UK Due Diligence Regulation: Indonesia Responds

The UK Government has released a consultation on a regulation focused on Due Diligence on Forest Risk Commodities. The consultation, and the forthcoming regulation is being authored by the UK’s Department for Environment, Food & Rural Affairs (DEFRA), along with the Foreign & Commonwealth Office (FCO), Department for International Trade (DIT) and the Department for Business (BEIS).

The consultation will take place over the coming six weeks, ahead of plans to insert the Due Diligence regulation into the Environment Bill later this year, probably in October.

The proposed regulation would introduce requirements on UK importers of so-called ‘forest risk commodities’ (we will address in a later blog why this characterisation is inaccurate and prejudicial), including palm oil from Indonesia. The consultation document is not clear how the UK would define key terms including ‘sustainability’ or ‘forest risk’. Such definitions usually come about following calls from NGOs or anti-palm oil campaigners seeking new regulations to impose costs or restrictions on palm oil producers.

There is a clear possibility that the UK’s Due Diligence regulation could impose a trade barrier on Indonesian farmers and producers, if it were overly-broad or proscriptive. Any subjective imposition of externally-designed standards would be an unacceptable infringement of Indonesia’s sovereignty.

DEFRA’s and DIT’s efforts to regulate are already underway and some form of Due Diligence measure is now inevitable. The best approach for the UK to follow would be a legality-based measure. It can achieve the UK’s sustainability objectives, provide clear guidance for compliance for firms, and avoid an unnecessary and unwarranted non-tariff barrier to trade. A legality-based standard would also provide a firm foundation for joint Indonesia-UK cooperation on future sustainability issues.

Considering the importance of the palm oil community to Indonesia, and the wider ASEAN, the UK should take into account the following essential principles to ensure that the Due Diligence regulation does not infringe Indonesia’s sovereignty:

1. Good Faith Consultations. Involvement of the Indonesian government and palm oil sector in the consultation process, constructive and transparent cooperation and a commitment to continuing and proactive dialogue. 
2. Non-Discrimination Against Indonesia. Indonesia should be given the same treatment within the Due Diligence regulation alongside other exporters.
3. Non-Discrimination Against Palm Oil. There should not be discrimination targeted at palm oil when compared with ‘like’ products such as soy, rapeseed, sunflower and others.
4. Level Playing Field for Certification. Due Diligence measures should not arbitrarily ‘pick winners’ among existing or new certification schemes. All existing and recognized standards (including Indonesia’s government standard, ISPO) should be included without prejudice.
5. Uphold Indonesian Sovereignty. There should be no imposition on Indonesia’s sovereign right to regulate its domestic palm oil industry, including the future development and evolution of ISPO.
6. Respect for Free Global Trade. The Due Diligence measures explicitly should not supersede, replace nor preclude negotiations between Indonesia and UK that may consider an over-arching agreement on trade (e.g. as a dedicated chapter within a CEPA or FTA).

These principles combine the UK’s ambition to champion global free trade and open markets, to lead on sustainably issues, and to build a positive and expanding trade relationships as a Dialogue Partner in ASEAN– along with recognising the importance for Indonesia of ensuring that new ‘disguised’ trade-barriers are not placed on palm oil exports.

Indonesia is the #1 Sustainable Choice for palm oil globally. Palm oil in Indonesia has proven to be one of the world’s greatest-ever tools for reducing poverty. For 2.3 million small farmers, palm oil in Indonesia has provided essential income, property rights, opportunity for education, and social and economic advancement for future generations.

The Indonesia Sustainable Palm Oil (ISPO) standard was recently strengthened and further endorsed by Presidential Decree. The Indonesian Palm Oil community is committed to working with the authorities to expand and improve ISPO to become the leading standard for sustainable palm oil globally – and the largest sustainability standard ever implemented for any commodity in any country. The UK can play an important role in developing, strengthening and expanding ISPO. Both technical and governance support are welcomed, as Indonesia seeks to build on its reputation as the #1 Sustainable Choice for palm oil, and the #1 global producer of Certified Sustainable Palm Oil (CSPO).

Regrettably, Indonesian palm oil has experienced a hostile approach to palm oil from the European Union in the last decade, which has led to significant trade tensions. The EU’s Renewable Energy Directive II (RED II) is highly discriminatory against Indonesia’s palm oil exports, and is a clear disguised trade barrier. As a result the Indonesian Government has challenged the RED II at the WTO. Other trade-focused responses have also been pursued.

The consultation will no doubt receive responses from around the world, including the usual flood of coordinated NGO submissions. The real question before DEFRA and other UK Government departments is the following: will the UK choose the path of partnership, supporting Indonesia on its sustainability journey – or will the UK head down an adversarial route of imposing unilateral restrictions on Indonesia’s largest export commodity?