The World Trade Organization last week ruled that Indonesia had no right to ban the export of nickel or to require that raw nickel ore be refined in Indonesia.

Handing a comprehensive victory to the complainant, the European Union, the WTO decision ^[1] highlights the clash between national security and global trade rules over critical minerals.

At least 14 nations, including Australia, have drafted special national-security-focused arrangements governing investment and trade in critical minerals. Nickel—a crucial input of batteries and stainless steel—is on seven of those lists.

Indonesian President Joko Widodo made clear ^[2] that the WTO ruling won’t be the last word on the matter. ‘Even though we lost at the WTO on this nickel issue … it’s okay. I have told the minister to appeal,’ he said.

The WTO’s appellate body is defunct, with the US having refused to approve the appointment of new tribunal members since 2017, so the appeal will stay the decision until there’s a resolution, which may never occur.

US President Joe Biden’s administration has shown little interest in trade policy and hasn’t explained what would satisfy it to re-establish the appeals tribunal. The EU led the creation of an alternative WTO body to handle appeals, but Indonesia isn’t a party to it. Indonesian officials have said they have five to 10 years to build their domestic processing capability.

The WTO said the only justification for Indonesia’s export ban would be if there were a critical shortage of an essential material, but that’s not the case. The EU argued that the Indonesian action breached the WTO requirement that countries grant as much access as possible to international trade.

Indonesia was the world’s biggest supplier of nickel until the export ban, imposed in 2020. Chinese resource groups have responded to Indonesia’s call for investment in nickel smelters and downstream processing. Chinese investment in Indonesia reached US$3.6 billion in the first half of this year, double last year’s level, with new smelters mainly behind the increase. Indonesia has also imposed restrictions on export of coal, copper and aluminium. Possible new bans on tin and lead are now being considered.

‘We want to be a developed country, we want to create jobs. If we are scared of being sued, and we step back, we will not be a developed country,’ Widodo said.

Indonesia’s controls on its resource sector are imposed through its mineral and coal mining law, which permits policies that give priority to domestic interests, including the imposition of obligations for mining companies to purify and process minerals in the country.

Further domestic processing is also a priority for Australia’s critical minerals scheme, although it’s focused on government subsidies and investment controls rather than export bans. Prime Minister Anthony Albanese’s government is developing a formal critical minerals strategy to replace the one released by its predecessor in February.

Last week, the government released a discussion paper ^[3]. It notes that Australia produced almost half the world’s lithium in 2020, produces nine of the 10 minerals used in lithium-ion battery anodes and cathodes, and has projects seeking to develop refineries for the 10th (graphite). ‘Australia is the largest producer of titanium and zirconium and is the fourth largest producer of rare-earth elements. Australia is also well placed to supply cobalt, tantalum and tungsten, and many other critical minerals,’ it said.

The emphasis of the discussion paper is on clean energy. It doesn’t mention national security or China, but hints at Australian concern about China’s domination of supply chains for critical minerals, saying: ‘Like-minded countries are increasingly concerned about the pressure growing demand can place on critical minerals supply chains, given many are vulnerable to supply chain disruption.’

The paper says the control of foreign investment is crucial to managing that risk.

‘Australia’s domestic demand alone cannot sustain a large critical minerals sector. Attracting international investment and offtake can enable Australian projects to access key markets and create the scale needed to be commercially viable,’ the paper says.

‘How should Australia engage with international partners to support the diversification of supply chains? What should this engagement focus on (including which countries)?’, it asks.

The central aim of the paper is to solicit views on ‘how Australia can leverage its existing resource endowments and capabilities to support higher value-add activities by bringing more downstream processing projects online’. This is very similar to Indonesia’s goal and is an approach based more on national economic development than on national security or supply-chain resilience.

A new review of the critical mineral strategies of 14 nations by the trade analysis group Global Trade Alert ^[4] says the resource-rich countries that produce critical minerals have a different focus from the consuming nations.

‘Countries that currently enjoy a production advantage focus more on maintaining this dominance and ensuring that the economic benefits of this growing demand ripple through their economies, often with the goal to develop downstream-related industries. Australia, Canada, China and Indonesia are good examples of this approach.’

‘On the other hand, countries with higher existing levels of import dependence tend to focus on developing their domestic production capabilities and substituting importance.’ The report names the EU, Japan, the UK and the US in this category.

‘The type of trade policies and industrial policy actions adopted to achieve these objectives include classic trade barriers, the provision of state aid, the use of public procurement, as well as the screening of inward FDI [foreign direct investment]. Some countries have also built up strategic reserves.’

Investment controls are widespread. Australia’s national-security amendments to foreign direct investment legislation from 2020 require foreign companies to notify the treasurer of any investment in a national-security-sensitive sector regardless of threshold and signal that this would include anything in the critical minerals area. Similar controls have been introduced or updated in Canada, China, the EU, Japan, the UK and the US.

Canada last month ordered three Chinese companies to divest their stakes in Canadian lithium mines. Industry minister François-Philippe Champagne said Canada welcomed foreign direct investment from companies that ‘share our interests and values’ but would ‘act decisively when investments threaten our national security and our critical minerals supply chains’.

The Global Trade Alert paper notes that the different policies linked to critical materials allude to strategic industries such as defence and aerospace, electronics, wind and solar energy production, and the automotive and mobility industries, among others. The technologies mentioned on national lists include microchips, computers, hydrogen fuel cells, traction motors, LED lighting, photovoltaic panels, certain health devices, robotics and drones.

The analysis shows that there’s widespread momentum behind the regulation and state-directed development of critical minerals. WTO trade rules are unlikely to prove a significant restraint.