French Sustainability Criteria Commission Report: What Does It Mean for Malaysian Palm Oil?

The new French Environment Minister, Nicolas Hulot, has stated publicly that he plans to examine ways to ban Palm Oil – specifically Palm Oil biofuels – from the French market. Malaysian Minister Datuk Seri Mah Siew Keong last week sent a clear message that if the EU continues to discriminate against Palm Oil, it would endanger the EU-Malaysia Free Trade Agreement.

Does Minister Hulot’s speech mark the beginning of a new French assault on Palm Oil? It is too early to know for sure – but it is essential for Palm Oil exporters to understand why and how such an assault may be happening.

The recently-published report from the French Government’s Sustainability Criteria Commission (SCC) must be read in this context. The Report is titled The Sustainability of Palm Oil and Other Vegetable Oils, and contains multiple recommendations for how the French should regulate Palm Oil imports. Let’s quickly recall the background: the SCC was set up in the aftermath of the defeat of the latest incarnation of the Palm Oil Tax, in May/June 2016.

The plan was that four hand-picked French experts would examine the alleged sustainability issues around Palm Oil, and report back. Those experts are –

  • Alain Berger, a French agriculture specialist and civil servant
  • Marie Hélène Aubert, a career politician with the French Green Party
  • Michel Regis Talon, a civil servant with a background in environment & agriculture
  • Jean-Jacques Bénézit, a government official focused on sustainable development

In particular, the SCC was designed to focus on whether France should impose sustainability criteria for Palm Oil imports, and whether any new taxes should be levied on Palm Oil.

The final SCC Report has now been published. It serves as a joint-report between the Ministry of Environment and the Ministry of Agriculture, and carries several recommendations that will potentially impact Palm Oil exports to France, and the EU more widely.

The headline recommendations are –

  1. The issue of whether or not Palm Oil receives preferable treatment (e.g. lower tariffs) should not be led by the French Government: there should be an investigation at EU level, instead.
  2. The French Palm Oil Tax should be dropped.
  3. The plan for French Sustainability Criteria should be dropped; instead the EU should again take the lead in studying the idea of a possible future EU Scheme.
  4. France should support current sustainability initiatives in the Palm Oil sector, notably RSPO.
  5. The EU should adopt a clear definition of HCS land.
  6. The EU should consider a FLEGT-style agreement for all commodities (including vegetable oils).
  7. France should redouble its actions to promote the sustainability of vegetable oils.
  8. France should consider changing the Customs Code to reduce the tax benefits offered to Palm Oil biofuels.

Two of these stand out: First, the recommendation on changing the Customs Code on biofuels. This is notable because new French Environment Minister Nicolas Hulot has stated publicly his desire to restrict Palm Oil biofuels – and the Council of the EU (of which the French Government is a member) has put forth proposals to allow such discrimination under the EU’s Renewable Energy Directive. It now seems that a concerted move is underway to allow France – and possibly other EU countries – to adopt measures that would restrict Palm Oil biofuel imports.

Secondly, the French Palm Oil Tax has been rejected in principle by the SCC. This is a vindication of the efforts of Malaysia to educate and convince French policymakers that the tax is unjust.

Additionally, the dangerous plan for a ‘French Sustainability Criteria for Palm Oil’ – put forth during the French debate on the Biodiversity Bill in 2016 – has also been rejected.

The Report’s full recommendations are well worth reading. Standout quotes include this on tax –

“Environmental taxation which would only affect palm oil does not appear to be possible. On the one hand, it could lead to a move to other oils with an equally negative environmental impact (copra, soya, etc.).

“On the other hand, it would pose a high risk of non-compatibility with WTO rules.”

… on sustainability criteria –

“… the introduction by France of a binding sustainability standard applied to imports of vegetable oils, particularly palm oil, is not a practical or feasible measure. But the feasibility of such a measure deserves to be studied at European level, within a broader framework.”

… and on a possible FLEGT-style deal at EU level –

[The SCC] recommends that the Government bring to the European Commission, together with other Member States, the elaboration of a new regulation which would make it possible to integrate criteria of social and environmental responsibility for imports of agricultural commodities (including vegetable oils), drawing on the experience gained through the FLEGT scheme and adapting customs tariffs accordingly (as bonuses or penalties).”

The final quote is revealing. While the SCC Report contains good news on rejecting the Palm Oil Tax and other issues – it does ask the EU to take measures that could negatively impact Malaysian Palm Oil exports.

What, then, does this mean for the Palm Oil industry?

  • Does this Report mean that the ‘Nutella Tax’ is dead?

Yes, for now. The SCC Report recommends no new taxes on Palm Oil in France. It is therefore likely that the new French Government will not immediately implement new taxes or sustainability criteria.

However, this Report is only advisory. Anti-Palm Oil MPs may still put forward a Palm Oil Tax when the French Budget is debated later in 2017.

  • Why is France deferring several issues to the EU?

The EU Commission has competence both on external trade policy, and the internal EU market. The French Government cannot unilaterally direct such policy, without recourse to Brussels.

Discriminatory taxes, tariffs, etc, would contravene the EU rules set out by the Commission. However, the French campaigners are powerful, and demand action against Palm Oil. The SCC Report is aware that these two positions are incompatible. Instead of taking such a difficult decision itself, it proposes that the French Government ignore the difficult decision, and pass the problem over to Brussels.

  • Is France planning a biofuel tax or restriction that would harm Palm Oil?

The Report suggests that measures could be taken to hit Palm Oil biofuels financially, as a way of disadvantaging Palm Oil compared to the present situation in France.

However, renewable energy policy is the competence of Brussels – not the French Government. Current EU rules – adopted in the Renewable Energy Directive (RED) – would not allow such explicit crop-based discrimination. The EU Council and Commission are now pushing for these rules to be changed: and for Governments to have the opportunity to discriminate between different biofuel feedstocks. Given that most of Palm Oil’s competitor oils are from the EU, realistically Palm Oil is the only target of this measure.

This will not only be limited to France. Other recent moves to restrict Palm Oil biofuels – such as by the Norwegian Parliament –  are probably linked to this move as well. Changing the RED rules in Brussels is the way for the French Government to achieve its objective of banning Palm Oil biofuels.

  • Does this impact MSPO at all?

The SCC Report recognizes MSPO’s progress – though it makes an error in stating that MSPO ‘is not mandatory’ (it is, as announced by Minister Datuk Seri Mah Siew Keong). The Report identifies that MSPO can assist with small farmer certification, noting that –

[MSPO has] a level of detail broadly analogous to that of RSPO … the certification requires independent auditing … has modules of traceability analogous to RSPO … the scheme covers sustainable social and economic development to a satisfactory standard.”

Finally, perhaps the most important question for palm oil producers: does this SCC Report mean that Palm Oil’s problems in France are over?

The short answer is no. The network of anti-Palm Oil activists in France has not gone away, and likely will seek to influence the EU’s FLEGT process and other Brussels-based activity.

It is also unknown how the new French Government will approach the many policy issues related to Palm Oil imports – many of the Ministers and MPs involved do not have a track record in public office, and so it is difficult to predict whether they will accept the recommendations of the SCC Report, or if they choose to pursue a different path. It is clear that in at least one area – restricting Palm Oil biofuels – the new French Government plans to be as hostile to Palm Oil as its predecessors, and perhaps even more so.

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