The phenomenon of the electric automotive industry in the world has developed in a progressive direction and with nickel as a raw material for making batteries, the Indonesian nickel industry plays a very important role and is a huge potential source for foreign exchange if the upstream and downstream sectors can be increased. The quality and grade of nickel originating from Indonesia are considered very high compared to other countries and the manufacture of electric cars requires batteries with a large nickel content, this makes nickel commodities in Indonesia actually have very high prices if processing is carried out domestically. Protectionism policies are very important to be studied further and found weak points so that in the future it can be applied in a better and strategic manner in order to increase the potential for state revenue from the mineral resources industry, especially nickel. The steps taken by many countries to use electricity as an alternative energy for automotive are a green signal for the sustainability of the Indonesian nickel industry, because it shows that in the next few years the electric car industry will continue to grow and there will certainly be an increase in demand for the production of raw materials, especially nickel. which can bring the nickel export industry in a promising direction. With Indonesia’s position as the only country in the world with the largest nickel reserves, there is a chance for this country to become a giant in the nickel industry, also an optimal combination of taxation is needed to increase the country’s foreign exchange earnings.
European Union’s lawsuit against Indonesia over the ban on crude nickel exports
Since President Joko Widodo imposed a ban on the export of raw nickel ore, a lawsuit has appeared by the European Union because this is considered to have violated the 1994 GATT rules so that this case has been taken to the WTO court. The European Union sued Indonesia over Indonesia’s policy of banning the export of raw nickel ore products by case number DS 592. In the lawsuit filed by the European Union, they argued that Indonesia had violated the commitment of WTO members to provide the widest access for international trade, including crude nickel products which violates Article XI:1 of GATT 1994.
After going through several mediation and trial processes, the WTO panel concluded that the nickel ore export ban that took effect since January 2014 does not qualify for exemption under Article XI:1 GATT 1994 because it is not a temporary measure to prevent shortages of food or important products for Indonesia. Therefore, the export ban is not justified under Article XX(d) of the 1994 GATT because it is not required to comply with laws or regulations that are not contrary to the 1994 GATT. Even though it has suffered defeat in the WTO, it does not make Indonesia give up on banning the export of raw beans nickel as one of its protectionist policies towards natural resources.
Resource Nationalism as Indonesia’s Protectionism Policy
In recent years, Indonesia has been in the international spotlight as a clear example of the phenomenon of “resource nationalism.” Through the policies implemented, the country has adopted a more nationalist approach in managing its natural resources, with the aim of maximizing economic benefits and state control over its natural wealth. However, this policy is inseparable from the significant consequences and impacts on the mining industry and the economy as a whole. In the following description, we will explore Indonesia’s journey in facing challenges and opportunities related to resource nationalism, as well as its impact on the mining sector and the country’s economy.
In 2013, Indonesia emerged as an example of resource nationalism (Warbuton, 2017a). Initially, this was related to China’s increasing demand for Indonesia’s natural resources (Warbuton, 2017a). Responding to this, the Indonesian government introduced more and more nationalism policies; new divestment obligations for foreign miners, ban on the export of raw mineral ores, strict local content requirements, and restrictions on foreign investment in the oil and gas sector. The government is also seeking to expand the assets of state-owned oil and gas company Pertamina. In addition to this government intervention, there has been an increase in court cases and community mobility towards foreign companies (Bremmer & Johnston, 2009).
In January 2014, the government banned the export of mineral ore. The goal is to encourage the development of the upstream mineral processing industry, and push Indonesia up the global value chain so that it can produce higher value mineral products (rather than cheaper raw ore) (Muhtadi, 2015). This ban paralyzed the bauxite and nickel industries in Indonesia. The government also imposed onerous taxes on raw copper exports until January 2017. The aim is to put pressure on US mining companies Freeport-McMoRan (Freeport) and Newmont, which together account for 97 percent of Indonesia’s copper exports, to invest in smelters and process ore locally. After the ban was imposed, the World Bank estimated a revenue loss for 2014 of US$400 million (World Bank, 2014). Despite the immediate economic impact, the government remains committed to what it sees as a long-term plan to industrialize Indonesia’s resource economy.
However, in January 2017, the government relaxed the ban, not just for copper as many expected, but also for nickel and bauxite. After the ban on nickel, bauxite and coal exports was enforced, PT Antam (Aneka Tambang Tbk), one of the largest mining companies in Indonesia, suffered several losses. The export ban caused PT Antam to lose access to the international market, which is the company’s main source of income (Juanita, 2015). By not being able to sell their products in the global market, the company’s revenue has decreased significantly. The decline in revenue directly impacted the company’s profits. PT Antam experienced a decline in profits as a result of the export ban which restricted their business activities. The losses suffered by PT Antam due to the export ban had a negative impact on the company’s share price. Investors became less interested in investing in companies facing export constraints like this, so PT Antam’s share value fell. These losses underscore the importance of striking a balance between protectionist policies and their possible consequences for mining companies and the economy as a whole (Warbuton, 2017b).
Upgrading The Global Value Chain
The development of the nickel industry in Indonesia is one of the Government’s strategic priorities in an effort to increase added value and competitiveness in the manufacturing sector. Upgrading the Global Value Chain (GVC) for the nickel industry is a key focus for the Government of Indonesia in order to expand global market share, increase the processing and production of high value-added products, and create sustainable jobs.
One of the important steps taken by the Government of Indonesia is to implement a policy of protectionism to control the country’s abundant natural resources. Through the ban on the export of raw nickel ore which has been in effect since 2020, Indonesia is trying to encourage the processing of nickel ore into finished products with added value domestically. This measure aims to reduce dependence on exports of raw nickel ore and increase processing and production of products such as batteries, nickel alloys, and stainless-steel products that have a higher added value.
The Indonesian government has also implemented investment and licensing incentive policies that support the nickel industry. This policy is designed to attract investment and encourage technology development, increase manufacturing capabilities, and product diversification in the nickel sector. By providing incentives to local producers, the Government seeks to increase the competitiveness of the nickel industry in the global market and strengthen its position in the global value chain. One example of an investment incentive policy provided by the government is tax exemption or tax breaks. The government can provide tax exemptions or reductions for companies investing in the nickel industry. This incentive aims to attract investors to make long-term investments and increase the production capacity and competitiveness of the nickel industry in Indonesia.
In addition, supporting permits are also an important focus in government policy. The government is trying to speed up the licensing process and ensure clarity in regulations related to the nickel industry. In this case, the government can adopt a more efficient and transparent licensing system, making it easier for companies to start and operate businesses. Regulations and policies related to investment incentives and nickel industry licensing in Indonesia are generally regulated in more specific laws and regulations, such as the Investment Law, Presidential Regulations, Ministerial Regulations, or Ministerial Decrees related to the nickel industry sector.
One example of a supportive policy related to investment incentives and licensing for the nickel industry is the Battery-Based Electric Motorized Vehicle (KBLBB) acceleration program in the form of government assistance and fiscal incentives launched in March 2023. This program is not only aimed at encouraging the Nickel industry in Indonesia by providing tax incentives. First, the fiscal to strengthen the KBLBB ecosystem is a tax holiday of up to 20 years. This is in accordance with the investment value for its main industrial component which targets the integrated steel or non-steel metal industry and its derivatives, nickel smelters, and battery production. Second, super deduction of up to 300 percent for development and research. Third, VAT is exempted from mining goods including nickel ore as a raw material for making batteries. Fourth, VAT is exempted from imports and acquisition of capital goods in the form of machinery and factory equipment for the motor vehicle industry.
Furthermore, the Government of Indonesia also establishes partnerships with international companies in the framework of integration in global value chains. Cooperation with international partners can provide broader market access, sources of technology and expertise, as well as a deep understanding of global market trends and needs. In an effort to achieve this, the Government plays an active role in ensuring that international quality standards are met and infrastructure that supports the development of the nickel industry continues to be improved. In addition, the government also plays a role in building cooperation between the industrial sector, research institutions and universities. Through this collaboration, technology development, increasing workforce skills, and increasing the capacity of the nickel industry can continue to be carried out. The government also supports research and innovation in the nickel sector in order to obtain technologies that are environmentally friendly and efficient in the use of resources.
Upgrading the Global Value Chain for the nickel industry does not only involve government efforts, but also requires active participation from industry players. Industry players need to improve technology and innovation, develop higher manufacturing capabilities, and product diversification to meet increasingly global market needs. In order to improve technology and innovation, nickel industry players need to invest in research and development (R&D) to develop methods. more efficient and environmentally friendly production. Applying advanced technology in the process of mining, processing and refining nickel ore can increase productivity, reduce environmental impact and produce better quality products. In addition, innovation is also needed in the development of new products that can meet growing global market demands, such as batteries, nickel alloys for the automotive industry, and stainless-steel products for various industrial sectors.
In addition to technological improvements, nickel industry players also need to develop higher manufacturing capabilities. This involves investing in workforce training to enhance skills and knowledge relevant to the nickel industry. Industry players need to work together with education and training institutions to create educational programs that suit industry needs. In addition, investment in production equipment that is more sophisticated and efficient is also important to increase productivity and product quality.
Resource nationalism can have both positive and negative effects. On the one hand, this can help ensure that natural resources are used for the benefit of the people of the countries where they are located. On the other hand, this can reduce foreign investment and lead to higher prices for consumers. The impact of resource nationalism on the global economy is very complex. In some cases, this can lead to trade wars and increased tensions between countries. In other cases, it can lead to more sustainable management of natural resources.
The advantages of participating in the Global Value Chain (GVC) for each economy will depend on the productive activities that occur in its jurisdiction and its linkages to the domestic economy. Government concerns are not limited to participation in GVCs and direct returns on investment, but also include broader and longer-term public policy objectives, such as the number and quality of jobs created, non-economic impacts of industrial activity, dynamic scope for improvement, development of skills and knowledge, and in general, contribution to economic diversification and resilience. The policy space gives governments leverage in influencing outcomes, even though policy risks have the potential to affect them negatively.
Industrial policy, or rather industry-specific policy, refers to non-neutral government intervention aimed at changing market signals. The goal is to direct investment and production activities to industries or sectors that are deemed more beneficial to the economy in the long term. Risk is present in the policy process and early on in the sector identification process. The cost of error can be much higher in developing economies where resources are limited. The risks of government failure are often cited by opponents of industrial policy, while proponents argue that these risks are not always higher than the risks of market failure. The second type of industrial policy refers to horizontal and broad-based policies that are relevant for industrial development, such as infrastructure, energy, business regulation, and connectivity. Although this type of policy is more universally accepted, it may not be sufficient to overcome market failures and promote industrial development.
From a GVC perspective, industrial policy can be targeted at specific activities in certain sectors or industries that are deemed to provide greater benefits to the economy. Recognition of the organization and functions of the GVC means that the goal should be towards international competitiveness rather than reckless domestic expansion behind high walls of protection. This requires a balance between the goal of maximizing domestic linkages and achieving international competitiveness, including through the use of competitive import intermediaries. Government capabilities are therefore critical in policy processes, from design and administration to monitoring and evaluation.
Upgrading GVC in the nickel industry also involves integration in the global value chain. The nickel industry needs to establish partnerships with international companies, comply with international quality standards, and expand access to global markets. By carrying out tighter integration in the global value chain, the nickel industry can increase its competitiveness and benefit from cooperation with international partners.
To achieve GVC upgrading, the government’s role is very important. The government needs to provide policies that support the development of the nickel industry, including policies on investment incentives, efficient licensing, and supporting infrastructure development. In addition, cooperation between the government, companies and research institutions is also needed to develop the technology, skills and capacity of the nickel industry. Overall, GVC upgrading in the nickel industry involves efforts to increase added value, increase manufacturing capability, product diversification, integration in the global value chain, and cooperation between the government and the industrial sector.