Indonesian palm oil faces EU bar over tax loophole

Rainforest destruction.jpg

Indonesian palm oil has been blamed for deforestation, transcontinental smog, greenhouse gas emissions, forced evictions, child labour and modern day slavery. But if the EU imposes punitive duties on it before 2014, it will be for tax reasons.

Europe imports almost a quarter of its biodiesel and 90% of that comes from two countries – Indonesia and Argentina – which both operate differential export tax (DET) regimes that the EU says make raw materials more expensive than the finished product.

“Because of DETs, the Argentines and Indonesians have access to soybean and palm oil at a price 35-40% lower than the rest of the world,” said Raffaello Garafalo, the European Biodiesel Board's secretary-general. “If you transform it into biodiesel there, you then don’t need to pay a tax when you export it.”

Brussels agrees with the EBB’s complaint, saying that this makes it “economically impossible” for EU industries to compete with the imported biodiesel, which last year again increased their European market share by around 4%.

“If we continue as we are going, Europe’s biodiesel industry will die,” Garafalo said. “It will be destroyed and we will be flooded with Indonesian and Argentine biodiesel.”

The EBB has also argued that EU legislation on Indirect Land Use Change (ILUC) would kill the industry. But in this case, “it is dramatic,” Garofalo said. “The industry will be over in a few months unless the EU acts.”

DETs are a contentious area in international trade negotiations, but formed the basis of a provisional EU anti-dumping regulation earlier this month, which imposed duties of up to 10.6% on biodiesel imports from Jakarta and Buenos Aires.

Argentina’s foreign minister described that move as “aggressive protectionism”, but Europe’s biodiesel industry said the tariffs were too small and that only duties in the 27%-32% range would make a difference.

EURACTIV understands that an anti-subsidy committee hearing yesterday (24 July) deferred a decision on whether the DETs could be considered an unfair subsidy until December.

Environmental destruction

Whatever the tax implications for European biodiesel producers, environmentalists are more worried about the cost of palm oil plantations to environmental and human health.

Last month, fires to clear Indonesian forests for palm oil plantations choked Singapore with record smog levels.

A Bloomberg investigation of palm oil plantations in Sumatra and Borneo found evidence of widespread human rights abuses, including child labour and debt bondage. They have also driven animals like Orangutans to the brink of extinction

“We definitely need to curb the palm oil that is coming to Europe both for food and for fuel,” said Robbie Blake, a spokesman for Friends of the Earth Europe.

“The EU’s appetite for increasing amounts of palm oil for fuel from Malaysia and Indonesia is driving deforestation, deleterious social impacts on communities, dire smoke pollution for Singaporeans and Malaysians themselves, as well as critical emissions of CO2 from precious peatlands.”

Strange bedfellows?

Friends of the Earth and the EBB have found themselves on opposite sides of the barricades in the debate about biodiesel’s environmental impact.

But Garofalo welcomed the green group’s opposition to Indonesian palm oil exports. “I am glad and this should happen more often,” he said. “The main purpose of what we do here is fair trade but one level of this is also an environmental or moral issue regarding deforestation.”

“Indirectly, this will only have a positive impact on issues linked to ILUC, soil use, and more intelligent use of agricultural resources,” he added.

Blake was hesitant to accept the industry embrace. “We share concerns about the use of palm oil with the EBB,” he said. “But the trouble is that they deny the pressure that is put on global land use and agricultural systems when they seek to divert our vegetable oil into our fuel tanks.”

Palm oil production has risen five-fold since 1990, driven by global demand for products such as soap, lipstick and biodiesel, and for ingredients in food staples such as noodles, chocolate and cooking oil.

Between 2005 and 2010, a third of the peat swamp forests in the Malaysian state of Sarawak were cleared, mostly to build palm oil plantations to feed this growing market. Such peatlands contain vast carbon stores, and their clearing can have a globally significant effect on human greenhouse gas emissions.

Malaysian palm oil’s market share in Europe is low but rising and some sources suspect that it may be reaching Europe through Indonesia due to inadequate ‘point of origin’ labelling.

  • December 2013: EU to take definitive decision on duties against Indonesia and Argentina for anti-dumping and anti-subsidy reasons

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