Deliverable 3.

30 October 2020

Human Rights Issues in Palm Oil Sector:

Will it be a Stumbling Block to Indonesia – EU FTA Deals?

By Prabianto Mukti Wibowo

Abstract

Indonesia is negotiating a Free Trade Agreement with the European Union (I-EU FTA), with
the objective to facilitate and create new market access, increase trade between Indonesia and
the EU, and expand direct investment. Indonesia hopes to conclude negotiations for a trade
agreement with the European Union by end of 2020 to bolster the country’s economic recovery
after the pandemic, but policies on palm oil remain a major sticking point. The European
Commission categorizes palm oil as an unsustainable product because it deteriorates
environment and violate human rights, and has laid out plans to phase out its use in biofuels
by 2030. It has arguably led to a lot of uncertainties with regards to the future of the Indonesian
palm oil industry. Consequently, it appears likely that the human rights issues over palm oil
sector would be a stumbling block to FTA negotiations between Indonesia and the EU. This
article aims to explore the human rights issues surrounding the production of palm oil, which
has emerged as a contentious subject in the I-EU FTA negotiation process.

Key words: Free Trade Agreement, Business and Human Rights, Palm Oil.

Introduction

Palm oil is the world’s most traded vegetable oils and Indonesia is by far the
world’s largest palm oil producers. In 2019, palm oil plantations cover an estimated
acreage of 14.6 million hectares, with a total production of 48.42 million tonnes CPO
(BPS-Statistics Indonesia, 2020). Palm oil is one of the Indonesia’s top foreign
exchange earners and contributes 1.5 to 2.5 percent to Gross Domestic Products (GDP).
It, directly and indirectly, provides a livelihood for more than 16 million people. In
addition, palm oil is the second biggest contributor to Indonesia exports. Palm oil
contributed more than 9 percent to Indonesia’s total export value in 2018, lower than
its contribution in 2017 0f 11 percent.1 One of the largest country destinations for
Indonesian palm oil export is European Union (EU). According to data from the
Indonesian Palm Oil Association (GAPKI), Indonesia’s palm oil exports to the EU
were valued at around US$ 19 billion in 2018.2

1
https://www.cpopc.org/wp-content/ uploads/2020/04/Palm-Oil-Supply-Demand-Outlook-2020-EDITFinal.pdf
2
https://www.thejakartapost.com/news/2019/03/21/indonesia-reviews-cepa-after-eu-proposes-cap-on-
palm-oil-based-biofuels.html.
 Deliverable 3.
30 October 2020

Indonesia is negotiating a Free Trade Agreement (FTA) with the EU, with the
objective to facilitate and create new market access, increase trade between the EU and
Indonesia, and expand direct investment. The EU was Indonesia’s third-largest
trading partner with bilateral trade in goods worth US$ 26.9 billion in 2019, with
Indonesia’s exports worth €16 billion and EU exports worth €10.2 billion. Trade flows
between Indonesia and the EU complement each other. The most important
Indonesian exports to the EU are vegetable oils and miscellaneous manufactured
articles, while EU’s exports to Indonesia mainly consist of machinery and transport
equipment, chemicals and manufactured products. In 2019, FDI from the EU
increased significantly by 83% to USD 3.4 billion, the highest since 2015.3

Indonesia hopes to conclude negotiations for a trade agreement with the

European Union this year to bolster the country’s economic recovery after the
pandemic, but policies on palm oil remain a major sticking point.4 The trade
negotiation has faced a challenge over palm oil, with a document leaked last year
revealing a plan by the European Parliament to exclude biofuel and bioliquid made of
palm oil, but not of other vegetable oils, from the scope of the Renewable Energy
Directive II (RED II). The European Commission, categorizes palm oil as an
unsustainable product and has laid out plans to phase out its use in biofuels by 2030.
The plan unsettled Indonesia, the world’s largest palm oil producing country.
Indonesia filed a case with the World Trade Organization (WTO) against the bloc’s
palm oil policy in December 2019.

The EU's attitude towards palm oil is in line with the views of some Non-
governmental organisations (NGOs) including the World-Wide Fund for Nature
(WWF), Greenpeace and Friends of the Earth, who have been stepping up on their
campaign efforts in an attempt to boycott palm oil. Apart from the NGOs, political
actors including the Greens and the European Free Alliance (EFA) in the European
Parliament have also been actively voicing their concerns regarding the use of
vegetable oils in biofuels.5 The palm oil sector is also frequently associated with
human rights abuses, social conflicts, and environmental degradation such as
deforestation, biodiversity loss, and peatlands fires. This makes palm oil one of the

3
https://ec.europa.eu/trade/policy/countries-and-regions/countries/indonesia/
4
https://www.thejakartapost.com/news/2020/07/15/indonesia-seeks-to-conclude-trade-negotiation-with-eu-
next-year-to-bolster-recovery.html.
5
Lim, Selynn. 2018. EU-Indonesia FTA Relations: Palm Oil – In for a Rough Ride? European Institute for Asian
Studies (EIAS).
 Deliverable 3.
30 October 2020

most controversial globally traded commodities. On one hand, oil palm expansion
has delivered important economic development for its host countries, including
indirect benefits for local infrastructure development and rural poverty reduction. On
the other hand, its development has often come at the expense of basic human rights
and of biodiverse, carbon-rich tropical forests, as local communities have been evicted
from their lands and precious primary forest and peatland ecosystems have been
destroyed by fire (Pacheco P, et.al., 2017).

The main objective of this paper is to explore the impacts of palm oil business on
human rights and how it is creating a stumbling block to Indonesia-EU FTA
negotiations. It is also worth investigating the plausible solutions to create a win-win
situation for both Indonesia and the EU.

Human Rights Issues in Palm Oil Industry

The Human Rights that are referred to in this paper are human rights that are
guaranteed under international human right instrument, namely the “United Nations
Guiding Principles on Business and Human Rights (UNGPs)”, which was endorsed
by the UN Human Rights Council in June 2011. According to the UNGPs, companies
have a responsibility to respect human rights. The responsibility to respect human
rights is a global standard of expected conduct for all business enterprises wherever
they operate. It exists independently of States’ abilities and/or willingness to fulfil
their own human rights obligations, and does not diminish those obligations. And it
exists over and above compliance with national laws and regulations protecting
human rights.6

The responsibility to respect human rights requires that companies should avoid
infringing on the human rights of others and should address adverse human rights
impacts with which they are involved.7 It requires companies to avoid causing or
contributing to adverse human rights impacts through their own activities, and
address such impacts when they occur.8 The UNGPs on Business and Human Rights
sets out company responsibilities independent of government obligations. The
practical implication is that even where government oversight is poor, companies

6
Commentary to Principle 11, UN Guiding Principles.
7
Principle 11, UN Guiding Principles.
8
Principle 13 (a), UN Guiding Principles.
 Deliverable 3.
30 October 2020

should have independent human rights due diligence mechanisms.9 Derived from the
UNGPs, severe human rights impact of palm oil value chain were identified, among
others: fair wages and income, labour rights, land-related human rights, and groups
facing particular risk especially women, child and indigenous peoples.10

Recent studies reveal that there are human rights abuse by oil palm companies
though they have set clear policy statement to protect and respect human rights in
their business operations. Last year, a coalition of NGOs has documented rampant
labor abuses in five oil palm plantations in Indonesia. Ironically, the palm oil from
these plantations is certified by the Roundtable on Sustainable Palm Oil (RSPO) and
ends up in products made under big brand names. Among the labour abuses
documented the NGOs are exposure to hazardous chemicals, a reliance on temporary
workers, below minimum-wage payments, lack of maternity and menstrual leave for
female workers, and the suppression of independent unions.11 One of the factors for
this is the use of a remuneration system called piece-rate pay, in which workers are
paid for their productivity rather than their time. As a result, the laborers have to work
extra hard to achieve their targets and make ends meet. In some cases, they’re
compelled to ask for help from family members, including their children, to work with
them in the plantations. Besides problems with their wages, the workers have also had
their basic health rights denied. Some workers often to inhale and touch toxic
chemicals without adequate health and safety measures. These workers are usually
only provided with regular cloth face masks once in a while. Many are compelled to
buy proper protective gear with their own money.

In 2016, a study by Amnesty International found serious human rights abuses

on the plantations of the world’s largest palm oils industry and controls over 43% of
the global palm oil trade.12 These included forced labour and child labour, gender
discrimination, as well as exploitative and dangerous working practices that put the
health of workers at risk. The abuses identified were not isolated incidents but due to
systemic business practices by its subsidiaries and suppliers, in particular the low
level of wages, the use of targets, and the use of a complex system of financial and
other penalties. Workers, especially women, are employed under casual work

9
https://www.hrw.org/report/2019/09/23/when-we-lost-forest-we-lost-everything/oil-palm-plantations-and-
rights-violations
10
https://www.imvoconvenanten.nl/en/banking/~/-/media/38D966E2E7C44201875B460B2601480C.ashx
11
https://news.mongabay.com/2020/12/labor-abuses-rspo-oil-palm-plantations-indonesia-sumatra-
kalimantan/
12
https://www.amnesty.org/download/Documents/ASA2151842016ENGLISH.PDF
 Deliverable 3.
30 October 2020

arrangements, which make them vulnerable to abuses. Another report published by

Friends of the Earth, Sawit Watch and LifeMosaic reveals growing evidence of human
rights violations associated with the Indonesian oil palm industry. Million people are
losing their land to the expanding palm oil industry. Oil palm plantations transform
this land to monoculture, and evidence suggests that communities are paying a heavy
price.13

The establishment and expansion of oil palm plantations in Indonesia has not
only adversely affected human rights of local communities but also failed to create
any mechanism to explore restitution or provide just and fair compensation
(remedies) for losses suffered, in consultation with the local communities impacted.
This contradicts to the Guiding Principle 22, which provides that where "business
enterprises identify that they have caused or contributed to adverse impacts, they
should provide for or cooperate in their remediation through legitimate processes".

Indonesia – European Union FTA Negotiations

Indonesia and the European Union officially launched CEPA (I-EU CEPA)
Negotiation in 2016. The I-EU CEPA is the largest bilateral negotiation currently
managed by the Indonesian Government. The EU is still the third-largest destination
for Indonesian exports and the EU member states are often the main sources of foreign
investment in Indonesia. In July 2020, the EU and Indonesia are stepping into the 10th
negotiation round for the Comprehensive Economic Partnership Agreement (CEPA)
between the two countries. The negotiations have so far been dominated by the issues
surrounding palm oil. There is one chapter, namely trade and sustainable
development (TSD), in which it was difficult to reach an agreement over vegetable oil
issues.14 It has argued consistently that palm oil poses health risks and is a major cause
of deforestation and loss of biodiversity, and it associated with human rights
violations. The hurdles really come when in March 2019 the EU enacted Revised
Renewable Energy Directive (RED II) that will gradually phase out palm oil-based
biodiesel from 2023 and a total ban from 2030. Furthermore, the EC imposed
temporary duties of 8 percent to 18 percent on imports of biodiesel from Indonesia in
August 2019 to support the RED II act.

13
https://www.foei.org/wp-content/uploads/2014/08/losingground.pdf
14
https://www.thejakartapost.com/news/2019/09/30/indonesia-gets-rp-232-billion-grant-from-eu-to-ease-
trade-negotiations.html
 Deliverable 3.
30 October 2020

The tariff and nontariff barriers certainly hurt Indonesia as the world’s largest
palm oil producer. Palm oil is one of primary elements of Indonesia's national interest,
notably because it is related to the prosperity of 17 million Indonesian citizens,
including smallholder farmers, who directly and indirectly depend on the palm oil
industry. Indonesia has accused the EU’s RED II of being discriminatory against palm
oil and have said they would take the issue to the World Trade Organization.
Indonesia argues that palm oil production was more environmentally friendly than
the production of other vegetable oils like soybean oil, sunflower oil and rapeseed oil,
and the norms of sustainability are being obeyed. Furthermore, the government have
actually imposed a pause on the creation of new plantations of palm oil in order to
protect our country’s forests. In March 2020, the President issued a regulation on
Indonesian Sustainable Palm Oil Certification System, the so called ISPO. It aims to
improve palm oil governance and to prove that the palm oil in their supply chain is
not linked to deforestation, peatland drainage or environmental pollution, and to
demonstrate that it has been produced with full respect for fundamental human rights
and adequate social standards.

Conclusion

Evidence suggests that the UNGPs on Business and Human Rights to protect
and respect human rights has not been much practiced in palm oils business
operations. Many oil palm companies neglect to protect and respect human rights in
their business operations, which has created a bad reputation and boycott of the
commodity in the EU market. Therefore, oil palm companies need to create and
implement strong human rights due diligence procedures to ensure that palm oil
production does not cause or contribute to human rights abuses to local communities.

With regard to the Indonesia – EU FTA negotiation, efforts need to be made so

that the issue of human rights in the palm oil sector does not become a stumbling
block. Both parties need to review all areas of the agreement and how these affect
human rights, economic, social and cultural aspects of people’s lives is vital. Indonesia
should not just base the impact assessment solely on palm oil, but should take all
issues of trade liberalisation into account. On the hand, EU should seriously consider
to eliminate and reduce the Non-Tariff Measures (NTM) including for palm oils. The
EU should also provide assistance and intensive capacity building for the Indonesian
palm oils sector in order to comply with EU and international standards.
 Deliverable 3.
30 October 2020

References

Amnesty International, 2016. The Great Palm Oil Scandal. Labour Abuses Behind Big
Brand Names. Downloaded from https://www.amnesty.org/download/
Documents/ASA2151842016ENGLISH.PDF
European Commission, 2020. European Union Trade and Investment with Indonesia
2020. Downloaded from https://ec.europa.eu/trade/policy/countries-and-
regions/countries/indonesia/
Friends of the Earth, LifeMosaic and Sawit Watch, 2008. Losing Ground The human
rights impacts of oil palm plantation expansion in Indonesia. Downloaded from
https://www.foei.org/wp-content/uploads/2014/08/losingground.pdf
Human Rights Watch, 2019. “When We Lost the Forest, We Lost Everything”. Oil
Palm Plantations and Rights Violations in Indonesia. Downloaded from
https://www.hrw.org/report/2019/09/23/when-we-lost-forest-we-lost-
everything/oil-palm-plantations-and-rights-violations
IRBC, 2019. DBA’s Analysis of Severe Human Rights Issues in the Palm Oil Value
Chain and Follow-up actions. IMVO value chain working group report.
Laksono, Randy and Situmorang, Rosa. 2019. In Facing the Indonesia-European
Union Comprehensive Economic Partnership Agreement: Perspective from
Indonesia’s Business Sector. APINDO Policy Series Vol. P.001/DPN-EUKAJ-
I/2014.
Lim Selynn, 2018. EU-Indonesia FTA Relations: Palm Oil – In for a Rough Ride?
EU – Asia at a Glance. European Institute for Asian Studies.
Pacheco P, Gnych S, Dermawan A, Komarudin H and Okarda B. 2017. The palm oil
global value chain: Implications for economic growth and social and
environmental sustainability. Working Paper 220. Bogor, Indonesia: CIFOR.
Rizal Yose, Raymond Atje, Soedjito, 2019. Study on the Impact of an EU-Indonesia
CEPA. Centre for Strategic and International Studies.
Sjeerm, Zofia, 2020. EU-Indonesia Trade Tension: “The Backlash on Palm Oil”.
Downloaded from https://igj.or.id/eu-indonesia-trade-tension-the-backlash-on-
palm-oil/?lang=en
The Jakarta Post, 2019. Indonesia reviews CEPA after EU proposes cap on palm oil-
based biofuels. Downloaded from https://www.thejakartapost.com/news/
2019/03/21/indonesia-reviews-cepa-after-eu-proposes-cap-on-palm-oil-based-
biofuels.html
Unicef, 2016. Palm Oil and Children in Indonesia. Exploring the Sector’s Impact on
Children’s Right. Downloaded from https://www.unicef.org/indonesia/media/
1876/file/Palm%20oil%20and%20children%20in%20Indonesia.pdf