An Interesting Development in International Commerce

One of the central tenets of the current international trade regime is that poor countries cannot prevent the export of unprocessed raw materials so that most of the profits accrue to the industrial nations.

It’s not exactly stated that way in the documents, but this is what it comes down to, and it appears that Indonesia is done with this crap, much to the dismay of the world trade establishment:

Indonesia is under rising fire at the World Trade Organization and by the International Monetary Fund (IMF) for the government’s seemingly haphazard policy of banning mineral ore exports, a market intervention Jakarta insists is just and necessary to maximize its economic and industrial growth.

In a sharply worded statement accompanying its 2022 country report, the IMF called for Indonesia to phase out the restrictions and not extend them to other commodities. “The increasing use of trade measures and industrial policies may destabilize the multilateral trade system,” the IMF said.

The Joko Widodo administration has so far been unyielding, insisting that Indonesia is well within its rights to add value to its minerals, specifically nickel, bauxite, copper and tin, to become a newly industrialized state.

Nickel exports were banned in January 2022 and bauxite shipments followed on June 10. Tin and copper bans are scheduled to come next. “We have to dare to take these steps,” Widodo, a fervent advocate of the value-added policy, said last year.

Economic Coordinating Minister Airlangga Hartarto has described efforts by developed nations and international organizations to push for controls on other countries’ export policies as a form of modern-day colonialism that will inhibit Indonesia’s economic growth and development.

The WTO ruled last November that Indonesia’s restriction on mineral exports violated Article XI of the 1994 General Agreement on Tariffs and Trade, but US opposition means there is no mechanism to enforce the decision through the organization’s dispute resolution panel.

What they are referring to here is the decision of the Trump Administration in 2018 to prevent from the WTO’s appellate body from replacing judges as their terms expire, and a ruling cannot be enforced until this body rules.

It was pure demagoguery, motivated primarily by a desire to score political points, but this has had largely beneficial effects, because the WTO rules are generally structured to favor the rich and powerful, as in this case.

………

Despite Indonesia’s large volume of mineral exports, the mining sector contributed only 5% to gross domestic product (GDP) in 2019. After the government introduced the nickel ban, the mineral’s value-added increased from US$1.1 billion to $20.8 billion in 2021 alone.

Predicting that figure would rise to more than $30 billion, Widodo said: “That is just one commodity. The government will continue to consistently carry out down-streaming so that added value is enjoyed domestically for the advancement and welfare of the people.”

He estimates the industrialization of bauxite, mainly found in West Kalimantan, will see revenues increase from $1.3 billion to $4.1 billion due to the value-added impact of the ban. Eight bauxite smelters currently under construction will boost existing production from 4.3 to 9.1 million tonnes.

A 19½ fold increase in benefits for Indonesia by requiring processing in country. Seems to me that the Indonesian claims of economic colonialism are well founded.

The current system calls for outside companies to do the mining, pay a pittance for the raw materials, and then to leave the ecological damages to the host country.

This needs to change.