WTO Dispute Panel Report on Indonesia
Nickel Ore Case
On 30 November, the WTO circulated the
panel report in the case brought by the European Union in “Indonesia — Measures
Relating to Raw Materials” (DS592).
DS592: Indonesia — Measures Relating to
Raw Materials
The summary below was up-to-date at 30 November 2022
Complaint by the
European Union
On 22 November 2019, the European Union requested
consultations with Indonesia regarding various measures concerning certain raw
materials necessary for the production of stainless steel, as well as a
cross-sectoral import duty exemption scheme conditional upon the use of
domestic over imported goods. The request covers the following alleged
measures: (a) restrictions on exports of nickel, including an actual
prohibition to export; (b) domestic processing requirements for nickel, iron
ore, chromium and coal; (c) domestic marketing obligations for nickel and coal
products; (d) export licensing requirements for nickel; and (e) a prohibited
subsidy scheme.
The European Union claimed that:
a.
the
measures restricting the exports of certain raw materials, including those
requiring domestic processing requirements, domestic marketing obligations, and
export licensing requirements, appear to be inconsistent with Article XI:1 of
the GATT 1994;
b.
the
prohibited subsidy scheme appears to be inconsistent with Article 3.1(b) of the
SCM Agreement; and
c.
the
failure to promptly publish the challenged measures appears to be inconsistent
with Article X:1 of the GATT 1994.
On 6 December 2019, the United States
requested to join the consultations.
On 14 January 2021, the European Union requested the
establishment of a panel. At its meeting on 25 January 2021, the DSB deferred
the establishment of a panel.
At its meeting on 22 February 2021, the
DSB established a panel. Brazil, Canada, China, India, Japan, Korea, the
Russian Federation, Saudi Arabia, Singapore, Chinese Taipei, Turkey, Ukraine,
the United Arab Emirates, the United Kingdom, and the United States reserved
their third-party rights.
On 19 April 2021, the European Union
requested the Director-General to compose the panel. On 29 April 2021, the
Director-General composed the panel.
On 1 November 2021, the Chair of the
panel informed the DSB that, in accordance with the timetable adopted thus far
following consultations with the parties, the panel estimated that it would
issue its final report to the parties in the last quarter of 2022. In its
communication, the Chair apprised the DSB that the report would be available to
the public once it was circulated to the Members in all three official
languages, and that the date of circulation depends on completion of
translation.
On 30 November 2022,
the panel report was circulated to Members.
This dispute
concerns Indonesia's imposition of two measures that the European Union claimed
prevent the export of nickel ore. The European Union challenged (a) a
prohibition on the exportation of nickel ore and; (b) a domestic processing
requirement (DPR) for all nickel ore. These measures were implemented through
various laws and regulations.
The European
Union requested the Panel to find that the export ban and DPR were inconsistent
with Article XI:1 of the GATT 1994. In response, Indonesia argued that the
European Union had failed to establish a prima facie case that the DPR was
inconsistent with Article XI:1 of the GATT 1994. Further, Indonesia argued that
the export ban and DPR were exempt from the obligation in Article XI:1 as they
were export prohibitions or restrictions temporarily applied to prevent an
imminent critical shortage of a product essential to Indonesia within the
meaning of Article XI:2(a) of the GATT 1994. Alternatively, Indonesia argued
that the measures were justified under Article XX(d) of the GATT 1994.
Articles XI:1
and XI:2(a) of the GATT 1994 (quantitative restrictions)
The Panel found,
and both parties agreed, that the export ban was a prohibition on the export of
nickel ore. With respect to the DPR, the Panel was of the view that because
Article XI:1 also covers measures prohibiting or restricting “sale for export”
it applied to domestic regulations such as the DPR that prevent or limit the
ability to sell goods for export even if they apply internally within the
exporting Member. The Panel concluded that as the DPR by its nature restricted
the sale for export of nickel ore, it was fell within the scope of the
obligation in Article XI:1 of the GATT 1994.
Addressing
Indonesia's arguments under Article XI:2(a) of the GATT 1994, the Panel first
examined whether the measures applied to an essential product. With respect to
low-grade ore, the Panel noted that Indonesia argued that low-grade ore was
waste and not economically viable. The Panel could not, therefore, conclude
that low-grade ore was an essential product. The Panel found that Indonesia had not demonstrated through
evidence pertaining to employment and revenue in the relevant industries, that
these industries were of a nature that ensuring their supply of nickel ore was
essential within the meaning of Article XI:2(a). Then, the Panel analysed the
duration of the export ban and DPR and found that they had not been
“temporarily applied” as the export ban had been in place for seven years,
albeit with short breaks for the exportation of low-grade nickel ore, and for
nine years in the case of DPR prior to the establishment of the panel. The
Panel noted that both measures remained in effect as of the drafting of the
Panel Report. The Panel also found that Indonesia had not provided any basis to
determine that there was a critical shortage of low-grade nickel ore. With
respect to high-grade nickel ore the Panel found that Indonesia had not
demonstrated, by evidence of the level of reserves and projection of demand,
that there was an imminent critical shortage. The Panel concluded that an
imbalance between supply and demand was not sufficient to rise to the level of
a critical shortage. Consequently, the Panel found that Indonesia had not
demonstrated that its measures were temporarily applied to either prevent or
relieve a critical shortage of an essential product within the meaning of Article
XI:2(a).
Having found
that the export ban and DPR were not exempt from Article XI:1, the Panel held
that they were inconsistent with Article XI:1 of the GATT 1994 as the export
ban prohibited exports and the DPR was a restriction which had a limiting
effect on exports.
Article XX(d)
of the GATT 1994 (general exceptions — necessary to secure compliance with laws
or regulations)
In arriving at
its conclusion, the Panel found that of the three legal provisions Indonesia
identified as the laws or regulations its measures were necessary to secure
compliance with, only Article 96(c) of Law No. 4/2009 on Coal and Mining
relating to sustainable mining and mineral resource management had the
requisite normativity or specificity to qualify as a law or regulation within
the meaning of Article XX(d) of the GATT 1994. Although the Panel found that
protection of the environment was a value of high importance, the Panel also
found that the export ban and DPR are highly trade-restrictive measures and
neither is apt to make a “material contribution” to securing compliance with
Article 96(c) of Law No. 4/2009. Moreover, the European Union had presented an
alternative measure — an export authorization system — was found to be less
trade restrictive, achieved the same level of contribution as the challenged
measures to securing compliance with Article 96(c) of Law 4/2009, and was
reasonably available to Indonesia. The Panel, therefore, concluded that
Indonesia had failed to demonstrate that its measures were necessary within the
meaning of subparagraph (d). In light of this conclusion, the Panel did not
proceed to determine whether Indonesia's measures complied with the
non-discrimination requirements in the chapeau of Article XX.
Based on the
findings outlined above, the Panel recommended that Indonesia bring its
measures into conformity with its obligations under the GATT 1994.