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Dispute over palm oil: Agreement with Indonesia breaks new ground

Info Sperber | 13 January 2021

Dispute over palm oil: Agreement with Indonesia breaks new ground

by Monique Ryser

Translated by

The free trade agreement with Indonesia will be voted on 7 March. The "Palm Oil Alliance" has launched a referendum against the agreement, which facilitates the import of palm oil. Palm oil is controversial because it is grown on huge areas in monoculture and rainforest is cleared for it. The clearing not only destroys valuable rainforest, but also the habitat of indigenous peoples. The palm oil business is a multi-billion dollar business and indigenous communities and traditional smallholders can often only serve the multinationals. The agreement negotiated by EFTA now provides that palm oil imports should only benefit from tariff relief if principles of sustainability are adhered to. The legal scholar Elisabeth Bürgi Bonanomi has worked intensively on the agreement. She is a specialist in international trade law and sustainability and teaches at the Centre for Development and Environment (CDE) at the University of Bern. She explains the advantages and disadvantages of the agreement.

Infosperber: Why the great criticism of this agreement?

Elisabeth Bürgi Bonanomi: Trade agreements aim to reduce customs duties and other trade barriers between states in order to promote market integration. According to the agreement that Switzerland and the other EFTA states have concluded with Indonesia, it will now be possible to import palm oil at reduced tariffs. However, the import quotas are limited, and only palm oil that has been produced according to ecological and social criteria can benefit from lower tariffs. It is disputed whether this regulation will have much effect.

The agreement is about a maximum of 12,500 tonnes, which are to benefit from a tariff reduction of 20 to 40 percent. That is about one third of the palm oil imports into Switzerland, which have averaged about 32,000 tonnes in recent years. Today, most of these imports do not come from Indonesia, but from Malaysia. What is the significance of this agreement against this background?

EBB: The importance for Indonesia should not be underestimated, as the producers there will also have better market access to the other EFTA countries Norway, Iceland and Liechtenstein. From a sustainability point of view, the agreement is interesting because for the first time in a trade agreement, Switzerland is directly linking tariff reductions to sustainability conditions. This is an innovative and long-demanded approach: sustainable processes are promoted by linking them to market incentives. At the same time, sales for non-sustainably produced products are not facilitated. This is also called "product differentiation".

Farmers also supported the referendum, they feared that their oilseeds - i.e. especially rapeseed cultivation - would come under pressure.

EBB: The Federal Council assumes that overall imports will not increase, but that Indonesia will gain market share at the expense of Malaysia. That will have to be observed. It would be good if the Federal Council would present an ex post analysis - i.e. from a retrospective perspective - which it rarely does so far.

Back to the approach that palm oil is treated differently depending on how it was produced. Are there also other such product differentiations in trade?

EBB: For a long time, this approach was rejected by the trade partners as not conforming to the WTO. Today, people take a more differentiated view and recognise that WTO law leaves room for manoeuvre here. For example, the EU is increasingly linking the import of raw materials to production conditions, such as for wood, fish or biodiesel. Bilateral agreements are even better "practice fields" because all partner countries say yes to the approach and promise each other to implement it together. This has great potential for promoting sustainability in international supply chains.

The ordinance that the Federal Council sent out for consultation in December specifies who can benefit from tariff preferences and under what conditions. Is that enough security?

EBB: The idea stands and falls with its implementation. The regulation does not go very far. It mainly builds on existing certificates and wants to ensure that they are of good quality and really certify what they promise.

Existing international certification bodies (Roundtable on Sustainable Palmoil, International Sustainability and Carbon Certification) are to assess the legality.

EBB: Improving the quality of the certificates is certainly important. However, this does not mean that "sustainability" has been achieved, as envisaged by the agreement. The agreement requires that no slash-and-burn cultivation be carried out for the palm oil we buy, that peat bogs be protected, that water and air pollution be reduced, that the involvement of small farmers be guaranteed and that indigenous peoples be protected. Experts who know Indonesia well emphasise that such sustainable farming systems do not yet exist, but must be developed together with Indonesia. Within the framework of development financing and together with Indonesia and the people concerned, the EFTA countries can initiate and accompany such conversion processes. Such funds were promised in the agreement, but have not yet been quantified.

Isn’t it a kind of colonial interference if the EFTA countries want to tell Indonesia how to produce?

EBB: Since the provision is included in a bilateral agreement, all partner countries - including Indonesia - have agreed to it. So it is not a one-way street. In addition, all the countries involved support the UN’s sustainability goals and have committed themselves to corresponding international agreements. The goal is therefore to work together for more sustainability. It would be interesting if the other side would also set conditions. Indonesia, for example, could have stipulated that the tariffs for cheese and yoghurt from Switzerland or the other EFTA states would only be reduced if natural cycles were taken into account in production.

Is the sustainability provision in the agreement with Indonesia also a model for the agreement with the Mercosur states and other planned agreements such as the palm oil producer Malaysia?

EBB: The approach is promising and should be further developed in other trade agreements. It effectively complements the sustainability chapter that has been included in trade agreements for some time. However, the Mercosur Agreement - as far as we know - does not contain such product differentiations, although this would have been appropriate for soy or meat. As far as soy imports from Brazil are concerned, for example, a new study by the Federal Office for the Environment shows that thanks to an interbranch agreement, soy that is GMO-free and not based on deforestation is entering Switzerland. However, the study also shows that not all environmental problems have been solved, for example that pesticide use remains high. However, more sustainable soy production is not worthwhile for the producers, as the price differences to conventional soy are too small. If more sustainably grown soy could now be imported into Switzerland at better conditions, an important market incentive would be created. In the present case, it would not have been easy for the EFTA states to negotiate such a differentiation, as soya can already be imported duty-free. The tariffs for non-sustainable soy would therefore have had to be raised. The Mercosur countries would probably only have accepted this if they had received other important concessions.

The EFTA Agreement with Indonesia

The EFTA countries Switzerland, Norway, Iceland and Liechtenstein have negotiated a Comprehensive Economic Partnership Agreement (CEPA) with Indonesia. The tariff concessions are designed in such a way that all important Swiss export sectors can benefit from the agreement - both industry and manufacturers of agricultural products. 98 percent of Swiss goods exports can benefit from the reduction of tariffs. In return, Switzerland will grant Indonesia duty-free access for industrial products. It also contains provisions on trade in goods and services, investments and intellectual property. For the controversial palm oil, the agreement reduces tariffs by around 20 to 40 percent for a limited quantity and links the tariff reduction to environmental requirements. After parliament approved the agreement, environmental, human rights and farmers’ organisations* launched a referendum. However, some prominent non-governmental organisations are not among those behind the palm oil referendum, for example WWF and the major aid agencies.

Further information

 Sustainability in the Trade Agreement with Indonesia by Elisabeth Bürgi Bonanomi
Die Nachhaltigkeit im Handelsabkommen mit Indonesien von Elisabeth Bürgi Bonanomi

 The National Research Programme NRP 73 Diversified food systems thanks to sustainable trade relations
Das Nationale Forschungsprogramm NFP 73 Diversifizierte Ernährungssysteme dank nachhaltiger Handelsbeziehungen

Dr. Elisabeth Bürgi Bonanomi is a legal scholar. She researches and teaches Law & Sustainable Development at the Centre for Development and Environment (CDE) of the University of Bern. She leads the SNSF project "Diversified food systems thanks to sustainable trade relations".

 source: Info Sperber