Malaysia gov unwittingly hurt own industry

This is written by Khoirul Amin of Jakarta Post.

Jakarta: The Indonesian government expressed its regret over a Malaysian palm oil group’s decision to temporarily halt imports of palm oil from Indonesia, saying the move was against the spirit of free trade.

Gusmardi Bustami, who is chairman of an Indonesian trade policy forum and a former senior official at the Trade Ministry, said that the measure imposed by the Malaysian Palm Oil Board (MPOB) was not in line with the spirit of the ASEAN Free Trade Area (AFTA) and the World Trade Organisation (WTO). 

“It is also suspected that Malaysia is trying to prevent its processed goods made of imported Indonesian CPO from being banned from entering into various export destinations due to speculations that the CPO producers might be involved in forest fires [in Indonesia],” he told Jakarta Post recently.

The plan to halt Indonesia’s palm oil imports was contained in a circular by the MPOB dated 30th September. The rationale given for the directive was oversupply but it did not state how long suspended imports would be maintained. 

“In light of that [the oversupply condition], the MPOB decided to temporarily suspend importing palm oil until the domestic supply gets back to a manageable level,” according to a statement in the circular obtained by The Jakarta Post.

The circular, which is signed by MPOB director general Datuk Dr. Choo Yuen May, also states that Malaysia’s palm oil volume is at a level where it cannot be stored at its domestic storage facilities.

Indonesian Trade Ministry officials were not available for comment when the Post asked for clarification at the time of writing.

Gusmardi said that the measure would affect Indonesia’s palm oil producers, who are currently under pressure due to a sluggish market. 

Indonesia’s palm oil exports to Malaysia, both raw and processed, hit US$566.197 million, with a total export volume of 730,902 tonnes last year, according to the Agriculture Ministry’s data.

During the January-July period of this year alone, the export value hit US$595.53 million or around 42 per cent of Indonesia’s total palm oil export value during the period.

Mahmud Syaltout, an international trade law and policy expert with the University of Indonesia, said that the oversupply condition acted as a common reason for many importers to halt their import activities, but it raised eyebrows if a government agency should be actively intervening to halt imports.

“In a liberal multilateral trade system, the condition should be left to the market mechanism,” he said. According to Mahmud, Indonesian government should request clarification from the Malaysian government.

However, Indonesian Palm Oil Producers Association (GAPKI) executive director Fadhil Hasan said that the measure imposed by the MPOB would not threaten Indonesia’s exports as it would be imposed temporarily until Malaysia’s palm oil stocks reached manageable levels.

“In addition, Indonesia's CPO exports to Malaysia are not as big as those to China, India or even Pakistan,” he said.

Fadhil also said that most Malaysian importers imported CPO from Malaysian palm oil companies operating in Indonesia, arguing that the measure would just harm their own companies. 

Indonesia and Malaysia, the world’s top CPO producers, contribute about 85 per cent of total world production.