Monday, 24 June 2019 | The Jakarta Post
The European parliamentary elections last month resulted in a significant and challenging outcome, especially for the palm oil industry. Both the Greens (Greens European Free Alliance) and the far-right nationalists gained additional seats, while the center-right and centerleft lost their majority.
The main agenda item for the Greens is a climate change policy, while the far-right brings a populist and protectionist agenda, similar to the rhetoric of United States President Donald Trump. These two blocs are likely to form an unholy alliance over their policies on palm oil.
Greens candidates had made their intentions on palm oil clear from the start. The Greens in the parliament are seeking to maintain a “ban” on palm oil through the Renewable Energy Directive (RED) II and also to have the European Commission introduce new, tougher rules on palm oil.
The RED II is to become effective in 2021. The use of palm oil as a biofuel would be capped at 2019 levels. From 2024 its use is to fall to zero by 2030 at the latest. However, the European Union is seeking to introduce further measures. It is moving to finalize the Action Plan on Deforestation in 2019 and it is to seek a parliamentary vote on a deforestation regulation in 2020. This would likely see the introduction of rules that limit imported commodities that have links to deforestation.
Faced with this challenging situation, there is no alternative for Indonesia”s government other than to begin a systematic and well-planned effort to ensure that the palm oil industry would continue have a presence in EU markets.
Indonesia still has room to influence the implementation of RED II in favor of palm oil. The workings of the European Parliament, Commission and Council in the EU are determined in behind-the-scenes negotiations.
There are member states that stand to lose from RED II. A country like the Netherlands could see traded volumes of palm oil drop significantly, harming transport and logistics industries. Countries that don”t produce rapeseed or sunflower would have to contend with simply paying more for renewable fuels with no real economic gains.
Indonesia should exploit these interest differences among EU states and use these kinds of measures to secure equal treatment for Indonesian palm oil. However, this depends on how much leverage Indonesia has in influencing the decision-making process within the EU.
There are three equally important strategies that the Indonesian government and palm oil stakeholders need to undertake.
First, trade pressure on EU products. EU regulations and the campaign against palm oil are not truly about the environment, climate change or sustainability. They are about trade protectionism. They aim to protect domestic EU vegetable oils that have become uncompetitive against palm oil, which is cheaper, more productive and more versatile than other oils.
The regulation of palm oil in Europe is not going to stop with RED II. The EU will push to expand the ban to food or industry for various reasons, including health. This is a form of trade war; retaliatory measures should therefore be considered. The Indonesian government has considered quotas on EU spirits. If they are not effective, it may consider expanding to more significant imported products from the EU such as aircraft and dairy products.
Trade measures can be effective. Soy-based biofuels have escaped the EU RED ban, despite soybeans having a larger deforestation footprint than oil palms. This is only because President Trump threatened the EU with additional tariffs on EU auto exports.
Indonesia is also negotiating a trade agreement with the EU: the Indonesia-EU Comprehensive Partnership Agreement (1ECEPA). The eighth round of negotiations takes place this month in Jakarta. One of the unresolved issues is the trade and sustainable development chapter, which deals with sustainability and palm oil. Indonesia should firmly state that there will be no agreement unless there is a fair treatment of Indonesian palm oil especially with the changes in the European Parliament. This would make the deal more difficult to achieve, but palm oil is the country”s largest agricultural export it should not be given up easily.
Second, take the case to the World Trade Organization. Indonesia previously won a case against the EU when the bloc imposed antidumping tariffs on Indonesian biofuels.
In that case, the WTO stated that the EU had broken international trade rules it had not treated Indonesian exports fairly.
RED II is slightly different and could be considered a “technical barrier”, but the principles are the same: The EU is not treating Indonesian palm oil exports fairly. Indonesia”s chances of winning a WTO dispute in this case are reasonable. When applying a technical barrier, countries should rely on recognized scientific norms or international standards.
Third, develop a positive narrative for Indonesian palm oil. Indonesia should also start a systematic, well planned and large public campaign on palm oil in Indonesia. This can be done with close cooperation involving various stakeholders (producers and buyers, academics and policy makers) and government institutions.
The narrative should focus not only on the palm oil industry’s contributions to alleviating poverty, economic growth and export earnings, but also its contribution in terms of the environment and climate change.
Banning palm oil would arguably have greater negative environmental impacts. Alternatives to palm oil rapeseed, soybean and sunflower have significantly lower productivity. They need more land and greater input, meaning greater deforestation and environmental loads.
The campaign should also be backed by strong and solid scientific facts based on credible and independent research. Involvement of research institutions both here and internationally is therefore important.
Another objective should be to change public perceptions of palm oil especially in the EU. There needs to be voices that support the industry with balanced information on palm oil in the EU.
Nevertheless, there is still hope that within two years, Indonesia and the EU can reach an agreement on palm oil within the framework of the IE-CEPA as was the case in Indonesia”s agreement with the European Free Trade Association. In this case, both parties agree that market access for palm oil is open as long as it is sustainable and both parties develop sustainability schemes. The relationship between the EU and Indonesia is important; so is palm oil.
