During a recent visit to Washington DC, Indonesia’s coordinating minister of maritime affairs and investment, Luhut Pandjaitan, said that the Government of Indonesia would be interested in negotiating a limited free trade agreement on critical minerals trade. The proposed agreement was aimed at some critical minerals exported to the U.S. that would allow Indonesian businesses in the electric vehicle battery supply chain to benefit from U.S. tax credits. The proposed agreement would also be modeled after a similar deal reached by the U.S. and Japan in March 2023. Minister Luhut said that the cooperation would not likely be pursued in the form of a limited trade agreement but could be discussed under the umbrella of Indo-Pacific Economic Framework (IPEF).
The U.S. new EV tax credit scheme under the Inflation Reduction Act (IRA) would enable companies to obtain tax credits if a certain amount of EV battery components were sourced or assembled in North America or in a free trade partner nation. Although the requirement was introduced to encourage U.S. manufacturers to reduce reliance on inputs from China, it could leave the U.S. struggling to source nickel if it does not negotiate additional pacts with main nickel producers like Indonesia. This is especially since the list of countries that are expected to qualify as FTA partners eligible for tax credits excludes major producers of nickel and cobalt.
Indonesian officials have called on the U.S. to consider treating members of the IPEF as FTA partners so that members can benefit from the credits. At the same time, Indonesia is seeking to diversify its nickel supply chain, including developing a separate supply chain with China and “non-China” partners. According to the Indonesian Chamber of Commerce and Industry and ASEAN Business Advisory Council Chair Arsjad Rasjid, “Indonesia is a friend to China and western countries,” and hence “strive[s] to ensure that [it has] an inclusive portfolio of both China and non-China in the nickel mining sector in order to reach a fair and mutually beneficial trade agreement.”
