A limited free trade agreement (FTA) proposed by Indonesia that will allow nickel and other critical commodities used in electric vehicle (EV) production to benefit from U.S. tax credits was a focus of talks between Vice President Kamala Harris and Indonesian President Joko Widodo Wednesday in Jakarta, Indonesia.
"Moving forward, we also look forward to working with you to increase the flow of goods and services between our nations, including through the Indo Pacific Economic Framework," said Harris during her meeting with Widodo on the sidelines of the U.S. – ASEAN summit with leaders of Southeast Asian nations. "We will also continue to work with Indonesia to build resilient supply chains, including for the critical minerals required to expand our clean energy economies."
Under its signature climate change and clean energy legislation, the Inflation Reduction Act, the Biden administration has put aside tens of billions of dollars in tax credits to spur EV manufacturing and sales. To qualify, 40% of the minerals used for battery production for EVs sold in the U.S. must be extracted or processed in the U.S., or in one of its free trade partners.
Boasting the earth's largest reserves of nickel, Indonesia is anxious to develop its domestic EV and batteries industries and had stopped exports of nickel ore to ensure supply and attract investments for domestic processing plants.
However, Indonesia's mining and refining industry has been largely dependent on investment from Chinese companies and besieged by environmental concerns, hence limiting its access to the U.S. market.
Jakarta has for months pushed Washington for a deal on critical minerals, an effort spearheaded by Coordinating Minister for Maritime and Investment Affairs Luhut Pandjaitan, who has been meeting with senior Biden administration officials and American industry players. In August Pandjaitan met with Elon Musk, the founder of U.S. EV manufacturer Tesla, in Washington, the last of a series of engagements with the American billionaire, to drum up investment.
"What we are proposing (through this limited FTA) will also benefit the U.S. And this has nothing to do with China. Elon understands this," he said in an interview with VOA's Indonesian Service following his meeting.
Rizal Kasli, Chairman of the Association of Indonesian Mining Professionals hopes the FTA proposal will move faster with Harris' visit.
"For green energy, Indonesia is expanding its EV industry ecosystem and have started operating refineries of limonite nickel, and building even more," he told VOA.
Chinese investment and environmental concerns
The Indonesia Morowali Industrial Park (IMIP) in the resource-rich area of Central Sulawesi is one of the largest Chinese Belt and Road Initiative (BRI) projects in Indonesia. Chinese companies have invested in Indonesia's smelters in the island to secure their sources of nickel, but it comes with a steep price to the environment and livelihoods of indigenous communities.
The Widodo government has pledged to ensure all miners follow international best practices, still dozens of Indonesian non-governmental organizations in 2022 sent an open letter to Musk, urging him not to invest in Indonesia due to environmental, social and governance (ESG) concerns.
"Nickel extraction has taken over people's land, polluted the water and ocean ecosystem, triggered deforestation, and it's full of violent practices, human rights abuse and corruption," said Melky Nahar, coordinator of the Mining Advocacy Network, based in Jakarta, Indonesia.
"This FTA is merely the government's effort to sell Indonesian nickel at a bargain," Nahar told VOA. "The U.S. must take firm action by boycotting Indonesian nickel and its products."
Whether or not the limited FTA, which faces steep opposition in the U.S. Congress goes through, U.S. - Indonesia engagement is expected to intensify. Following their meeting Harris and Widodo announced their intention to elevate ties to a "Comprehensive Strategic Partnership," the highest level for a non treaty-ally and a step up from the "Strategic Partnership" status since 2015.
Eva Mazrieva in VOA's Indonesian Service contributed to this report.
