Thursday, 02 Jul 2020

Domestic Palm Oil Exports Compete, European Union Challenges Indonesian Trade War


Palm oilPalm oil - The tension of the trade war between the European Union and Indonesia begins with the European Union imposing countervailing or compensation rates of 8% to 18% on imported subsidized biodiesel products from Indonesia.

Indonesia is considered cheating by providing subsidies on export commodities of palm oil and its derivative products so that the price is much more competitive. Regarding the occurrence of the countervailling, Indonesia responded by increasing import duties on dairy products from the European Union at a rate of 20-25 percent.

The European Union is unmoved by Indonesia's response, culminating in the European Union passing a palm oil moratorium with Renewable Energy Directive II (RED) II on March 13, 2019. The Delegated Regulation labeled palm oil as a high-risk Indirect Land Use Change (ILUC) commodity. As a result, biodiesel made from oil palm is not included in the renewable energy category.

With this stipulation, it will further strengthen trade relations between Indonesia and the European Union. The Government of Indonesia through the Permanent Mission of the Republic of Indonesia (PTRI) in Geneva, Switzerland, officially filed a lawsuit against the European Union at the World Trade Organization (WTO) on 9 December 2019.

The lawsuit states that Indonesian palm oil products have been discriminated against through RED II policy. Not only that, the Government of Indonesia also banned exports of raw nickel ore, and encouraged the downstream processing of domestic minerals to provide export-added value in response to the European Union's boycott of palm oil products.

As a result of the European Union's treatment of palm oil which has an impact on domestic palm oil exports, the Government of Indonesia is looking for a way out of the current account deficit trap.

For this reason, a Presidential Instruction (Inpres) No. 6 of 2019 was issued concerning the National Action Plan for Sustainable Palm Oil Plantations in 2019-2024 (RAN-KSB), related to action plans for the use of Biodiesel or Biofuel (BBN) for diesel engines or motorcycles in the form of esters metal fatty acids (vegetable oils or fatty acid methyl esters / FAME) in the country.

Actually, Indonesia has long sought a palm oil solution as a domestic environmentally friendly fuel.

If we look back, Indonesia actually has a strategic and mutually beneficial trade partnership relationship with the European Union countries. Based on data from the Central Statistics Agency (BPS) from January to November 2019, Indonesia's exports to Europe reached US $ 13 billion, down 16.5% compared to the previous year.

So, if the situation of the Indonesian and European Union trade wars continues, as happened in the United States and China, surely the impact will be very pronounced on the national economy, especially in the manufacturing sector, moreover the contribution of the manufacturing sector to the national economy is quite large, reaching 19, 62%.

Then what exactly is behind the European Union to discriminate against Indonesian palm oil, is it merely a political trade strategy to stem Indonesia's palm oil exports because it is feared that it will urge European vegetable oils (SFO, RSO).


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