Indonesia, EU gear up for trade clash over nickel ore export ban

Indonesia filed a request for review with the WTO’s largely paralyzed Appellate Body in December of last year, a month after the WTO ruling. The country has, in the meantime, maintained its nickel export ban.

“Where action is necessary to safeguard the EU’s interests, […] the EU may take appropriate commercial policy measures in response, on the basis of objective criteria. […] The [European] Commission has at this stage identified steel and stainless steel products as possible products for countermeasures,” read the European Commission’s announcement.

The EU’s exact countermeasures remain uncertain, and so does Jakarta’s response.

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.

When asked what steps the government might take in response, he said, “We’ll see later.”

The Coordinating Maritime Affairs and Investment Ministry, Coordinating Economic Ministry and Investment Coordinating Board were not available for immediate comment.

Meanwhile, the European Union Embassy in Jakarta declined to comment on the matter.

The EU has a trade policy called Enforcement Regulation that allows it to “enforce international obligations” in trade disputes, which might manifest in various forms, such as cancelling preferential tariffs for a country under the Generalized System of Preferences (GSP).

The GSP gives certain developing countries preferred access to the EU market through reduced or zero customs duties.

But the EU cancelling its GSP with Indonesia would be “an extreme case” according to Yose Rizal Damuri, economic department head at the Jakarta-based Centre for Strategic and International Studies (CSIS).

He said the EU might instead place tariffs on Indonesian steel and stainless steel products and that its actions would most likely conform with the WTO framework.

“The problem is, the WTO’s Appellate Body has been nonfunctional for the past three or four years. […] So it can be said that Indonesia is benefitting from a loophole in the system,” Yose told The Jakarta Post on Thursday.

The dispute could be labeled a trade war if the EU’s countermeasures breached international trade regulations agreed upon by WTO members, said Yose.

“Indonesia was the one that violated the rules, so it can be said that Indonesia actually started the trade war,” he said.

The EU might be able to perform a “safeguard action” to place tariffs on Indonesian exports in a manner that kept with WTO norms, Yose added.

In a safeguard action, a WTO member can temporarily restrict imports of a product on the basis of protecting a specific domestic industry from getting injured by increased imports.

To do that, however, the EU would have to prove that imports of Indonesian products were threatening its market.

Yose said it was unlikely, though not impossible, that the EU would go down that road.

If the EU did resort to such a measure, Jakarta might raise the issue with the WTO in a bid to prove the EU wrong and force it to lift the tariffs.

“That way, it would turn into a tit-for-tat, one raising a case with the WTO and the other raising a case with the WTO too,” said Yose.

Such a dynamic, he said, might affect negotiations for the Indonesia-EU Comprehensive Economic Partnership Agreement (IEU-CEPA), which have dragged on since its inception in 2016.

Even without any new tensions, Yose said, the IEU-CEPA had a number of clauses that the two parties could not agree on, including ones governing state-owned enterprises and government procurement.

“So, this [nickel dispute] will have a negative impact on the IEU-CEPA negotiations,” Yose said.

Mirae Asset analyst Rizkia “Darma” Darmawan told the Post on Thursday that the EU had imposed several countermeasures against Indonesia, namely subsidies and duties.

“In my view, the most important thing to do now is to keep building Indonesia’s downstream industry infrastructure, especially for stainless steel, so that the domestic market can absorb all the production,” said Darma.

“So, whenever an international trade dispute arises, we will have a stronger position,” he said, adding that this would “of course impact” Indonesia’s exports.

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.”

Deni Ghifari

The Jakarta Post

Asia News Network