Indonesia’s nickel export restriction policy: alternative on environmental approach for Article XI:1 GATT justification

• DOI: https://doi.org/10.1108/JITLP-07-2022-0026
• Published date: 14 April 2023
• Date: 14 April 2023
• Pages: 15-32
• Subject Matter: Strategy,International business,International business law,Economics,International economics,International trade
• Author: Rainer Marampa Bari,Nanik Trihastuti,Pulung Widhi Hari Hananto

Indonesia’s nickel export

restriction policy: alternative on

environmental approach for

Article XI:1 GATT justification

Rainer Marampa Bari,Nanik Trihastuti and

Pulung Widhi Hari Hananto

Faculty of Law, Diponegoro University, Semarang, Indonesia

Abstract

Purpose –This paper aims to analysethe aspects of the demonstration process of Indonesia’sregulation on

nickel export restriction for its eligibility to be excluded from Article XI:1 GATT. It also analyses the

possibility of the use of an environmental approach in the demonstration process and for an alternative

measure in its implementation.

Design/methodology/approach –The paper uses a normative research method in conducting its

analysis. It analyses Indonesia’s nickel export restriction policy based on the European Union’s claim

regarding quantitative restriction, with the international trade governance in the WTO framework, and

certain international trade principles. The study also involves certain WTO jurisprudence to give a

comprehensiveanalysis to the case.

Findings –This paper finds that Indonesia still needs to provide a complete and comprehensive

demonstration to prove its eligibility for exclusion from Article XI:1. Demonstrating merely based on an

economic approach is inadequate to convince the panel in Indonesia –measure relating to raw materialfor

justification under Article XI:2. This study further finds that both parties generally focus on the economic

aspect, which leaves room for conflictof interest. Other aspects with a lower probability of conflictof interest,

such as the environmentalapproach, could be an alternative for the implementation.

Originality/value –This paper fulfils the need to provide a scientific analysis of the application of

Indonesia’s nickel export restriction policy, including its proceedings in WTO’s dispute settlement body,

which is essentialfor international trade governance enforcement.

Keywords Indonesia-EU trade dispute, Indonesia’s nickel export restriction,

Quantitative restriction justification

Paper type Research paper

1. Introduction

Indonesia has become one of the most potential countries in natural resource reserves,

leading the country to advantage in energy commodity trade. One of the leading natural

resource commodities in Indonesia is nickel, which also has made Indonesia the biggest

nickel producer in the world, with 52% of the world of nickel reserves located in

Indonesia (Indonesian Ministry of Energy and Mineral Resources, 2020). With

technological advances and the increasing of electrification demand, nickel demand in the

market rises as it becomes one of the core components of lithium battery used in various

electronic devices, including the electric vehicle (Lim, 2021). One of the reasons that lead

to the increasing nickel demand for lithium battery purpose in electric vehicles is because

of energy transition reason specifically in transportation, which leads to massive

development of EV industry.

Indonesia’s

nickel export

restriction

policy

15

Received19 July 2022

Revised8 November 2022

7March 2023

Accepted14 March 2023

Journalof International Trade

Lawand Policy

Vol.22 No. 1, 2023

pp. 15-32

© Emerald Publishing Limited

1477-0024

DOI 10.1108/JITLP-07-2022-0026

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1477-0024.htm

Electric vehicle development grows rapidly considering its environmentally friendly

characteristics (Lim, 2021). The increase of awareness regarding green energy transition in

the society, along with the environmental actions and also the implementation of

environmental-related legal instruments, have strengthened the EV industry development.

This kind of developmentin the EV industry certainly brings up a positive impact on facing

environmental problems that urge to be solved. This also strengthened electric vehicle’s

bargaining position as a solution for environmental problems in a long-term investmentfor

economic and environmentalaspects.

In facing the condition of increasing nickel demand, including its potential benefit

whether for economic or environmental aspects, Indonesia applies several measures as its

nickel management policy. Nickel ore efficiency policy takes place to support the nickel

downstream strategy, which is applied through nickel ore export ban and domestic

processing requirementsfor nickel ore.

Indonesia limits its nickel export by regulatingthe regulation of Minister of Energy and

Mineral Resources Number 11 of 2019 (Indonesian Ministry of Energy and Mineral

Resources, 2019). On theother hand, this regulation affects and triggers severaladjustments

that create an impactful provision on internationaltrade practices, specifically in nickel ore

export which has become Indonesia’sleading commodity.

There are several export provisionapplied along with Indonesia’s regulation that creates

a disruption in nickel trade and triggersresponses from countries involved in nickel trading

chain. These responses are based on the assumptionthat there is inconsistency between the

existing nickel regulation and the international trade provision in GATT 1994. The

provisions mentionedabove are described as follows:

Nickel ore with <1.7% concentration (known as limonite ore) export restriction

(Article XI:1).

Domestic processing requirements (Article XI:1).

These provisions whether directly or indirectly create a barrier in the international nickel

trading chain where Indonesia is crucially involved as one of the biggest suppliers in the

market. Therefore, the regulation takes Indonesia to the dispute that takes place from the

European Union’s claim to the dispute settlement body (DSB) in the WTO (World Trade

Organization, 2021). The European Union’s claim towards Indonesia’s regulation refers to

the quantitative restriction provision in GATT 1994, henceforth becoming EU’s legal basis

in the dispute settlement process.The European Union assumes that the impact that comes

from the application of Indonesia’s restriction is creating a trade-distorting effect that is

inconsistent withthe fair trade principle.

The dispute settlement process in the DSB was started on 22 November2019, which was

initialized by a consultation request by the European Union to the DSB based on its claim

towards Indonesia’s policy. With the consultation did not resulting a conclusion for both

parties, the process then entered the panel stage, and the panel was composed in

22 February 2021. On 30 November 2022, the panel issued its final report based on its

findings on the EU’s claim and measures implemented by Indonesia [1]. In its final

conclusion, the panel concluded that Indonesia’s policy in nickel ore export restriction and

the domestic processing requirementare inconsistent with respect to Article XI:1. Although

this inconsistency has thechance to be excluded from the provision in Article XI:1, based on

the Article XI:2, the panel saw that Indonesia has failed to demonstrate its actual

implementation conditionand the regulation applied to be able to meet the condition within

the scope of Article XI:2 and become excluded from the quantitative restriction policy in

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