What Indonesia’s palm oil is losing in Swiss trade deal

While Indonesia narrowly escaped a democracy rejecting its trade deal because of palm oil, import duties on the country’s flagship product are not completely eliminated. Those who want to import Indonesian palm oil also must prove that it meets environmental and social standards. (Courtesy of Icaro Cooke Vieira/CIFOR)

The recent Swiss referendum on the trade deal with Indonesia is a good lesson for the country’s palm oil industry.

While Indonesia narrowly escaped a democracy rejecting its trade deal because of palm oil, import duties on the country’s flagship product are not completely eliminated. Those who want to import Indonesian palm oil also must prove that it meets environmental and social standards.

Indonesia in return does not apply the same importing clauses on Swiss vegetable oils, such as rapeseed or sunflower.

The import duties and the environmental requirements would not be necessary, or would have been easily dismissed as trade barriers, if only the Indonesian government and industry players had worked to eliminate palm oil’s poor image as the major cause of deforestation.

Studies have widely disputed the notion that palm oil is the culprit of deforestation. In fact, as the most productive commodity among vegetable oils, palm oil has the potential to reduce deforestation.

A study from the International Union for the Conservation of Nature (IUCN) in 2018 showed that as the highest yielding crop per unit area, oil palms produce 35 percent of the world’s vegetable oil on under 10 percent of the land allocated to oil crops.

If palm oil is replaced by much larger areas of rapeseed, soy or sunflower fields, different natural ecosystems and species may suffer.

Considering the lower competitiveness of rapeseed, the trade requirements can be seen as protectionist efforts for Swiss farmers who mainly produce the crop.

It is also unfair to say that Indonesia has taken no action to prevent deforestation. Sustainability programs have been run by the government and private sector for the past five years and it has slowed down the deforestation rate.

Indonesia has also secured high-profile green funding from the United Nations’ Green Climate Fund (GCF) and the Norwegian government by proving its accountability in its efforts to reduce deforestation and carbon emissions.

Some environmental and social problems linger, such as overexpansion of plantations and poor dispute settlement with residents. These are issues that should be resolved through ongoing efforts by the government, the private sector and the people.

But the inequality in trade terms and the extra democratic process entailed to pass the trade deal reflected eroding trust of the Swiss government and citizens in Indonesian palm oil. And the negative sentiment may be shared by other countries that care about environmental protection.

Conflicting economic and environmental interests often erupt in international trade. It is also often associated with competing goals of trade liberalization and environmental regulation.

In classic cases of such disputes, developed countries argue that imposing environmental standards on products imported from developing countries will help save the environment while developing countries deem the measures to be trade barriers, in many cases related to efforts to save domestic industries in the developed nations.

In 1997, India, Malaysia, Pakistan and Thailand filed a joint complaint against a ban imposed by the United States on the importation of shrimps with the World Trade Organization. The US alleged the shrimps were caught using a method that endangered sea turtles.

The US lost the case because the ban was considered a discrimination against WTO members. It aided Caribbean countries with technical, financial assistance and longer transition periods for their fishermen to start using turtle-excluder devices, but did not give the same advantages to the four Asian countries.

Indonesia is currently challenging the European Union’s revised Renewable Energy Directive (RED II) at the WTO, arguing that the bloc’s restrictions on palm-oil-based diesel is discriminatory and inconsistent with principles in the WTO’s goods, subsidies and technical barriers to trade agreements.

RED II excludes the use of palm oil within the EU’s renewable fuel subsidy scheme, while it maintains the subsidies to fuels such as biodiesel sourced from soybean, rapeseed and other vegetable oils. Palm-based biodiesel is the only vegetable oil-based fuel that has been excluded.

Although Indonesia may win the case and other international trade arbitration to defend palm oil, it will be harder to regain public trust in palm oil and its derivative products. And when it becomes subject to more importing tariffs, it may lose its competitive edge on other agricultural crops.

Indonesia must continue to improve its sustainability efforts and show and campaign the significant results to local and international communities. And there is no better campaign than success stories about sustainable palm oil production saving the environment and bringing prosperity to the people.

If Indonesia only focuses on the formal process in palm oil international trade, it may still lose the battle of public opinion that may risk its markets and consumers worldwide.

As the world’s largest producer of palm oil, Indonesia should convince people that the crop is not the Achilles’ heel of Indonesian trade that can be targeted for tariffs and other requirements. It should become a pride of Indonesians, something that people talk about with respect.

But it will not happen if the government and the private sector continue to treat environmental problems only as a necessity to secure trade deals, instead of investing in more consistent, massive sustainability efforts that make people see that they do not harm the rainforests when they consume palm oil.

The Jakarta Post

Tags: Indonesia, deforestation, IUCN, imports