Indonesia boasts some of the world’s richest mineral deposits, but it has long focused on digging them up and shipping them to other countries for processing.
The government in Jakarta has been trying to change that, but is facing fierce resistance from the West. Raw nickel exports have been banned since December 2020 and Indonesia is instead trying to force foreign buyers to invest in smelters in Indonesia in order to access the country’s vast deposits. According to Asia Times, that plan has been working as “the mineral’s value-added increased from US$1.1 billion to $20.8 billion in 2021 alone.” The same restrictions were put in place on bauxite shipments on June 10. Tin and copper bans are scheduled to come next.
The EU and the US need the nickel to power their clean tech futures. The problem is they produce little of it themselves. More from the Peterson Institute for International Economics:
Nickel is one of the mineral lynchpins of the industrial sector because it is used in stainless steel, lithium-ion batteries to power EVs, and other renewable energy technologies. It is also a mineral produced in only small quantities in the US (0.5 percent of global production) and the EU—albeit thousands of miles from Europe in France’s New Caledonia territory in the South Pacific. Accordingly, the US and EU have designated nickel a critical mineral/raw material.
The EU and US are worried that if Indonesia develops manufacturing capability they won’t have control over clean tech. The EU is asking businesses to take countermeasures (what these are remain unclear) against Indonesia’s nickel ore export ban as a battle between Brussels and Jakarta plays out before the World Trade Organization. Jakarta has appealed a WTO ruling against its protective mineral policy and has maintained the export ban in the meantime. More from The Jakarta Post:
The Trade Ministry’s international trade negotiations director general, Djatmiko Bris Witjaksono, told The Jakarta Post on Thursday that the EU had placed “antidumping and antisubsidy” measures on Indonesian steel products.
Hikmahanto Juwana, an international law professor at the University of Indonesia, called the EU measures an “unfair contravention”, because the WTO’s ruling through the Dispute Settlement Body had yet to become legally binding, as Jakarta was appealing with the Appellate Body.He urged Jakarta to “fight back” by stopping all ongoing negotiations on international trade.
“The EU has brought the law of the jungle back into human society: The stronger one wins.”
The battle playing out between the EU and Indonesia is indicative of the larger struggle over who gets to own the clean energy future, and the critical minerals needed in everything from car batteries to windmills. From Down To Earth:
[Rob Davies, former minister of trade for South Africa] says for developing countries being able to use tools like localisation is critical. Minerals needed for green technologies, such as bauxite and copper ore used in wind turbines, or lithium and nickel ore used in electric vehicle battery, are concentrated in a few countries many of which are developing economies. Indonesia, for example, supplies 40 per cent of the world’s nickel ore, as per the International Energy Agency (iea). Since 2014, Indonesian has instituted a ban on the export of nickel ore and requires it to be processed domestically for export. As a result, its share of global refined nickel output rose from 1 per cent in 2013 to 30 per cent in 2021. The EU took the issue to wto claiming that the ban violated trade rules; wto agreed. Indonesian President Joko Widodo now plans to appeal the ruling. He may now ban export of bauxite in 2023 (it holds 3.75 per cent of the world’s reserves). Paul Butarbutar, co-founder of Indonesia Research Institute for Decarbonization, says: “When one company sets up a nickel smelter to process the nickel, it employs more than 12,000 people and local and central governments earn revenue. So, this protectionism helps our local eco- nomic development.”
WTO panelists suggested that Indonesia could only block exports in acute crises like mass starvation—and not in response to the needs of economic development, writes Todd N Tucker, director of industrial policy and trade at the Roosevelt Institute, US, in The Washington Post. This suggests wto would not leave much room for countries to manage economic transitions for the benefit of their own workers and producers, he adds.
Jakarta’s export bans are part of its struggle to avoid the “resource curse,” in which natural resources actually end up hurting a country’s development. Additionally, countries with deposits pay a heavy environmental cost getting them out of the ground, and want to see more of the rewards for such sacrifice. Indonesia’s efforts seem to be having success, which explains the opposition. Ford, for example, earlier this year signed an agreement to partner in a $4.5 billion HPAL plant on Indonesia’s Sulawesi island. Other mineral-rich countries like Zambia and Tanzania are attempting similar efforts, with China playing an integral role. From ESP News:
Other African countries are also looking to control the export of their raw materials. The current tensions between Europe and the U.S. with China make Africa an exciting investment place. Unfortunately for some Western corporations, many Chinese companies are already present in the continent, ensuring they have first bids on the large deposits.
The big player in Indonesia is also China. Unlike the EU, IMF and others in the West, Beijing has not opposed Jakarta’s efforts. It has poured billions into nickel producing areas in Indonesia. From Nikkei Asia:
Still, there are early signs that the planned export ban on bauxite, the primary source of aluminum, could be having an impact. Already used extensively in aircraft construction, building materials and consumer durables, aluminum demand is expected to soar given its applications in solar cells, wind turbines and electric vehicles, among other green technologies.
China’s Shandong Nanshan is reportedly planning to expand its new alumina plant on Indonesia’s Bintan Island, creating a $6 billion aluminum smelting complex by 2028. The company did not respond to Nikkei Asia’s request for comment.A joint venture between China’s Hongqiao Group and Indonesian miner Cita Mineral Investindo completed an alumina refinery expansion on Borneo island last year.
“China’s primary aluminum smelters are looking to transfer some capacity abroad, mainly into Indonesia,” Tang wrote in a March research note.But investors from elsewhere have not responded in kind, which is worrying for Indonesia’s bauxite miners struggling to finance construction of their own smelters.
The IMF is also trying to ramp up pressure on Jakarta over its mineral exports. From Asia Times:
In a sharply worded statement accompanying its 2022 country report, the IMF called for Indonesia to phase out the restrictions and not extend them to other commodities. “The increasing use of trade measures and industrial policies may destabilize the multilateral trade system,” the IMF said.
But it increasingly looks like the EU is one at risk of being left out in the cold. The US is in no position to cry foul at the WTO over Indonesia’s export bans due to its protectionist Inflation Reduction Act. Washington is instead trying to negotiate a free trade agreement with Jakarta so that it can have access to its minerals. Indonesia officials said the deal is expected to be similar to the one the US and Japan agreed to in March. According to the Peterson Institute for International Economics:
The success of Indonesia’s industrial policy may have the Indonesian government thinking about capturing value-added even further down the supply chain. Plans to develop a domestic EV battery industry include taxing ferronickel exports—a refined, higher value-added nickel product used in EV batteries—as a means of providing lower-cost inputs for Indonesian industry. Unlike outright export bans, such a tax would be WTO-compliant and, if the recently concluded US-Japan limited FTA covering critical minerals is any guide, also consistent with US goals for these limited trade agreements. The US-Japan agreement affirms both parties’ obligations not to restrict trade in critical minerals other than via recognized instruments like taxes and duties, per both countries’ obligations as elaborated in Article XI:1 of the General Agreement on Tariffs and Trade. But given Indonesia’s success with export bans in the past, it is fair to wonder if its government might pursue them in the future on value-added products like ferronickel.
Another problem for Washington’s plan for a FTA agreement with Jakarta is that because China has invested so heavily in mineral operations there, the Chinese firms would end up benefitting from the tax credits in the IRA.
German Chancellor Olaf Scholz has also pushed for an EU trade agreement with Indonesia, although it has been complicated by the disagreement over the export bans. Scholz also claims the agreement would be a way for the bloc to reduce its reliance on China, but again it’s hard to see how the EU would do so with China’s heavy involvement in the Indonesian mineral industry.