New Round of Oil Palm Diplomacy
As is known, the European Union (EU) is applying the renewable energy directive (RED) II policy, which prohibits the use of biofuel, bioliquid and other raw materials that are considered to have a high risk of indirect change of land use.
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As is known, the European Union (EU) is applying the renewable energy directive (RED) II policy, which prohibits the use of biofuel, bioliquid and other raw materials that are considered to have a high risk of indirect change of land use.
Direct Land Use Change (ILUC) is a high risk -- including triggering the conversion of natural forests into farms and agricultural land -- this is considered to increase greenhouse gas emissions. Indonesian oil palm will be banned from entering the EU because it is considered to be a source of deforestation, estimated at 5 million hectares in the 2008-2016 period.
The EU seems to be looking for new cases with Indonesian palm oil. In 2018, Indonesia won the case at the Dispute Panel Council at the World Trade Agency (WTO) and at the European Court of Justice over the imposition of anti-dumping fees by the EU on Indonesia\'s biodiesel imports. Now, the EU is again complicating the exports of Indonesian palm oil to European countries with the new RED II policy.
The EU tug of war
Frankly, Indonesia is quite busy in countering the high-risk ILUC accusations. Actually, oil palm plantations are not the only problem, as soybean, rapeseed and sunflower planting is also increasing. In 2018, the of global size of global vegetable oil plantations reached 170 million hectares. Vegetable oil plantations cover almost one third of the total area of grain crops at 670 million hectares, a development that needs attention. The land used for soybean is now nine times greater than the areas of oil palm. However, it is rather difficult to convince the EU that Indonesia is not alone a contributor to ILUC at high risk.
Indonesia also seeks to fix the map of its oil palm land area, into one integrated map targeted for completion in August 2019. Currently, Indonesia has three versions of oil palm land area data: a 15.4 million hectares version of the Ministry of Environment and Forestry (KLHK), 14.3 million hectares version of the Ministry of Agriculture and 16.8 million hectares according to the study of the Corruption Eradication Commission (KPK), along with 20 million hectares of oil palm in accordance with the Cultivation Rights Title (HGU) that have been issued. At the very least, the government hopes, with a one-data policy, the accusation of the rate of deforestation of 5 million hectares over eight years by the EU can be objectively challenged.
The RED II policy is actually still flexible and more a tug-of-war effort (read: bluff) on the part of the EU against Indonesia and other bio-energy raw material suppliers. EU countries can still import vegetable oil from commodities with high risk ILUC, but not counted as part of the agreed target of the renewable energy source, at 32 percent by 2030. On May 22, 2019, the EU convened to take the decision that RED II would bind all its member countries so that it is very possible that Indonesia must use bilateral diplomacy on the issue.
Spain and Italy are two European countries that import a lot of Indonesian palm oil, both as food and bio-energy materials. Switzerland, which is not part of the EU is quite friendly with Indonesian palm oil and may be a trade hub for the EU palm oil market. However, it is possible that Switzerland will follow a new trend in policy development in the EU if Indonesia does not make comprehensive policy reforms in the country.
The EU currently consumes 5.1 billion liters of rapeseed oil, 2.3 billion liters of palm oil, 680 million liters of soybean oil and 243 million liters of sunflower seed oil (USDA, 2018). Most (worth US$1.68 billion) palm oil is now used for industrial needs, including the bio-energy industry, and only US$$672 million is used as food (Eurostat, 2019). After the victory of the cases at the WTO and the European Court of Justice, EU biodiesel imports from Indonesia jumped dramatically in 2018, reaching US$594 million from only US$22.4 million in 2017.
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It is not surprising that the EU again "behaves strangely" on palm oil because palm oil is indeed far more efficient in producing oil, both as a food product and bio-energy. Palm oil has become a major competitor and threatens the existence of rape seed oil, which is widely produced in Europe. It is possible that the 2018 EU defeat in anti-dumping affairs for biodiesel imports at the WTO and the European Court of Justice was felt to be very oppressive, especially for the EU Parliament. For a long time the EU implemented anti-dumping duties on biodiesel imports because it accused Indonesia\'s biodiesel producers of getting very large subsidies so that their production costs were kept very low. Indonesia is accused of selling biodiesel below market prices because of the treatment of "partiality" by the government.
Indonesia did not accept the accusation and filed a case with the Dispute Panel Council at the WTO. The fact even shows that Indonesia\'s exports dropped dramatically from US$649 million in 2013 to US$150 million in 2016, reaching its lowest point of US$68 million in 2015.
The panel of judges of at the WTO Dispute Panel Council in January 2018 ruled in favor of Indonesia which had been proven to be harmed by EU policies. In its ruling, the Panel Assembly stated that the EU adopted protectionism and discrimination against Indonesian palm oil. Interestingly, the European Court of Justice in March 2018 even strengthened the WTO\'s decision and ordered the EU to revoke anti-dumping duties on biodiesel imports from Indonesia, which ranged at 8.8-23.3 percent. As a result, Indonesia\'s biodiesel exports to the EU soared in 2018 and reached US$594 million.
Starting from within
Palm oil diplomacy is not a linear process, but more frequently winding and sometimes tiring. Some of the following options have actually been prepared by Indonesia. First, a positive campaign about the role of oil palm in the domestic economy, regional development, poverty eradication, and others. This step can be taken as a series of ordinary economic diplomacy measures by ambassadors, diplomats and other representative offices, but can also be carried out by academics, researchers, and other stakeholders through objective and accountable scientific publications.
Second, the government and the business world can continue to do various types of negotiations with individual countries both bilaterally and/or through the EU, such as the European Union-Indonesia Comprehensive Economic Partnership Agreement (CEPA). The "tug-of-war" strategy that has been discussed at the official forum may be added to by a little bluffing, such as on the trade in automotive and aircraft products.
Third, the objection notification to the Dispute Panel Council at the WTO that the EU has acted discriminatively and restricts Indonesia\'s biodiesel imports, as the last alternative. This step needs to be carefully considered and calculated and completed with accurate socio-economic analysis and legal facts. The victory in anti-dumping cases cannot be translated linearly that Indonesia will easily win cases in this RED II context. Moreover, the issue of ILUC or the conversion of forest land into plantation land has more to do with the consistency of domestic policies. Economic diplomacy starts from within the country.
Bustanul Arifin, Professor of Unila, Economist of Indef, and Deputy Chairman of Perhepi
