As Indonesia hosts the Asia-Pacific Economic Cooperation summit in Bali, the government as well as business leaders are likely to push forward their agendas on priority issues ranging from agricultural commodities and public works projects to shrimp exports, in a bid to make trade work more to their advantage.
One particular agenda item includes pushing two key Indonesian export commodities, crude palm oil and rubber, into APEC’s green product list. Such action is likely to fail, not only due to environmental concerns over clearing for oil palm plantations, but following opposition from some APEC members to reopen the list of 54 environmentally friendly goods — known as the EG list — which the group agreed at the previous summit in Vladivostok, Russia.
Iman Pambagyo, director general of International Trade Cooperation at Indonesia’s Trade Ministry, said the Vladivostok deal was a long and difficult process.
Should the EG list be reopened to include CPO and rubber to accommodate Indonesia’s demand, other APEC members are likely to submit their own requests.
Iman said other members were not ready to propose their preferred additions to the list since they would need consultation first at home. Items in the EG list will start receiving import tariff reductions of up to 5 percent by the end of 2015 among APEC members.
“We still want our aspirations to be accommodated, we will package it in a more conceptual way,” Iman said.
The Indonesian government will submit a proposal to APEC to ease trade barriers among members on goods that can contribute to sustainable growth, regional development as well as poverty alleviation, he added.
Improving intraregional trade among APEC’s 21 members, which are located in four continents and home to around 40 percent of the world’s population, is important for Indonesia. Growth in Southeast Asia’s biggest economy has been slowing, following weaker exports amid the global economic slowdown.
Palm oil’s profitability
Palm oil at $21.6 billion is the third-biggest contributor to the country’s foreign exchange earnings, after crude oil and natural gas. Indonesia is the world’s largest palm oil producer. Last year, it produced 26.5 million metric tons of CPO and exported around 18.1 million tons.
Indonesia’s top market destinations for palm oil are India, China, Europe and Africa. The Indonesian Palm Oil Association (Gapki) says the industry provides direct employment to 4.9 million people.
Meanwhile, Indonesia ranks as the second-largest rubber producer after Thailand. Last year, the nation produced 3.04 million tons of rubber, of which 85 percent was exported. Top rubber markets for Indonesia are the United States, China, Japan, Singapore and Brazil.
The government places a strong emphasis on the nation’s rubber sector because almost 90 percent of its rubber is produced by small-scale farmers, providing millions of jobs at home.
Rubber cultivation also tends to support much higher biodiversity and environmental services than palm oil monocultures, as rubber trees can be planted among other crops and without the need for clearing away existing forests. At the same time, rubber meets demands for the booming automotive industry.
Indonesia faces some tariff barriers as well as non-tariff barriers on CPO. For example, developed nations such as the United States and those in Europe often require green certification that the product did not originate from plantations established on deforested and drained peatland, which contributes a large proportion of Indonesia’s greenhouse gas emissions.
Indonesia is also regularly criticized by environmental groups for the clearing of forests for industries including palm oil and pulp and paper, instead of using its plentiful tracts of already-degraded land.
Deputy Trade Minister Bayu Krisnamurthy said at a Jakarta Foreign Correspondents Club meeting last month that the international summit should not be just to promote free trade but it also needs to provide a “unique vehicle” for world business leaders and governments to share information regarding the global economy.
Speaking on Wednesday at the opening of the APEC Business Advisory Council (ABAC) in Ayana, Jimbaran, Bali, ABAC chairman Wishnu Wardhana said the business community, not only in Indonesia, but also from other APEC members, is concerned about uncertainty in the global economy.
“Most of us are worried about the uncertainty and volatility of the global economy. This situation has impacted negatively on economic stability, trade and investment,” said the executive, who is also president director at Indonesian coal miner Indika Energy.
Credit rating agency Moody’s Investors Service, in its special report released on Wednesday about the 2013 APEC summit, said that “the softening of growth in China after three decades of rapid expansion — APEC’s second-largest economy and a key driver of regional growth — introduces considerable uncertainty to the outlook, given the increasing influence of China on economic cycles due to expanding trade ties throughout the region.
“The effects of declines in some commodity prices have included slower growth and deterioration in the balance of payments in many of the region’s countries,” Moody’s said.
Help through partnerships
Despite the worrisome global economic outlook, Indonesia can expect some opportunities. Finance Minister M. Chatib Basri said one of the outcomes from the 2013 APEC Finance Ministers Meeting in Bali on Sept. 20 was agreement among ministers to assist in Indonesia’s public-private partnership program, to make it the center of pilot projects for APEC.
APEC’s finance ministers pledged to assist Indonesia’s finance ministry in its ongoing efforts to develop its capacity to deliver effective and bankable PPP projects. These projects allow the government and private sector to build roads and bridges without laying the risk on taxpayers.
Indonesia could use such investment to boost its economy, after growth slowed to 5.8 percent, falling short of the government’s target of 6.3 percent for the year.
One sensitive issue that may crop up at APEC is protectionism. An example is the US Commerce Department’s move in August to set duties on shrimp imports from Asia and Latin America, though major suppliers Thailand and Indonesia were spared.
Indonesia and six other countries — Thailand, China, Vietnam, Malaysia, India and Ecuador — exported almost $3.4 billion of shrimp to the United States last year. The decision came after a group representing shrimp producers from several southern US states filed a petition against the seven countries.