The Oil Palm The Oil Palm Unclassified

TRADE FOR ALL: The Implications of EU Trade Policy for Malaysian Palm Oil

The EU’s record on trade is patchy. It garnered the reputation as ‘Fortress Europe’ from its agricultural policies and technical standards, which were designed to shield the bloc’s farmers from international competitors.

More recently, it has looked to environmental regulations and health measures as a method of erecting regulatory barriers – mostly to favour European products over imports, or to reduce the competitive advantage of products from outside of the EU. These include measures to restrict imports of timber and paper from Asia and restrictions on imports of US beef.

Despite this, the EU has attempted to maintain its trade bona fides; it wants to be seen as a reliable trade partner. It made much of its ‘Trade For All’ strategy when it was first published in 2015, which expanded on its previous 2012 trade strategy. Both expand the notion of what trade policy should set out to achieve. It should, according to the EU, foster sustainable (economic, environmental and social) development, not just economic development.

For this reason, the EU has incorporated and aggressively promoted a range of policy concerns that are well outside of the trade frame. These include human rights, environmental management, climate change, and social justice. It has included such issues within Free Trade Agreements, publicly pressured partner countries, and used a variety of other means to promote these concerns as part of ‘trade policy’.

There has also been a shift in focus of EU trade officials towards Asia. In 2012, the EU paid almost no attention to trade with Asia.  This has changed. With a pending FLEGT regulation for Palm Oil from Brussels, what do these two directions in policy mean for Malaysian Palm Oil?

First to Malaysia. It’s apparent from the Trade For All document that the EU now considers Asia to be a priority. This is a change. Previously, the EU’s trade policy relationship with Asia was very much reactive. The maintenance of the market share of European companies (mostly manufacturers) within the European market was the priority.

However, as consumer demand within the EU waned, European companies (mostly German manufacturers) have struggled. Exports outside of the Eurozone became a priority. Asia, particularly China, Korea and ASEAN, with growing middle classes and consumer demand were the obvious candidates. Access to ASEAN markets – including Malaysia – has become a central plank of the EU’s export strategy. The emergence of the Trans Pacific Partnership Agreement and Regional Comprehensive Economic Partnership put additional pressure on Europe to re-focus towards Asia. Trade agreements with ASEAN countries have become a priority.

In some ways we’ve been here before when the EU and ASEAN launched inter-regional negotiations in the early 2000s. But in 2008, the EU effectively called off the negotiations. The reason was that it objected to Myanmar’s record on human rights. The EU stated any agreement couldn’t include Myanmar, leading to an impasse.

Since then, the EU has instead chosen to pursue bilateral deals with individual countries as “building blocks” for a ASEAN-EU agreement. This includes Vietnam and Singapore. Both the EU and Malaysia have stated that negotiations will re-start in 2017 following a stocktaking exercise – this is further underlined by the Trade For All document.

The key difference now is that EU companies need to find new export markets for goods and services, and they need to invest in markets that will generate growth. The relative size of Malaysia’s middle class is bigger than any other in ASEAN with the exception of Singapore. The Asian Development Bank predicts Malaysian household consumption will continue to rise.

But EU exporters face considerable competition in Malaysia. Germany’s biggest export to Malaysia is circuitry and electronics, but its exports are massively outweighed by Asian and Pacific trade partners. It is a similar story for many other European exports, including agriculture and cars (dominated by Japan). As Asia-Pacific trade relations become more integrated, either under the TPP or by ongoing reviews of existing trade agreements, access for EU exporters will become more critical.

This means that Malaysia and other ASEAN nations will have greater leverage when negotiating European market access.

How will Palm Oil be handled during these negotiations? Anti-Palm Oil campaigners will use the negotiations as a platform for demonising Palm Oil and further demonising the product among European consumers and purchasers. And even those that are supposedly supportive of Palm Oil in Europe would certainly attempt to use any negotiations with Malaysia (or Indonesia) to secure inclusion of special conditions for Palm Oil exports leaving for the EU.

At the same time, Malaysia could use negotiations to call on Member States – such as France – to wind back any proposals that would place onerous burdens on Palm Oil imports.  For example, Malaysia’s deputy trade minister stated that negotiations will include a response to and discussion of the European Parliament Resolution that was critical of Palm Oil.  For that matter, Malaysia can insist any agreement recognise MSPO.

In terms of what a negotiated agreement would look like, the EU-Vietnam agreement is a good indicator.

In the agreement, there is a commitment that neither country will weaken environmental laws in order to promote trade or investment or introduce an environmental regulation as a disguised restriction on trade.

There’s also an agreement that countries will work together to prevent technical barriers to trade and recognise each other’s technical standards – in Malaysia’s case this would include sustainability standards such as the Malaysian Sustainable Palm Oil standard.

The significance of such clauses is that they prevent backsliding by either party. So, if recognition of MSPO is part of the agreement, it becomes very difficult for the EU to renege on any recognition.

Underpinning these is a dispute resolution mechanism that parties can use if things go awry, if for example a member state introduced a law or regulation that can be considered a trade barrier.

So, if a regulation or a standard is introduced and can be considered to conflict with EU rules, there will be a mechanism for Malaysia to complain about it.

Similarly, the EU’s laws require that member states comply with the EU’s competencies as they relate to trade and harmonised standards.

The problem for Malaysia and Malaysian Palm Oil isn’t so much the outcome of the negotiations. Trade agreements are a negotiation and they should be of mutual benefit. The problem is the mud-slinging that will occur on the way to an agreement.