EU Uses Forest Code for CEPA Negotiations

The following article was translated using both Microsoft Azure Open AI and Google Translation AI.

KOMPAS/YOLA SASTRA

Herman (48) was cutting palm fronds using machetes in his oil palm plantation in Talang Arah Village, Malin Deman District, Mukomuko Regency, Bengkulu on Saturday (3/6/2023). Indonesia argues that small farmers like Herman will have difficulty complying with the European Union Forest Law Enforcement, Governance and Trade (EUDR) anti-deforestation regulations. Therefore, Indonesia, along with Malaysia, rejects the EUDR.

JAKARTA, KOMPAS - Regulations on European Union forestry may be used as a bargaining tool in the negotiations of European Union-Indonesia trade. Jakarta needs to be cautious in responding to requests related to nickel, bauxite, and government procurement projects.

The Economic and Social Research Institute (LPEM) of the Faculty of Economics and Business (FEB) at the University of Indonesia concluded this in a report on Tuesday (7/4/2023). The LPEM FEB UI team highlighted the EU anti-deforestation law (EUDR) which came into effect last June. "The EUDR regulations use benchmarks set by the EU, rather than using existing environmental performance indicators," the report read.

The research institution in the United States, Chain Reaction Research, has concluded that there has been a decrease in deforestation for palm oil plantations in Malaysia and Indonesia in 2021. LPEM UI has found similar data. From 2019-2020, there was a decrease in deforestation rate of up to 75 percent. Meanwhile, from 2021-2022, there has been a decrease in deforestation rate of 8.4 percent.

However, as stated by the European Parliament, EUDR clearly targets palm oil and its derivatives, charcoal, coffee, soy, cocoa, beef, and wood. The European Parliament also includes rubber, paper, leather, and their derivative products which are targeted by EUDR.

Also read: Indonesia Again Protests European Union Discrimination

This means that chocolates, various fashion products and tools that use leather, as well as various household and commercial furniture are also targeted by EUDR. Except for beef and soybeans, all products targeted by EUDR are Indonesia's mainstay in the European market.

Therefore, LPEM UI concluded that EUDR is meant to protect EU producers who have similar products to the targeted commodities of EUDR. The authors of the report, Mohammad Dian Revindo and his colleagues, also mentioned that EUDR is part of the EU's effort to reduce the trade deficit with Indonesia. From USD 8.8 billion in 2013, the trade deficit between the EU and Indonesia reached USD 21.4 billion in 2022.

Trade negotiations

Since the EUDR began to be discussed, Indonesia and Malaysia have continued to raise objections. This attitude was, among others, stated by Coordinating Minister for the Economy Airlangga Hartarto and Deputy Prime Minister of Malaysia Fadillah Yusof, in Brussels, Belgium, May 30, 2023. Jakarta-Kuala Lumpur announced the postponement of trade negotiations with Brussels as a reaction to the EUDR. Negotiations on the Indonesia-EU Comprehensive Economic Cooperation Agreement (CEPA) have been going on for seven years and show no sign of ending. "We can continue it for another seven years," said Airlangga.

KOMPAS/YOLA SASTRA

The transportation of oil palm from farmers on the banks of the Muar River in Serami Baru Village, Malin Deman District, Mukomuko Regency, Bengkulu, on Saturday (3/6/2023). Indonesia argues that small farmers will be disadvantaged by the anti-deforestation regulations of the European Union (EUDR). Therefore, Indonesia and Malaysia reject the EUDR.

Yusof stated that the continuation of negotiations will depend on the treatment of farmers and small businesses by the EU. The reason is that EUDR is not fair to small farmers, and benefits large corporations by providing various requirements that can only be met by large companies. Indonesia and Malaysia view EUDR as a new form of economic imperialism and protectionism.

Indonesia and Malaysia have a verification mechanism called RSPO. Unfortunately, the EU has rejected it and proposed its own requirements. Eventually, Indonesia and Malaysia agreed with the EU to form a task force to discuss the issue. The formation was agreed upon in a meeting in Kuala Lumpur on June 27-28, 2023.

Revindo said that the EUDR could be used by the EU as a bargaining tool in negotiating the Comprehensive Economic Partnership Agreement (CEPA). EUDR ratification time is close to the 14th round of Indonesia-EU CEPA negotiations. Therefore, Indonesia needs to anticipate compensation from the EUDR negotiations in the CEPA. The EUDR issue should not affect Indonesia's stance on limiting nickel and bauxite exports.

"Indonesia also needs to be cautious about the possibility of the EU's request to open access to government procurement of goods and services (PBJ) for foreign companies. PBJ policy should prioritize domestic producers, especially focusing on the capacity of micro, small and medium enterprises (MSMEs) to meet the 40 percent quota," he wrote.

Also read: European Union Bans Indonesian Products if They Don't Pass Deforestation Due Diligence

Nickel and bauxite are listed as important minerals for the EU's economy. Coal, one of Indonesia's leading commodities, is also included on the list. Indonesia and the EU are currently in dispute at the World Trade Organization (WTO) regarding nickel. The EU is suing Indonesia over the ban on the export of raw nickel ore.

Jakarta argues that the ban is aimed at encouraging increased value-added through nickel ore processing domestically. Compared to the raw version, prices of processed nickel can increase by more than 500 percent. Indonesia has invited the EU to invest in the nickel processing industry. Until now, the invitation has not been accepted and the EU remains insistent on only importing raw nickel ore from Indonesia. (AFP/REUTERS)