Categories
The Oil Palm

Malaysia’s Trade Position and Palm Oil

Trade is critical to Malaysian Palm Oil.

This means that Malaysia’s trade agreements – and proposed trade agreements – are of substantial importance to the industry.

There are two that are currently on the table, one with EFTA (European Free Trade Association – comprising Switzerland, Norway, Liechtenstein and Iceland) and the re-energised agreement with the EU.

So what’s at stake?

The Malaysia-EFTA agreement generally doesn’t get a lot of attention; the size of the market of the four countries isn’t as large as, say, the EU. However, there are significant levels of trade in components for machinery and electronic products.

Just as important will be the investment framework – banking and telecommunications are important, the former being particularly crucial to, say, Switzerland.

Negotiations commenced in 2010; the most recent round of negotiations was completed in March. However, local lawmakers in Switzerland are currently lobbying federal officials to have Palm Oil removed from the trade negotiations completely.

Palm Oil and PKO exports to Switzerland are currently exempt from import duties. This is because Malaysia maintains developing country status with Switzerland and is granted preferential duties under Switzerland’s generalised system of preferences (GSP) scheme.

A free trade agreement with EFTA will likely result in the removal of GSP status for Malaysia; this status has already been removed for Malaysia’s trade with the EU.

A duty rate for Malaysia would therefore have to be negotiated under a new trade agreement.

Local lawmakers are essentially requesting that Malaysia’s tariff on Palm Oil and related products revert back to the default value of around CHF1280/tonne (around USD1300).

Those calling for the removal have stated clearly that they are requesting this in order to protect local rapeseed growers. This is a rare example of protectionism, and discrimination, being openly admitted by the protagonists.

The MEUFTA – the Malaysia EU Free Trade Agreement – is clearly the bigger prize for Malaysia, provided it gets it right.

Two-way trade between Malaysia and the EU isn’t enormous. Malaysia’s biggest trading partners are China, Japan, the US, Singapore, Indonesia and Thailand. Malaysia has a good and not insignificant trade relationship with the EU; if anyone needs to gain the upper hand in the current global environment, it’s probably the EU itself.

The EU needs to gain a stronger foothold in the Asia-Pacific region. The advent of the Trans-Pacific Partnership (TPP) Agreement means there is a new trade bloc opening that the EU has no place in. It’s no coincidence that it has inked trade deals with Singapore and Vietnam (both of them TPP countries) and is now going after other TPP members Malaysia and Japan.

And why is this critical? Because demand growth in the EU is flat and it needs to find export markets beyond its own borders. Think of it this way: Germany needs to find new markets for BMWs, because Greece is no longer interested in buying them.

But when it comes to agriculture, the EU tends to play a very defensive game. As an agricultural producer it is inefficient; its high costs mean that as an exporter it cannot compete with producers such as the US, Brazil and Australia. This includes Malaysia, hence the bloc’s extraordinarily defensive plays against Palm Oil. There are of course exceptions, such as French wheat, finished food products and wine.

This means that the EU is only going to give ground on tariffs on Palm Oil reluctantly, if at all. There are two factors to consider in its decision making. The first is that EU trade agreements are strategic more than economic. European importers might make a clear case for greater economic benefits for the EU if Palm Oil comes in cheaper, but strategic concerns will be more important. The second is that of domestic politics; if the domestic political appetite for trade agreements wanes – as it is doing so currently – there is little upside for unpopular politicians to support lower tariffs on imports.

At the same time the EU is negotiating with Malaysia, it has signalled its intention to negotiate an agreement with Indonesia the IEU CEPA, (Indonesia-EU Comprehensive Economic Partnership Agreement). The EU will consider Indonesia the bigger ‘prize’ because of the size of the market and because Indonesia is not part of the TPP. The EU’s agricultural sector will aim for market access similar to that negotiated by Australia and New Zealand under AANZFTA. However, negotiations with Indonesia are likely to take significantly longer. There is a diminished appetite for more open trade in Indonesia because of slowing economic conditions; similar sentiment arose following the negotiation of the ASEAN-China FTA.

The EU’s primary aim will be to protect its farmers. A better deal for importers of Palm Oil won’t be of paramount importance.

So what can Malaysia do?

It can shoot for a duty rate for Palm Oil (and related products) that maintains its competitive position over competing imported oils (e.g. soybean) and EU-produced oils (rapeseed).

But this will be met with resistance; in order to achieve this, it will have to give EU producers something they’re interested in, such as access on dairy products that’s equal to that enjoyed by TPP countries such as Australia, the US and Canada.

It should also assert a strong position on non-tariff barriers. This was exemplified by the proposed massive tax raise in France against Palm Oil – a tax rasise that was dramatically withdrawn in June by the French Government, following pressure from producing countries. However, it must be expected that further such attempts to raise barriers against Palm Oil will be made. A strong Malaysian position against non-tariff barriers on Palm Oil must be a condition of the negotiation and part of the outcome. There will need to be an adequate dispute resolution process that allows for Malaysia to pursue any grievances.

There’s no doubt that a FTA with Europe could be beneficial for both Malaysia and the EU. However, it needs to be remembered what the differences in objectives actually are. The EU’s motivations are arguably more political than economic; and it will play defensively on agriculture. Malaysia is looking to increase its role in global trade in order to benefit its citizens economically; this is evidenced by its participation in the TPP, RCEP and earlier trade agreements with countries such as Chile, Japan and Australia. One thing that observers of the negotiations should keep in mind is that the EU has not signed a FTA with any major agricultural commodity exporters. In other words, observers need to temper their expectations on the agreement.

The Swiss domestic oilseed lobby has been open and transparent about their collaboration with protectionist politicians, to block Palm Oil imports. It seems that for now the Swiss Government, and EFTA more widely, understands that such protectionism cannot be reconciled with a proper trade agreement: so Palm Oil will likely not be blocked in Switzerland. The EU’s trade negotiators are unlikely to be as forthright about their intentions: nonetheless, producing countries must enter trade discussions with their eyes fully open. EU countries are currently at the forefront of taxing, regulating, and restricting Palm Oil. The EU may not admit its protectionist goals publicly, like Switzerland has done – but actions speak much louder than words.

Categories
The Oil Palm

Demonising Palm Oil Imports is a Failed Economic Strategy

How to grow the European economy? A question that has dominated European politics since the banking crisis. Speeches have been made, and solutions proffered, by Francois Hollande, Angela Merkel, Jean-Claude Juncker, and many others. The prescriptions differ, but one theme is more or less constant: trade.

By Dr Yusof Basiron, CEO of MPOC

European leaders have travelled far and wide promoting European trade, and lavish welcomes are afforded in Rome, Paris, London, to visiting delegations. This, of course, is natural: increasing European exports to the developing world will help to grow the economy at home.

However, one salient fact has been forgotten. Trade is a two-way street. Imports are also critical to a growing economy, and to a prospering relationship with new trading partners. Imports lead to efficiencies in production, provide jobs throughout the supply chains and downstream industries, and stimulate market competition and innovation.

Sadly, the experience of many importing industries into Europe is that the rhetoric on trade does not match the reality. Whether you speak to American food exporters, Argentine biodiesel manufacturers, African farmers, or the Malaysian Palm Oil producers that I represent, a similar depressing narrative emerges. Protectionism is the dominant force in Europe.

My own sector provides a telling illustration. Later this year, the EU is expected to embark once again on a revision of the Renewable Energy Directive (RED). This follows the original Directive from 2009, and a previous revision completed only last year.

The environmental group Transport & Environment (T&E) has recently “revealed” the “shocking truth” about palm oil’s use as a renewable energy fuel under the RED rules in the EU. Those who have examined the data behind the dramatic headlines will have learnt that the claims from T&E are neither shocking, nor truthful.

The core of T&E’s complaint is that the use of palm oil for biodiesel is rising. This is true – though the real increase is nowhere near the amount that T&E claims. This is not ‘shocking’, or indeed surprising, to anyone with a passing knowledge of the market or the cost of European-produced oilseeds. Why? Because palm oil is simply a superior product. If you don’t believe me, then believe the data.

Palm oil’s average yield per hectare, per year is around 4 tonnes of oil equivalent. The nearest competitor is rapeseed at only 0.79 tonnes/ha. Others are even further behind. Palm oil uses only 47 kg of fertilizer per tonne of oil (rapeseed uses 99 kg; soybean uses 315 kg). Palm oil also needs on average just 2 kg of pesticides to produce one tonne of oil, compared to 11 kg for rapeseed and 29 kg for soybean. In plain English: palm oil produces vastly more oil, using less land, fewer pesticides and less fertilizer. In a world consumed by pressures on land and resources, that difference is enormous.

It is worth noting, at this point, that all palm oil imported into the EU as biodiesel must by law under the Renewable Energy Directive meet the strict environmental criteria laid down by the EU. Malaysia is a world-leader in palm oil sustainability – and the Malaysian Government has protected over 67% of land in Malaysia as forest area – continuing a commitment Malaysia first made at the U.N. Rio Summit in 1992. This environmental protection is unmatched by any EU Member State.

However, palm oil is an imported product – and so an obvious target for protectionism. The very fact that an imported fuel has seen increased usage leads to alarmist headlines – despite the clear gains in efficiency and cost.

This is not an experience unique to palm oil. Ask any non-EU food producer and they will tell a similar tale. Technology industries and audiovisual content providers have also expressed concerns about creeping EU protectionism – and that was in the last month alone.

Imports provide jobs, grow the economy, and reduce prices for European consumers – just as many EU exports could be superior to domestically-produced goods elsewhere in the world. The conclusion is simple: successful imports should be welcomed not demonised, and those who choose instead to play the cheap card of protectionism should be roundly rejected.

Dr Basiron is the CEO of the Malaysian Palm Oil Council (MPOC). He is a lifelong scientist, with a degree in Chemical Engineering from the University of Canterbury (NZ), Masters degrees in Engineering, and Business Administration, from the University of Leuven, and a PhD in Applied Economics and Management Science from the University of Stirling.

He was Director General of the Malaysian Palm Oil Research Institute (known first as PORIM and later as MPOB) for 14 years from 1992-2006. He has been CEO of MPOC since 2007. Dr Basiron is a Fellow of the Malaysian Academy of Sciences, and was President of the organization from 2009-2012.

Categories
The Oil Palm

The Facts About Palm Oil Biodiesel

Transport and Environment (T&E), the radical left-wing NGO, last week launched a new campaign to remove Palm Oil biodiesel from the European marketplace.  T&E launched the supposed ‘exposé’ of the amount of Palm-based biodiesel in Europe. The ‘shocking truth’ of what Transport and Environment revealed was that Palm-based biodiesel use in Europe had increased over the past five years.

The timing of their campaign was curious.  In the last few weeks, a new report by ECOFYS was launched, using questionable data and pre-set assumptions to attack palm oil’s role in the EU biofuels market. This was a transparent attempt to smear palm oil biodiesel – and the baton has now been picked up by T&E.  A quiet campaign by Green NGOs has been underway for months aimed at asking the EU to introduce discriminatory and exclusionary criteria against Palm Oil biodiesel. Now, it is going public.

However, there are some significant problems with the T&E claims.

First, they exaggerated the numbers, and did it through some deliberate omissions and selective use of data. T&E claimed that all of the growth in the EU biodiesel market between 2010 and 2014 came from Palm-based biodiesel. They did this using some interesting qualifiers. They refer only to fuels based on ‘first generation vegetable oil’. This leaves out two other important growth areas: recycled oil and animal fats. Why is this significant? Because growth in the use of recycled oil is as significant as the growth of Palm Oil feedstocks, growing to roughly the same share in 2014 – see the graph below.

T&E also claim that the growth in Palm Oil biodiesel over the period has been around 606 percent. The accuracy of these figures has been disputed by FEDIOL, the European vegetable oil association.

The US Department of Agriculture figures – generally considered the most accurate of all – indicate that growth in the period was about 300 per cent. That’s either a reasonably large error from T&E, or a deliberate distortion of the facts in order to suit their preferred narrative.

Type of oil / Year 2009 2010 2011 2012 2013 2014 2015 2016
Rapeseed oil 6,300 6,700 6,600 6,150 5,770 6,170 5,970 5,970
Recycled vegetable oils (UCO) 330 500 750 840 1,280 1,610 1,650 1,670
Palm oil 550 690 700 1,050 1,640 1,620 1,630 1,620
Soybean oil 1,000 1,085 1,000 685 850 850 855 855
Animal fats 350 300 340 360 415 440 485 485
Sunflower oil 170 140 240 260 265 280 285 290
other (pine oil) 0 0 80 140 145 180 185 190
TOTAL 8,700 9,415 9,710 9,485 10,365 11,150 11,060 11,080

Screen Shot 2016-06-16 at 09.57.57

Second, the next significant problem revolves around the ‘scandal’ of the growth in Palm Oil, as perceived by T&E.

T&E maliciously implies that the Palm biodiesel used results in the destruction of rainforests. But groups such as T&E – as well as other NGOs and competing vegetable oil producers – went out of their way in Brussels to lobby for so many restrictions on the use of Palm in European biodiesel programs that it seemed at several junctures that Palm would be excluded from European biodiesel completely.

The reason it has not been excluded? The reason is because Palm Oil has proven itself able to meet these environmental restrictions – to the extent that Palm biodiesel is still capturing a significant percentage (around half) of growth in the EU biodiesel market.

It’s important to note that the EU restrictions, lobbied for by T&E and their friends, are being challenged by both Argentina and Indonesia in the WTO.  And the Americans have made it clear to both Washington and Brussels that there will no Trans-Atlantic trade deal should Europe discriminate against US soy-based biofuels.

These restrictions – already in place – are unlikely to be the last. It is an open secret in Brussels that T&E and other Green NGOs have been lobbying the EU very hard to bring in even more restrictions on Palm Oil when the revision of the Renewable Energy Directive (RED) begins in late 2016. It is clear from the calculated media campaign last week that the only result that will satisfy the Green lobby is a full exclusion of Palm Oil from the European marketplace. This is both utterly predictable and totally dishonest.

A simple assessment would show that there are strong reasons why Palm Oil is successful in the European market. It is the most efficient oilseed crop anywhere in the world – orders of magnitude more efficient than rapeseed or sunflower.  It is vastly more cost-effective than European alternatives, leading to lower prices for European companies and consumers. And, importantly, Palm Oil has proven it can meet the environmental standards placed upon it by the EU.

Third, T&E chooses only to focus on palm oil – with no mention of the fact that more than half of biodiesel use in the EU still relies on rapeseed oil, as shown by the US Department of Agriculture figures. Instead of unjustified attacks on palm oil – responsible for only 15% of the market – NGOs should be concerning themselves with the dominant (but far less efficient) rapeseed industry.

To our friends in Europe, we are monitoring carefully and aware of your campaign.  Let’s be clear: Palm Oil benefits European consumers because it is the most cost-effective, land-efficient oil crop. Palm Oil also helps Europe’s relations with South East Asia, and the EU can ill-afford to continue discriminating against our interests.

Categories
The Oil Palm

Malaysian Palm Oil Council to President Hollande: Drop the Discriminatory Palm Oil Tax

Kuala Lumpur (25 May 2016) – The Malaysian Palm Oil Council calls on Senators and MPs meeting today before the Commission Mixte Paritaire to reject the discriminatory tax against palm oil.

The CEO of MPOC, Dr Yusof Basiron, issued the following statement:

“We urge Senators and MPs to affirm the decision of the Senate and reject the discriminatory tax against palm oil. The tax hurts more than 300,000 small farmers in Malaysia alone, and is a violation of WTO and EU Trade rules.

Here is what others are saying

Food Navigator has reported on an economic analysis commissioned by the Malaysian Palm Oil Council (MPOC), which demonstrated that no economic basis existed for the proposed palm oil tax. The report’s author, University of Aix-Marseille Professor Pierre Garello, describes the claims in favour of the tax as “factually and materially wrong”.

Read the full article here.  Read the full report here.

French experts, including Cécile Philippe from the Institut Economique Molinari, have pointed out the fact that no environmental case exists for taxing palm oil. Ms. Philippe writes in La Tribune, “Palm oil is not the environmental monster that has been portrayed…it is impossible to show that this new tax increase would preserve the environment”.

Read the full article here.

Key Facts about Malaysian Palm Oil

Malaysia is the second-largest producer of palm oil, and a major exporter. The Malaysian Palm Oil Council (MPOC) represents the interests of palm oil growers and small farmers, in Malaysia.

40% of all palm oil plantations in Malaysia are owned or farmed by small farmers, who have benefited from oil palm cultivation. Palm oil has been a major factor in Malaysia reducing poverty from 50% in the 1960s, down to less than 5% today. The palm oil industry directly employs more than 570,000 people, with another 290,000 people employed downstream.

Economic Impact of Palm Oil in France

According to respected economic analysts Europe Economics, palm oil contributes substantially to the French economy. 4,600 jobs in France are dependent on palm oil imports; palm oil contributes 167m EUR in tax revenue to France; and over 323m EUR in French GDP is attributed to palm oil imports.

Environment

The allegation that Malaysia is deforesting and destroying biodiversity is inaccurate. The Malaysian Government has committed to protecting at least 50% of land area as forest – a bold and far-sighted environmental commitment that no other country has matched, including France.

This commitment by Malaysia has been recognized by the United Nations and the World Bank. Malaysia is a recognized world-leader in forest protection.

Malaysia is committed to a balanced policy that allows for both land development for agriculture (including palm oil) and forest protection. Palm oil covers just 0.03% of the world’s agricultural land, and has the highest yield of any oilseed crop.

Health & Nutrition

Palm oil is a balanced oil, with 50% saturated and 50% unsaturated fatty acids. This balance provides excellent qualities for baking and food production. Palm oil is free of GMOs, and has been used as a replacement for dangerous trans fats, in Europe.

Multiple researchers and experts in France and across Europe confirm that palm oil is safe. A study from the French Foundation for Food & Health, explained that palm oil is not hazardous, and the amounts consumed in Europe are perfectly normal.

Similarly, a study in 2014 from the Mario Negri Institute in Milan, authored by Drs Elena Fattore and Roberto Fanelli, confirmed this point. The study found no evidence that palm oil is harmful.

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The Oil Palm

Norway to Developing Countries: Do As I Say, Not As I Do

The Financial Times reports that Norway is moving ever closer to allowing toxic waste to be dumped in pristine wildlife-supporting fjords, as well as opening up new areas of Norway’s natural habitats for fossil fuel development.

Obviously this is about as hypocritical as it gets, even Norwegian environmentalists are calling it so.

This news may be surprising to some: the international media’s focus on Norway is normally that of an environmental hero: hectoring and lecturing developing countries on how they must “do better”, sponsoring awards and in particular how developing countries must forgo development, jobs and prosperity, in order to better protect the environment.

Norway’ Government, however, does not stop at mere words. Norway’s vast sovereign wealth fund – the largest in the world – is wielded as a bullying weapon, divesting from companies or industries that Norway’s Government has deemed unsuitable – the same Government that now plans to dump toxic waste into the sea, and drill for oil under pristine Arctic habitats. We’ll come back to why the Government finds these choices necessary, below.

What does this have to do with palm oil? Everything.

The Norwegian Government, and their sovereign wealth fund, have declared a war against palm oil.  They have financed a campaign in Indonesia to prevent jobs and industries from being created, they have divested from Malaysian Palm Oil companies due to “unacceptable risk of…severe environmental damage” and so on.  These actions and claims now ring hollow.

To make matters worse, unlike Norway’s source of wealth, palm oil is a renewable resource for both food and energy. It is the world’s most efficient vegetable oil, providing essential nutrients to billions around the world, including in the poorest countries. Palm oil has also been recognized by scientific institutions around the world as the most land-efficient and productive oilseed crop – meaning it saves land, as less is used in producing oils. These human and environmental benefits are real, and it illustrates the folly of Norway’s policy against palm oil.

Let’s take Malaysia’s environmental record: in 1992 at the Rio Earth Summit, the Malaysian Government promised to protect a minimum of 50 per cent of land as forest area. That commitment is still in place. The most recent United Nations FAO report on Global Forests showed that Malaysia’s current forest protection regime – safeguarding forest area of over 67 per cent – is an example to the world.

So why does the Norwegian Government tell developing countries like Malaysia do as I say and not as I do?  Here’s a possible reason: the Krone has lost significant value and the Norwegian oil industry is “in a crisis,” according to Bente Nyland, director general of the Norwegian Petroleum Directorate.  This sums it up.  The Norwegian economy is a fossil fuel economy, and it is dying. It’s no wonder the oil industry is looking for new fields to pump dry, and for new places to dump their toxic waste.

One would think this new reality that is setting in across Norway following the American shale boom would provide a lesson in humility to the Norwegian Government. Unfortunately, it probably won’t.  So in the meantime, a quick lesson in how the world really works. Economic development is a right for Malaysians just as it is for Norwegians, and that includes Malaysia’s conversion of forests for agricultural purposes like palm oil. Now that Norway’s environmental hypocrisy is clear for all to see, things have to change.

The unjustified Norwegian campaign against palm oil needs to end, in the interests of all involved. Malaysian small palm oil farmers would be free to develop their land, as is their right, without fear of Norwegian bullying – and the Norwegians themselves will have more time to focus on their own country’s environmental problems, rather than interfering abroad. It’s time to end the campaign.

Categories
The Oil Palm

Malaysian Palm Oil Council Applauds French Senate for Rejecting Discriminatory Palm Oil Tax

Kuala Lumpur – The Malaysian Palm Oil Council applauds the vote by the French Senate to reject the discriminatory tax against palm oil.

The planned tax is a violation of WTO and EU trade rules, would negatively impact France-Malaysia relations, and would contribute to putting 300,000 small palm oil farmers out of work. The effort of Senators Catherine Deroche, Catherine Procaccia and Charles Revet is a victory for common sense.

The CEO of MPOC, Dr Yusof Basiron, issued the following statement:

“Malaysia thanks the French Senate for rejecting the French Government’s misguided palm oil tax. The Senate has stood up and supported small farmers in Malaysia, who would be badly impacted by this tax”.

 “I pay tribute to Senators Catherine Deroche, Catherine Procaccia and Charles Revet, and all members of the Sustainable Development Committee, who voted in favor of removing the tax. Senators have helped not just small palm oil farmers, but the wider cause of France-Malaysia relations as well”.

 “The Senate vote should be a wake-up call, and the French Government should now drop this tax campaign against palm oil”.

Key Facts about Malaysian Palm Oil

Malaysia is the second-largest producer of palm oil, and a major exporter. The Malaysian Palm Oil Council (MPOC) represents the interests of palm oil growers and small farmers, in Malaysia.

40% of all palm oil plantations in Malaysia are owned or farmed by small farmers, who have benefited from oil palm cultivation. Palm oil has been a major factor in Malaysia reducing poverty from 50% in the 1960s, down to less than 5% today. The palm oil industry directly employs more than 570,000 people, with another 290,000 people employed downstream.

Economic Impact of Palm Oil in France

According to respected economic analysts Europe Economics, palm oil contributes substantially to the French economy. 4,600 jobs in France are dependent on palm oil imports; palm oil contributes 167m EUR in tax revenue to France; and over 323m EUR in French GDP is attributed to palm oil imports.

Environment

The allegation that Malaysia is deforesting and destroying biodiversity is inaccurate. The Malaysian Government has committed to protecting at least 50% of land area as forest – a bold and far-sighted environmental commitment that no other country has matched, including France.

This commitment by Malaysia has been recognized by the United Nations and the World Bank. Malaysia is a recognized world-leader in forest protection.

Malaysia is committed to a balanced policy that allows for both land development for agriculture (including palm oil) and forest protection. Palm oil covers just 0.03% of the world’s agricultural land, and has the highest yield of any oilseed crop.

Health & Nutrition

Palm oil is a balanced oil, with 50% saturated and 50% unsaturated fatty acids. This balance provides excellent qualities for baking and food production. Palm oil is free of GMOs, and has been used as a replacement for dangerous trans fats, in Europe.

Multiple researchers and experts in France and across Europe confirm that palm oil is safe. A study from the French Foundation for Food & Health, explained that palm oil is not hazardous, and the amounts consumed in Europe are perfectly normal.

Similarly, a study in 2014 from the Mario Negri Institute in Milan, authored by Drs Elena Fattore and Roberto Fanelli, confirmed this point. The study found no evidence that palm oil is harmful.

Categories
The Oil Palm

French Senate’s Palm Oil Tax: The Good, The Bad and The Ugly

Last week, the French Senate’s Sustainable Development Committee rejected the discriminatory tax against Palm Oil, showing their support to 300,000 Malaysian small Palm Oil farmers and more broadly to France-Malaysia relations. This was a good step in the right direction.

Upon learning of the Committee’s rejection of the tax, the CEO of the Malaysian Palm Oil Council, Dr Yusof Basiron, remarked that it was time for “President Hollande to reject the tax,” and that the “game of appeasing special interests at home at the expense of France, and Europe’s, relations in South East Asia, needs to come to an end.”

However, the rejection by the Committee was not the end of the legislative process.

The bad news for Malaysian Palm Oil is that Senators from the Communists, Greens, and Socialists, have now tabled amendments to reinstate the Palm Oil tax. Senators Evelyn Dider (Communist); Jean-Jacques Filleul (Socialist); and Ronan Dantec (Greens) have demanded that the tax passed by the National Assembly also be supported by the Senate.

These amendments will be considered at the plenary session. The Senate plenary debate will start on Tuesday 10 May and a vote is expected on Thursday 12 May.

Once the Senate passes the Bill this week – either with or without the palm oil tax – the Bill is expected to move to a Mixed Parity Committee (CMP). The CMP is a Committee composed of members of both the National Assembly and Senate, with the aim of finding an agreement. The text of the Bill will be amended during the CMP discussions. The reality of this means that even if the Senate plenary sessions this week removes the palm oil tax – the tax could still be reintroduced into the Bill at the CMP stage.

In summary, the vote in the Sustainable Development Committee was a good step in the right direction; the re-tabling of the tax by Senators was a bad retrograde move; and the vote in the Senate this week could bring the ugly reality of a Palm Oil tax back to life.

New French Attempts to Tax Palm Oil Coming

If the Biodiversity Bill doesn’t include a Palm Oil tax increase, it is likely that Green Senators will continue their attempts to reintroduce the tax in the forthcoming food products debate in the French Parliament.

Socialist MP Razzy Hammadi is currently drafting an opinion report on the taxation of food products. The report is expected to be finalized before the summer, and casual observers of the palm oil debate in Paris believe this will form the basis for a finance bill in late 2016.

Holding French Leaders Accountable

In 2013, then-Prime Minister Ayrault promised not to tax Palm Oil; President Hollande has promised not to increase taxes at all. As part of this promise, the Palm Oil tax proposal must be dropped completely. The Senate’s Sustainable Development Committee took a step in the right direction: Senators from the Communists and the Green – as well as Socialists – have taken a step backwards. Now it is up to President Hollande to follow through on his word and that of his governments

Categories
The Oil Palm

Malaysian Palm Oil Council Applauds French Senate Committee for Rejecting Discriminatory Tax

Kuala Lumpur – The Malaysian Palm Oil Council applauds the vote by the French Senate’s Sustainable Development Committee to reject the discriminatory tax against palm oil.

The planned tax is a violation of WTO and EU trade rules, would negatively impact France-Malaysia relations, and would contribute to putting 300,000 small palm oil farmers out of work. The effort of Senators Catherine Deroche, Catherine Procaccia and Charles Revet is a victory for common sense.

The CEO of MPOC, Dr Yusof Basiron, issued the following statement:

“Malaysia thanks Senators Catherine Deroche, Catherine Procaccia and Charles Revet and members of the Sustainable Development Committee who voted in favour of removing the tax.  It’s past time for President Hollande to reject the tax.  The game of appeasing special interests at home at the expense of France, and Europe’s, relations in South East Asia, needs to come to an end.”

What Others Are Saying

Food Navigator reports on an economic analysis commissioned by the Malaysian Palm Oil Council (MPOC), which demonstrated that no economic basis existed for the proposed palm oil tax. The report’s author, University of Aix-Marseilles Professor Pierre Garello, describes the claims in favour of the tax as “factually and materially wrong”.

Read the full article here.  Read the full report here.

French experts, including Cécile Phillippe from the Institut Economique Molinari, have pointed out the fact that no environmental case exists for taxing palm oil. Phillippe writes in Le Tribune, “Palm oil is not the environmental monster that has been portrayed…it is impossible to show that this new tax increase would preserve the environment”.

Read the full article here.

Key Facts about Malaysian Palm Oil

Malaysia is the second-largest producer of palm oil, and a major exporter. The Malaysian Palm Oil Council (MPOC) represents the interests of palm oil growers and small farmers, in Malaysia.

40% of all palm oil plantations in Malaysia are owned or farmed by small farmers, who have benefited from oil palm cultivation. Palm oil has been a major factor in Malaysia reducing poverty from 50% in the 1960s, down to less than 5% today. The palm oil industry directly employs more than 570,000 people, with another 290,000 people employed downstream.

Economic Impact of Palm Oil in France

According to respected economic analysts Europe Economics, palm oil contributes substantially to the French economy. 4,600 jobs in France are dependent on palm oil imports; palm oil contributes 167m EUR in tax revenue to France; and over 323m EUR in French GDP is attributed to palm oil imports.

Environment

The allegation that Malaysia is deforesting and destroying biodiversity is inaccurate. The Malaysian Government has committed to protecting at least 50% of land area as forest – a bold and far-sighted environmental commitment that no other country has matched, including France.

This commitment by Malaysia has been recognized by the United Nations and the World Bank. Malaysia is a recognized world-leader in forest protection.

Malaysia is committed to a balanced policy that allows for both land development for agriculture (including palm oil) and forest protection. Palm oil covers just 0.03% of the world’s agricultural land, and has the highest yield of any oilseed crop.

Health & Nutrition

Palm oil is a balanced oil, with 50% saturated and 50% unsaturated fatty acids. This balance provides excellent qualities for baking and food production. Palm oil is free of GMOs, and has been used as a replacement for dangerous trans fats, in Europe.

Multiple researchers and experts in France and across Europe confirm that palm oil is safe. A study from the French Foundation for Food & Health, explained that palm oil is not hazardous, and the amounts consumed in Europe are perfectly normal.

Similarly, a study in 2014 from the Mario Negri Institute in Milan, authored by Drs Elena Fattore and Roberto Fanelli, confirmed this point. The study found no evidence that palm oil is harmful.

Categories
The Oil Palm

Re Opening MEUFTA

Malaysia and the EU recently signed the Partnership and Cooperation Agreement (PCA), concluding negotiations that have been ongoing since 2010. The EU and Malaysia also recently announced that they would re-start negotiations on a bilateral trade deal.

The announcement comes after a number of false starts. The talks originally commenced in 2010; they were called off in 2012, and then there was an announcement in 2014 that they would re-start.

The question might be: why now?

The EU has recently completed trade deals with Singapore and Vietnam. The Singapore agreement – given the nature of the Singaporean economy – revolves more around services and investment rather than goods. The Vietnam agreement is yet to be approved by the European Council or the European Parliament.

But the push into Asia comes on the back of a new trade strategy being pushed by the European Commission.

In its Trade For All policy released at the end of last year, the EU made it clear that it needs to push into the Asia-Pacific region. There was a general recognition that the Asia-Pacific region – and East Asia – was an opportunity that the EU had somewhat overlooked.

This recognition was better late than never; Pacific trade surpassed Atlantic trade for the first time in 1980. This was largely on the back of bilateral trade between Japan and the US, but it meant that Europe’s role as a driver of global trade was waning.

The important focus now for the EU is to support its export economy, namely Germany, at a time when the EU’s domestic consumption is flatlining.

So, the real question around the MEUFTA is who wants it more?

A notable feature of the recently signed Trans Pacific Partnership (TPP) Agreement negotiations was that all parties wanted to be there and for the deal to be completed; there was no sense of reluctance. If one party walked away, the deal – which included two of the world’s three largest economies – could still go ahead. This is not the case with a bilateral agreement.

The current EU-Malaysia situation

Malaysia’s biggest trading partners are China, Japan, the US, Singapore, Indonesia and Thailand. All of these trading partners are taken care of under either the TPP, the ASEAN Free Trade Agreement, or the China-ASEAN free trade agreement.

The trade balance between Malaysia and the EU is in Malaysia’s favour, not Europe’s, when it comes to goods. On services, it’s in the EU’s favour but the size of the trade is about one quarter of the goods trade.

When it comes to investment, both are significant investors in each other’s economies. Again, this weighs in the EU’s favour; outward stocks are bigger than inward stocks, but it’s not a massive imbalance.  Malaysia already has investment treaties with the EU’s major economies such as Germany, France, the UK and the Netherlands.  In addition to this, the Malaysian and EU Governments now plan to add the MEUFTA.

The primary issue for Malaysia’s trade negotiators is to ensure that Malaysia receives the best deal possible, within the trade negotiations with the EU. This is clearly the normal, fundamental position of any country entering a trade negotiation.

Key Issues for Malaysia

The EU has made a point of tabling a number of non-trade issues into its trade agreements – such as the environment and human rights. A number of sources have said that this is the reason that the trade negotiations between the EU and Thailand stalled completely.

In fact, there remains the outside possibility that the EU-Vietnam trade agreement will not go ahead; complaints have been made to the European Ombudsman regarding the lack of a ‘human rights assessment’.

Malaysia needs to consider how any agreement with the EU will affect the regulations and restrictions governing the exports of its critical agricultural exports – in particular palm oil.

The key issues for Malaysia are policy measures across Europe that block market access. They currently appear in four forms.

The first could be best described as ‘environmental’ barriers to trade.

The EU has already attempted to impose more onerous conditions on imports of timber from tropical countries via its ‘voluntary partnership agreements’ (VPAs) on timber under its Forest Law Enforcement, Governance and Trade (FLEGT) program. And the idea of a FLEGT-type arrangement for other commodities has already been floated.

Could a FLEGT-type arrangement for palm oil be pre-empted in MEUFTA? And could it give Malaysia something of an upper hand in Europe? Similarly, could an Indonesian arrangement give Indonesian palm oil producers an upper hand?

If anything, a government-to-government arrangement would necessarily make national certification systems – such as the Malaysian Sustainable Palm Oil (MSPO) – an absolute precondition of any arrangement. This would be the baseline for Malaysian negotiators.

However, there may be resistance to this from the European Parliament. The VPA arrangement between Indonesia and the EU – which is still not operational – has been lobbied against by a number of European Parliamentarians who think the standards are not ‘green’ enough. This should not deter Malaysia from pursuing its strategic interests: the internal politics in Brussels should be managed by the EU itself.

The second issue should be the ongoing tax discrimination against palm oil.

This has been the issue of the day in France, with the introduction of a tax on any product containing palm oil that isn’t considered ‘sustainable’ (how that will be defined is not clear). Similar proposals have been put forward previously in the Netherlands, Belgium and Italy. But the introduction of such a tax is a slippery slope, particularly when it is a measure that is clearly designed to offer local oilseed growers protection against imported palm oil, which is a superior and more competitive product.

It is highly likely that the French tax won’t withstand WTO scrutiny, but such a measure is a signal that European lawmakers are not negotiating in good faith. In short, it is clearly in Malaysia’s strategic interest that any Malaysia-EU trade agreement should prevent the imposition of any kind of tax measure against palm oil.

The third issue is the EU’s refusal to properly implement EU laws to protect Malaysian palm oil. Palm oil products across Europe are being attacked through the use of No Palm Oil labels. The labels, used by several companies primarily in France and Belgium – including major retailers such as Delhaize and Casino – are discriminatory and have been shown to be illegal under multiple existing EU laws on advertising and unfair trading. A court in France has already ruled that similar anti-palm oil campaigns breached existing advertising rules.

The EU is not enforcing the laws, currently, which is tantamount to supporting the anti-palm oil labelling efforts in Europe. The labels are a key barrier to fair trading for palm oil inside the EU single market. It is strongly in the interests of Malaysia’s palm oil industry that the Malaysia-EU free trade agreement stipulates that laws on labelling will be fully and effectively enforced.

Finally, on biofuels, and in particular the EU’s Renewable Energy Directive (RED).

The RED was established as a means to increase the uptake of renewable fuels in Europe by mandating that a percentage of renewable fuel be used in all sectors. For liquid fuels, this meant for the most part ethanol-blended fuels and biodiesel fuels.

Mandating the use of these fuels in effect provided subsidy for producers. In Europe, this includes rapeseed growers, which have been struggling against rising imports of better-value palm oil for use in food and other applications. However, the mandate also applies to imported feedstocks and fuels, which means that lower-cost imported biofuels (and their feedstocks) also have access to the subsidy. To get around this, the EU introduced a series of arbitrary technical measures that discriminate against palm oil under the RED. This measure is currently under challenge in the WTO.

As with the differential tax, this does not provide a signal of good faith to Malaysia.

The EU is often described as ‘Fortress Europe’ in terms of trade policy, an image the EU is trying to cast off. The EU’s Trade For All document begins by describing trade as a two-way street.

But Europe cannot continue to play a duplicitous game around trade. The EU must not continue to fund NGOs that argue for arbitrary barriers to trade for commodities they object to, and EU countries must cease introducing discriminatory tax measures and protectionist policies. This would be consistent with good faith trade negotiations. If the EU continues to support anti-palm oil efforts, it is clear that the trade negotiations are not based on good faith.

If Europe wants to gain a foothold in Asia, it needs to start walking down that ‘two way street’ – and Malaysia, must ensure that includes no more discrimination against palm oil imports.

Categories
The Oil Palm

How the French Palm Oil Tax Could Hurt French Trade

The French palm oil tax, as passed by the National Assembly in March, is a discriminatory proposal, that would harm the relations between France, and Malaysia.

Palm oil is a major commodity export for Malaysia, and for Indonesia, whether in the form of crude palm oil itself (CPO), oleochemicals or other products. The tax proposed by France is a serious and unfriendly act that could have negative consequences for jobs and rural development in Indonesia and Malaysia, and possibly other palm oil producing countries around the world.

In which case, the question needs to be asked: if Malaysia were to respond to the tax, through trade policy instruments, what would be the options at their disposal?

There are a number of options that would be available, if palm oil producing countries chose to respond.

Suspend the Malaysia-EU free trade negotiations. Negotiations for the Malaysia EU Free Trade Agreement (MEUFTA) have been on and off since around 2006. They were suspended in 2012 in the lead-up to the Malaysian elections of that year, but we re-started just a few weeks ago.

Two-way trade between Malaysia and the EU isn’t enormous. However, the EU is acutely aware that it is missing out on trade in the Asia-Pacific region, particularly with the advent of the TPPA agreement between the Pacific countries, led by the USA. Agreements with countries such as Malaysia are of great political significance for the EU. If the EU is rebuffed by Malaysia, it would be a considerable setback for its broader trade policy.

Like-for-like targeting of French products. Malaysia imports significant quantities of bulk dairy commodities in the form of skim milk powder and whey milk powder; significant quantities come from France and are subject to import tariffs. Imports from New Zealand and Australia are tariff-free because of the ASEAN-Australia-NZ Free Trade Agreement. The forthcoming Trans Pacific Partnership Agreement will reduce tariffs on those products to zero when coming from the US and Canada. In other words, Malaysia would be able to switch away from importing these French products – and can switch to other geographic suppliers with no problems.

Reconsider government procurement. Government procurement procedures are not subject to WTO rules, with the exception of the small number of countries that have signed up to the Agreement on Government Procurement. It’s no secret that government tenders often set local content rules in tenders that will favour domestic firms or preferred supplier countries.

France’s major exports include transport services and engineering services. Malaysia – like other countries in the region – has a number of infrastructure developments underway. Among these is the Klang Valley Mass Transit Project. One of the major successful tenderers in the first phase of the project was the German transport company Siemens.

Later stages of the project are now coming up for tender evaluation. France’s export promotion authority has been pushing French firms to participate in the tender process. It would be relatively simple for the tender process to be moved away from French firms, making it very difficult for them to participate or succeed.

Aviation exports. Similarly, defence spending is an area that is not governed by WTO rules and, again, military and aviation exports are significant exports for France. Like government procurement, defence spending is often politicised. A move to reconsider defence contracts in, say, aviation or naval vessels – as a response to the French palm oil tax – would be a considerable setback for France’s exporters. Both have been under considerable scrutiny in the French media, with accusations of the Hollande government bungling export deals.

Conclusion

This is a thought experiment, for now, as the palm oil tax still has not become law in France: the Senate must still consider the proposal. If the tax does become law, and impacts producing countries such as Indonesia and Malaysia, there are clearly several options for a trade-based response.

The central question now is: Will France’s lawmakers continue to move ahead with a tax that could harm the economies of France, Malaysia and Indonesia? French Minister Matthias Fekl is in South-East Asia – specifically Indonesia and Singapore – this week, promoting good relations between France and the region. If the French Government is serious about good relations, the first step is to drop the discriminatory and damaging palm oil tax.