The government is inviting Japan to relocate its nickel ore processing industry to Indonesia, vowing to provide the world's second largest nickel consumer with sufficient raw materials and tax incentives.
Industry Minister MS Hidayat said on Wednesday in Jakarta that the government was ready to open a dialogue with interested parties about the possibility of investing in Indonesia's downstream nickel sector.
"Industry in Japan has developed by relying on a raw material supply from Indonesia. It's time for Indonesia to benefit from added value, and, for this reason, we are inviting Japanese firms to participate," Hidayat told reporters after a meeting with members of the Indonesian Chambers of Commerce and Industry (Kadin) at his office.
The government tightened export requirements for 65 raw minerals and imposed a 20 per cent tax last month in anticipation of implementing a total ban on raw minerals exports in 2014, as required by the 2009 Mining and Coal Law.
The government said the rule was necessary to curb overexploitation as miners crank up production ahead of the full ban. Nickel ore exports, for example, 33 million tons in 2011, an eight-fold jump over their 2008 level.
By introducing a total ban, the government hopes that new investment, particularly in smelters, will flow into the nation and help expand the local downstream sector.
At present, Indonesia - one the world's largest exporters of natural commodities, including nickel and coal - exports a vast amount of raw materials and imports processed products instead.
The archipelago, for example, has proven nickel reserves of 577 million tons. However, the companies processing nickel ore into ferronickel and nickel matte still have a limited annual production capacity, around 80,000 tons, all of which is exported, according to the Industry Ministry's statistics.
The domestic nickel-based downstream industry, such as for stainless steel and nickel alloy, has not developed, driving the nation to import large amounts of semi-finished products to fulfill local demand across a wide range of sectors, including the construction, oil and gas, automotive, electronics and machinery sectors.
The development of the domestic nickel ore processing industry would generate 105-fold added value in terms of value, Hidayat said.
The minister said that Indonesia would offer an invitation for bilateral talks with Japan and that the government was ready in case Japan made good on a pledge to file a complaint with the World Trade Organization on the total export ban.
"If they want to do that [file a complaint], that's their right [...] We consider this an appropriate policy because basically we don't prohibit exports, but instead restrict exports for our domestic interests, and we aim to promote industrialization locally," Hidayat said.
Meanwhile, the Trade Ministry's international trade cooperation director general Iman Pambagyo shared a similar view, saying that the government would accept offers for bilateral talks on the matter and explain the reasons for its policy to Japan.
"The WTO's rules permit export restrictions under certain conditions," Iman said, adding that the government would wait for the possible complaint as it was still unclear which article Japan might use to challenge Indonesia's policy before world trade's governing body.
The Japanese government said that it would take its case to the WTO if compromise failed, as previously reported.
Japan lodged a similar complaint with the WTO to contest China's ban on rare earths exports.