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GAPKI Response — EU Trade Policy Review

The European Union’s Member States are important trading partners for the Republic of Indonesia. Indonesia’s largest exports to the EU are vegetable oil (i.e. palm oil), machinery and textiles/clothing. The trading volume, and relationship, between our two regions is expected to grow significantly in the coming years. Especially as Indonesia continues its path to greater prosperity for our population of 280 million people.  

The current Indonesia-EU Comprehensive Economic Partnership Agreement (IE-EU CEPA) is expected to have a positive economic impact on both Indonesia and EU Member States.

Palm oil and palm oil products are the largest agricultural export from Indonesia, as well as from the ASEAN region more broadly. It is clear that there is considerable political pressure to restrict palm oil imports into Europe in recent years. This has had a regrettably negative influence on Indonesia-EU trade relations.

In responding to the EU Trade Review, GAPKI will respond to Question 8 according to the terms of reference.

Question 8: How can trade policy facilitate the transition to a greener, fairer and more responsible economy at home and abroad? How can trade policy further promote the UN Sustainable Development Goals (SDGs)? How should implementation and enforcement support these objectives?

From Indonesia’s perspective, the question is how European Union trade policy can facilitate a transition to a greener, fairer and more responsible economy in Indonesia, while ensuring the UN SDGs can be fully achieved.

Some arms of the European Union appear to believe that raising indirect trade barriers and is a more effective path to creating a greener, fairer and more responsible economy.

Although the EU maintains the Generalised System of Preferences (GSP) for developing countries, lower tariffs are irrelevant if the cost of compliance for regulatory measures for developing countries exceeds any tariff advantages. This is particularly the case for developing countries that are often limited in their capacity for compliance with technical regulations. Specifically for the palm oil sector, Indonesia has 2.3 million small farmers – more than any other palm oil producing nation – and these individuals simply do not have the bureaucratic capacity to meet complex EU regulatory barriers. This is a major problem, because such small farmer development is essential to meeting the UN SDGs, specifically goals #1, #2, #8, #9, #10 and #11.

This underlines the contradictory approach to sustainable development. Although the EU may be seeking better environmental outcomes through stricter compliance measures as they relate to trade, making exporting to the EU more difficult can have the simultaneous effect of undermining social economic outcomes and harming the aims of the UN SDGs.

Indonesia has specific experience of how EU’s focus on European environmental principles, rather than global sustainable development principles, has actively harmed Indonesia’s palm oil community:

  • Palm oil was singled out in the review of the impact of EU consumption on deforestation, despite palm oil having a much lower deforestation footprint than other commodities;
  • Palm oil was singled out in the same document, for a review of certification policies, with zero acknowledgment that palm oil is the most certified agricultural commodity in the global market. No other oilseeds were treated in the same way in the EU document;
  • EU leaders regularly ask for greater levels of certified sustainable palm oil in the market, but Indonesia Sustainable Palm Oil (ISPO), the national standard for palm oil certification (and the world’s largest sustainability scheme) has yet to be recognized by the EU;
  • Palm oil was singled out in the EU’s Renewable Energy Directive (RED II) revision, despite the EU’s own research showing that other commodities are much bigger drivers of deforestation compared with palm oil.

These regulatory barriers have been supplemented by the EU’s use of trade defence instruments (i.e. antidumping and countervailing duties) against palm oil and related products, that have been simultaneously singled out for ‘trade and sustainable development’ concerns.

There have been four trade defence investigations by the EU against palm oil and palm oil-based products over the past decade; the use of antidumping tariffs in one case was unjustifiable under WTO rules.

For many Indonesian stakeholders, this has been perceived as a use of trade and environmental policy as an instrument of economic protectionism rather than environmental protection. As a result, there is a significant loss of faith in Indonesia, and other developing nations, in the EU’s ability to use trade policy to promote sustainable development. The EU is simply not seen as a fair arbiter on trade or on sustainable development.

In the context of creating a “greener, fairer and more responsible economy” it is essential that EU policymakers understand clearly Indonesia’s key development priorities as outlined in its SDG submissions:

  • strengthening human development through poverty reduction and basic services improvement;
  • reducing regional disparities through connectivity and maritime development;
  • increasing economic value added and job creation;
  • and overcoming the digital divide.

Many of these are connected to rural development in Indonesia outside of major urban centres. For this sustainable development and economic empowerment to happen, oil palm planting is essential.

Around 93 per cent of Indonesian farms are small farms of less than 5 hectares. These represent more than 20 million households, and close to 100 million people, of which many millions choose to plant oil palm as a valuable and reliable cash crop.

Imposing greater regulatory measures on these households in order to protect wealthy European industries is not, in the view of many Indonesians, compatible with a “greener, fairer and more responsible economy”. It does not sound fair at all.

If the EU has an objective to use trade policy to support the SDGs, this should encompass all SDGs: not only those related to climate or environment. We would recommend also that the EU undertake more meaningful consultations with its trading partners to achieve this aim.  In the case of the EU RED, the European Union repeatedly failed to notify the Technical Barriers to Trade Committee at the World Trade Organization (WTO) of the measure, and that it would be trade disruptive. This is despite repeated protestations from trading partners including Indonesia. Internal EU documents also indicated that the EU was aware of the disruption. Similarly, a group of the EU’s major trading partners – including the US, Brazil, Australia and Indonesia — recently issued a statement via the WTO Trade in Goods Council that the EU’s approach on some ‘sustainability’ measures was ignoring the international consensus on pesticide safety and instead following a unilateral path.

Following the mainstream international consensus is essential for coordinated global climate action. Again, the EU should lead by following this principle in all its interactions, not only some. Imposing regulatory measures that single out and discriminate against palm oil in order to support the EU’s oilseed (e.g. rapeseed) industries will not help the EU achieve its objective to use trade policy to support the SDGs. If the EU is seeking to introduce trade measures that support these goals, the SDGs in combination with domestic policy settings should be the policy framework – not a unilateral imposition of standards by other parties. This would allow for the possibility of introducing a mutually agreed certification for sustainability, which would also support the growth of mutual trade. This would require the EU to recognise ISPO certification standard for sustainable palm oil. In terms of counterbalance, similar regulatory efforts can and should be made by the EU on European oilseed (e.g. rapeseed) cultivation – and/or all other EU commodities.

Indonesia supports the objective of a “greener, fairer and more responsible economy”, and supports the UN SDGs as the foundation for the achievement of this global goal.  The Indonesian Government respectfully submits that the EU should seek cooperation and partnership with trading partners to achieve these goals, rather than raising more trade barriers against palm oil and other important commodities from the developing world.

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