Indonesia officially filed a lawsuit at the World Trade Organization (WTO) against the European Union (EU) over bloc's stricter limits on how palm oil can be used in green fuels - Photo: Special.

JAKARTA (TheInsiderStories) – Indonesia officially filed a lawsuit at the World Trade Organization (WTO) against the European Union (EU) over bloc’s stricter limits on how palm oil can be used in green fuels that the world’s biggest producer of palm oil claims unfair, trade ministry announced on Sunday (12/15).

The lawsuit was filed through the Indonesian permanent mission in Geneva, Switzerland on December 9, 2019. The lawsuit was filed against the renewable energy directive (RED) II policy and the delegated regulation issued by the bloc.

“Indonesia officially sent a request for consultation on December 9, 2019, to the EU as the initial initiation stage in the lawsuit,” trade minister Agus Suparmanto said in a written statement, adding the decision was made after assessing scientific studies and after meetings with associations and businesses involved in the palm oil sector.

Suparmanto revealed with this lawsuit, Indonesia hopes the EU can change their RED II and delegated regulation policies. He stated the lawsuit was a form of the government’s seriousness in combating EU discrimination. RED II policy and delegated regulation are considered to discriminate against palm oil products because it limits the market access of palm oil and palm oil-based biofuels.

Earlier this year, the European Commission concluded that palm oil cultivation results in excessive deforestation and its use in transport fuel should be phased out by 2030. While the delegated regulation, which is the implementing regulation for RED II, includes palm oil in the commodity category that has a high-risk Indirect Land Use Change (ILUC).

Response this, Indonesia has repeatedly said it will challenge the EU’s renewable energy directive at the WTO’s dispute settlement body. Indonesia’s Director General of Foreign Trade Indrasari Wisnu Wardhana said the EU’s policy would not just impact Indonesia’s palm oil exports to Europe, but would also tarnish the image of palm oil products globally.

Exports of palm oil and biofuel Indonesia to the EU fell 5.58 percent on an annual basis to US$882 million during January-September 2019, compared to $934 million of the same period the previous year, Statistics Indonesia data showed. Overall, the total exports of the two commodities also shrank 6.96 percent from $3.27 billion to $3.04 billion.

Trade tension between the two economic powerhouses heightens recently. Indonesia and the EU were already in dispute on how the Europeans increased tariff on palm oil, casting shadows on a bilateral trade and investment deal the two economies were negotiating.

The plot thickened as the Indonesian embassy in Geneva received an official letter from the EU representative there on Nov. 22 to inform that the regional bloc will file formal complaints against Indonesia to WTO. One of the complaints was about Indonesia’s policy on restricting the export of mineral products, especially nickel, iron and chromium ores, used in the stainless steel industry in Europe. Indonesia banned nickel ores export in October to preserve the raw material it planned to use to develop its lithium-ion battery industry.

From the EU perspective, Indonesia has violated WTO’s General Agreement on Tariffs and Trade (GATT) about the restriction on export or import.

The second complaint was about Indonesia’s new tax incentives for investors. The government announced in September that it would grant a tax holiday for five to 20 years to investors invest $35.7 million to $2.1 billion in Indonesia. The government hoped the incentive could attract more investors to Indonesia to rejuvenate the country’s economic growth.

But, the EU saw the new taxation rules as a violation against WTO’s Agreement on Subsidy and Countervailing Measures.

The last complaint against Indonesia was the latter’s requirement for importers to comply with domestic content regulation. Under the rule, some imported goods and services should contain a certain level of Indonesia material or involvement in the production process. The EU sees the policy that was issued last year has violated GATT’s rules, in particular, on transparency obligation.

Responding to the complaints, President Joko Widodo rallied resistance. The president said that value-added policy for exporting mineral products, including restriction for nickel ore, is a form of the government effort to improve a downstream industry that will create jobs.

“For the sake of our national interests, we will face protests from any country. Do not falter,” Widodo said on Thursday. The EU is suing us. Face it,” the president adds.

Widodo said the government had prepared top lawyers who will fight to win the dispute. The important thing is not to deviate from the goals. Don’t immediately retreat just because we got complaints. Actually, I am more excited when sued, just do not lose, the president ended.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com