(Bloomberg) -- Indonesia threatened to ban imports of some goods from the European Union in retaliation for the bloc’s move to impose stricter limits on how palm oil can be used in green fuels.
The world’s largest palm oil producer is considering such a step to protect the interest of almost 20 million people, whose livelihood is tied to the commodity, Indonesia’s Coordinating Minister for Maritime Affairs Luhut Pandjaitan told reporters in Jakarta on Wednesday. The minister hinted that jets manufactured by European companies could be among the target for boycott, saying the country would require about 2,500 aircraft in the next two decades.
“There are a lot of European products that we need,” Pandjaitan said. “We have 269 million people in Indonesia. We have a big market.”
Palm oil has emerged as a flashpoint in a potential trade war between the European Union and top producers Indonesia and Malaysia, which together account for about 85 percent of global supply. The European Commission last week restricted the types of biofuels from the vegetable oil that may be counted toward its renewable-energy goals. The proposed EU curbs have weighed on benchmark palm prices, which have fallen for five quarters in a row.
Indonesia is also planning to lodge a formal protest with the World Trade Organization if the European Union ratifies the proposal, Coordinating Minister for Economic Affairs Darmin Nasution said. Palm oil was not just an export earner for Indonesia as it was instrumental in lowering poverty and therefore meeting a key criteria of the sustainable development goals, he said.
The EU argues the new measure and palm-oil sustainability criteria are compatible with WTO rules. The new regulation is now set for a two-month scrutiny period when the bloc’s member states and the European Parliament can express objections. If none is received, the measure will be published in the EU official journal and become a law.
The EU renewable energy law obliged the commission last year to set sustainability criteria for palm under its green goals. It specifies that the use of unsustainable food and feed crop-based biofuels should be limited from 2019 and a gradual phase-out should start in 2023, leading to a ban by 2030.
“We are concerned that this discriminatory act will surely affect the long-standing bilateral relationship between Indonesian and the EU, and further delay the conclusion of the Indonesia- European Union Comprehensive Economic Partnership Agreement,” Nasution said in a statement.
The move was required by a broader law agreed by the 28-nation bloc last year, when the European Parliament pushed for curbs on the use of palm oil on concerns its production caused deforestation and aggravated climate change.
The EU wants to lead the battle against global warming and has toughened goals to reduce greenhouse gases blamed for climate change. It aims to cut emissions by at least 40 percent by 2030 compared with 1990 levels, boost the share of renewable energy to 32 percent and increase energy efficiency by 32.5 percent.
Indonesia will continue to collaborate closely with other palm oil producing countries as well as the Association of Southeast Asian Nations framework to promote palm sustainability and establish a common position against the discriminatory action of the European Commission, Darmin said.
Palm oil exports fetched Indonesia $17.8 billion last year and the industry contributes about 3.5 percent to the nation’s gross domestic product, according to official data.
(Updates with palm oil exports data in final paragraph.)
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