MARKET DEVELOPMENT
Developing Countries Show Strength to Defeat Palm Oil Tax
Developing Countries Show Strength to Defeat Palm Oil Tax
08/11/2016 (Jakarta Post) - International trade and development commentators often refer to “Fortress Europe”. This is the idea that European countries — whether unilaterally or as part of the EU-wide trading bloc — put up barriers to imports, particularly from developing countries, to protect their own industries. This is particularly the case for agriculture, which has had a detrimental effect on developing countries’ exporters.
The UN Commission on Trade and Development (UNCTAD) once estimated that EU protectionism deprived developing countries of around US$700 billion in export revenues. The most recent iteration of this was France’s proposed palm oil tax, which was abandoned last month.
The proposed tax was called a “sustainability” measure, but in reality it was nothing less than a policy to erect a barrier to protect less efficient oilseed growers in Europe.
Palm oil has been problematic for European industry. Indonesia’s exports of palm-based biodiesel are subject to punitive tariffs; the prevention of its use under the EU’s renewable programs is subject to a WTO dispute.
So how was it that this time palm growers managed to defeat France’s formidable political machine?
The palm oil tax was first proposed in the French senate in January. It proposed that palm oil be taxed to help the environment. European palm oil purchasers and retailers wanted to be seen as “green”, but also did not want their essential input made too expensive. They built a “soft” strategy of engagement with French politicians, aimed to promote Roundtable on Sustainable Palm Oil (RSPO) and sustainable palm oil rather than directly oppose or undermine the tax. It was a tactical blunder.
The result was a new tax proposal from the French parliament. The new tax proposal was for a differential tax, allowing any company that could demonstrate sustainable palm oil to be exempt from the tax. The meaning of “sustainable” under the new proposal would be determined by French politicians.
France was effectively demanding that it have some say over how palm oil is produced in Perak or Port Harcourt.
European producers were delighted with this “compromise” option that “promoted” and “recognized” sustainable palm oil.
Europe’s sustainability alliances were similarly pleased with this so-called compromise. But they were effectively selling the world’s small farmers down the river. The reality for millions of small farmers worldwide who cannot afford expensive European certification is that the tax would simply discriminate against them. This did not perturb the EU’s sustainability champions. European companies had previously passed the costs of sustainability on to producers; purchasers could also pass on the costs of the tax.
Unsurprisingly, opposition within palm oil producing countries began to harden. In Africa, think tanks such as Initiative for Public Policy Analysis (IPPA) was consistent in opposing the tax and highlighting the falsehoods being peddled by those who advocated in favor. Indonesia took an aggressive stance.
First, there were reports of French wheat shipments being delayed at Indonesian ports. It did not take long before the French media was reporting that exporters blamed the government’s palm oil tax for souring relations and causing such a negative reaction.
Second, Indonesian President Joko “Jokowi” Widodo took aside his French counterpart, Francois Hollande, and lobbied him directly to drop the tax, explaining the negative impact it would have on trade and diplomatic relations.
Third, Indonesian sources briefed the media that an ongoing order of Airbus A400 aircraft — sold by France and purchased by Indonesia — would be at risk if France introduced such a hostile tax. That Airbus order represented jobs, investment and export dollars that could be at risk if France moved ahead with the tax.
Shortly afterward, the tax was dropped. Environmentalists in the French parliament complained of “blackmail”. This is hyperbole: in reality, it is just good trade negotiation: playing hardball is the only way to protect your interests. It worked.
If anything, it underlined that this was never about the environment. It was about trade.
This result came about because palm oil producing countries showed strength, refused to be bullied and cowed by France, and did not fall for the old trick of “finding a compromise” or “accepting a lesser evil”. This is an important tale of how the developing world can protect its interests.
There are lessons from this tax campaign for when future challenges arise against palm oil in Europe — which, surely, they will.
The strong stance of the Indonesian government worked; defending your interests in a fair, but robust manner is effective. The Global South must have the confidence to do this more often. The Council of Palm Oil Producing Countries is an ideal example of the big picture approach that is needed.
Deferring to governments and companies in Western Europe should be left behind: that was the history of the 19th Century. This is the 21st Century — as Europe’s economic woes continue, Asia and African are the coming continents.
The French government recognized this: they need a strong relationship with our continents, and so they dropped the palm oil tax to protect that relationship. As a result, a discriminatory threat to millions of people has been defeated. This victory deserves to be celebrated and it deserves to be studied, too. We must have confidence to robustly defend the palm oil community — and the Global South — from any and all European attacks.
_________________________
Thompson Ayodele is the director and a Senior Research Fellow with the Initiative for Public Policy Analysis, an independent public policy think-tank based in Lagos, Nigeria
The UN Commission on Trade and Development (UNCTAD) once estimated that EU protectionism deprived developing countries of around US$700 billion in export revenues. The most recent iteration of this was France’s proposed palm oil tax, which was abandoned last month.
The proposed tax was called a “sustainability” measure, but in reality it was nothing less than a policy to erect a barrier to protect less efficient oilseed growers in Europe.
Palm oil has been problematic for European industry. Indonesia’s exports of palm-based biodiesel are subject to punitive tariffs; the prevention of its use under the EU’s renewable programs is subject to a WTO dispute.
So how was it that this time palm growers managed to defeat France’s formidable political machine?
The palm oil tax was first proposed in the French senate in January. It proposed that palm oil be taxed to help the environment. European palm oil purchasers and retailers wanted to be seen as “green”, but also did not want their essential input made too expensive. They built a “soft” strategy of engagement with French politicians, aimed to promote Roundtable on Sustainable Palm Oil (RSPO) and sustainable palm oil rather than directly oppose or undermine the tax. It was a tactical blunder.
The result was a new tax proposal from the French parliament. The new tax proposal was for a differential tax, allowing any company that could demonstrate sustainable palm oil to be exempt from the tax. The meaning of “sustainable” under the new proposal would be determined by French politicians.
France was effectively demanding that it have some say over how palm oil is produced in Perak or Port Harcourt.
European producers were delighted with this “compromise” option that “promoted” and “recognized” sustainable palm oil.
Europe’s sustainability alliances were similarly pleased with this so-called compromise. But they were effectively selling the world’s small farmers down the river. The reality for millions of small farmers worldwide who cannot afford expensive European certification is that the tax would simply discriminate against them. This did not perturb the EU’s sustainability champions. European companies had previously passed the costs of sustainability on to producers; purchasers could also pass on the costs of the tax.
Unsurprisingly, opposition within palm oil producing countries began to harden. In Africa, think tanks such as Initiative for Public Policy Analysis (IPPA) was consistent in opposing the tax and highlighting the falsehoods being peddled by those who advocated in favor. Indonesia took an aggressive stance.
First, there were reports of French wheat shipments being delayed at Indonesian ports. It did not take long before the French media was reporting that exporters blamed the government’s palm oil tax for souring relations and causing such a negative reaction.
Second, Indonesian President Joko “Jokowi” Widodo took aside his French counterpart, Francois Hollande, and lobbied him directly to drop the tax, explaining the negative impact it would have on trade and diplomatic relations.
Third, Indonesian sources briefed the media that an ongoing order of Airbus A400 aircraft — sold by France and purchased by Indonesia — would be at risk if France introduced such a hostile tax. That Airbus order represented jobs, investment and export dollars that could be at risk if France moved ahead with the tax.
Shortly afterward, the tax was dropped. Environmentalists in the French parliament complained of “blackmail”. This is hyperbole: in reality, it is just good trade negotiation: playing hardball is the only way to protect your interests. It worked.
If anything, it underlined that this was never about the environment. It was about trade.
This result came about because palm oil producing countries showed strength, refused to be bullied and cowed by France, and did not fall for the old trick of “finding a compromise” or “accepting a lesser evil”. This is an important tale of how the developing world can protect its interests.
There are lessons from this tax campaign for when future challenges arise against palm oil in Europe — which, surely, they will.
The strong stance of the Indonesian government worked; defending your interests in a fair, but robust manner is effective. The Global South must have the confidence to do this more often. The Council of Palm Oil Producing Countries is an ideal example of the big picture approach that is needed.
Deferring to governments and companies in Western Europe should be left behind: that was the history of the 19th Century. This is the 21st Century — as Europe’s economic woes continue, Asia and African are the coming continents.
The French government recognized this: they need a strong relationship with our continents, and so they dropped the palm oil tax to protect that relationship. As a result, a discriminatory threat to millions of people has been defeated. This victory deserves to be celebrated and it deserves to be studied, too. We must have confidence to robustly defend the palm oil community — and the Global South — from any and all European attacks.
_________________________
Thompson Ayodele is the director and a Senior Research Fellow with the Initiative for Public Policy Analysis, an independent public policy think-tank based in Lagos, Nigeria