Discrimination Against Palm Oil and Dispute Resolution Through the WTO
Gusmardi Bustami
About a month ago, or on March 13, 2019, Indonesia was shocked by the announcement of the European Commission\'s Delegated Act, Renewable Energy Directive II (RED II), which, among other things, will not recommended crude palm oil (CPO) as biofuels in the European region.
RED II may include CPO among food crop groups that have the potential to contribute “high-indirect land-use change”.
The announcement angered Indonesia because the European Union discriminated against CPO as compared to sun flower oil and soybean oil. Indonesia has threatened to boycott European products if the European Commission (EC) does not change its decision.
In addition, the government will also bring the case to the Dispute Settlement Body (DSB) of the World Trade Organization (WTO) because it believes the policy will hurt Indonesia’s CPO exports to the EU and affect about 20 million people who are directly involved in the CPO industry. Indonesia\'s CPO exports to the EU account for about 15 percent of Indonesia\'s total CPO production.
Residents harvest oil palm fruit on Saturday (23/1) in Alue Gro of Sampoiniet district, Aceh Jaya regency, Aceh.
Scrutiny
The announcement will have a two-month scrutiny period that expires on May 13. It is intended to provide opportunities for the public, including CPO producing countries, to respond and provide sufficient evidence against the claim that CPO can contribute to “high indirect land-use change”.
The problem we face is that data on the area of oil palm plantations is different among the three government agencies, namely the Corruption Eradication Commission (KPK), Statistics Indonesia (BPS) and the Agriculture Ministry. This difference has been openly acknowledged (The Jakarta Post, 4/4/2019).
In addition, efforts to resolve the reforestation problem that has been widely questioned by environmental activists and non-governmental organizations (NGOs) have not produced any good results.
It is indeed quite hard for Indonesia to convince the EC if its own homework cannot be completed. The question is: Why is Indonesia so angry? Was the RED II policy announced in a hurry? Or is there any transparency in the making of the policy or in the announcement of the directive, which will have an impact on other countries? Has Indonesia taken political and technical approaches to the EC by submitting Indonesia\'s objections with scientific evidence accompanied by supporting data?
These questions are important for us to know and understand, because this will involve Indonesia\'s credibility in the eyes of the world, before we threaten to boycott European products, such as airplanes and alcoholic beverages.
Indonesia\'s position
The threat presented by Indonesia seems to be too premature, because we still have time to talk about the matter until May 13. Within this month, Indonesia must intensely approach and discuss the case with the EC.
President Joko “Jokowi” Widodo and Malaysian Prime Minister Mahathir Mohamad sent a joint letter to the EC on April 8 (Kompas, 9/4/2019). Hopefully, this will open the way for the settlement of the problem and give Indonesia the opportunity to convince the EC with technical and scientific data. Using political rhetoric is no longer enough.
Motorists drive past oil palm plantations on Monday (12/3) in Sei Mangkei, Bosar Maligas district, Simalungun, North Sumatra.
If no agreement is reached and the EC remains in its position to definitively enforce RED II after the two-month scrutiny period has passed, Indonesia must be prepared to search for a solution through the Dispute Settlement Agency (DSB) at the WTO.
So, it is not necessary to immediately show our anger by threatening to boycott or retaliate. Even in retaliating, we have to follow procedure. If a losing country within a certain period of time does not implement the DSB WTO recommendation, the country that wins the dispute can request a mandate from DSB WTO to retaliate, both against the same product and cross retaliation at the same value.
So, was the EC\'s announcement sudden? It seems impossible. The EC has a standard operating procedure (SOP). A policy is generally announced only after an intensive discussion on the issue. And if Indonesia has or hires a lobbying company, the latter will have to provide information about the works Indonesia has to do and materials that have to be presented at the meeting with the EC.
Indonesia has made many efforts (including the joint letter) but no significant results were achieved. Of course, we need to ask for a more detailed explanation on what underlies the EC’s decision to classify CPO as high risk. Indonesia should then focus and prove that the EC’s arguments are unfounded.
DSB WTO
The WTO is a rules-based and non-discrimination multilateral trade organization formed in 1994 in Marakech, Morocco. Indonesia is a founding member of the 1947 General Agreement on Tariff and Trade (GATT), which later became the WTO. As a founding member, Indonesia has ratified all WTO agreements with Law No. 7/1994.
A rules-based organization was formed by the DSB to resolve disputes that are detrimental due to actions taken by a WTO member against other WTO members. This is the difference with other trade agreements, which generally do not have dispute resolution procedures. If it cannot be resolved through negotiations and a consensus, the case can be taken to the WTO DSB.
Taking a case that we consider discriminatory to the DSB WTO is a wise attitude. Indonesia has brought the United States to the DSB WTO in a case related to clove cigarettes in 2010 (DS 406).
After a long debate with the DSB, Indonesia won the case and asked the US to amend its 2009 Tobacco Act. The US could not change the Tobacco Act due to political considerations at home. As compensation, Indonesia was given an additional limit on a product included in the generalized scheme of preferences (GSP).
Because we wanted to maintain good relations with the US, Indonesia accepted the offer and did not continue to retaliate even though Indonesia could request the DSB\'s mandate to do so. However, Indonesia has shown to the world that Indonesia as a member of the WTO is committed to upholding the principle of non-discrimination for anyone who violates it, whether it is a superpower or not, and this was documented by the DSB. Now, Indonesia is being tested again to bring the discriminatory case against CPO to the DSB WTO.
In taking a case to the DSB WTO, Indonesia should follow the procedures that have been set in the Dispute Settlement Body Understanding (DSU). Indonesia as a complainant can certainly ask for the services of a lawyer who has a reputation and experience in handling cases at the WTO DSB. Indonesia must be able to prepare all convincing evidence to back our claims that the allegation against Indonesia is groundless and unreasonable. Likewise, if needed, Indonesia must prove it scientifically.
In accordance with procedure, handling a case in the DSB can be settled in about 12 months. If there is an appeal to the Appellate Body, that will take about nine months; this does not include bilateral meetings with the accused country. Overall, it will take around two years. Lobbying or approaches usually take place until the case is settled in respective capital cities by the officials who handle it and sometimes even involve heads of state.
Sometimes, there is political pressure, especially from countries that are accused of discrimination and who feel they will lose. They usually offer a better market access. Trade and economic diplomacy needs to be sharpened and we need to see all aspects of its advantages and disadvantages.
A common understanding of a case that will be taken to the DSB WTO should be made between the government and businessmen who are members of the association of palm oil producers. Indonesia can no longer rely on the rhetoric that the oil palm industry directly involves around 20 million people, as if Indonesia is asking for mercy from the EC for it not to go through with RED II.
Indonesia also needs to lobby other CPO producing countries to join the protest as third parties in cases at the WTO DSB. The preparation of a defense by a lawyer requires openness from all parties to be able to counter the accusation that CPO has a high risk of contributing to high-indirect land use changes. Indonesia must submit valid data and strong arguments. Let\'s fight together and good luck.
Gusmardi Bustami, WTO Ambassador (2002-2008); Director General of International Trade Cooperation of the Trade Ministry (2008-2012)
