Importance of G2G Recognition of Standards

Sustainability certification for commodities is growing. One think-tank estimates that there are around 400 sustainability initiatives for different commodities around the globe, ranging from cocoa to beef. Palm oil is no exception. Roundtable on Sustainable Palm Oil (RSPO) certification is one of the most widely known standards in the global marketplace, but there are no fewer than four sustainability standards for palm oil – more than any other oil crop.

Systems such as RSPO started existence as voluntary standards; they are essentially business-to-business standards that were designed to assure palm oil purchasers that palm oil was produced sustainably.

RSPO was established in 2004 as European concerns around deforestation in Southeast Asia first emerged. However, the debate has become considerably more complicated since then. The most significant development has been lobbying by various NGOs and competing oil producers to have governments regulate the international trade of palm oil for sustainability reasons.

The most developed of these was a proposal by French legislators to place sustainability criteria on palm oil; palm oil that did not meet sustainability criteria would be subject to higher rates of taxation. This initial proposal was rejected by the French parliament, but lawmakers established a panel to determine these sustainability criteria.

Similarly, the EU is talking about a trade and environment agreement with palm oil exporting countries – a voluntary partnership agreement (VPA). This would be similar to agreements on forest products that place more stringent conditions on imports of timber that don’t meet certain environmental conditions.

The crux is what these sustainability criteria and environmental conditions will look like. Consider the following producers exporting to the EU: one with RSPO-certified operations; another with MSPO-certified operations; another with no certification from SE Asia; and another from Central America with no certification.

How should the ‘sustainability’ of each of these different exports be considered by governments when determining taxation policies or import conditions?

Some EU officials and member state lawmakers want to establish sustainability criteria to be the basis of such a determination.

The closest parallel here is the EU’s Renewable Energy Directive. The European Commission established a set of rules that determined which biofuels could be considered as counting towards a member state’s renewable energy target. The imposition of sustainability criteria prompted Argentina to launch a WTO action against the EU.

However, the key difference with palm oil is that the policy proposals specifically target palm oil, and no other oilcrops or commodities.

Given that the palm oil industry and governments of palm oil producing countries have established consensus-based standards for sustainable palm oil, it would make sense for governments to recognise these standards in policy. At the very least, it would avoid a potentially messy trade dispute with Malaysia and Indonesia at a time when the EU is attempting to forge closer trade relations in the ASEAN region.

So what would ‘recognition’ look like?

Under the RED, the legislation allows for recognition of voluntary and government schemes. For palm oil this includes the International Sustainability and Carbon Certification (ISCC) scheme and the RSPO RED scheme. Government schemes for palm oil (Malaysian Sustainable Palm Oil and Indonesian Sustainable Palm Oil) have not been recognised. One government-backed scheme, the Austrian Agricultural Certification Scheme, has been recognised.

However, there are key differences between what RED is attempting and the proposed sustainability measures for palm oil. RED is attempting to boost the use of renewable fuels over fossil fuels and reduce direct and indirect emissions, but the palm oil measures effectively seek to regulate the production of palm oil in other countries, notably Malaysia and Indonesia, and make it ‘sustainable’.  Sustainability under this broader definition would incorporate social, environmental and economic measures.

The first problem for European policymakers will be determining whether environmental, social and economic policies in other countries are ‘sustainable’ given their circumstances – and whether this is remotely appropriate.

The national standards that have been introduced – such as MSPO – are appropriate, particularly as they are in line with national development goals and are produced under a democratic system. They are also mandatory. This is significant given that European sustainable palm oil groups are calling for compliance with these schemes and recognising that there is room for multiple schemes. An endorsement of a national scheme that is mandatory is effectively an endorsement of exports from those countries.

Would traceability need to be a part of this? Not necessarily. If palm oil has been produced under a standard and that standard meets expectations, then traceability is just an additional cost. No one is calling for traceability for sunflower oil, for example, and nor are they demanding traceability for beef cattle.

The second problem for European policymakers, will be assessing whether enforcement and compliance of any laws and regulations is up to the task. Countries may have strict  laws on, say, fire management, but have no capacity to enforce them.

And this is precisely where both national and voluntary standards and certifications are useful.

Rather than attempting to build a new set of regulations from the ground up, the EU would be better off using what is in place. If it is seeking assurance on compliance, it can use certification processes. In other words, RSPO, ISCC and national standards such as MSPO are going to be as good a starting point as any.

So how would this work under a broader trade arrangement?

Under World Trade Organisation rules, countries are generally blocked from introducing technical regulations on imports that are too onerous (technical barriers to trade – TBT).  A sustainability regime may fall under these rules. But there are potentially better solutions. These could include using the Malaysia-EU FTA negotiations to set out a dispute resolution procedure for TBT, or a memorandum of understanding between the EU and Malaysia on the recognition of sustainability standards within any forthcoming legislation or regulation.

But it also needs to be remembered that FTAs are supposed to reduce trade barriers and make trade between countries easier, not more difficult.

Some observers are calling for a ‘comprehensive’ sustainable development chapter; there is clearly a misunderstanding here of what trade agreements can and should do. Trade agreements do not permit one country to regulate another country’s production methods or standards for a ‘sustainable’ result. Nor do they provide ‘aid’ that changes production methods, or mandate how one country should manage its natural resources. What they can and should do is regularly monitor the implementation of the agreement to ensure that ‘sustainable development’ isn’t going backwards.

By some accounts a palm oil chapter is being discussed in the MEUFTA. NGOs and sustainability groups should not consider this a bandwagon for their grievances, and nor should some groups see it as an opportunity for protectionism. It should be a precise and technical document that ensures trade of palm oil between Malaysia and the EU is easier, not more difficult – that is the solution that will work for both sides.

It’s arguably easier for governments to acknowledge each other’s standards. But recognition of sustainability standards doesn’t need to be difficult. The EU has already shown how easily it can be done.

#Policy News