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Malaysia Preps for WTO Fight Over Palm Oil

The Malaysian Government has posted an aggressive response to the EU’s revised Renewable Energy Directive (RED) at the World Trade Organization.

Malaysia’s representatives circulated their response to all WTO members in December following the Technical Barriers to Trade (TBT) Committee meeting in November.

The response highlighted a number of points in particularly strong language, and made clear that the government of Prime Minister Dr Mahathir Mohamad now intends to take a more aggressive approach in response to EU attacks against Palm Oil exports.

First up was indirect land-use change (ILUC).

“… the indirect land use change methodology is a debatable pseudoscience modelling approach, and it is not a recognised international standard. Indirect land use change cannot be measured but is based on many assumptions which resulted in uncertainties and controversial outcomes. For that reason, Malaysia seeks clarification from the European Union on the adoption of such questionable methodology as part of the RED II for implementation post 2020.”

The Government’s points follow long-standing criticisms of ILUC as a methodology. These criticisms have at times come from the EU’s own commissioned studies on ILUC.

Second is the way in which the EU has handled its approach to informing fellow WTO members about the forthcoming regulations, and the fact that the WTO’s TBT agreement requires members to inform other members of any measure that might impact trade that isn’t based on an international standard.

The EU hasn’t been particularly forthcoming about how it will approach ILUC. We suspect that this is in part due to the revised RED itself. What a regulation based on ILUC will look like is uncertain, although we do know that it will be contained within a Delegated Act drafted by the EU Commission. Separating ‘high risk’ and ‘low risk’ ILUC commodities – which is the stated aim of DG Energy in preparing the Delegated Act – is something that has never been attempted before.

Third, Malaysia points out that the ILUC methodology is likely to be ‘more trade restrictive than necessary’. This is a crucial point when it comes to technical regulations – and other measures – in the WTO.  Governments are permitted to introduce measures that seek to introduce technical  benchmarks, protect the environment or human health, but these measures need to actually solve the problem and not simply be used as a tool to restrict trade.

Fourth, Malaysia points out the critical relationship that Palm Oil plays in poverty alleviation and livelihoods in Malaysia, with around 40 per cent of cultivated area being held by small farmers.

This leads into Malaysia’s broader commitments to sustainable development under the Sustainable Development Goals under the UN, as well as the country’s domestic goals. This includes, among other things, supporting more than 650,000 smallholders, maintaining 50 per cent forest cover throughout the country, and commitments under the United Nations Framework Convention on Climate Change (UNFCCC).

The significance of the Malaysian communication is twofold.

First, not just that it was raised at the TBT meeting, but also that Malaysia is being unrelenting in maintaining pressure on the EU.

This is the third time that Malaysia has raised this point within the TBT since the revised RED was passed by the European Parliament, and it is also the third occasion on which the EU has not been forthcoming with details on RED implementation.

In continually raising the problem, Malaysia is also ensuring and galvanising opposition from other Palm Oil producing countries, including Indonesia, Thailand, Colombia, Papua New Guinea and African nations. In addition, raising the issue will also ensure the support of countries that produce soy-based biodiesel such as Argentina, which has also found itself at the wrong end of EU biofuels policy.

For all of these countries, it is readily apparent that the ‘deforestation criteria’ being proposed by the EU are arbitrary and political. Singling out an entire crop such as oil palm under these criteria regardless of its environmental, legal or social context indicates how political the process is.  Put another way: why should palm plantations that were established 30 years ago be considered as ‘high risk’ under the criteria? For Malaysia, and all palm exporting countries, ‘high risk until proven otherwise’ is unacceptable.

Second, the communications call into question the consultation processes undertaken by the EU to engage with the governments of Malaysia and Indonesia to date.

Malaysian officials have met with EU officials in Geneva, Brussels and KL in order to ensure that the EU has the absolute clearest picture on Malaysian Palm Oil. This includes ensuring that European officials understand clearly that Malaysian Palm Oil shouldn’t be considered ‘high risk’ under the RED’s Delegated Act, particularly given the mandatory nature of MSPO.

Malaysia is now keenly aware that the EU is in the process of certifying US soybean exports as ‘low risk’ for the RED. This is taking place under the auspices of the US Soybean Sustainability Assurance scheme. The optics here are simple: the EU is giving US soybean a free pass while regulating Palm Oil out of the market.

The ongoing silence of the EU in the WTO calls the EU’s consultations with Malaysia into question. Were these good faith negotiations or was the EU simply going through the motions?

The next TBT meeting is in March, and Malaysia will have even more to object to then, including France’s new finance bill, which openly discriminates against Palm Oil. As trade officials say, “We look forward to the response of the EU.”