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Indonesia wants more than a nickel for natural resources

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Excavators sit idle in a nickel-mining area on the hill of Pomala village in Southeast Sulawesi province, Indonesia, 2 September 2012. (Photo: REUTERS/Yusuf Ahmad)

Author: James Guild, RSIS

Indonesian Minister of Investment Bahlil Lahadalia suggested that Indonesia is looking into forming an OPEC-style cartel for nickel and other inputs used in battery production. Nickel is becoming a hot commodity as it is a key input in the manufacture of lithium-ion batteries needed for electric vehicles (EVs) — and Indonesia has the world’s largest nickel ore deposits.

Given that demand for EVs is expected to balloon in the coming years, countries rich in natural resources are exploring the most expeditious ways to capitalise on the situation.

The idea for an OPEC-style cartel reflects the Indonesian authorities’ desire to leverage its control over a scarce and highly sought-after commodity. They seek a more favourable position on the global technological frontier. Indonesian officials are discontent with the relatively low-value activities of extracting and exporting raw commodities. They want more of the value added during processing and manufacturing. Such value has historically been captured outside of Indonesia.

This was the logic behind a series of recent nickel ore export bans — a strategy that catalysed billions of dollars of investment in Indonesia’s downstream nickel processing industry. With mining and smelting activities increasingly localised, several leading global technology companies have made sizable commitments to invest in battery and EV production in Indonesia. At least in the near-term, the decision to deprive global markets of unprocessed nickel ore achieved its objective of accelerating investment in higher value-added economic activities.

Talk is turning towards building on that success by scaling it up to the level of an OPEC-style cartel. This will allow Indonesia to exercise a greater degree of control over supply and price and maximise economic benefits. It is early days and seems more like a trial balloon than anything, so there are reasons to approach such an idea with caution.

One reason the nickel export bans are working is because they are limited in scope and have a narrow, clearly-defined objective — more downstream investment in Indonesian nickel smelters will lead to more investment in battery and EV production. A global cartel of nickel-producing countries would be much more complex, difficult to organise and could be undercut at any time by a single member or simply by the vagaries of the market.

Not every nickel-producing country is going to have — or be able to achieve — the same objective. This could easily make any such undertaking unwieldy. Canada, a major nickel producer, has already indicated that it would be very unlikely to participate in any such scheme.

Another potential deterrent is that intentionally restricting supply to drive up prices incentivises actors to invest in developing alternative technologies. It would be a big gamble for Indonesia to assume that batteries will always be dependent on nickel. If the price is too high and supply chains become excessively politicised, companies will start looking to develop batteries without nickel — a process that is already underway. An OPEC-style cartel risks accelerating this process while alienating trade and investment partners in the process.

The downside of alienating partners for short-term economic gain is also worth considering. Though Indonesia has nickel, it cannot manufacture batteries or EVs without the technology and know-how from mature industry players like China’s CATL, South Korea’s LG Group or Japanese automakers. Indonesia needs their assistance to move up the value chain as much as they need Indonesia’s nickel.

Resource-rich emerging markets like Indonesia have a long history of exploitation by more mature economies, particularly in extractive industries. Indonesia is asserting itself in a more muscular form of economic nationalism as a response, at least in part, to these historical imbalances. This was evident in the blanket export bans on palm oil and coal in early 2022, as high global prices threatened domestic shortages. It is also evident in the way that Indonesia brushed off a World Trade Organization ruling that the nickel ore export ban violates Indonesia’s commitments under the General Agreement on Tariffs and Trade.

The Indonesian government is not afraid to leverage its control over in-demand commodities to achieve important economic objectives. More than anything, Minister of Investment Lahadalia is sending a message about Indonesia’s willingness to intervene in markets and buck the principles of free trade when it is in…

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Self-Reliance and Openness: Core Principles of China’s Third Plenary Session

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The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.

The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.

Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum

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Trade Prevails Over Political Persuasions in China-Germany Relations

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Russia one of EU's top-three exporters Eurostat

China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.


Evolving Bilateral Ties

China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.

Economic Pragmatism

As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.

Facing Challenges Together

Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.

Source : Trade trumps political persuasions in China–Germany relations

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Fixing fragmentation in the settlement of international trade disputes

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Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.

Fragmentation in Global Trade

Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.

Challenges with WTO Dispute Settlement

The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.

The Path Forward for Global Trade

Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.

Source : Fixing fragmentation in the settlement of international trade disputes

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