Indonesia’s involvement in RCEP & Sustaining the Palm Oil Industry: The Fate of Indonesia

Indonesia is home to the biggest palm oil cultivation in the world and has become the key actor in sufficing the global demand for palm oil. (Gro-Intelligence, 2016) Indonesia itself has sustained its position as a major producer of palm oil, due to the economic contribution of palm oil such as job creation and industrial promotion. (Suhartadi, 2019) Considering Indonesia’s intense export of palm oil, they see the importance of utilizing regional trade agreements to ease the conduct of export. Indonesia’s participation in the Regional Comprehensive Economic Partnership (RCEP) has provided a series of opportunities to have fewer restrictions when it comes to trade in the region and other member countries. Indonesia’s involvement in the RCEP would affect the perpetuation of both several issues happening in Indonesia and their dependency on foreign markets for national income. I would like to discuss and elaborate the negative implications of Indonesia’s involvement in RCEP to the palm oil industry, domestic supplies, and the welfare of Indonesian workers.

The establishment of RCEP aims to integrate the regional markets of Southeast Asia, and other involved countries such as New Zealand, Australia, Japan, South Korea, and China. (, 2022) This agreement upholds the value to maintain an open market, enhance regional economic integration and support an inclusive multilateral trade environment. However, specifically for Indonesia and its specialty in producing palm oil, RCEP is a double-edged sword.  The trade liberalization that RCEP brings will create a reduction in export duty, therefore leads to an increase of price in the domestic level and a decrease to the global level. According to a study of palm oil sells, a decrease of 10% in expert duty would increase domestic price by 12.22%. (Ernawati et al., 2016) This would then trigger the export demand of palm oil due to the reduction of trade tariff. Increased domestic price could lead to different political economic dynamics, such as the case of the Indonesian oil crisis in early 2022, noted that there was a boom in Crude Palm Oil (CPO) export, leading to the decision of the Indonesian president to establish export restrictions. (Aulia, 2022)

As RCEP facilitates the regional community to purchase Indonesian palm oil, the cultivation in Indonesia would also be enhanced. This would increase severity of socio-economic problems occurring in Indonesia, such as deforestation and exploitation of labor, considering RCEP’s lack of labor protection. When it comes to deforestation, palm oil plantation expansion in Indonesia is considerably the reason behind it. Becoming the 82% of total global production, the Indonesian Ministry of Agriculture noted that Indonesia have sacrificed 15,08 million hectares of land for palm oil cultivation. (Rizaty, 2022) There has also been some cases where major palm oil companies in Indonesia, PT. Wilmar, was accused of creating forest fire in Kalimantan, Southern Sumatera, and Jambi. (Walhi, n.d.)  Moreover, there has been several concerns addressed by institutions such as the Trade Union and European Union on RCEP’s lack of labor protection. The International Labor Organization (ILO) noted that there are over 16 million palm oil workers in Indonesia who are in extreme poverty. Some reports also showed the investigations of workers whose rights were abused and suffers under palm oil companies, where they were threatened to work or else, they get unpaid.  (Prakarsa, 2021) This have shown the social and environmental cost for palm oil production in Indonesia, where the trade liberalization that RCEP grants would bring more harm than good. This is also because upon the ratification of the RCEP, Indonesia has been ambitious on utilizing the RCEP as an instrument to boost local industries and enhance their participation in the regional trade dynamics. In sum, Indonesia enters RCEP without regards to domestic conditions that are prone to harm as Indonesia further integrates its market to ASEAN, and other major members of the RCEP such as China.

Although RCEP would bring positive impacts to several industries in Indonesia, palm oil is not one of them. Indonesia enters RCEP without any reformation or systematic changes to address domestic issues. Therefore, as argued, Indonesia’s involvement in the RCEP would only perpetuate or worsen socio-economic issues in Indonesia and most importantly it would enhance Indonesia’s dependency towards palm oil production and the foreign market for national income. To ensure the effectivity of palm oil exports, Indonesia should reconsider the trade policies and propose different treatment for specific goods such as CPO. A fair and suitable market export share would increase the effectivity of Indonesia’s palm oil production and the profits it gains from trade, as it would compensate the social and environmental cost of palm oil production and cultivation. At the domestic level, the Indonesian government should also focus on policies that protects labor and environmental rights, instead of surrendering their welfare and conditions for the sake of satisfying the global market.

In conclusion, there are much to reconsider for Indonesia as a member of the RCEP. Indonesia will be responsible to meet more demands due to the trade liberalization of the agreement, therefore creating a balance between the interest of the RCEP and domestic conditions is necessary, even mandatory. A reformation and a trade policy re-orientation is needed for Indonesia to sustain its position as a major palm oil producer, and at the same time becoming a competent country to do so.

Nicola Samuel Surah
Nicola Samuel Surah
Nicola Samuel Surah is a second-year student majoring in International Relations, at Gadjah Mada University, Yogyakarta, Indonesia. He is concentrated in International Political Economy and Development and is interested in specific areas such as sustainability, sustainable development, and Indonesia’s palm oil plantation development.