Swiss Voters Choose Open Trade, Indonesia and Palm Oil

Yesterday, Swiss voters voted in favour of a free trade agreement between Indonesia and Switzerland.
 
With the results, Swiss voters chose trade liberalisation – and expanding opportunities for its exporters into the largest market in Southeast Asia – over protecting a small number of inefficient farmers.
 
Swiss voters also chose to reject a campaign of misinformation about Indonesia and the Indonesian palm oil sector, and accept that palm oil cultivation is sustainable, supporting millions of livelihoods across the developing world.
 
The Indonesian Palm Oil Association called the result a “win-win” for Indonesia and Switzerland noting the “vote affirmed that Indonesian palm oil is sustainable.” 
 
Swiss President Guy Parmelin called the trade deal correct and balanced saying, “this vote is not a choice of the economy over human rights and the environment.”
 
The Swiss business association stated the agreement “gives Swiss exporters access to one of the world’s largest growth markets and facilitates trade between the two countries. Due to its extensive sustainability provisions – including on palm oil – the agreement also makes a significant contribution to environmental protection and social development.”
 
The Swiss Union of Arts and Crafts said the decision “shows that citizens were not influenced by the Socialist-Green camp focused on palm oil.”
 
This is a big win for the Indonesian palm oil sector. 
 
In last week’s newsletter, Palm Oil Monitor highlighted that the Indonesian-EFTA agreement contains probably the most onerous and granular detail on palm oil sustainability of any trade deal ever negotiated. There is an absolute cap on imports; a binding demand for certified sustainable product; and a guarantee that palm oil imports overall will not increase.
 
The next question for Indonesia and Switzerland will be in the implementation of the deal. In particular, Indonesia will push for ISPO – the government-mandated sustainability standard – to be recognised. This is a strategic goal, globally, for Jakarta and this is an early opportunity to push for it.
 
The focus in coming weeks will also turn to London and Brussels, and how they will address the proposed regulations on palm oil that threaten to derail trade ties with Southeast Asia.
 
The EU is in the middle of FTA negotiations with Indonesia, while it simultaneously pursues an EU Due Diligence regulation and continues its aggressive defence of the Renewable Energy Directive (RED) at the WTO. It is entirely possible that the EU’s Due Diligence regulation will impose new restrictions on palm oil exports, exacerbating further the current adversarial approach to Indonesia. Doing so would open up the potential negative consequences that Swiss voters have just rejected. For an EU Commission that has pledged to be “geopolitical” it would be bizarre to reject increased market access to Southeast Asia’s largest economy, in favour of appeasing narrow protectionist interests at home. There is another, more positive, approach to be taken that recognises the importance of palm oil, and the huge social and economic benefits it brings to Indonesia. Will the EU have the courage to pursue that?
 
London, too, will have taken note. As the UK begins to signal it will diverge from EU regulations, it has taken a somewhat double-headed approach to palm oil. On one hand, its proposed Due Diligence regulation recognises national regulations and standards of Indonesia and other producing countries. However, word reaches Palm Oil Monitor that London is now planning an ILUC-style regulation for biofuels (modelled on the EU’s RED II). Given that Indonesia has already sued the EU on this very issue in the WTO, as well as taken other responsive measures, any move in this direction will likely place a serious roadblock in the UK’s path to Dialogue Partner status in ASEAN, not to mention CPTPP accession.
 
In any event, the EU-ASEAN Working Group will meet again in April. Expect this significant win in Switzerland, and the cooperative approach between the Governments of Indonesia and Switzerland, to be a feature of the discussion.

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