The EU-Indonesia Comprehensive Economic Partnership Agreement: A Legacy of Controversy?
The Comprehensive Economic Partnership Agreement (CEPA) between the European Union (EU) and Indonesia was set to be a landmark achievement for former Indonesian President Joko Widodo and the initial Ursula von der Leyen Commission. However, the agreement has hit several roadblocks since Prabowo Subianto assumed the presidency in October 2021, coupled with the EU’s recent leadership reshuffle.
The Nickel Controversy
One of the major hurdles in the CEPA negotiations is the issue of raw material trade, particularly nickel. The EU’s stance on Indonesia during these negotiations mirrors a broader critique of the Union’s approach to securing raw materials necessary for its energy transition and digitalization.
On one hand, the EU is highly dependent on imports for raw materials needed to drive its green agenda and technological advancements. On the other hand, it aspires to foster fair, mutually beneficial partnerships – an approach that includes local value addition for host countries participating in mining projects.
The divergence between these goals has become evident in the EU’s negotiations with Indonesia over nickel. Indonesia holds significant nickel reserves, a crucial component in both stainless steel and electric vehicle batteries. Yet, rather than supporting Indonesia’s strategy of processing nickel domestically, the EU has pressured the country to liberalize its markets.
Indonesia’s Policy
Indonesia banned the export of unprocessed nickel ore in 2014 to ensure that value is added through processing in the country. This policy aligns with the EU’s advocacy for sustainable development and local value addition, theoretically positioning Indonesia as a model for what the EU would like to achieve globally.
EU’s Approach and the WTO
Instead of supporting Indonesia, the EU has leveraged the World Trade Organization to challenge the country’s export restrictions. In 2021, the EU filed a complaint against Indonesia, leading to a WTO ruling against the Southeast Asian nation.
As a result, the EU’s primary demand in the CEPA negotiations is to prohibit Indonesia’s export restrictions on raw materials, including eliminating export duties. This move would compromise Indonesia’s sovereignty over its resources and risk perpetuating a neo-colonial model of resource extraction that has historically hindered developing nations’ economic progress.
China’s Role
While the EU focuses on trade rules, China has capitalized on the situation by investing heavily in Indonesia’s nickel sector. Currently, the majority of Indonesia’s battery-grade nickel output, anticipated to be between 80-82% this year, is produced by Chinese-owned companies.
Shift Towards a Sustainable Partnership
The EU has an opportunity to compete with China by reconsidering its stance on free trade and proposing a more equitable partnership that supports Indonesian industrial development. This would entail refraining from pressuring Indonesia to liberalize its markets and genuinely supporting Indonesian value addition and sustainable development.
Beyond trade, the EU must uphold high socio-environmental standards in its value chain, incorporating mineral commodities in efforts to combat deforestation. Paying attention to the significant environmental impact of mining operations is crucial. Nickel extraction in Indonesia is a major driver of deforestation, air and water pollution, and greenhouse gas emissions.
Conclusion
Instead of focusing solely on its own material footprint, the EU can demonstrate leadership by reducing its dependency on imported raw materials, thereby alleviating pressure on sensitive ecosystems. This rethinking of its approach aligns with the principles of sustainability and fair trade.
The EU should aim to create a legacy that is truly commendable for both parties, fostering a sustainable, equitable economic relationship rather than perpetuating a model of resource extraction that perpetuates inequality.
We invite readers to share their thoughts on how the EU can overcome these challenges and achieve a mutually beneficial agreement with Indonesia. Your insights could contribute to shaping a more sustainable future for both parties.
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