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Trade as a sustainable development option?

Publication Date : 27-09-2012


Leaders of the Asia-Pacific Economic Cooperation (APEC) had recently concluded their Summit in Vladivostok, Russia. Amid numerous issues discussed at the Summit, leaders' agreements on the liberalisation of the environmental goods trade and food security are worth special attention.

To start with, APEC's agreement to cut trade barriers on environmental goods is particularly important as the region seeks to remain the key driver of global economic growth.

Under this new agreement, tariffs on 54 green goods, including solar panels, water purification equipment, gas turbines, geothermal energy turbines, solar water heaters, bamboo floor panels and wind turbines, will be cut to 5 per cent or less by 2015.

Overall, this agreement should encourage a "greener" trade regime to be in place in the Asia-Pacific region. While trade and investment had often been accused by many as one of the sources of environmental degradation, they can now actually help to facilitate greater flows of green products across the region.

The outcome of this agreement is particularly relevant for Indonesia, which is currently in need of alternative approaches to address many environmental and resource scarcity challenges.

Traditionally, the Indonesian government has used trade and investment as ways to promote economic growth. Owing to the relatively more open economic regime in the country in the last decade or so, the country has indeed been able to maintain relatively positive economic growth in recent years. From 2006 until present, for example, Indonesia has experienced an average growth rate of about 6 per cent per annum.

Current levels of economic growth in Indonesia, however, are far from sustainable. The Food and Agriculture Organisation (FAO), for example, reports that the deforestation rate in the country has reached 2 per cent, or 1.87 million hectares per year.

Worse still, much of power generation in Indonesia comes from conventional thermal sources, including fossil fuels, such as oil, natural gas, and coal. To date, less than 20 per cent of power generation in the country comes from hydroelectric, geothermal and other renewable sources.

This is not to mention that the continued hike of international oil prices has also made this energy more expensive to produce. Due to the depletion of many oil wells in the country, Indonesia is also increasingly relying on imported oil.

While the concept is not new, the adherence to the idea of sustainable development remains important for Indonesia.

Sustainable development is about meeting the needs of today without compromising the needs of future generations.

It is about improving our standard of living by protecting human health, conserving the environment, using resources efficiently and advancing long-term economic competitiveness.

The recent achievement of the APEC Summit provides positive drives toward the achievement of such an objective for Indonesia.

In the past, the Indonesian government has incorporated various initiatives to promote a greener economy, such as the launch of the tax incentive policy to encourage investors to use geothermal energy or to replace old, inefficient machinery in the textile industry.

The environmental agreement at the recent APEC Summit would provide the government with much needed sources of more environmentally-friendly technologies in the country.

Unfortunately, Indonesia's intention to include crude palm oil (CPO) as one of the environmental goods to be covered under the APEC's liberalisation regime was met with resistance from other more developed APEC members.

CPO was not included in the list after a study from US’ Environmental Protection Agency revealed that palm oil only cuts greenhouse gas emissions by 17 per cent, which is below the 20 per cent minimum requirement for such a item to be included in APEC's environmental goods list.

The fact of the matter is that the sustainability of the palm oil industry remains controversial in this country. While serving as an engine of growth, on one hand, there is also ample evidence to suggest that the development of the palm oil industry involves deforestation at an unprecedented level, on the other.

Notwithstanding such debate, it is also clear that for trade to contribute to sustainable development it must prioritise the exchange of goods that have positive impacts on environmental sustainability.

One of the most obvious ways for Indonesia to be able to keep the balance between the country's need to attain its sustainable development objective and for the palm oil industry to sustain its continued growth is to encourage the industry to follow the standards set in the Roundtable on Sustainable Palm Oil (RSPO).

Officially launched in 2004, the RSPO has since served as a not-for-profit association that represents stakeholders from various sectors of the palm oil industry to develop and implement global standards for sustainable palm oil production.

Up to now, there are 18 companies in Indonesia that have been certified by RSPO as certified growers, more than any other RSPO member nation. For instance, Malaysia has 12 certified growers and Papua New Guinea has two certified growers.

However, considering the fact that Indonesia is the biggest producer of palm oil in the world, the number is actually small considering that there are some 49 big palm oil companies and a vastly larger number of smallholder growers in Indonesia. Indonesia palm oil producers should work harder to follow RSPO standards.

The next APEC Summit, which is scheduled to take place in Indonesia next year, will serve as an opportunity for the Indonesian government to advocate the full implementation of the liberalisation of the 54 environmental goods already agreed at the last Summit, as well as to expand further the list of environmental goods eligible for tariff liberalisation.

To ensure the country's competitiveness in the era of "green trade", Indonesia must also find ways to improve the development of environmentally friendly technologies and greener policy innovations.

The writer is a researcher at Trade Knowledge Network (TKN) Southeast Asia.


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