President Joko Widodo had previously announced a ban on the export of raw materials in the form of nickel that entered into effect on January 2020 as well as a ban on the export of bauxite ore that shall be effective by June 2023. Following these 2 (two) prohibitions is the newly announced ban on the export of copper during the Mandiri Investment Forum 2023 on 1 February 2023, which is expected to take effect by mid-2023. The policy on the ban has yet to be publicized but seeing as though the Indonesian president aims to effectively ban copper by this year, it can be deduced that the policy shall materialize soon.
Indonesia's Wealh of Raw Materials and the Impacts of the Ban
1. Recognizing the Power of National Resources and Increasing Added Value in Indonesia
Increasing downstream natural resource-based industries by reducing the export of raw materials will inevitably increase state revenues, open job opportunities, and develop self-sufficiency in energy. This development would also be in line with the demand for copper that has elevated since the increase of projects in renewable energy power plants in Indonesia. As a result, Indonesia has commenced its shift to from exporting resources (for example, nickel ore for smelters) to storing domestic natural resources. Currently, Indonesia has multiple major copper-producing regions, which include, inter alia, the following:
- The largest copper production area in Indonesia is in Mimika, Papua, and is mined by PT Freeport Indonesia ("PTFI"). The Ministry of Energy and Mineral Resources emphasized that the copper production at the Grasberg mine in 2021 is 1.33 billion pounds or around 670,000 tons. Moreover, this copper production statistic is predicted to be increased in 2022 to 1.6 billion pounds and in 2023 to 1.7 billion pounds of copper.
- The second largest copper-production area is Gorontalo, North Sulawesi. Copper production is estimated at around 693,109 tons per year. One of the companies conducting the mining in this area is PT Gorontalo Minerals, a subsidiary of PT Bumi Resources Tbk.
- The third largest copper production area is Silungkang, West Sumatra. Copper production is estimated at around 419,600 tons per year.1
In actuality, Indonesia places seventh as the world's largest copper reserves where Indonesia's copper reserves amount to around three percent of the world's total copper reserves. Furthermore, Indonesia places eleventh for its mining production. However, despite the clear recognition that Indonesia has massive potential to utilize its abundant natural resources, Indonesia's downstream copper industry only places eighteenth under Japan, Korea, Bulgaria, and India even though these mentioned countries do not have copper mineral resources.2
To tackle this dilemma, the Indonesian president shall implement export bans to develop domestic downstream industries related to copper. Therefore, the intention is to attract more investment in the downstream industry. This is evident from the ban on nickel (a critical component for stainless steel production) exports that triggered an increase in state revenue through downstream nickel export to USD30 billion from only USD1.1 billion. Considering that it has been a success with nickel, this ban shall also be imposed on bauxite on June 2023 and is predicted by the Indonesian president to increase state income from IDR 21 trillion to IDR 62 trillion. Following bauxite shall also be copper, as the Indonesian president has recently conveyed his plan to also ban the exportation of copper during the Mandiri Investment Forum 2023 on 1 February 2023, where he proclaimed:
"The nickel has stopped. I have said again, bauxite last December, bauxite stops in June. In a little while, I want to announce again that copper will stop, this year it will stop [translated]."3
The decision to impose this ban stems from the progress of smelter construction in Gresik, East Java, and West Nusa Tenggara which has reached up to fifty percent completion. Furthermore, the Indonesian president explained that Indonesia is now the majority shareholder of PTFI, which used to be dominated by the United States. These steps are all playing a part in Indonesia's further development and support the notion of freedom from dependence on other countries.
2. The Continuing Mining Downstream Policy Despite the World Trade Organization ("WTO") Dispute with the European Union ("EU")
The ban on nickel has set an example of the future predicaments that Indonesia shall face should it continue with its plan to implement measures relating to raw materials.
On 22 November 2019, in response to the ban on nickel export, the EU requested a consultation with Indonesia regarding the various measures concerning certain raw materials essential to the production process of stainless steel and the cross-sectorial import duty exemption scheme conditional upon the use of domestic over imported goods. The EU's perspective is that the ban would be detrimental to the nickel industry in the EU countries. The EU claimed the following:
- The measures restricting exports of certain raw materials, including those requiring domestic processing requirements, domestic marketing obligations, and export licensing requirements, appear to be inconsistent with the General Agreement of Tariffs and Trade 1994 ("GATT 1994");4
- The prohibited subsidy scheme appears to be inconsistent with the Agreement on Subsidies and Countervailing Measures;5 and
- The failure to promptly publish the challenged measures appears to be inconsistent with GATT 1994.6
In response, Indonesia counterargued that the European Union had failed to establish a prima facie case that the domestic processing requirement ("DPR") was inconsistent with GATT 1994. Further, Indonesia argues that the export ban and DPR were exempt from the obligation of Article XI:1 of GATT 1994 as they were export prohibitions or restrictions temporarily applied to prevent an imminent shortage of a product that is essential to Indonesia, which is in the scope and meaning of Article In response, Indonesia counterargued that the European Union had failed to establish a prima facie case that the domestic processing requirement ("DPR") was inconsistent with GATT 1994. Further, Indonesia argues that the export ban and DPR were exempt from the obligation of Article XI:1 of GATT 1994 as they were export prohibitions or restrictions temporarily applied to prevent an imminent shortage of a product that is essential to Indonesia, which is in the scope and meaning of Article XI:2 paragraph (a) of GATT 1994.
However, the panel disagreed with Indonesia's counterargument and held that the export ban was indeed a prohibition on the export of nickel ore. The panel's justification was that Article XI:1 also covers measures prohibiting or restricting the "sale of export" it applied to domestic regulations such as the DPR that prevents or limits the ability to sell goods for export even though they apply internally within the exporting member. By its nature, the DPR restricted the sale for export of nickel ore, and therefore, is covered in the scope of the obligation in Article However, the panel disagreed with Indonesia's counterargument and held that the export ban was indeed a prohibition on the export of nickel ore. The panel's justification was that Article XI:1 also covers measures prohibiting or restricting the "sale of export" it applied to domestic regulations such as the DPR that prevents or limits the ability to sell goods for export even though they apply internally within the exporting member. By its nature, the DPR restricted the sale for export of nickel ore, and therefore, is covered in the scope of the obligation in Article XI:1 of GATT 1994.
The panel also addressed Indonesia's argument under Article XI:2 paragraph (a) of GATT 1994 and examined whether or not the measures applied to an essential product. Concerning low-grade ore, the Panel noted that the low-grade ore was waste and not economically viable. Thus, the Panel could not conclude that low-grade ore was an essential product. Furthermore, the Panel concluded that the duration of the export ban and the DPR had not been "temporarily applied" since the export ban had been in place for seven years, albeit with short breaks for the exportation of low-grade nickel ore, and for nine years in the case of DPR prior to the establishment of the panel. Thus, the Panel found that the export ban and DPR are highly traderestrictive measures and neither is apt to make a "material contribution" to securing compliance with Article 96 paragraph (c) of Law No. 4 of 2009 on Mineral and Coal Mining, as lastly amended by Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation.7
The position of Indonesia regarding this strategy is to increase the value of the natural resources Indonesia already has in its possession. Instead of always exporting raw materials, it would be far more valuable to process and consume these raw materials through downstream industries or domestically. For example, the export value of nicked is lower in comparison to the value if the nickel was to be converted to ferronickel. Regardless of the opposition from the EU, Indonesia is persistent in opposing this decision and has submitted an appeal following the decision.
It remains to be seen whether or not the EU and Indonesia shall reach a consensus and strike a balance between the needs of the EU countries and the needs of Indonesia within this nickel dispute. However, as exemplified by this occurrence, it would not be excessive to predict that future bans on raw materials, such as copper and tin, will be met with outside interference and disapproval as well.
Closing Remarks
The Indonesian president has reiterated his hope that his successor will carry on banning raw mineral ore exports in his stead notwithstanding the opposition from the EU. Following copper will soon be the ban on exporting tin, as declared by the Indonesian president during the Saratoga Investment Summit 2023 on 26 January 2023.8
Indonesia is not a closed economy and is open to investment, however, this does not negate the positive perspective to push the setting up of processing plants and running the industry in Indonesia rather than outside Indonesia. The ban policies indicate a protection move for the domestic natural resources industry and place Indonesia's development into a developed country on a pedestal that must outweigh the resistance from other countries.
Footnotes
2 https://www.bkpm.go.id/id/publikasi/pengumuman/downstreaming-of-copper-to-support-sustainability
3 https://setkab.go.id/presiden-segera-umumkan-penghentian-ekspor-tembaga-mentah/
4 Article XI:1 of GATT 1994.
5 Article 3.1 paragraph (b) of the Agreement on Subsidiesa and Countervailing Measures.
6 Article X:1 of GATT 1994.
7 https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds592_e.htm
8 https://www.viva.co.id/english/1569193-after-nickel-bauxite-jokowi-will-ban-tin-and-copper-export
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