By : A.M Oktarina Counsellors at Law Collaburation with ET-ASIA
Drafted by : Team Commercial Division Team & Litigation Division
Reviewed by : Noverizky Tri Putra Pasaribu, S.H. LL.M (Adv), Fahrozi Putra, S.H.
On Tuesday, August 10, 2021, AMO was invited exclusively by ET-ASIA through a webinar discussing about The Legal Impact Of European Union World Trade Organization Dispute on the Domestic Nickel Industry with the speaker Dendi Adisuryo managing partner at ADCO Law.
Indonesia is on track to become the world’s nickel capital with new projects potentially lifting the country’s share of the important stainless steel and battery metal ingredient to a whopping 60% of global output later this decade. The pace of growth in the Indonesia nickel sector can best be measured by an investment bank forecast that Indonesia could lift its share of worldwide nickel production from 2,4 million in 2020 to 4 million to 2040.
However, new analysis by mckinsey finds that sales will likely increase significantly over coming years. When we studied a number of scenario for the sector’s growth, our “references scenario” found demand for passanger car reaching 250,000 units per year by 2030-or 16 percent of all new passanger car sales. Demand for electric two wheelers could reach 1,9 million unit per year in that time frame, or 30 percent of new two wheeler sales. In assessing the electrification potential of the country, we considered two alternative scenarios beyond our reference scenario.
A. Opportunities and legal obstacles to the nickel industry in Indonesia.
General overview of nickel industry in Indonesia (global market and trend of electric vehicles), as follows:
1. The market growth in Asia Pacific be attributed to the growing demand for electric vehicles in the region, especially in South Korea, China and Japan and presence of market leading OEMs in the region.
2. The growth of this market can be attributed to the growing demand for larger ranged low emission vehicles.
3. Continuous developments in the EV technology offer lucrative opportunities for market players in the next decade.
4. The market growth in Europe is attributed to the growing demand for low emission vehicles and government support for their use in the region.
5. In indonesia, the EV sector is in its infancy. About 15.000 EVs, nearly all bikes were sold in 2019, representing less than 0.2 percent of annual vehicle sales, according to research firm, the research and markets. However, new analysis by McKinsey finds that sales will likely increase significantly over the coming years. The demand for passenger cars reaching 250.000 units per year by 2030 or 16 percent of all new passenger car sales. Demand for electric two-wheelers could reach 1.9 million units per year in that time frame or 30 percent of new two-wheeler sales.
B. Indonesia amends regulation on nickel export to boost production of value-added products.
In a bid to expedite nickel processing domestically, the Indonesian Ministry of Energy and Mineral Resources (MEMR) issued MEMR Regulation No. 11/2019 amending MEMR Regulation No. 25/2018 on the Utilization of Mining Minerals and Coal (MEMR Regulation No. 25/2018).
Effective 1 January 2020 export of low grade nickel is forbidden, two years ahead of schedule, while MEMR Decree No. 154/2019 specifies the implementation of the smelting facilities requirement.
C. Nickel export restriction.
a. Generally there are several points that were amended by MEMR Regulation No. 11/2019:
The ban on nickel ore export with content below 1.7% Ni is accelerated to 31 December 2019. Previously, companies were allowed to export the mineral until 11 January 2022, subject to progress of the company’s establishment of smelter facilities.
Any export recommendation that has been issued by the MEMR for nickel ore export with content below 1.7% Ni prior to the issuance of MEMR Regulation No. 11/2019 remains valid. However, that recommendation will expire on 31 December 2019. The MEMR Regulation No. 11/2019 has been effective on 1 January 2020.
The MEMR would still be able to issue export recommendation for nickel ore with content below 1.7% Ni until the 31 December 2019.
D. Advanteges on a full ban on exports of nickel ore and iron ore for Indonesia.
There are several points of benefit from a complete ban on exports of nickel ore and iron ore for Indonesia:
1. Indonesia may become the second largest stainless-steel producer in the world after China.
2. Development of processing and refening in Indonesia.
3. Employment increase.
4. Increased value of nickel ore exports.
5. Indonesia becomes battery producer country.
6. The development of electronic vehicles in Indonesia as addressed under Regulation of the President No. 55 of 2019 on the Acceleration of the Battery-Powered Electric Motor Vehicles for Road Transportation Program.
E. Impact on a full ban on exports of Nickel Ore and Iron Ore for European Union (“EU”).
Some of the impacts of a complete ban on the export of Nickel Ore and Iron Ore to the EU are as follows:
1. EU Industry has reached its lowest level of stainless steel production in 10 years.
2. Putting jobs in the EU’s steel industry at risk.
3. The increase of nickel prices.
4. Stainless steel price is no longer competitive.
F. Indonesia -EU Nickel Dispute.
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.
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.
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.
But Indonesia Minister of Trade stated that Indonesia is ready to face the EU complaints. President Joko Widodo said that Indonesia’s decision to stop nickel ore export aims to boost a downstream industry and open more jobs.
G. Brief Case Background of European Union (“EU”) The Republic of Indonesia Dispute at World Trade Organization (“WTO”).
EU is challenging Indonesia’s long-standing and verying restrictions of nickel ore exports. Which background is as follows:
1. Since January 2020, Indonesia has introduced a full ban on exports of nickel ore, reserving it for Indonesian stainless steel production.
2. Indonesia also applies domestic processing requirements on nickel ore and iron ore, which oblige businesses to subject their raw materials to certain processing or purification operations in Indonesia prior to exporting them.
H. What if Indonesia loses in WTO?
1. Indonesia must regulate its policy in line with the ruling or recommendations.
2. If after 20 days, no satisfactory policy is made by Indonesia, EU may ask the Dispute settlement body for permission to retaliate (to suspend concessions or other obligations) for temporary.
3. For example, in the form of blocking imports by increasing import duties on products from other countries so that imports are too expensive to sell within certain limits.
4. The dispute settlement body must authorize this within 30 days after the “reasonable period of time” expires unless there is a consensus against the request.