DS: Indonesia — Measures Relating to Raw Materials

This dispute concerns Indonesia's imposition of two measures that the European Union claimed prevent the export of nickel ore. The European Union challenged (a) a prohibition on the exportation of nickel ore and; (b) a domestic processing requirement (DPR) for all nickel ore. These measures were implemented through various laws and regulations.

The European Union requested the Panel to find that the export ban and DPR were inconsistent with Article XI:1 of the GATT 1994. In response, Indonesia argued that the European Union had failed to establish a prima facie case that the DPR was inconsistent with Article XI:1 of the GATT 1994. Further, Indonesia argued that the export ban and DPR were exempt from the obligation in Article XI:1 as they were export prohibitions or restrictions temporarily applied to prevent an imminent critical shortage of a product essential to Indonesia within the meaning of Article XI:2(a) of the GATT 1994. Alternatively, Indonesia argued that the measures were justified under Article XX(d) of the GATT 1994.

Articles XI:1 and XI:2(a) of the GATT 1994 (quantitative restrictions)

The Panel found, and both parties agreed, that the export ban was a prohibition on the export of nickel ore. With respect to the DPR, the Panel was of the view that because Article XI:1 also covers measures prohibiting or restricting “sale for export” it applied to domestic regulations such as the DPR that prevent or limit the ability to sell goods for export even if they apply internally within the exporting Member. The Panel concluded that as the DPR by its nature restricted the sale for export of nickel ore, it was fell within the scope of the obligation in Article XI:1 of the GATT 1994.

Addressing Indonesia's arguments under Article XI:2(a) of the GATT 1994, the Panel first examined whether the measures applied to an essential product. With respect to low-grade ore, the Panel noted that Indonesia argued that low-grade ore was waste and not economically viable. The Panel could not, therefore, conclude that low-grade ore was an essential product. The Panel found that  Indonesia had not demonstrated through evidence pertaining to employment and revenue in the relevant industries, that these industries were of a nature that ensuring their supply of nickel ore was essential within the meaning of Article XI:2(a). Then, the Panel analysed the duration of the export ban and DPR and found that they had not been “temporarily applied” as the export ban had been in place for seven years, albeit with short breaks for the exportation of low-grade nickel ore, and for nine years in the case of DPR prior to the establishment of the panel. The Panel noted that both measures remained in effect as of the drafting of the Panel Report. The Panel also found that Indonesia had not provided any basis to determine that there was a critical shortage of low-grade nickel ore. With respect to high-grade nickel ore the Panel found that Indonesia had not demonstrated, by evidence of the level of reserves and projection of demand, that there was an imminent critical shortage. The Panel concluded that an imbalance between supply and demand was not sufficient to rise to the level of a critical shortage. Consequently, the Panel found that Indonesia had not demonstrated that its measures were temporarily applied to either prevent or relieve a critical shortage of an essential product within the meaning of Article XI:2(a).

Having found that the export ban and DPR were not exempt from Article XI:1, the Panel held that they were inconsistent with Article XI:1 of the GATT 1994 as the export ban prohibited exports and the DPR was a restriction which had a limiting effect on exports.

Article XX(d) of the GATT 1994 (general exceptions — necessary to secure compliance with laws or regulations)

The Panel concluded that Indonesia had failed to demonstrate that the export ban and DPR fell within the scope of Article XX(d) as measures necessary to secure compliance with Indonesian laws or regulations that are not inconsistent with GATT 1994.

In arriving at its conclusion, the Panel found that of the three legal provisions Indonesia identified as the laws or regulations its measures were necessary to secure compliance with, only Article 96(c) of Law No. 4/2009 on Coal and Mining relating to sustainable mining and mineral resource management had the requisite normativity or specificity to qualify as a law or regulation within the meaning of Article XX(d) of the GATT 1994. Although the Panel found that protection of the environment was a value of high importance, the Panel also found that the export ban and DPR are highly trade-restrictive measures and neither is apt to make a “material contribution” to securing compliance with Article 96(c) of Law No. 4/2009. Moreover, the European Union had presented an alternative measure — an export authorization system — was found to be less trade restrictive, achieved the same level of contribution as the challenged measures to securing compliance with Article 96(c) of Law 4/2009, and was reasonably available to Indonesia. The Panel, therefore, concluded that Indonesia had failed to demonstrate that its measures were necessary within the meaning of subparagraph (d). In light of this conclusion, the Panel did not proceed to determine whether Indonesia's measures complied with the non-discrimination requirements in the chapeau of Article XX. 

Based on the findings outlined above, the Panel recommended that Indonesia bring its measures into conformity with its obligations under the GATT 1994.