by Samuel Pablo Pareira
Note: This piece represents the opinions of the author, and may not represent that of The Graduate Press Editorial Board, of which the author is a member.
What is your general knowledge on free trade agreements (FTA)? Do you believe they hamper the competitiveness of your local products, possibly destroying your nation’s economy? Or do you believe they lead to better access of raw material and high-quality products for both countries involved, hence improving living conditions for both people? If you chose the latter, then you will enjoy reading this article.
On March 7th, Swiss voters will decide on whether Switzerland will ratify an FTA with Indonesia, which was signed together with other EFTA States (Iceland, Liechtenstein and Norway) as a Comprehensive Economic Partnership Agreement in Jakarta on December 16th 2018 and adopted by the Swiss Parliament in December of 2019. This is only the second time in 50 years that Swiss people will have had the final say on a free trade agreement. The last time dates back to 1972 when voters approved a free trade agreement with the then European Community.
Then, what is the matter with this agreement? Yes, you guessed it, palm oil. The opposition to the trade deal, activist movement “Stop Palm Oil”, consists of globalization critics, the Green Party, the Social Democrats, as well as several small farmers’ and environmental associations. They have raised fundamental criticism of globalization, excessive trade, pollution, consumerism, and deforestation, as well as exploitation and human rights violations against the indigenous population in Indonesia. Some farmers also fear that increasing import of palm oil could threaten the production of rapeseed and sunflower in Switzerland.
Together, they collected more than 61,000 signatures to enact this referendum. Under Switzerland’s direct democracy system, parliamentary decisions can be challenged to a nationwide vote if at least 50,000 signatures are collected within 100 days following approval from parliament.
As an Indonesian studying in Switzerland, who happened to cover the palm oil industry extensively during my journalism time back home, I have no option but to step up and provide clear arguments on why I support this free trade agreement. I will focus the first part on what this deal will bring to millions of Indonesians. The second part will focus on the curious case of sustainable palm oil.
My fellow Indonesians also deserve to enjoy high-quality gruyère cheese and Swiss chocolate with affordable prices in Jakarta, Denpasar, and anywhere else across the archipelago, as we do here. This might sound cliché, but it is true. People in developed countries always judge trade deals on how their market will be flooded with cheap, low-quality products from across the world. But have we ever reflected on what this deal will bring to the other side?
Within five years upon ratification by both parties, Indonesia will dismantle tariffs (import duty) on Swiss cheese and dairy products. Within twelve years, a child in Surabaya can enjoy considerably cheaper Swiss-made Lindt chocolates due to zero percent tariffs. And as soon as the deal comes into effect, breastfeeding mothers in Kupang can provide their babies with high-quality, yet affordable, Swiss baby products.
At the end of the tariff elimination periods, around 98 percent of Switzerland’s current exports to Indonesia will be free of duties. This will allow both Swiss exporters: industrial companies and agricultural producers, not to mention 270 million Indonesians, to benefit from the deal.
In his 1997 article, Trading Up and Governing Across: Transnational Governance and Environmental Protection, David Vogel introduced the concept of the ‘California effect’, where nations are increasingly adopting the standards of their richer, ‘greener’ trading partners. Here’s how it works: developed countries with stricter product standards (vis-a-vis the environment, respecting human rights, etc.) often force foreign producers in developing countries with weaker domestic standards to design products that meet their standards, since otherwise they would be denied access to its markets. Those producers now have a stake in encouraging their home markets to strengthen their standards as well, in part because their exports are already meeting those standards. Hence, market access incentives can serve to promote the upscale improvement of environmental standards.
This concept serves as an introduction to the second part of my article: the issue of palm oil. During my two years of work as journalist covering the entire supply chain of Indonesia’s palm oil, I am certainly aware of the controversy surrounding the commodity; about how millions of hectares of rainforest in Sumatra and Borneo, through years of illicit logging activities, were then turned into monoculture oil palm plantations. But never forget, the vast development of oil palm plantations on an industrial scale was also made possible due to massive endorsement and investment from World Bank’s Green Revolution in the 1980s.
I am a firm believer of the California effect and I have observed how the concept works in reality – how the introduction of strict sustainable certification standards by European markets and their companies (Unilever, Nestle, etc.), is gradually improving how business operates on the ground in the last decade.
To quote Swiss parliamentarian Simone de Montmollin, Switzerland alone could not solve the deforestation problem in Indonesia. Yet, this agreement lays the groundwork for promoting sustainable production of palm oil, by only allowing preferential tariffs to Indonesian palm oil exports that are produced in a sustainable manner, according to article 8.10 of the agreement.
Rejecting this trade deal will only damage both the Swiss economy and the promotion of sustainable palm oil production itself. I can assure you that the palm oil industry in Indonesia will not stop producing, as the global demand for vegetable oil is increasing.
We must consider which is better: scrapping this trade deal and letting Indonesia do business with other countries that do not care about environmental protection and sustainable practices; or, ratifying the agreement and making sure Indonesia is held accountable for their palm oil production and exports. The Swiss people will decide.
At the end of the day, we should never treat economic development and environmental protection as a zero-sum game. Doing so would ignore the basic right of millions of people across the globe who are struggling to lift themselves up from poverty and striving for better living standards.
About the author: Samuel Pablo Pareira is a 2nd year Master in International Affairs (MIA) student at the Graduate Institute. Born and raised in Jakarta, he was an economic journalist for CNBC Indonesia, with extensive coverage on the archipelagic country’s domestic & international trade, manufactures, and palm oil industry. His current thesis research focuses on the implementation of Roundtable on Sustainable Palm Oil (RSPO) certification in Indonesia. You can reach him on Twitter, LinkedIn, and Instagram.
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