December 30, 2022
JAKARTA – President Joko “Jokowi” Widodo has signaled European Union-Indonesia relationships to be at risk with the new Deforestation Regulation, warning that the EU should not attempt to dictate its sustainability standards to ASEAN if it wants to maintain its relationship with Indonesia going forward.
Addressing the special EU-ASEAN summit meeting in Brussels on Dec.15, the President asserted, “There must be no coercion, no more parties who always dictate and assume that my standards are better than yours.”
In our view the regulation on the deforestation label, which will be enforced on palm oil and its derivatives and several other farm commodities in 2023, confirms the EU is finally turning its back on any trade policy that considers itself to be fair and that the bloc simply cannot make its trade policy and its broader external goals coherent.
The EU is not interested at all in the welfare of small farmers in Indonesia and other developing countries, or bringing them into global supply chains by making global trade more inclusive. The introduction of strict traceability requirements for oil palm small farmers has in the past resulted in the exclusion of those farmers from those supply chains.
The question then is how will be the attitude of other ASEAN countries likely be, notably Malaysia and Thailand, which together account for about 95 percent of the world’s palm oil output?
Analysts said Malaysia was likely to support Indonesia’s stance and this could cause an erosion of trade and cooperation between the two regional groups, if the EU moves ahead with the Deforestation Regulation and its unilaterally set sustainability standards for farm products, notably palm oil, entering the EU 27 countries.
The rising opposition to the regulation could put future EU market access to the 10 ASEAN countries at risk. Indonesia, the chair of ASEAN in 2023, has also hinted at its intention to negotiate a new free trade agreement with the Eurasian Economic Union (EAEU), opening strategic access to new markets for both parties. Indonesia is also building deeper economic and strategic ties with the United States.
It is simply not a big surprise that palm oil could become a major roadblock to the EU’s relationship with Indonesia. Like it or not, palm oil has been Indonesia’s largest export to the EU.
Looking at the bigger picture, what Jokowi asserted at the summit meeting in Brussels can be seen as the outlines of his foreign- and international-trade policies based on the principles of fair trade and climate justice.
Jokowi showcases his determination in responding to a self-righteous EU trade policy on deforestation, which has been misused by EU lawmakers and stakeholders as an instrument to justify both trade protectionism and climate-action commitment.
The President has highlighted his government’s commitment to adopting and enforcing fair trade principles and a trading partnership based on dialogue, transparency and respect, which seeks greater equity in international trade, including in palm oil and commodity trade.
Simultaneously, he also highlighted a climate-justice platform to address the just division, fair sharing and equitable distribution of the burdens of climate change and its mitigation and responsibilities, to deal with the cause and impact of climate change.
His assertiveness in reacting to the EU’s deforestation policy has been mainly shaped by his frustration over the EU’s sense of dominance in global trade and dictating of sustainability standards despite the changes in the global economy.
The Indonesian stakeholders have been aware that the introduction of a deforestation-free label is driven by either the misconception of deforestation as the perceived major cause of climate change or a distraction from the real GHG emission drivers and the fact that the EU countries have their average emission per capita at 6.4 tonnes, almost three times the Indonesia emissions level at 2.2 tonnes per capita.
Specifically, Indonesia and Malaysia see the EU regulation as simply amounting to a blanket ban on palm oil, the most-competitive edible oil in the EU market.
The regulation will impose additional cost burdens on the palm oil industry, which has been playing an increasingly vital role in Indonesia as an employer, major earner of foreign exchange and food supplier. Yet more importantly, the industry involves more than 4.5 million smallholders and contributes greatly to poverty alleviation.
We are confident the latest regulation would not be effective in removing palm oil and its derivatives from the EU markets. This restrictive-trade policy will fail like the Renewable Energy Directive in 2009, the Food Information to Consumers legislation in 2011, the Nutella Tax in 2012 and many others in the past decades.
The blunt fact is there is a clear market demand. Palm oil remains an essential product with strong demand. Its natural advantages of low cost, high productivity and versatility remain attractive to European businesses and consumers. Put another way, palm oil is the most competitive edible oil in the international market.
Moreover, sustainability has played an increasingly important role in the governance of the industry both by the government and private sector. Accelerated commitments to sustainability, deforestation, traceability and certification by the palm oil private sector have addressed the concerns of European customers and supply-chain partners.
For example, in 2021 alone, the government revoked forestry-concession permits covering a total of 3 million hectares (ha) in order to improve governance and environmental practices in the sector. Approximately 106 concessions had their licenses revoked, with some licenses covering more than 100,000 ha in Papua. It has also included the revocation of some palm oil licenses in Riau.
Government schemes such as the Indonesian Sustainable Palm Oil, Malaysian Sustainable Palm Oil and the multi-stakeholder Round Table on Sustainable Palm Oil have added to the credibility of the sustainability campaign for palm oil. Most Indonesian palm oil companies, which have complied with the ISPO and RSPO standards, have also been more assertive in public debates on EU rules.
However, all such positive stories of sustainability and no-deforestation commitments have fallen on deaf ears; neither recognition nor appreciation have been voiced by the EU’s stakeholders.
In the worst-case scenario, if the deforestation-free label is officially enforced, the government must act on Jokowi’s trade and foreign policy statement to determine the future diplomatic as well as trade relations with EU 27 countries. The policy is seen as an unfriendly act against Indonesia. Hence, the government must take an equally robust and stern reciprocal action against them.
Furthermore, Jokowi has also outlined the fundamental platform for foreign and international trade based on two core principles of fair trade and climate justice, which must be capitalized on as the overarching policy in any global and international forum or negotiation.
The writer is a sustainability analyst.