Example of ASEAN ‘Free Trade’ Integration: Governments of Malaysia and Indonesia Forges Palm Oil Cartel!

Free trade? Or crony capitalism disguised as free trade? 

Well here is an example of the 'thrust' to promote ASEAN ‘Free Trade’ Integration

From Nikkei Asia: (bold added)

Indonesia and Malaysia on Saturday formed a two-nation palm oil cartel in a bid to halt the rise in stockpiles of the commodity and the fall in prices.

Calling it a "game changer," the two countries have big hopes for the Council of Palm Oil Producing Countries. They see it as a tool that will help them jointly manage their output and promote the use of palm oil in biofuel. By taking these steps, Indonesia and Malaysia hope to boost demand for the commodity.

"By coordinating our stock management, we should be able to bring about sustainable prices," Rizal Ramli, Indonesia's coordinating minister for maritime affairs, told reporters.

The minister did not reveal a target price or stockpile level. Reserves rose to a record high in September, swelling 26% year on year to 2.63 million tons.

Palm oil prices have declined by over 30% since peaking in February 2011.

One way to manage the rising stockpiles is to create demand for the commodity by upping the ratio of palm oil in biofuel. Indonesia has decided to ramp up this ratio to 20% from the current 15%. Malaysia is currently at 10% but may consider taking it up to 15%.

Malaysia has already taken a step to reduce the amount of palm oil on the market. It has subsidized the replanting of some 830 sq. km of old palm trees, which helped to keep 250,000 tons of palm oil from adding to the global glut, said Douglas Uggah Embas, the country's minister in charge of plantations.

Malaysia and Indonesia together account for about 85% of global palm oil production. The commodity is an important source of revenue to the two governments as well as to companies such as Sime Darby in Malaysia and Golden Agri-Resources. These companies in turn are supported by about 4 million small household planters in Indonesia and 500,000 in Malaysia.

As I recently wrote:

At the rudiment, free trade represents decentralized social activities. But modern day politics are centrally structured. In essence, forces of decentralization and centralization collide or are diametrically opposed. So this has NOT been and will NOT be about free trade.

Politically managed trade is NOT free trade.

Oh by the way, signs are that the world seems headed for protectionism, or the world risks embracing more protectionism rather than ‘free trade’/integration/union. This runs contrary to the recently concluded big junkets to supposedly promote trade or economic union in Asia.

Recent geopolitical developments have been pointing at this direction, through the surge of anti-refugee or anti-immigration sentiment, soaring nationalism that has been punctuated by terrorism and its response—border controls. Aside from Europe, where right wing groups have been gaining, even leading US presidential candidate Donald Trump seem to represent the above.

This is aside from brinkmanship politics between the opposing alliances of superpowers in Syria, Ukraine and South China Seas.

Intervention begets intervention; from border controls to social/people controls then to economic controls (wage, price, production).

Intensifying inflationist monetary policies by global central banks, via currency devaluations (QE, zero bound or negative interest rate policies—e.g. Swiss bank ABS imposed negative rates on clients), aka currency war, which are forms of capital and exchange controls, should likewise aggravate the political desire to erect barriers to trade.

And all these have been compounded by an ongoing slump in global trade which fans the populist protectionist fire, e.g. again US leading Presidential candidate Donald Trump seem to advocate protectionism. The Portuguese government have recently been taken over by left wing (communist-socialist) coalition.

Of course, the ongoing deterioration of global trade has been a product of many interventionist policies, mainly through inflationism (boom-bust cycles).

Understand that since cartels are offsprings of political actions designed to 'protect' certain sectors of society by restricting or controlling either prices or production or both, then cartels essentially are part of the many faces of protectionism or government interventionism that has been intended to curtail free markets.

Hence, the Malaysian-Indonesian governments' response to the sluggish global trade/economy hardly points to the implementation of the touted regional trade union but defeats the very purpose of what they purportedly wanted to promote. 

Action speaks louder than words. Yet such action showcases state and crony capitalism in motion.

As I earlier described APEC, which should apply to ASEAN integration: 

A wolf in a sheep’s clothing remains a wolf.