The world experienced rapid growth in the population in the second half of the 20th century which, among others, increased demand for edible oil. This development created a new avenue for increasing the production palm oil industry as palm oil is around 10 times more productive than its closest competitor, soya bean oil, it in the world market (MPOB, 2016). This chance well utilized by ASEAN countries, which have suitable climate for palm oil production. Today, three of the ASEAN members - Indonesia, Malaysia and Thailand account for 86 percent of the world palm oil production, whereas Indonesia and Malaysia alone account for 91 percent of the world palm oil exports.
However, these developments has not been without difficulties and, due to arguable environmental and health concerns, the trade of palm oil has been disturbed by application of Non-Tariff Measures (NTMs) in importer countries. NTMs are policy measures other than tariffs that can have a negative effect on cross border trade of goods by reducing the quantities traded and/or increasing prices.
Application of NTMs gained new importance after the adoption of a new NTM scheme by the European Union in April 2017. The EU is the largest importer of Malaysian palm oil exports and the second largest importer of global palm oil exports. Commenting on this new scheme, the Prime Minister Datuk Seri Najib Tun Razak told a press conference after attending the ASEAN Summit 2017 that “If this resolution were to be enforced, it will have a devastating effect ….. [as] the livelihood of 600,000 oil palm smallholders in Malaysia and 2.4 million in Indonesia [depend on palm oil]”. Due to this factor, Indonesia, Malaysia and Thailand has reached an agreement at the ASEAN Summit 2017to combat the treat to the palm oil industry.

However, despite the importance of palm oil exports in ASEAN economies, to the best of our knowledge, there is no study that provides evaluation of the effects of NTMs on the palm oil exports of ASEAN countries. Additionally, the effects of important determinates of palm oil demand, such as GDP and population growth on palm oil exports, and effects other important geographical and cultural determinants of the international trade such as distance, sharing border, common language have not been studied too. This project proposes to fill the gaps in the literature by applying the Gravity Model of International economics to the crude and refined palm oil trade of Indonesia, Malaysia and Thailand.
Leaning the effects of the NTMs on the total trade is important as this would empower the arguments of Indonesia, Malaysia and Thailand in regards to abolishment of the NTMs. Learning the effects GDP and population is important as this would let, for example, predict the effects of GDP and population growth on the palm oil export. The results of these analyses are in particular usage economic planners and demographers. Learning the effects of geographical and cultural determinants of the international trade would provide reliable information about the sensitivity of palm oil trade to these factors, which can readily be used by economic modelers.