ASIA NEWS NETWORK
WE KNOW ASIA BETTER
Indonesia's nickel tariff affects Japan
Publication Date : 18-06-2012
A negative impact on the Japanese economy is feared after Indonesia imposed a 20 percent export tariff starting in June on almost all unprocessed ore, mainly nickel, exported to Japan and China, among other countries.
In addition, Indonesia has announced a policy to totally ban exports of the resources in 2014.
The move is an example of the growing phenomenon of resource nationalism, in which countries that export natural resources try to keep the resources within their own borders, driving up prices in the process.
Indonesia's new export tariff applies to 65 items, including unrefined or unprocessed nickel, copper, tin and gold.
Among them, nickel will impact Japan most seriously because Japan relies on imports from Indonesia for more than 50 per cent of its supply. Nickel is used to produce stainless steel.
Stainless steel is used for a wide range of products, such as kitchen sinks, train cars and chemical plant equipment.
If Indonesia bans the export, it is highly likely the move will trigger a surge in commodities prices.
The export tariff does not target Japan alone. In recent years, overexploitation by foreign entities has been rampant in Indonesia. The decision is partly due to the country's fear of depletion of its natural resources.
But Indonesia does not impose the tariff on products that are processed at refining plants inside the country and then exported.
Thus economists believe the action is also meant to help Indonesia's domestic industry grow.
The immediate focus of attention is whether the tariff payments will be shouldered by local mining companies or refining plants in other countries including Japan.
Industry sources said the mining companies insist that refining companies shoulder the burden. Japanese companies have refused. For example, Sumitomo Metal Mining Co. has insisted that it does not have an obligation to pay.
But an industry source said, "Considering the volume of imports and the power balance, it will be difficult to avoid shouldering any burden at all."
Masao Yamada, chairman of the Japan Mining Industry Association and president of Dowa Holdings Co., said at a regular press conference in May, "If refining companies shoulder the payments, it will mean a very high rise in our costs."
If Japanese companies build refining plants in Indonesia to avoid the export tariff, it is essential to also have large-scale electric power plants and port facilities.
An industry source said, "It's impossible to build such large facilities in a year or two."
Because the percentage of nickel content in ore varies depending on its origin, importing ore from other countries is seen to be difficult.
An official of Nippon Yakin Kogyo Co. said, "Assuming the export ban does take effect in the future, we need to consider how to cope with that now."
The World Trade Organization does not have any specific rules to prohibit export tariffs.
But the Economy, Trade and Industry Ministry said the negative impact will be serious. The ministry has asked the Indonesian government to reconsider the decision, including withdrawal of the planned export ban in 2014.
An official of a nonferrous metal company said, "We fear a second and a third Indonesia will appear."