Understanding The Indonesia-European Union Nickel Dispute: A Geopolitical Analysis

by Andreas Brian Bagaskoro Bayuseno

Master’s in Geopolitics and Connectivity | University of Groningen

Nickel, Opportunity, and Its Dispute Description

Nickel demand for batteries for the kind used in electric vehicles (EVs) industries is rapidly showing a noticeable leap in the western hemisphere. This nickel demand connects to the current policy in Europe. Indeed, European parliament passed a new regulation stated that carmakers must achieve a 100% cut in C02 emission by the 2035 deadline. Furthermore, EU member states will ban internal combustion engine vehicles in targeting the Net Zero emission based on the current policy.

On the other hand, the nickel trade also generates a huge capital gain for European Union and its member or partner. Indeed, the value of exports of commodity group 7504 “Nickel powders and flakes” from European Union totaled $ 155 million in 2021. Sales of commodity group 7504 from European Union went up by 23% compared to 2020. The top three trading partner and export destination of nickel powder and flakes are country in Asia region. China, Korea, Philippines, Japan, and other Asia countries nickel import have generated income for EU in total 62,77% which is 98,43 million US$. In addition, the main supplier of nickel spread across Europe such as Germany, France, Switzerland, Hungary, and Poland. As raw material, in 2021 most of the nickel came from United Kingdom with a share of 41%, USA 18.3%, and Canada with 17.3%.

Indonesia holds the world’s largest nickel reserves and leverages those reserves to attract national and foreign investment in those specific domains. Indeed, the government is aware of the economy opportunity this development provides and increasingly focuses on attracting investments in production capacity along the EV supply chain. However, battery cathode production for EV supply chain usually requires Class 1 products that contain a minimum of 99.8 percent nickel. Indonesia terrain is rich in laterite ore resources that are a good feedstock for Class 2 products used in steel production, and it does not have sulfide ore resources, which in general are a good fit for producing Class 1 nickel. Nevertheless, laterite (or more exactly: limonite) resources can be utilized as feedstock to create intermediate products such as mixed hydroxide precipitate (MHP) via hydrometallurgical processes like HPAL. Furthermore, MHP can be further refined to Class 1 nickel. Due to this circumstances, the government cooperated with China in term of the first HPAL project. This connection is a joint venture between China enteprises Ningbo Lygend and Indonesia Harita Group. Until now there are in total more than twenty factory for this purposes the under Indonesia-China cooperation.

See the high opportunity of nickel for Indonesia, the country firstly decided to banned exports of nickel ore to force miners to process the ore domestically and thereby add value to its nickel production in 2014. This banned reinform in 2020, in line with the agreement of HPAL project. This policy is interlinked with the Indonesia’ sovereignty on the land of use and resources and the national constitution of 1945 article 33 which refers that land, water and natural resources are controlled by the state and shall be used to the greatest benefit of the people.

Due to this Indonesia verdict for nickel industry, European Union addressed its challenge at the WTO, stating that the export restrictions on raw materials was unfairly harming its stainless-steel industry. This dispute concerns Indonesia’s imposition of two measures that the European Union alleges prevent the export of nickel ore from Indonesia. The European Union challenges a prohibition on the exportation of nickel ore as well as another measure that requires that all nickel ore be processed domestically. On law basis, the European Union requested consultations with Indonesia pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) and Article XXII:1 of the General Agreement on Tariffs and Trade 1994 (GATT 1994) and Article 4.1 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement). Furthermore, this consultation (seen as a complaint) diplomatically delivered on 22 November 2019. This dispute is still going on with the official statement from the Indonesia’s president to pledge this verdict.

From the case description, this article seeks how this nickel dispute emerge and why this conflict happened? Furthermore, this research will use geopolitical analysis to provide the analysis on the research problem.

Indonesia Verdict and Nickel Dispute in Geopolitical Term

In geopolitical terms, the new interest, facts, and argument firstly generate a space of possibilities or a spatial form. This space is the created domain where actors interact and connect each other. Space of possibility or spatial form can be created which is similar as geographic condition or biological from (territory) based on actor position, capabilities, and property. Those factors consider as power, which affect other actor to be in line with designated interest and purpose. Connection is also a bridge for power which flow and realize its potential regardless of the territory. Each actor will maintain and will not lose its authenticity in this spatial form. In addition, this spatial form relates to specific determinism, time, period or current condition. For example, foreign, and national decision influence by time, space determinism or who is in control. Policy formation in pandemic time and post pandemic might be difference by approach, domain, actor’s responsibility, and scope. Moreover, the space of possibilities also creates a spatial imagination or expectation. An actor expects to secure their interest when they decided to connect or bond with other. From one connection, it will highly branch to other connection which produce another feature. It is popularly known in geopolitics as strategic partnership or the spillover effect. For example, cooperation in pandemic period between two states can be maintained into health protocol agreement, or joint venture in drug and medicine after the pandemic. This multi connection inside the spatial room in specific period with multiple of agency, interest, branches, power, and interest in geopolitics is the assemblage. Assemblage operates not just as a concept aimed at understanding how a set of relations emerge and hold together across differences, but as an ethos for thinking the relations in terms of durability and transformation.

In the nickel founding, Indonesia holds the world’s largest nickel reserves. This is the property of Indonesia and the government has the full authority to manage in line with national interest. Furthermore, it is rational that nickels generated government’s imagination and expectation. Initially, this expectation such as Indonesia position themselves as the main actor in nickel trade with its higher profit for the national interest. This expectation also based on the early formation which has been mastered and repeated by the government Indonesia in long history. This formation embedded to the Indonesia’s trade and export identities with its well-known exported commodity such as prawn, coffee, palm oil, and cacao. On property aspect, Indonesia has all the chance to success. Nevertheless, since the electric car industry demand for higher quality of nickel, the government decided to cooperate with China in terms of factory industry.

There are at least three main possibilities which emerged from Indonesia nickel founding. Firstly, the income from nickel trade will help national strategic project which connected to all society aspects especially in recovery time from pandemic. As an example, the national government have started the mega project of capital relocation from Java to Borneo in the current condition of post-covid. Secondly, the target of net-zero green in 2030 from Europe creates the additional possibilities. It is connected to the EU policy to stop using traditional car and slowly transit into electric car. The demand for electric car will show a noticeable leap and Indonesia might play a major role in those industry. Therefore, it is rational that the government conduct a dialogue with Tesla for electric car production purposes. Third, the current connection which are most of the Asian country still depend on nickel from Europe. Countries such as China, Japan, South Korea, and Philippines still receive their nickel stock from Europe Union. Indonesia could fulfill their nickel stock with cheaper price since the distribution line would be shorter. Asia territory in the current period has been connected under the One Belt Initiative by China. The infrastructures are ready for Indonesia and the participate actor. Asia region could perceive the sustainable or green goals which is started by electrical transportation. In the end, the connection between Indo-China is stable and durable which also create the spill over effect. The cooperation of nickel between Indonesia-China might also create a partnership in other sector such as technology, transportation, education, and economy.

Nevertheless, connections between actor in an assemblage (also in particular space and time) may be interpreted differently. This differences also creates a tension even between actor outside the assemblage. Connections when it is enacted at a first glance are already subject to form of disruption and change which led to disassembled or reassembled. Moreover, the impact of this disruption is unpredictable with the worst scenario is disconnection. In addition, this disruption also led to the directing power whish harness, and stir to other direction. This creates resistance (conflict) between actors in unexpected connection/disconnection, network, or might be assemblage/disassemblage/reassemblage. For example, the high tension between Ukraine and Russia influences the energy sector between Russia and the rest of Europe which is the unexpected disconnection. Furthermore, the resistance in continuity opens a new space of problematization as the opposite from space of possibility. Problematization is how a clash come to be defined as a problem in relation to specific schemes of thought, diagnose of deficiency and promise of improvement. In addition, the way actor maintains its authenticity or dignity in a resistance indicate as the class of composition. For example, an war between two entities try to maintain their own value and interest.

On this article, the dispute between Indonesia and European Union in WTO are the consequences of the open connections between Indonesia and China. Indonesia-China relations on nickel has been interpreted differently by European Union as actor outside the connection. At a first glance of this Indo-China connection, it is already a subject of disruption. Moreover, the property and capabilities between Indonesia and China will affect to the disconnection of European Union as nickel provider. Asian hemisphere will gain nickel from Indonesia which is cheaper due to the cost of distribution might be shorter. This transition will make European Union lose more than half of its income from nickel. In WTO domain, both parties maintain its authenticity which led to the class of composition. In addition, this problem is still going on with the official statement from the Indonesia’s president to pledge this verdict. This is an indication that Indonesia used its power to maintain its sovereignty (authenticity) over the freedom of nickel industry against European Union interest (also their authenticity). This disruption is the unexpected connection between Indonesia-European Union.

Conclusion

In summarize, Indonesia holds the world’s largest nickel reserves open and possibilities for Indonesia to utilize the resource for their national interest. It creates the space of possibilities which also open for other actors to connect. On this case, China with its capabilities on nickel production and the one belt initiative connection generates a strategic partnership with mutual benefit. Indonesia could provide nickel for Asian countries and in line with the sustainable or green goals. However, this strategic connection interpreted differently by the European Union as the outsider. Indonesia-China partnership on nickel will disrupt the nickel trade between European Union and Asian countries. European Union will lose more than half of its income when Asian partner decided to select Indonesia as main nickel producer. Diplomatically, this situation problematizes by European Union first in WTO forum which create a dispute between them and Indonesia. Trade regulation by WTO could be the soft tools of disruption for Indonesia-China strategic partnership an assemblage on nickel. Both parties maintain its authenticity over nickel as the world future raw material.