Indonesia: Sin tax on Palm Oil and Plain Packaging on Tobacco

Source from:  The Jakarta Post 05/04/2016

Two of Indonesia's top export products face unprecedented regulation in international export markets. In both cases, the measures are intended to curb consumption of consumer goods in order to address public health or environmental concerns.

The commonalities don't end there. In both cases, the measures violate international trade rules and are based on one-sided assumptions and unscientific predictions.

One of these products is palm oil, which may face a discriminatory tax environment in France, where the legislature is considering whether to approve an increase on additional tax on palm oil, palm kernel and coconut oil used in food.

The measure is arguably addressed at tackling environmental concerns, given that oil that meets sustainability criteria will be exempted from the additional tax. The justification of these measures appears to be based on anecdotal information as Indonesia has made efforts to improve the sustainability of its palm oil production.

As one of Indonesia’s top exports, palm oil is used to produce food such as margarine, chocolate and cooking oils, household products like soaps and shampoo and various make-ups and other cosmetics.

More than 50 percent of products sold in supermarkets and convenient stores contain palm oil. These days, palm oil is also processed into biofuel as an alternative to fossil fuels that are running out quickly and are considered a major source of global warming.

The problem is that the tax would discriminate against imported products because domestic products that compete with palm oil would not be subject to the measure.

Even if the "sin tax" to be added were lower than earlier proposed, the total tax burden on palm oil, palm kernel and coconut oil would be higher than that of other vegetable oils originating in France and other members of the EU.

The other product is tobacco, which is subject to "plain packaging" in Australia. The theory of plain packaging is that mandating the use of a uniform, ugly color and denying brand owners the use of their trademarks on their products may deter consumers from consuming targeted products.

Indonesia believes that this violates WTO rules that require registration and protection of trademarks regardless of the product to which it is applied, and that plain packaging creates a double standard based on the nature of the product.

As the logic of this theory goes, any product deemed unhealthy or environmentally unfriendly by the government could potentially be stripped of all brandings and preferred colors.

Unfortunately, it is evident that this trend that started with tobacco will not end there.

In fact, there are already calls to follow the same path with a long list of other products, from infant milk formula to consumer products containing vegetable oils, to alcoholic beverages and products associated with higher blood pressure, obesity and diabetes.

These measures keep evolving, regardless of whether there is scientific evidence to support the allegations. It can be expected that the war against palm oil that started with the "sin tax" will follow the same path as the war against smoking: First, increasing the taxes applied to such products, followed by mandated labelling, then the adoption of mandatory graphic warnings to provide illustrations to the public of the adverse impacts of the product in question.

When graphic warnings are deemed insufficient, plain packaging will be seen as the logical next step to limit the consumption of the product. In order to stop this ill-advised policy path and to support our national export interests, Indonesia, together with Cuba, Honduras and the Dominican Republic, is challenging Australia’s plain packaging measures on tobacco products at the WTO.

It is expected that the WTO Dispute Panel will release its report later this year. The strategic importance of this case cannot be understated; if the plain packaging policy on tobacco is found to be justified under the WTO agreements, nothing will prevent the same from being applied to any other product believed to be harmful to human health or the environment.

The ruling will provide guidance on whether WTO members can drastically depart from their trade obligations to protect public health or the environment — even when there is very shaky scientific or policy support.

If the standards for ignoring international commitments are not robust and respected, the ruling could create significant disruption and unpredictability in the global trade system.

While Indonesia fully supports the objectives of improving public health and protecting the environment, it is our right to defend our economy against regulations that violate international trade rules, disciplines and obligations.

However, should plain packaging for tobacco products be blessed by the WTO, nothing would prevent the same type of measures from being applied to palm oil or other consumer products.

Article XX of the GATT 1994 pertaining to "general exceptions" may also be stretched further to curtail the consumption of other products, food and non-food alike. This would indeed be the beginning of a slippery slope to fundamental disruption of global consumer markets with unprecedented consequences. Enditem