JAPAN AND THE NICKEL EXPORT BAN IS THIS THE WILD CARD?

Transcription

1 2 ND ASIAN NICKEL CONFERENCE Jakarta, September 2014 JAPAN AND THE NICKEL EXPORT BAN IS THIS THE WILD CARD? CHRISTIAN TEO PURWONO & Partners 2014 Presented by: Bill Sullivan CHRISTIAN TEO PURWONO & Partners (in association with Stephenson Harwood LLP) Indonesia Stock Exchange Building Tower II Floor 16 Suite 1604 Sudirman Central Business District Jl.Jend. Sudirman Kav.52-53, Jakarta Tel : Fax : bsullivan@cteolaw.com Mobile:

2 OUTLINE OF SESSION 1. Introduction 2. New GoI position 3. Japan s opposition to nickel export ban 4. WTO challenge 5. Infrastructure funding and export ban 6. Possible compromise 7. Summary and conclusions 1

3 INTRODUCTION 1. January s Grand Compromise took many people by surprise 2. GoI rationale for the Grand Compromise is understandable if flawed 3. Japan has consistently opposed export ban on nickel 4. Japan is pursuing 2 step strategy for overturning/relaxation of nickel export ban 5. It could be a mistake to underestimate Japan s ability to get what it wants 2

4 NEW GOI POSITION 1. Widely assumed that New GoI will uphold nickel export ban post Statements of Jokowi and others associated with New GoI have been interpreted as meaning unqualified support for nickel export ban 3. What, however, did Jokowi really mean when he said on 12 August: I have emphasized that I will uphold the law and the Constitution, which mandates that all natural resources will be used for the citizens well being. However, I welcome them should they want to talk about technicalities? 3

5 JAPAN S OPPOSITION TO NICKEL EXPORT BAN PART I 1. Japan has consistently opposed nickel export ban because it may mean the end of Japan s nickel smelting industry 2. More than 44% of Japan s nickel ore exports come from Indonesia 3. Japan is Indonesia s biggest bilateral lender and foreign investor 4. Japan s opposition may be a much more serious threat to the nickel export ban than is APERMINDO s Constitutional Court challenge 4

6 JAPAN S OPPOSITION TO NICKEL EXPORT BAN PART II 1. Presently unclear how far Japan is willing to go in overturning/obtaining relaxation of export ban 2. Questions have been raised about the long term viability of Japan s nickel smelting industry with or without export ban 3. Japan has multiple economic, political and security objectives in respect of Indonesian relationship 4. Japan is pursuing 2 track strategy for overturning/obtaining relaxation of export ban: (a) threatened WTO complaint the stick (b) promise of more funding for infrastructure 5 projects the carrot

7 THREATENED WTO COMPLAINT PART I 1. Any WTO complaint will be based on GATT 2. Indonesia signed GATT on 24 February Article XI of GATT provides that: No prohibitions or restrictions other than duties, taxes or other charges shall be instituted or maintained by any Member 4. Article XI is understood as generally prohibiting quantitative restrictions on the importation or exportation of any product 6

8 THREATENED POSSIBLE WTO COMPLAINT PART II 1. There are various exceptions to the Article XI prohibition including: (a) restrictions to safeguard balance of payments (b) quantitative restrictions necessary to the development of a particular industry by a Member in the early stages of economic development (c) restrictions necessary for the protection of human, animal or plant life or health or for the conservation of exhaustible natural resources 2. Imposition of restrictions upon the export of a raw material in order to protect or promote a domestic industry is not allowed 7

9 THREATENED WTO COMPLAINT PART III WTO complaint EU against China s policy of restricting exports of rare earth 2. WTO Panel found against China on the basis that: (a) (b) a country can prohibit mining altogether or restrict the amount of a mineral that is mined but once a mineral has been extracted and enters the market, no restriction on export is allowed unless a particular exception applies 3. Indonesia has committed itself to supporting WTO rulings made in response to any Japanese complaint 8

10 THREATENED WTO COMPLAINT PART IV Japan may be reluctant to pursue WTO complaint because: (a) WTO complaints can take many years to conclude after allowing for appeals (b) Nickel refining industry may be already established in Indonesia before final WTO ruling is obtained (c) Indonesia traditionally responds very aggressively to parties involving it in international disputes (d) Japan needs to consider the totality of its relationship with Indonesia which goes far beyond nickel 9

11 PROMISED INFRASTRUCTURE FUNDING PART I 1. Infrastructure development was a key Jokowi campaign promise 2. New GoI needs to source the loans required for infrastructure development 3. As Indonesia s largest existing lender, Japan is the most obvious source of additional loans for infrastructure development 4. Japan has explicitly linked future infrastructure development loans to resolving the nickel export ban issue 10

12 PROMISED INFRASTRUCTURE FUNDING PART II It is possible New GoI could decide that: (a) (b) (c) (d) the certain economic benefits of infrastructure development are more important than the uncertain economic benefits of the nickel export ban Japan is the cheapest and most reliable source of additional loan funds for infrastructure development therefore, the national interest will be best served by relaxing the export ban on nickel and fast tracking infrastructure development with additional Japanese loans 11

13 PROMISED INFRASTRUCTURE FUNDING PART III What did Jokowi mean when he said after meeting with former Japanese Prime Minister Yasuo Takuda on 1 September the relationship with Japan will be instrumental in Indonesia s [infrastructure] development? 12

14 POSSIBLE COMPROMISE PART I 1. New GoI obliged to maintain official commitment to domestic processing and refining 2. No possibility of 2009 Mining Law being amended to drop local value added requirement for nickel Mining Law however does not impose export ban on unprocessed metal minerals 4. Implementing Regulations could be easily changed to provide relief for nickel producers 13

15 POSSIBLE COMPROMISE PART II 1. A possible compromise would be: (a) unprocessed nickel export ban remains in place (b) nickel ore that is subject to some local value added activity is allowed to be exported until January 2017 (c) Category 2 Minerals are now treated the same as Category 1 Minerals 2. What actually happens in 2017 remains to be seen 14

16 SUMMARY & CONCLUSIONS 1. Japan rather than the Constitutional Court is the more credible challenge to the export ban on nickel 2. New GoI s reliance upon Japanese loans to fund infrastructure development has been insufficiently appreciated 3. Compromises are possible that would enable New GoI to both : (a) claim continuing full commitment to domestic processing and refining and (b) allow temporary resumption of nickel exports as long as some local value added activity takes place 15

17 Thank You 16