Could EU-Indonesia free trade deal end palm oil conundrum?

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

The EU could commit to only import legal palm oil into the EU and engage in a dialogue with Indonesia to improve governance of palm oil production, writes Perrine Fournier. [CIFOR / Flickr]

As a new round of free trade negotiations between the European Union and Indonesia begins in Brussels, Perrine Fournier argues that improving forest governance should be central to any agreement.

Perrine Fournier is forest and trade campaigner at forest and rights NGO Fern.

Palm oil has had a lot of bad press. Shocked by numerous land grab cases or footage of orangutans fighting heavy machinery to preserve their habitat, the media and the public have grown increasingly aware of its production’s terrible impact on forests, local communities and wildlife.

These concerns have now begun to be reflected in EU policy making. Last year, the European Parliament voted for a resolution on palm oil, and last January it called for a ban from 2021 on palm oil biofuels, which uses almost 50% of crude palm oil imports.

Threats of trade war

But these votes have triggered unprecedented push back by Indonesia and Malaysia, who account for 80% of total palm oil production and whose economies are largely dependent on it. They threatened the EU with commercial retaliation and pressured individual Member States during frequent visits to Brussels and the European capitals of key palm oil importing countries.

This intense lobbying was successful. In mid-June, the final European agreement on crop based biofuels was significantly watered down from the EU Parliament’s original proposal. The phase-out was delayed by 12 years; references to palm oil were removed and the Commission still needs to come up with a methodology by 2019 to avoid losing a potential World Trade Organisation (WTO) dispute.

It will be very complicated for the EU to provide solid arguments to explain why palm oil and soybean biofuels can no longer be used while EU produced rapeseed and sunflower biofuels can.

Looking for a permanent solution

It therefore remains unclear whether this outcome will have any positive effects on Indonesia’s forests and forest people. Indonesia and Malaysia haven’t reacted to the Mid-June decision and some Malaysian palm oil producers have even celebrated it. This is not a good sign.

Besides, if a phase-out happens, there is a high risk that crude palm oil exports for biofuels will be redirected from Europe to other palm oil consumer countries such as India or China, which are less rigorous on the negative social and environmental impacts of trade.

New discussions on a free trade agreement between the EU and Indonesia (named CEPA), have to be understood in that context. While international trade continues to fuel deforestation and human rights violation in Indonesia, EU Trade Commissioner Malmström told Indonesia that she is eager “to ensure a solid approach to palm oil and sustainability issues in CEPA talks”.

Could CEPA actually promote legal and sustainable palm oil and improving forest governance?

This is a long shot. But with enough political will, it might…

How could CEPA improve forest governance?

Indonesia is the world’s largest producer and exporter of palm oil, accounting for 55 per cent of global production and 62 per cent of global exports in 2017. The EU, on the other hand, is the world’s largest importer of palm oil, with Indonesia accounting for 51% of its palm oil imports (US$2.79 billion) in 2017. Accounting for 14.5% of its total exports in 2017, Europe is Indonesia’s second most important export market.

Europe could use its market’s influence as leverage to support Indonesia led governance improvements in the forest sector.

Similar to its ongoing efforts to fight the illegal timber trade, the EU could commit to only import legal palm oil into the EU and use CEPA negotiations to engage in a dialogue with Indonesia to improve governance of palm oil production.

This could be done by setting up of a binding roadmap on palm oil that would determine measurable objectives, such as improving governance around the allocation of land for palm oil plantations as well as clarifying and securing community tenure rights of forest communities and indigenous peoples. National authorities would need to set up a transparent and inclusive process with Indonesian stakeholders, including civil society organisations, to come up with meaningful solutions.

Once the roadmap is adopted, CEPA could be concluded, with its implementation depending on respecting and fulfilling set objectives. For this to be possible, strong monitoring provisions involving all stakeholders should be included, with mechanisms such as inspections and ex-post evaluations to ensure compliance. In case of no compliance, there should be an effective dispute resolution mechanisms accessible to all stakeholders.

Such an approach would be coherent with the EU’s revamp of the Trade and Sustainable Development (TSD) chapters in its trade agreements. CEPA’s TSD chapter must also include clear language to halt trade in illegally sourced forest-risk commodities and ensure respect for human rights, including customary tenure rights.

The EU often says trade can drive positive change in partner countries. Trade in agricultural commodities – such as palm oil – are currently the biggest driver of deforestation on the planet. CEPA gives the Commission a key opportunity to back up its words with action and address this.

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