Palm Oil Monitor Weekly Update – 12th December 2019

Indonesia calls Greenpeace-CNN report ‘absurd’

Indonesia’s Deputy Foreign Minister Mahendra Siregar has taken a broadside at both CNN and Greenpeace, for a particularly un-constructive look at palm oil, deforestation and fires in East Malaysia and Kalimantan. Palm Oil Monitor issued a special critique of the report last week.

The Minister was particularly scathing, referring to the claims in the report as ‘absurd’. He stated:

“On the issue of deforestation, it seems absurd to claim that there is a global time bomb linked to burning forests in Borneo when there are fires raging as far apart as the Arctic, California, Australia and the Amazon – none of which are attributable to palm oil … “Of course, if we wish to address the issue in a more objective manner, we may say that the fires in Kalimantan (Borneo is a colonial term) are a contributing factor to CO2 emissions and the related need to prevent and manage forest fires. On this benchmark, the efforts being made by the Indonesian government and stakeholders should perhaps be commended globally.”

The CNN-Greenpeace report was issued to coincide with both the current UN climate meeting in Madrid and the new European Commission taking office.

Palm Oil and Trade Agreements

Trade policy has remained very much the focus of palm exporters for two reasons.

First, Malaysian Minister of Primary Industries Ms. Teresa Kok responded to questions in the Malaysian Parliament about a possible WTO action against the Renewable Energy Directive (RED) with the following:

“Given the importance of the palm oil industry to the country including socio-economic development of more than three million Malaysians involved in the industry, the government opined that Malaysia should take stronger measures against the EU which is seen to be discriminating against oil palm producing countries”.

At the same time, Indonesia’s President Jokowi stated the following in relation to both the WTO action and the Indonesia EU trade negotiations:

“Indonesia will not keep silent about the discriminative attitude coming out of the EU. Negotiations on Indonesia-EU CEPA will continue and palm oil will certainly be part of them.”

Indonesian Coordinating Minister of Economic Affairs Airlangga Hartarto also said:

“We remind you that Indonesia is Airbus’ biggest buyer. We still have pending orders for 200 aircraft. We have to find a solution for the EU’s biodiesel problem.”

In other words, there is a clear movement towards taking WTO action, but there is also a clear desire to ensure trade relations remain on an even keel so that trade agreements can be completed. This is currently the case for Indonesia, and will almost certainly be the case for Malaysia going forward.

WTO disputes and smooth negotiations aren’t mutually exclusive. If all bilaterals were held up because of WTO actions, antidumping measures or countervailing duties, it’s likely that no bilaterals would ever be completed.

Indeed, one of the functions of bilaterals is to introduce dispute resolution mechanisms and disciplines that move beyond the constraints of the WTO.

So, the question is, now that the new European Commission has declared it will continue to use free trade agreements to push a sustainable development agenda, what should a free trade agreement with a sustainable development chapter look like?

Negotiators in Indonesia and Malaysia should be looking to the benchmarks set by the agreements negotiated by Vietnam and Mercosur.

The EU-Vietnam agreement has been signed but not yet ratified. The agreement contains a trade and sustainable development (TSD) chapter. This chapter contains a number of commitments to uphold international treaties on climate and the environment, as well as social conditions and labour.

But one significant feature of the chapter is that when it comes to dispute resolution – i.e. if one party claims the other has not lived up to its commitments – the TSD chapter has a dispute resolution system that is independent of the rest of the agreement. Moreover, any outcomes of a dispute are effectively non-binding.

Why is this significant? Because trade agreements are about trade, in the same way that the WTO is about trade. There are other forums for dealing with the environment and sustainable development, such as the UNFCCC or the UNCSD (Conference on Sustainable Development).

This should effectively be the guiding principle and the benchmark for the TSD chapter.
If this isn’t the case, the EU will need to explain why it is treating palm oil producing countries differently to other forested countries such as Brazil, and regional neighbours such as Vietnam.

At the same time, there have been calls for an expeditious end to any trade negotiations in the region. Because according to numerous sources, the TSD chapter – and palm oil – is holding up the EU’s negotiations with both Indonesia and Malaysia, it has been suggested by some business interests that palm oil should be removed from the agreement altogether.

This would be a mistake for a number of reasons.

First, both Malaysia and Indonesia pay tariffs on refined palm oil products going into the European Union. Both countries should be aiming to have these tariffs reduced to zero.

Second, FTAs provide disciplines that allow disputes – particularly over non-tariff measures, standards and testing – to be resolved.

Third, taking out palm oil under an ‘exclusions’ list would provide an additional narrative for anti-palm oil campaigners. Exclusions lists are reserved for either morally sensitive products (e.g. alcohol, tobacco) or highly sensitive agricultural products in the importing country. NGOs could use such an eventuality to claim that palm oil is the ‘new tobacco’: it is not sensible to provide them with such an obvious opportunity.

Fourth, taking palm oil off the negotiating table is a big deal. Guaranteed market access for the region’s palm oil exports to the EU are something that governments should be demanding as a minimum; for this to be taken off the table, negotiators should need some enormous concessions in return from the European side.

Finally, taking palm oil exports to the EU out of the equation would undoubtedly have an economic impact on both countries. For those who need reminding, palm oil is ASEAN’s largest agricultural export and provides jobs for around 19 million people across the region.

There are around 3 million oil palm smallholders in that 19 million total. In both countries, it contributes significantly to GDP, with estimates between 3% and 6%.

A Purdue University study estimates that reducing palm oil exports under an environmental measure such as that proposed by the EU will reduce agricultural wages by around 4.5 per cent in the region.

Now, consider the lost opportunity for those millions of livelihoods if the best deal on palm oil isn’t sought by trade negotiators and business groups more broadly.

One of the reasons the yellow vest movement in France arose was because farmers across the country felt ignored by urban elites. The same reasons have been given for the rise of populist politicians in the US, Australia, Italy and Eastern Europe. The last thing the ASEAN region needs is for its farmers to be ignored.

Malaysian private sector, government, dealing with human-elephant conflict

Sabah wildlife officials, plantation companies and local NGOs are tackling the problem of human-elephant conflict after a number of elephant deaths in Sabah that attracted local and international media attention.

NGO Hutan, the Sabah Wildlife Department and plantation companies in Kinabatangan are planning a wildlife corridor that will connect the Kinabatangan Wildlife Sanctuary to a plantation, allowing for a 100-meter-wide, three-kilometre long corridor for elephant movement.

The pilot project is in response to incidences of human elephant conflict in the region affecting the endangered pygmy elephant.

Although some groups have pointed the finger at palm oil, a large number of elephant deaths have involved the removal of ivory, which would indicate that poaching and the illegal ivory trade is the key motivation.

According to a recent study by conservationists at the University of Bristol, ivory fetches in excess of USD6,500 per kg in illicit markets. Average tusk weight is around 6 to 8 kg according to ivory seizure. For a poacher this could represent as much as USD50,000 – three times the average Malaysian annual wage in Sabah, and more than 20 times the average wage in Kalimantan.