Aljazeera - 20 December 2019
’When two elephants fight’: EU, Indonesia tussle over resources
By Ian Morse
When the nickel smelters started showing up nearly seven years ago, residents with respiratory infections began appearing at Hastin’s local health clinic in Morowali on Indonesia’s Sulawesi island at several times the rate they had done before.
"It was the air pollution from coal plants, and even worse if residents lived close to the smelters," she said over the phone from the clinic in Morowali, a global hub for nickel ore mining.
A government policy beginning on January 1 aims to triple the number of smelters - which process the nickel ore - nationwide in two years, and a ban on nickel ore exports to that end has brought it into conflict with the European Union.
Two thousand kilometres (1,243 miles) away, Basir, 40, leads an oil palm farmers’ cooperative in Jambi, Sumatra. His 12 hectares (30 acres) of oil palms can earn him roughly $700 a month supporting his family of three.
But the Indonesian government expects buyers to dwindle, and it has sued the EU in the World Trade Organization (WTO) for the removal of the tariffs.
The EU says it is concerned over deforestation and periodic thick smog over parts of Southeast Asia due to forest fires blamed partly on palm oil plantations in Indonesia. But it is also worried about the effects of Indonesia’s palm oil industry on European companies involved in the making of biofuels.
"If the policy goes forward, Jambi’s production is most vulnerable and it has been the most in-demand. Prices will decrease, and we will all feel it," said Basir over the phone from his home in Jambi.
Hastin and Basir, who use one name as many Indonesians do, have seen their lives changed - for better and worse - since Indonesia became the world’s top producer of both nickel ore and palm oil. Millions of other Indonesians are in similar positions.
Now, their homes and livelihoods have been thrust into the centre of trade disputes over the two commodities at the WTO, as the EU and Indonesia square off to protect their own economies.
Indonesia and the EU have been trying to strengthen trade between the two economies since talks began for a Comprehensive Economic Partnership Agreement in 2016.
But it has not gone smoothly.
The fight between the two sides over nickel could have widespread implications for the development of emerging battery technologies.
The EU Trade Commission filed a complaint with the WTO in November, accusing Indonesia’s ban on nickel ore exports of breaking free trade rules.
The EU says the ban helps Indonesia by allowing it to boost steel production within its own borders through unfair benefits to its domestic nickel industry.
Nickel is used most commonly in stainless steel production and increasingly in batteries that power modern electric vehicles.
"EU steel producers are under much pressure, suffering from consequences of global overcapacity and unilateral trade restrictions. The measures imposed by Indonesia increase the damage, putting jobs in the EU’s steel industry at risk," EU trade commissioner Cecilia Malmstrom said in a statement.
Debate on steel
The vast majority of Indonesia’s nickel ores and derivatives are exported to China. According to energy research firm Wood Mackenzie, Indonesia accounts for about 40 percent of China’s total nickel ore imports. It says it expects China’s nickel production will decline next year due to the ban.
Indonesia’s director-general for Minerals and Coal, Bambang Gatot Ariyono, says the ban on nickel ore exports will stay in place, but the issues with the EU will continue to be discussed.
"The policy doesn’t harm the EU at all, because no nickel ore is exported to Europe. We’re not concerned about steel exports, and there is no ban on the material that makes steel, nickel pig iron and ferronickel," Ariyono told Al Jazeera, referring to two of the nickel ore products used to make stainless steel.
European steel association Eurofer told Al Jazeera the problem was rather that the ban suppresses price in some areas while inflating it in others. It accuses Indonesia of withholding its supply of ore - the world’s largest - to increase prices of nickel, a vital component in stainless steel, while allowing Indonesian domestic producers to charge below-market prices.
"As nickel [in its various forms] makes up a large part of the cost of stainless steels, this gives Indonesian stainless steel exporters a significant and unfair competitive advantage in this product - one that Indonesia has suddenly built up large capacity in - in order to break into export markets," Charles de Lusignan, spokesman for Eurofer, wrote in an email.
Indonesia also banned exports of nickel ore in 2014, when it "successfully" spurred the development of domestic smelters that could process the nickel, according to Olivier Masson, senior analyst at Roskill, a commodities research firm. In 2017, it was relaxed to apply only to high-grade ores.
"The government is keen to use low-grade nickel ores to supply the battery industry," Masson told Al Jazeera of the 2020 export ban. "Time will tell if Indonesia will be as successful in attracting such [battery nickel] plants as it has been in attracting [steel nickel] smelters," he said.
Earlier this year, the EU trade commission opened an investigation into allegations that Indonesia was price-dumping nickel, referring to a tactic used to undermine competitors. The commission considered levying tariffs against nickel product imports, but Indonesia’s export ban came sooner than the industry expected. It had originally been set for 2022.
But now, Indonesia is fighting back.
Jakarta filed a lawsuit with the WTO on December 15 after months of criticism of the EU’s plan to impose tariffs on biodiesel made from palm oil. The EU’s proposal is an attempt to stem deforestation and forest fires linked to the expansion of palm oil cultivation in Indonesia.
It also aims to punish Indonesia for alleged illicit benefits given to Indonesian producers that put EU palm oil product makers at risk. The vegetable oil is extensively used in hygiene products such as soaps and shampoos, and processed foods.
"In addition to negatively impacting Indonesia’s palm oil exports to the EU, [this policy] will also damage the international image of palm oil in global trade," Director General of Foreign Trade Indrasari Wisnu Wardhana said in a statement.
But in addition to environmental concerns, the EU trade commission also included in a statement that palm oil-based biodiesel hurts European businesses that depend on processing the palm oil themselves.
"In general, trade instruments are mainly used by governments to protect the interests of their industry and not the public interest or the environment. Trade sanctions like these are pushed by corporations," said Paul de Clerck, Economic Justice Program coordinator at Friends of the Earth Europe, an environmental non-governmental organisation (NGO).
Indonesian officials and some environmentalists have found common ground against the EU’s anti-palm oil policies, as few other crops can produce as much vegetable oil per unit area, according to a report from the International Union for Conservation of Nature.
Achmad Surambo, deputy director of Indonesian environmental NGO Sawit Watch, doubted the EU policy would improve the lives of Indonesian citizens who have suffered deforestation or land conflicts.
"Governance should focus on how both parties can encourage the sustainable production of palm oil that raises local incomes and doesn’t degrade the quality of lives, especially those of indigenous peoples," Surambo told Al Jazeera.
Environmentalists criticise not only the palm oil industry, but also the nickel industry for its effects on forests, rivers, and marine life. In a report released last month by the German research centre Rosa Luxemburg Stiftung, mining researcher Arianto Sangadji found that nickel industry growth had surged "almost overnight".
"In Morowali, the local environment and the residents ultimately stand at the losing end of this industrial development amid the disastrous consequences of resource extraction," Sangadji told Al Jazeera. In Morowali alone, at least four smelters are expected to be built.
Sawit Watch’s Suramno said: "We have a saying: When two elephants fight, it’s the mouse in the middle who suffers. Indigenous and local people are the mouse."