Will the Future UK-Malaysia Partnership be Positive for Palm Oil?

The UK and Malaysia have a long and distinguished diplomatic and economic relationship. The likelihood – and expectation – is that the partnership will grow even further as the UK leaves the European Union and focuses more on Asia and the fast-growing economies of the developing world. At least, this is the rhetoric emerging from the UK government in London. The question for Malaysia – and for the Palm Oil sector – is whether the reality will match the rhetoric.

The UK Prime Minister’s Trade Envoy – Richard Graham MP – is visiting Malaysia this week to continue discussions on the future UK-Malaysia partnership. Trade and investment are likely to be at the top of the agenda. The UK has been open about its intention either to join as a partner to the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership (CPTPP) – the proposed trade pact between eleven countries, including Malaysia –  or alternatively to engage in bilateral deals with the CPTPP members. This would include a new trade deal with Malaysia in the coming years.

The potential is obvious. The UK’s exports to Malaysia in 2017 were 3.8bn EUR and those exports support over 30,000 jobs in the UK according to data from the economic consultancy Copenhagen Economics, in a report commissioned by the Malaysian Palm Oil Council. UK exports to Malaysia include high-end electronic components; cars; aeroplanes and aeroplane parts; whisky; medicines; and precious stones. These are high-value industries with significant employment across the UK, and key drivers of economic growth. Many would expect significant increases in trade after the UK leaves the EU.

The opportunities for a new trading relationship are clear: but this must mean opportunities on both sides.

For Malaysian Palm Oil, the trade numbers are only one part of the picture. As with many discussions in modern trading relationships the focus will not be only about volumes. It will be focused on non-tariff barriers. These are the real barriers to trade and are the main manner in which European nations – including the UK – has tried to restrict and harm Malaysian Palm Oil. It is axiomatic that any UK-Malaysia trade deal – or Malaysia’s support for the UK’s entry into CPTPP – would need to include commitments to non-discrimination against Malaysia’s leading agricultural export.

What would that mean in practice?

The UK was deliberately a bystander in the recent RED debate and ended up not opposing the RED ban on Palm Oil until the very last moment. This was primarily a function of internal UK politics – PM Theresa May did not want to upset the EU Parliament due to the delicate state of the “Brexit” negotiations.

Nevertheless, the UK’s stance was not helpful for Malaysia. 650,000 Malaysian small farmers were put at risk by the UK’s months of inaction and refusal to oppose the EU’s Palm Oil ban. Whereas others – France, Italy and Spain  – were vocal in their early and consistent support opposing the ban.

Given this inauspicious past six months for UK-Malaysia relations on Palm Oil, the question now is this: will the UK realise the importance of Palm Oil for Malaysia’s trade, and act accordingly?

The starting point is obvious. The EU is planning to push through ILUC and HCS factors for biofuels by February 2019. The factors will designate “High Risk” vs “Low Risk” biofuels: with heavy lobbying underway from MEPs and European industry to include Palm Oil as “High Risk”. It’s likely that a deal has already been done: and this is simply a calculated plan to impose a disguised ban on Palm Oil biofuels in Europe. EU Ambassadors to Malaysia have actually admitted as much, publicly.

This leaves the UK in a key position. Will the UK government support Malaysia’s economic development priorities or will they back the EU’s latest effort to ban Palm Oil? In February 2019, when the ILUC and HCS criteria will be determined, the UK will still be a member of the European Union. It will have a vote, either for or against the EU’s plans.

A new independent trade policy will require the UK prioritising its economic partnerships around the world, including in south-east Asia. This, in turn, will require a new approach in London. For years, UK politicians have been captured by anti-development NGOs such as Greenpeace, Oxfam and WWF – whose goal is to stop Palm Oil exports to Europe. Or – at the very least – for those NGOs to control the Palm Oil supply chain. Successive UK governments have supported the NGOs in this approach – DEFRA, the UK’s Environment Ministry, has made no secret of its wish to have more control over how Palm Oil is produced. This is despite the fact that Malaysia has pioneered adoption of the Malaysian Sustainable Palm Oil (MSPO) standard, in accordance with international ISO standard-setting criteria.

There is a prejudice among these groups and government departments that Palm Oil is ‘bad’ wherever it comes from, regardless of the robustness of domestic regulation and institutions that underpin its sustainable production. This approach will not help the UK with future trade agreements. Malaysia will be seeking improved access for Palm Oil in any future agreement as a minimum, and will expect recognition of MSPO. Anything less will rile Malaysia’s 650,000 smallholders.

Richard Graham MP, along with the High Commissioner Vicki Treadell, and other well-informed officials, no doubt are aware of this. However, Mr Graham’s recent Twitter claim –  that he views Indonesian timber as a template for how the UK will engage with Malaysian Palm Oil – is unsettling. We’re presuming that Mr Graham is referring to the agreement Indonesia signed with the EU: its Voluntary Partnership Agreement (VPA) under the EU’s FLEGT (Forest Law Enforcement, Governance and Legality) Program. This comparison is factually inaccurate.

The FLEGT-VPA agreements surrounding Indonesian timber were focused on legality (in other words, ensuring that timber exported to the EU came from legal sources). Malaysian Palm Oil does not have any comparable legality issues. In fact, some in Malaysia may find that suggestion insulting.

Malaysia has a strong legal and regulatory framework for Palm Oil – arguably the strongest in the world. Land tenure, legal systems, and other structures all exist. Multiple bodies oversee and enforce this framework – including MPOB, MPOA, MTC, FRIM, and MNRE. Malaysia also has developed the MSPO (Malaysian Sustainable Palm Oil) standard – which is not built on arbitrary criteria, but is developed in line with international ISO standard-setting best practice.

Mr Graham is conflating legality (e.g. FLEGT-VPA) with sustainability (e.g. RSPO; HCS; etc). The latter is much more complex – and more political. Why should arbitrary NGO demands be given equivalence with international standard-setting norms? Malaysia’s regulation, and best practice in standard-setting deserves support from the UK, rather than skepticism.

A major concern is that, instead of supporting Malaysia’s commitment to legal & regulatory oversight and standard-setting, the EU is more concerned with finding new ways to undermine Malaysia’s exports. The ILUC & HCS proposals are clear examples of a discriminatory agenda that ignores and tramples on Malaysia’s pre-existing regulations.

This week would be an opportune moment to reaffirm the UK’s commitment to supporting Malaysian small farmers. This should include a confirmation that the UK Government will oppose and vote against any future EU discrimination that targets Malaysian Palm Oil. The ILUC and HCS Regulation will be the first major test of that commitment.