A spat over palm oil: The Philippines’ patience with Malaysia and Indonesia wears thin

Photo Credit: Craig Morey/Flickr

Since November 2018, The Philippines’ Department of Agriculture (DA) has highlighted excessive palm oil import volume. When it threatened to issue a temporary ban, Malaysia and Indonesia finally responded.

By Joelyn Chan

The Philippines consumed approximately 1.3 million metric tons of palm oil in 2017. Despite experiencing no significant increase in demand, the Philippines Statistics Authority (PSA) reported that the nation’s palm oil imports reached a new high in 2018, soaring to 278,384.039 metric tons. This is 176.3%, higher than 2017’s imports.

Quoting the nation’s Agriculture Secretary Emmanuel Piñol, palm oil imports from Indonesia and Malaysia have increased by 900% over the last three years. However, there is no corresponding surge in palm oil consumption in recent years. This sudden and drastic increase in volume raised suspicions of palm oil dumping.

This is a serious issue for the Philippines. Palm oil can substitute copra in the manufacturing of cooking oil. Palm oil dumping in Filipino markets is causing excessive supply, driving local copra prices down.

Five months after the DA voiced its concerns, Indonesia and Malaysia agreed to form a Tripartite Technical Working Group (TWG) to settle the palm oil dumping issue. The group will attempt to determine a healthy level for palm oil imports.

Source: Statista

The Philippines reserves the right to issue a temporary ban

According to World Trade Organisation (WTO), “A WTO member may take a safeguard action (e.g, temporarily restrict a product’s imports) only if the increased imports of the product are found to be causing, or threatening to cause, serious injury.”

The importation of palm oil caused harm to the Philippines’ copra market. Therefore, under WTO rules, the government would be within its rights to restrict the import of palm oil from Malaysia and Indonesia.

The Philippines has taken measures to protect its copra exports before. In 1995, the Filipino government raised a dispute with the WTO when Brazil imposed duty on its desiccated coconut export. The Philippines claimed that this duty was inconsistent with WTO and the General Agreement on Tariffs and Trade (GATT) rules.

It is an opportunity for Philippines to correct its trade deficit

The Philippines’ trade deficit is becoming a big problem for the nation. Its trade-in-goods deficit in 2018 was the nation’s highest ever. With slow export growth, the trade deficit of 41.44 billion pesos (US$2.2 billion) will likely continue to grow.

Source: CEIC

The Philippines maintained a negative agricultural trade balance in 2017. It reported trade deficits with its major trading partners, including other ASEAN nations.

Indonesia has attempted to appease the Filipino government

In an attempt to appease the Filipino government and ease tensions, Indonesia lifted anti-dumping measures on Filipino bananas and non-tariff measure on onions in early April.

Indonesian Trade Minister Enggartiasto Lukita even urged Filipino exporters to start exporting agricultural products to Indonesia.

The move offers the Philippines an opportunity chance to review its export activities and address its expanding trade deficit.

Bilaterial ties are important for ASEAN’s development

Under the ASEAN Trade in Goods Agreement (ATIGA), Malaysia and Indonesia enjoy tariff-free rates on palm oil. ATIGA has promoted the free flow of goods across ASEAN by reducing trade barriers and deepening economic cooperation.

Dumping is a direct threat to this economic trust and cooperation. For the sake of ASEAN’s growth and development, member-states must stay united and avoid predatory trade practices. The implementation of defensive, economically protectionist policies will only hamper progression and prosperity of ASEAN’s economies.