4. Beyond extractivism

Supply chain due diligence alone does not bring an end to extractivism, the phenomenon where large amounts of the natural resources of a country are removed for export, with little or no processing taking place at home. Moving beyond extractivism requires that the developing countries which supply others with raw materials are assisted in developing their capacities to transform these materials into semi-finished and end products. By building their own industry, they can capture a greater part of the value chain. It’s an avenue out of poverty that many resource-rich countries in the global South wish to take. (1)

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. (2) On the other hand, it intends ‘to ensure undistorted trade and investment in raw materials in a manner that supports the EU’s commercial interests’. (3) 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. (4)

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. (5) The Indonesian government wants the ores to be processed at home. This policy of value addition seems successful: while nickel mining is slowing down, the export of refined nickel and alloys is going up. (6) Jakarta appears to achieve 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, does 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 bring more coherence between the EU’s trade and sustainable development policies.

E-car

Tesla woos Indonesia

One global player that does reach 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 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, which comprises corruption,
land grabbing from local and indigenous
communities, deforestation without restoration as well
as the pollution of rivers, seas and drinking water.
(7)

In the nickel dispute, both sides may have China at the front of their minds. In 2014, the EU won a WTO suit against China’s restrictions on the export of rare earths. (8) Nevertheless, China’s industry now spans the entire value chain for rare earths – from mining to the manufacturing of electric vehicles and digital devices. Indonesia cannot be blamed for eying a similar trajectory. China, however, has also established a near-monopoly on rare earths by manipulating supply and prices, pushing foreign mines out of competition and leaving Western manufacturers no choice but to relocate to China. (9) This quest for dominance certainly warrants a resolute European response.

Further viewing

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), 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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