- Trump Gives Indonesian Palm a Lifeline
- New Executive Order will have palm enter the US tariff free with a signed agreement;
- The EU-Mercosur agreement gives a sneak peek at what the RI-EU agreement has in store
Trump Gives Indonesian Palm a Lifeline
An overlooked part of the palm-trade news last week is that palm oil is likely to get to the US with a zero percent tariff. The condition, however, is that there is an agreement in place between the US and the exporting country.
The development comes out of a new Executive Order (EO) issued by the Trump administration last Friday. The key part of the EO is to reduce tariffs to zero on a number of goods that are essential for the production of US goods. Most of these are the continuation of an earlier EO for a range of items.
The additions in the new EO include pulp (for paper manufacturing – which is good news for Indonesia’s plantation sector), and multiple precious metals items.
But it’s the second part – Annex III — of the EO that is key for palm. The Annex lists goods that – theoretically – will enter the US tariff free if there is an agreement between the US and the respective country, such as the agreements negotiated with Indonesia and Malaysia recently. Crude and refined palm are both part of the list, as is PKO.
So why tariff-free for palm, and not at the 19 per cent negotiated under the broader agreements?
Alongside palm on the lists are goods such as coffee, cocoa, rubber, and bananas – among other things. This is precisely what US Commerce Secretary Howard Lutnick meant when he talked about zero tariffs for goods that can’t be grown or produced in the US.
But this also underlines how important palm oil is for US food manufacturers. Oreos are the US’ biggest-selling cookie brand, and a key ingredient is palm oil.
It’s also worth noting that fatty alcohols are likely to be part of the tariff-free arrangement.
As for next steps, it’s a matter of inking the agreements between Indonesia (or Malaysia) and the US.
EU-Mercosur: A sign of things to come?
The much vaunted EU-Mercosur agreement – which has been under negotiation for more than two decades – had its text made public two weeks ago. The agreement has been significantly more controversial than the FTA between the EU and Indonesia.
There are two key parts to this controversy. First is beef. Brazilian beef producers are the most efficient in the world, and European producers (particularly the French) don’t want Brazilian beef anywhere near Europe. Second is deforestation. Despite considerable reduction efforts, Brazil remains the world’s biggest deforester.
Sound familiar?
There are immediate parallels between Brazil-beef and Indonesia-palm. Though in the case of palm, it’s rapeseed/sunflower seed growers, crushers and refiners that are pushing for greater protection.
So, where did the agreement land on forests and sustainability?
As we pointed out when the first draft text was released, Brazil’s demands aren’t that different from Indonesia’s: recognize domestic laws and regulations, recognize national certification, and recognize local data.
All of these are provided for in the Trade and Sustainable Development Annex (TSD) in the agreement, very clearly referencing the EUDR as “the implementation of sustainability measures affecting trade and the placement on the market related to the protection of wooded ecosystems.”
But does this mean anything?
Sort of. The inclusion is in some ways symbolic. The TSD Annex doesn’t have the same access to dispute settlement in the agreement, unlike the ‘hard’ parts of the agreement. In other words, it’s not exactly binding.
But it also states: “this Agreement and actions taken to implement commitments thereunder shall be favourably considered, among other criteria, in the risk classification of countries.”
These are carrots for Brazil, Indonesia and others to get the agreements over the line and put their concerns about the EUDR to the side.
When it comes to Indonesia, this appears to have worked, and by all accounts the agreement will be signed later this month. Whether Indonesian parliament will ratify the agreement is another question, however …