The EU Backs Down on Palm Brinksmanship

The EU appears to have backed down from its aggressive anti-palm stance at this year’s ASEAN-EU Ministerial Meeting. A statement from the virtual meeting held last week indicates that the EU has changed its tune on palm oil – in order to gain broader strategic cooperation in the region.

A quick recap.

In January 2019, the ASEAN-EU Ministerial meeting ended badly. It was supposed to be the occasion of a signing of an EU-ASEAN Strategic Partnership – an upgrade from a Dialogue Partnership. Instead, Indonesia and Malaysia lobbied ASEAN partners to block the upgrade, mostly because of the EU’s discriminatory action under the Renewable Energy Directive (RED). The parties agreed to establish a working group, but no working group meetings have since been held. The meeting ended with Indonesia’s deputy Foreign Minister Fachir stating:

“Palm oil is a strategic commodity for Indonesia, especially for small farmers. About 20 million people in Southeast Asia depend on their lives for palm oil industry and more than 5 million small farmers in Indonesia, Thailand, as well as the Philippines rely on oil palm … Refusing palm oil is the same as rejecting the SDGs, which is a global agreement.”

This year, however, two things changed. The EU got their strategic partnership, but Indonesia and Malaysia also got a new approach on palm oil. The co-chair’s statement reads:

“In the spirit of mutual cooperation pertaining to sustainable vegetable oil production, we welcomed the launch of a joint working group between the EU and relevant ASEAN Member States to address the challenge towards reaching Sustainable Development Goals in the vegetable oil sector, especially the importance of a holistic approach to the environment and looked forward to the convening of its first meeting, to be held in January 2021.”

Note the following:

“Vegetable oil” –  the working group will now address vegetable oils, which means the working group can cover less efficient rapeseed and sunflower oils, and how the EU favors them in its various policy initiatives.

“Sustainable Development Goals” – One of the major criticisms producer countries have had of EU approaches towards ‘sustainability’ in palm oil is that it almost exclusively focuses on environmental issues, ignoring the positive social and economic impacts of palm oil. These are now on the table.

“A holistic approach to the environment” – Not only does the EU tend to focus on environment, the issues within environment are also narrow, focusing on carbon emissions, and ignoring other environmental concerns such as land footprint, energy use, and chemical use.

And finally, the working group has committed to meet within the next two months.

So, why did the EU back down?

Brussels appears to have had a healthy dose of realism. Blocking an entire region’s largest agricultural export is no way to win friends, and nor is ignoring the concerns of that region’s largest economy. Moreover, Southeast Asia is becoming more important for the EU economically as it attempts to diversify away from China, and as it attempts to establish political influence in the region.

Is this a watershed event?

Possibly. This is still high level politics, and it will take some time for the ramifications to filter through to policy implementation. However, what Indonesia and Malaysia have proved is that they have leverage over Brussels in many areas – and they should not be afraid to use it.

Two Big Deals in Switzerland

The Swiss Federal Council and Parliament have both come out in support of the Indonesia-EFTA Comprehensive Economic Partnership Agreement.

The public advocacy for the agreement comes following the announcement of a referendum to block or modify the Agreement because of Indonesia’s exports of palm oil.

The statement from the Federal Council argues that the Agreement will overall be a positive for Switzerland, as well as placing environmental obligations on Indonesia:

“The agreement allows non-discriminatory access for Swiss companies to the Indonesian market with great growth potential. It also contains detailed provisions for environmental protection and workers’ rights, and ties limited palm oil concessions to strict sustainability conditions.”

It also underlines that the major concern of the Swiss referendum is not the environment, but the protection of Swiss agriculture

“Swiss agriculture will not be penalized by the agreement. Tariffs on palm oil will only be reduced by around 20-40%, and again for limited quantities. The agreement thus ensures that the total volume of palm oil imported into Switzerland will not increase and that Swiss production of rapeseed and sunflower oil will not be threatened. In addition, new export possibilities are opening up for Swiss products such as chocolate, cheese and other dairy products.”

It has become apparent that Brussels is looking at the IE-CEPA – and the public response – to gauge how it should proceed with its own negotiations. Hopefully someone in Brussels is paying attention to the policymakers, rather than the coddled Swiss farmers.

At the same time, Indonesian Deputy Trade Minister Jerry Sambuaga is set to visit Switzerland later this week, with meetings at the WTO and with Swiss officials.

Minister Sambuaga has preceded his visit with a statement on negative European attitudes to palm oil:

“Information about palm oil is unbalanced, informed by negative campaigns. There are some things that do not fit or do not reflect the reality and great opportunities of palm oil itself. Therefore, we are determined to continue the positive campaign so that information about palm oil is more balanced and palm oil continues to play a role as Indonesia’s strategic industry.”

Indonesian industry clearly has an opportunity in the coming months to communicate with Switzerland – and wider, to Brussels and London. 2021 is shaping up to be a fascinating year for palm oil, and the industry will need to keep up its current pressure if it is to emerge unscathed from the various challenges in Europe. In the immediate term, the expectation is that Jakarta has an opportunity to:

1. Signal to Brussels that there is a positive opportunity in the IEU-CEPA, following the model of Indonesia’s agreement with EFTA. Standing alongside the Swiss Federal Council and pointing out the new opportunities available to Swiss businesses in Indonesia is no better example.

2. Argue that liberal trade in palm oil does not equal environmental destruction. Despite what activist groups have said about the agreement, the notion that reduced tariffs will somehow mean wholesale deforestation is simply not true.

3. Promote ISPO. ISPO has become a focal point for policymakers in the UK for its proposed due diligence regulation, and will likely become a focus for a similar measure in the EU. The more that civil society – and business – is aware of ISPO, the more likely they are to support it.