Indonesia, EU clash on nickel ore and palm oil
Trade tensions between Indonesia and the European Union (EU) have escalated again following the bloc’s decision to challenge Indonesia’s nickel ore export ban at the World Trade Organization (WTO). The EU decision follows Indonesia’s challenge at the same trade body last year over the EU’s discriminative trade policy that will ultimately ban palm oil-based biodiesel from entering the bloc by 2030. This bilateral trade escalation will likely impact the ongoing negotiations on the Indonesia-EU Comprehensive Economic Partnership Agreement (CEPA).
The EU notified the Indonesian delegation in Geneva last week that it would request the establishment of a panel to rule on the legality of Indonesia’s nickel export restrictions at the next meeting of the WTO Dispute Settlement Body (DBS) on Jan. 25. The request for a panel follows a one-year period of consultations that failed to resolve the issue. A ruling of the panel would likely be at least a year away.1
Indonesia, the world’s largest nickel ore producer, has banned the export of the ore since January 2020 through a 2019 Energy and Mineral Resources Ministerial regulation. The regulation aims to push the country’s miners to develop smelters and refine the metal domestically or even produce higher value products such as stainless steel and batteries for electric vehicles in Indonesia.
The European Commission, the EU’s executive arm, believes the export restriction has contributed to Indonesia’s rise as the world’s second-largest producer of stainless steel after China as a result of what it calls “illegal restrictions to favor domestic producers,” while the EU stainless steel industry was producing at its lowest level for 10 years.2
President Joko “Jokowi” Widodo has told his aides to prepare the best lawyers to defend Indonesia’s case against the EU.3 New Trade Minister Muhammad Lutfi said Indonesia had a strong argument to defend, saying that there is nothing illegal about a country attempting to add value to its commodities and to maintain the sustainability of its natural resources. “I believe we are on the right track,” Lutfi said.4
The latest clash between the EU and Indonesia on nickel ore will make bilateral trade more complicated as the two economies have been involved in another trade dispute in the WTO over the EU’s discriminative Renewable Energy Directive II (RED II) that will ultimately ban palm oil-based biodiesel from entering the bloc by 2030. Indonesia, the world’s largest palm oil producer and exporter, filed the complaint with the WTO in December 2019, and a few months later requested that the trade body establish the panel to adjudicate on the case.
The two disputes at the WTO – which seem to demonstrate that the EU wants Indonesia’s nickel but not its palm oil – will complicate the ongoing negotiations on the Indonesia-EU CEPA that the EU aims to complete this year after having dragged on for a couple of years. Sources in the Indonesian government, however, said that unless there is a resolution to the palm oil issues, the CEPA will never be signed.
Indonesia and Malaysia, as the two biggest palm oil producers and exporters, were angered by the EU’s RED II policy and the delegated act adopted in 2019 that categorizes palm oil as an unsustainable product and lays out plans to phase out its use in biofuels by 2030. They argued that aside from negatively impacting the two countries’ palm oil-based biodiesel exports to the bloc, the policy also tarnished the image of palm oil products in global trade.
The two countries, which together account for 85 percent of global palm oil exports, have taken different routes, however. Indonesia sent an official complaint to the WTO in December 2019. Since then, Indonesia and the EU have held a number of consultations to see if the matter could be resolved by other means. A number of other countries – including Colombia, Thailand, Costa Rica and Guatemala – have joined the consultations. By March 2020, it became clear it would be impossible to change the policy, and Indonesia requested the formation of a dispute settlement panel. The WTO eventually agreed in July to establish the panel.5
Following Indonesia’s step, Malaysia finally launched earlier this month its own WTO action against the EU and two of its member states France and Lithuania over the same measure. It filed an official complaint to the WTO over what it calls the EU’s “discriminatory action”. Malaysia’s Plantation Industries and Commodities Ministry said in a statement that the EU proceeded with implementing the directive without considering Malaysia’s commitment and views, even after Malaysia gave feedback and sent economic and technical missions to Europe.6
Malaysia – the world’s second-biggest producer and exporter – said it would act as a third party in a separate WTO case lodged by Indonesia as a sign of solidarity and support.
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