4. Beyond extractivism

Value chain due diligence alone will not bring an end to extractivism, a phenomenon by which large quantities of a country’s natural resources are removed for export, with limited or no processing taking place domestically. Moving beyond extractivism requires that the developing countries that supply raw materials can choose a more sustainable path. They must be assisted in developing alternatives to large-scale mining (1) and plantation, or in acquiring the capacity to transform their raw materials into semi-finished and end products. By building up their own industry, they can capture a greater share of the value chain. This is an avenue out of poverty that many resource-rich countries in the Global South wish to take. (2)

The EU is in two minds about this development strategy. On the one hand, it supports the United Nations’ Sustainable Development Goals (SDGs), which include ‘inclusive and sustainable industrialisation’ and ‘value addition to commodities’ in developing countries. (3) On the other, it intends ‘to ensure undistorted trade and investment in raw materials in a manner that supports the EU’s commercial interests’. (4) Its trade agreements are geared towards liberalising trade in raw materials on behalf of European industry rather than regulating it for the sake of sustainable development. (5)

In 2019, the European Commission went so far as to lodge a complaint with the World Trade Organisation (WTO) against Indonesia for banning the export of nickel ores. (6) The Indonesian government wants the ores to be processed domestically. This policy of value addition seems to be working: while nickel mining is slowing down, the export of refined nickel and alloys is going up. (7) Jakarta appears to be achieving its goal of making more money with less mining.

Policy coherence for development

If the EU, through the WTO, manages to kill Indonesia’s export ban, would that lead to a more secure supply of nickel for its nascent battery industry? That is doubtful. By sticking to the old extractivist paradigm, the EU risks alienating supplier countries in the Global South. Conversely, an offer to partner up with them for low-emission metals processing within their borders might increase goodwill and trust. It would definitely increase coherence between the EU’s trade and sustainable development policies.

e-car and metals

Tesla woos Indonesia

One global player that has been reaching out to
Indonesia is Tesla.
The average Tesla e-car requires
roughly 55 kilograms of nickel
; Indonesia has the
largest nickel reserves in the world. Recognising that
Jakarta wants to build up an industry around its nickel
mining, Tesla has entered talks with the Indonesian
government about constructing a battery factory
on the island of Java.

However, it will be challenging for Tesla to set up a
responsible supply chain. Mining in Indonesia has
a grim track record, comprising corruption, land
grabbing from local and indigenous communities,
deforestation without restoration, and the pollution
of rivers, seas, and drinking water.
(8)

In the nickel dispute, both sides may have China at the forefront of their minds. In 2014, the EU won a WTO suit against Chinese restrictions on the export of rare earths. (9) Nevertheless, China’s industry now spans the entire value chain for rare earths, from mining to the manufacture of electric vehicles and digital devices. Indonesia cannot be blamed for eyeing a similar trajectory. China, however, has also established a near-monopoly on rare earths by manipulating supply and prices, pushing foreign mines out of the market, and leaving Western manufacturers no choice but to relocate to China. (10) This quest for dominance certainly warrants a resolute European response.

Footnotes

Further viewing

Jojo Nem Singh, Metal mining and economic development Afspelen op YouTube
Cleanerwatt, 'New Tesla Battery Factory in Indonesia - First Terafactory?' Afspelen op YouTube
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Green European Foundation (GEF)

This project is organised by the Green European Foundation with the support of Wetenschappelijk Bureau GroenLinks (NL), Fundacja Strefa Zieleni (PL), Transición Verde (ES), Etopia (BE), Institut Aktivního Občanství (CZ), the Green Economics Institute (UK) and Visio (FI), and with the financial support of the European Parliament to the Green European Foundation.

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