Indonesia Picks Up Allies In WTO Palm Fight

Indonesia has picked up a number of allies in its battle with the EU over the bloc’s ban of palm oil in its renewable energy scheme.

An additional 18 countries have reserved their rights to participate in the proceedings as third parties. These include palm producers Malaysia, Thailand, Guatemala, Costa Rica and Colombia, as well as major agricultural exporters United States, Canada, Brazil and Argentina.

There is also interest from Norway, which has made similar moves to block palm oil from its renewables programs. China is also a third party to the dispute; recycled cooking oil exports to the EU have increased significantly over recent years, and China will take interest in any potential certification barriers in the EU.

Interest from the US, in particular, is of note in light of recent comments by US Agriculture Secretary Sonny Perdue, who took the EU’s Farm to Fork strategy to task in a recent debate.

Perdue statedthat“as proposed, the Farm to Fork and Biodiversity strategies will be extremely trade prohibitive and jeopardize agricultural output … When innovative tools are taken away from a farmer, the only choice is protectionism, which isn’t healthy for Europe, the US, or anywhere else in the world. Walled-off protectionist strategies only take us back, not forward.”

Andrew Mitchell: RED II “cannot be justified” under WTO

Andrew Mitchell, one of the world’s leading WTO experts and WTO panellist has published a blistering critique of the EU’s revised Renewable Energy Directive (RED II).

In a new paper to be published in Trade, Law and Development, Mitchell and his co-author Dean Merriman summarise the paper as such: “the EU’s measures are inconsistent with its WTO obligations and cannot be justified under any available exceptions. Perhaps more importantly, it is not clear to us how ILUC [indirect land use change] can be addressed through trade measures.”

So, where are the problems with ILUC? From our perspective, the most interesting are that the benchmark for low-ILUC risk is so patently absurd that the requirements and exemptions (e.g. small farmers) have absolutely no connection to addressing ILUC risk or not:

“[Under RED] trade in palm oil-derived biofuel is restricted, even though such restriction would serve no environmental purpose if the land from which the crop was derived had already lost its value as a store of carbon or a store of biodiversity (even assuming the latter is relevant to the legal analysis under Article XX in this dispute). Therefore, through the requirement that “low ILUC-risk fuels” satisfy the various elements of that definition, it is not clear that such an “exception” has the effect of targeting the measures towards those feed crops that are high ILUC-risk in fact.”

One of the examples that they use is the 2008 cut-off requirement: “using 2008 as a benchmark excludes a considerable amount of feed crop from eligibility to be counted towards renewable energy use, without having a bearing on whether the area from which it was harvested represented a carbon-rich or high biodiversity area at the time the affected feed crop was produced.”

How does this fall foul of WTO rules?

“the EU’s reliance on an historical generalisation of ILUC risk, and its development of an exception to that generalisation which does not in itself address the same risk, has led to the introduction of an overly inclusive measure. Viewed from this perspective, there are strong arguments that there are less trade-restrictive alternatives to the Renewable Energy Package, and that the measures are therefore not “necessary” within the meaning of Article XX(b).”

The idea of being ‘overly inclusive’ comes up again when speaking about the exemptions for high-ILUC risk, e.g. smallholder and other famers. The problem with this is that:

“the requirements for improved agricultural practices and additionality suggest that business-as-usual palm oil production could not satisfy the ILUC-risk criteria, regardless of whether the production in question is related to ILUC. Constant yields and scale production may indicate that there are no barriers to production that must be overcome for viability, and as such the crop would not be eligible for low ILUC-risk status, even though no ILUC occurred. As also noted, the sustainability criteria may exclude biofuel derived from feed crop that was cultivated after any ILUC-related emissions occurred. It is possible that all these factors indicate that the Renewable Energy Package is “disproportionately wide”, as described by the Appellate Body.”

Mitchell and Merriman summarise by stating:

“We think the panel will impugn the EU’s reliance on historical generalisations of risk regulate current risks. This panel’s report will also shed light on the relationship between international environmental law and WTO law, insofar as a WTO Member attempts to address GHG emissions in another jurisdiction. The prospect that this panel will reach the conclusion that the Renewable Energy Package is inconsistent with WTO law will no doubt fuel the idea that WTO law tips the balance too heavily in favour of trade obligations over broader regulatory rights; what the panel’s conclusions may well leave open, however, is the extent to which trade measures can address ILUC in other jurisdictions at all.”

There will be many in the international trade law field watching this case closely. So far, this paper is the most detailed critique of RED and well worth reading.

Why Is DFID Paying NGOs To Undermine ISPO?

At the beginning of July, the Environmental Investigation Agency (EIA), a London-based NGO, launched an attack on Indonesia Sustainable Palm Oil (ISPO), the country’s national sustainability scheme. The report also attacked changes to environmental regulations contained in President Jokowi’s Omnibus Bill.

EIA’s criticisms come from the perspective of an NGO seeking to have ISPO fulfill the equivalent functions of a Western voluntary certification system such as RSPO. For example, they wish to have detailed provisions on human rights, protection of all natural forests, HCV assessments and monitoring by NGOs incorporated into the standard. Given that ISPO was essentially established as a  legality standard, i.e. assurance that products are produced in compliance with laws and regulations, EIA’s approach does not make sense. It is essentially asking ISPO to perform a function that is already performed by RSPO on one hand, and Indonesian regulation on the other.

Similarly, EIA calls for these additional measures, despite the ISPO now being mandatory for smallholders – as well as major plantations – across Indonesia. EIA genuinely needs to consider whether it is appropriate for marginal farmers on 5ha of land to provide evidence of compliance with Free Prior and Informed Consent, and other highly bureaucratic requirements.

The omission of these details prompts questions regarding EIA’s intentions.

EIA has been funded by the UK Department for International Development – around IDR40 billion – to “Support[] civil society in Indonesia in the strengthening of the Indonesian Sustainable Palm Oil (ISPO) mandatory certification scheme, using this process to feed into any EU action on deforestation.”

Now that the UK has left the EU, it’s clear that this grant to EIA to support lobbying now includes the UK’s proposed due diligence measures on deforestation.

So, the EIA isn’t attempting to strengthen ISPO for Indonesia’s sake, it’s doing so explicitly to serve a European plan to impose rules on Indonesian farmers. The EU has proven itself determined to exclude palm oil from EU fuel and food supply chains by wrapping farmers in red tape and non-tariff barriers, and it appears that the EIA program is part of this campaign.

Our hypothesis is this: the EIA is attempting to undermine ISPO among UK policymakers such that any UK or EU due diligence scheme will exclude ISPO as an approved certification method.

This is significant for a number of reasons, not least of which is that for the UK to follow the EIA line and exclude ISPO it would be a huge imposition on Indonesia’s sovereignty and a startling act of protectionism from a country that has only recently re-acquired an independent trade policy.

The UK and Indonesia are currently conducting a Joint Trade Review. The EU-Indonesia agreement has been stalled by palm oil; the UK clearly has an opportunity to move forward, including to seek Dialogue Partner status with ASEAN. If that is a real ambition, the UK should consider carefully how it wants to engage with South East Asia’s largest economy and whether the EIA approach is in any way helpful towards achieving those goals.

Sime Darby Says HCS ‘Low Priority’ Following Exit

Sime Darby has followed Wilmar out of the High Carbon Stock Approach (HCSA) group, citing sustainability priorities.

A representative from Sime Darby stated, “HCSA wasn’t considered high priority … We want to spend our limited resources on the implementation of our sustainability commitments on the ground, and on engaging with our suppliers.”

Sime Darby’s Chief Sustainability Officer, Simon Lord, stated recently that “I don’t think being a responsible producer will get cheaper,” noting that sustainability costs are “increasing year-on-year.” Lord said that there’s an additional USD32 per hectare per harvest.

The announcement was made in June with little or no fanfare. Sime Darby stated:

In view of our involvement in numerous global external platforms worldwide, we believe this decision will allow us to focus more on the implementation of SDP’s on-ground commitments throughout our global operations and supply chain … As part of the SDP’s ambition towards creating a deforestation-free palm oil supply chain, we remain committed to continue implementing the HCSA toolkit as per the Roundtable on Sustainable Palm Oil (RSPO) Principles and Criteria.

The exit caps off a period of relative turmoil for the grouping after the group’s conservation approach was adopted by the RSPO in 2018.

The exit follows the departure of Wilmar in April of this year. Wilmar’s exit was notable for its highlighting of governance concerns within the group.

A considerable proportion of HCSA’s budget comes from the UK’s aid program. The organization is seeking further grants for its activities in future, and losing two such big names may place question marks around whether UK Aid is backing the right horse.

The exit of two of the sector’s largest players also prompts questions regarding cost pressures on sustainability during a clear economic downturn. Although the mantra among many companies is that ESG initiatives pay for themselves, we may be entering a period where sustainability managers genuinely do have to separate what the core sustainability concerns and initiatives are.