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Indonesia has again become a victim of its own bitter
medicine as trade partners begin to respond to the country’s
protectionist policies — the latest being India’s decision to raise
import taxes on refined palm oil.
India, the largest purchaser of
Indonesian palm oil, on Thursday removed a freeze on the base price of
imported refined palm oil from US$484 per ton to align it with the
current global price of $1,050 per ton.
With a 7.5 percent import
duty on the commodity already in place, the move effectively more than
doubles the value of import taxes to around $80 a metric ton.
Trade
Minister Gita Wirjawan maintained poise on Friday, saying that the
Indonesian government would take “whatever measures necessary to
maintain partnership with India”.
Gita said India was an
important market for Indonesian exports. Bilateral trade with India
settled at $17.66 billion last year, with Indonesia exporting $13.34
billion, out of which $13.28 billion were non-oil products, and
importing $4.32 billion.
“We will surely study the implications
of such a move. We hope they can appreciate our spirit to develop our
downstream industry,” he told The Jakarta Post in an email.
Late
last year, Indonesia, the world’s largest palm oil producer, introduced a
new tax policy on the trade of palm oil and its derivatives in a bid to
spur the growth of its downstream industries and encourage exports.
The
new policy lowers export tax on refined palm oil products from 25
percent to 10 percent, supplementing another regulation on progressive
taxation on the export of CPO, which begins at 22.5 percent if the price
of the commodity goes beyond $750 per ton.
Exporters will have
to pay an export tax of 1.5 percent for every $50 increase in the price
from the threshold. The commodity currently hovers above $950 a ton.
Palm
oil, the world’s most traded and consumed edible oil, is used mainly in
food such as biscuits, and as biofuel. Production in Indonesia is
expected to reach 23 to 25 million tons this year, with India, China and
Europe being the main buyers.
According to a survey by Reuters
of 30 firms operating in Indonesia, including the world’s largest
publicly listed palm oil firm Wilmar and major consumer Unilever, the
policy has generated plans to nearly double refining capacity to 43
million tons of palm oil with investment amounting to more than $2.5
billion.
The news wire service also reported that the policy had
pushed up Indian imports of refined palm oil from Indonesia to 1.2
million tons during the first eight months of the year since it became
effective in November.
Indonesia’s efforts to develop downstream
industries goes beyond the palm oil industry. On May 6, the government
introduced a 20 percent tax on 65 types of mineral commodities,
excluding coal, in a bid to curb over-exploitation and to prepare
stakeholders for a full export ban in 2013.
The policy has drawn a
negative response from Japan, Indonesia’s second largest trading
partner, which has threatened to file a complaint with the WTO and halt
paper imports from Indonesia.
Indonesian Palm Oil Producers
Association (Gapki) secretary-general said that the government should
closely monitor the impact of the newly-launched Indian policy on palm
oil exports in the upcoming months and find a feasible solution to
address the issue.
“If local producers are highly impacted, the
government should act to fix the problem. It can remove export duties on
refined palm oil so that the product does not receive a double tax or
negotiate with the Indian government,” he said.
Indonesia saw its palm oil exports to India rise by 37.48 percent to 1.48 million tons during the first quarter of this year.
Exports
to India significantly helped push Indonesia’s palm oil exports to rise
by 23.8 percent to 5.27 million tons during the quarter.
Deputy
Trade Minister Bayu Krishnamurti addressed the media on Friday, saying
that the government would watch the impact of Indian policy on
Indonesian palm oil before deciding on what steps to take.
“We will find a suitable strategy to overcome this,” he said.
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