures (ASCM) with regard to various measures concerning certain raw materials necessary for the production of stainless steel, as well as a cross-sectoral import duty exemption scheme conditional upon the use of domestic over imported goods (WT/DS592/1, G/L/1345, G/SCM/D127/1).
The EU launches WTO challenge against Indonesian restrictions on raw materials on November 22, 2019 (trade.ec.europa.eu), as written: ‘Today, the EU has brought a dispute in the World Trade Organization (WTO) against Indonesian export restrictions for raw materials used in the production of stainless steel. These restrictions unfairly limit access of EU producers to raw materials for steel production, notably nickel as well as scraps, coal, and coke, iron ore, and chromium. The EU is also challenging subsidies that encourage the use of local content by Indonesian producers and give preference to domestic over imported goods, which goes against WTO rules’.
Further, the EU’s commitment affirmation decision to resolute and strong enforcement of multilateral and bilateral trade rules where European interests are at stake.
At present, the EU is involved in 42 WTO disputes and 3 disputes under its trade agreements. The disputes brought by the EU have led over the last five years from 2014 to 2019 to the removal of discriminatory taxes, illegal customs duties, or export restrictions in key markets such as Russia, China, the US, and South America, and the reopening of markets worth €10 billion per year.
Over almost three years, Indonesian nickel products have indeed been superior to nickel products from the EU.
Therefore, the EU sued Indonesia to the World Trade Organization (WTO) in Geneva, Switzerland, regarding nickel with case number Dispute Settlement 592 (DS 592). The European Union claimed that: 1) the measures restricting the exports of certain raw materials, including those requiring domestic processing requirements, domestic marketing obligations, and export licensing requirements, appear to be inconsistent with Article XI:1 of the GATT 1994; 2) the prohibited subsidy scheme appears to be inconsistent with Article 3.1(b) of the SCM Agreement; and 3) the failure to promptly publish the challenged measures appears to be inconsistent with Article X:1 of the GATT 1994. Also, on 6 December 2019, the US requested to join the consultations.
This is due to the EU’s decision that its nickel productivity is currently being rivaled by Indonesia. Moreover, Indonesian goods will definitely be superior, because the sophisticated technology is high, the factory is new, and also this is part of the government’s commitment and seriousness to creating added value and creating investment in Indonesia.
Thus, the results of Indonesian nickel products such as iron and steel, especially stainless steel are of better quality. This quality improvement is due to the fact that Indonesia’s industrial sector continues to increase the added value of a nickel.
Furthermore, steel is the third-largest export in Indonesia after palm oil and coal. This shows a shared commitment by stakeholders to strengthen the transformation of Indonesia’s industrial sector.
Even though Indonesia was sued by the EU regarding nickel, the Indonesian government through the trade ministry will face the lawsuit and is willing to provide various inputs to the EU in Brussels, so that it can generate high-quality nickel products like Indonesia.
As part of the ongoing collaboration between trading partners, it is clear that Indonesia has no objection to providing input to Europe to be able to create high technology such as stainless steel, and how to create added value from the nickel processing industry.
With the EU’s lawsuit against Indonesia regarding nickel, Indonesia is preparing in the future to face any similar disputes with other countries.
The issue of dispute between Indonesia and the EU regarding nickel is a common problem, and it is likely to happen again and Indonesia is expected to be more sophisticated, better, and more able to serve other countries that may have lagged behind their productivity.
Indonesia as a rule of law and the third-largest democracy in the world will reluctantly serve the demands of the EU. Although, this dispute trade might still continue for a longer time. Even though, it can be resolved by means of the negotiation process.
In the midst of the outbreak of the new COVID-19 variant in early January 2021, Indonesia regrets the EU’s decision, this can actually be discussed at the negotiating table, and Jakarta can send Indonesian experts to Brussels to create added value. Indonesia’s commitment is not only prioritized to create world peace but is also committed to creating the world’s people economic prosperity.
Until January 2021, Indonesia and the EU are having two problems, the first is DS 592 related to the nickel issue, and Indonesia is currently suing the European Union regarding palm oil discrimination through the Renewable Energy Directive II (RED II) with lawsuit number DS 593.
Indonesia is of the view that in this global competition, effectiveness, efficiency, and productivity are good ones and need to be continued.
Thus, Indonesia and the EU need to sit together to discuss the ongoing trade agreement negotiations to help the productivity of European products, whether in vegetable oil or stainless steel.
Indonesia is definitely ready to help the EU with the nickel issue, and coordinate with the minister of industry to send experts from Indonesia.
As is well known, Indonesia is the second steel commodity producer in the world after China.
Jakarta is still targeting real exports of goods and services to grow by 4.2 percent. Especially for non-oil and gas exports, it is targeted to grow by 6.3 percent. Additionally, it also targets to agree on 25 international agreements, either the Preferential Trade Agreement (PTA) or Free Trade Agreement (FTA), or the Comprehensive Economic Partnership Agreement (CEPA).
Meanwhile, domestically, it is necessary to encourage and strengthen a conducive business climate, especially in helping business actors to continue working, especially in the midst of this pandemic so that the national economy and increased economic growth can continue to move.
At least, there are 6 (six) foreign trade strategies in 2021 (kemendag.go.id), namely: First, non-traditional markets, the ministry of trade will seek and take advantage of opportunities in non-traditional countries as an alternative to export markets; Second, is the settlement of Trade Agreements. It is targeted that 25 international trade agreements will soon be completed, apart from conducting international trade negotiations, one of which is with non-traditional countries; Third, related to Expo Dubai and Trade Expo Indonesia (TEI), trade promotion at home and abroad, such as participation in Expo 2020 Dubai and Trade Expo Indonesia 2021 in Indonesia. It is related to trade missions. It still needs to strengthening and boosting of trade missions covering business forums, business matching, and business dialogue; Fourth, the use of digital technology will be a solution in the conditions of the COVID-19 pandemic with limited mobility between countries; Fifth, ensuring the flow of incoming goods, especially raw and auxiliary materials because these goods will later be processed into export goods; Sixth is related to licensing by providing legal certainty and the process for exporters and importers in carrying out-licensing arrangements.
Indonesia’s measures nullify or impair the benefits accruing to the EU, directly or indirectly, under the covered agreements. The EU asks that this request for the establishment of a panel be placed on the agenda for the meeting of the Dispute Settlement Body to be held on 25 January 2021 (trade.ec.europa.eu).
Sooner or later, the Indonesian Ministry of trade needs to prepare reliable negotiators to resolve legal case issues related to the European Union’s demands for nickel disputes to the WTO.