- The EU deforestation regulation is close to being finalised
- Failure to recognise palm small farmers will signal turning away from inclusive trade by Brussels
- It will also signal a new low-point in the EU’s approach to Indonesia and the developing world
The negotiations and technical meetings for the EU’s Deforestation Regulation are starting to enter their final stages.
The likelihood is that it will be finalised soon, with implementation– commencing next year – with the phase-in yet to be defined.
The regulation in our view signals two major shifts. The first is that the EU is finally turning its back on any trade policy that considers itself to be ‘fair’. The second is that Brussels simply cannot make its trade policy and its broader external goals coherent.
Goodbye to Inclusive Trade
The EU – whether it’s the Commission, Council or Parliament – is not remotely interested in the welfare of small farmers in developing countries and bringing them into global supply chains, i.e. 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.
In the case of palm oil, this represents almost 2.4 million Indonesian smallholdings – supporting more than 12 million people based on the average farming household size, and even more members of the community.
Add to this in the case of Indonesia, an additional 1.6 million smallholdings for cocoa, coffee and timber products.
Although the EU has paid lip service to palm oil smallholders in the regulation, their measures to accommodate them in the past have been hypocritical. The provisions contained in the Renewable Energy Directive were effectively unworkable, imposing requirements that would be well beyond the financial and technical capacity of a small farmer in a developing country.
Will the EU change its approach here?
That document stated:
“[This EU policy] seeks to improve conditions for … the poorest in developing countries … It must be effective at actually delivering economic opportunities.”
The most recent document only mentions poverty in the context of reviewing tariffs for the least developed countries. There are no objectives addressed towards the world’s poor.
Can the EU get coherent on Indonesia – and the developing world?
As has been pointed out several times before, the EU is seeking to broaden its strategic engagements across the globe, but particularly in Southeast Asia, and with Indonesia in particular.
That palm oil might be a roadblock to its relationship with Indonesia should be no surprise. The response to the ban and the Renewable Energy Directive was significant and went from the palm oil sector to high political levels.
Palm oil was the country’s largest export – across the board – in 2020. It was its largest export to the EU. Thinking that trade bans and additional non-tariff measures might be tolerated is wishful thinking at best.
This is where the EU’s broader external goals and its continuing need to placate its domestic industries – whether it’s rapeseed farmers worried about palm or beef farmers worried about Brazil – simply cannot cohere.
It’s not possible to court influence and offer nothing in return. And at this stage, what is Brussels offering? More trade restrictions, and not much else.
Two weeks ago, the Economist ran the headline on its cover, “Indonesia: Asia’s Overlooked Giant.” We ask this question: Overlooked by whom?
Overlooked by China? Hardly. China has invested heavily in Indonesian steel production and transport systems.
Overlooked by Japan or Korea? Definitely not. Both have been long-term investors in the country, whether it’s in oil palm plantations, timber, automotive or retail industries. President Jokowi secured new multi-billion dollar investments with both countries in the middle of the year.
Overlooked by other ASEAN members? No. It’s impossible to overlook the largest economy in the region.
The only one overlooking Indonesia is Europe.