Malaysia looks for palm friendly UK FTA
Malaysian Prime Minister Dr Mahathir Mohamad has called on the UK to commence negotiating a trade agreement with Malaysia once the Brexit process is completed.
Unsurprisingly, he has specifically called on the UK to take a different approach on palm oil when it comes to renewable fuels.
The UK doesn’t need to maintain the same approach to subsidising renewables that EU member states do once it has succeeded. The UK is likely to be able to set its own approach on renewable fuels.
One of the difficulties that the UK may face once it leaves the EU is ensuring a low-cost energy supply that maintains its climate policy ambitions.
Unlike many EU member states – e.g. France – the UK does not have a political need to subsidise large number of oilseed growers.
The RED subsidy as it is currently applied guarantees a market for biofuels, particularly biodiesel. The UK will need to consider who this guarantee is for.
EU rapeseed, US soybean – as well as Malaysia and Indonesia palm – farmers will consider the future UK biodiesel market to be important. All will be seeking a level of preferential treatment in the UK market.
What will tip the scales is what any of these countries or blocs can offer in return.
Malaysia can – and should – offer a more liberalised investment regime. Its tariffs on goods are already relatively low, and UK manufacturers would struggle to compete with any number of low-cost producers in the ASEAN region. It would also give the UK a low-cost base in the region that can’t be matched by Singapore.
Institutionally, are common elements in political and legal structures. Historically, there are clearly strong ties.
One of the motivations for Brexit was that it would give the UK an opportunity to liberalise its trade and investment regimes without the yoke of the EU’s agricultural sector. Malaysia has given the UK a clear opportunity in the region that will give it a jump on Brussels.
RED Update: A trade war?
Brussels is in the middle of its summer break, so there is very little movement on the revised RED in terms of negotiation or Commission appointments.
However, from the Indonesian end there has been a flurry of movement.
- Indonesia has openly declared it is seeking retaliatory tariffs on EU goods, particularly dairy products; as noted previously by Palm Oil Monitor, Indonesian purchasers should be able to switch suppliers of any number of goods to Australia and New Zealand given that Indonesia already has a trade agreement under the Australia-NZ-ASEAN FTA;
- President Jokowi and Prime Minister Mahathir have publicly stated that they will step up their cooperation efforts and are talking about using other international legal forums. This could also mean the European Court of Justice;
- Not exactly RED, but UFOP has declared that the new countervailing duties levied on Indonesian biodiesel are ‘too low’ and ‘won’t stop’ imports of Indonesian biodiesel getting to the EU.
Memo to UFOP: the countervailing duties aren’t meant to ‘stop’ the biodiesel imports – in theory, they’re supposed to be a countervailing force against any real or imagined subsidies (even if the existence of those subsidies is in dispute). If UFOP companies can’t compete with biodiesel imports, maybe they’re in the wrong business.
Commentators are now calling this another ‘trade war’. We’re a little reluctant to use that term given the gravity of what’s taking place between the US and China, or Korea and Japan. However, it is becoming more apparent that Brussels still has virtually no understanding of the magnitude of the slight it has delivered to Indonesia and Malaysia.
As we’ve pointed out several times, palm oil is ASEAN’s largest agricultural export, and Indonesia’s largest export across the board.
The dispute – particularly with the additional levying of countervailing duties – has now taken on a bigger political dimension.
A new US battlefront for palm oil?
FELDA, one of the world’s largest palm plantation companies, appears to be on the brink a battle with US NGOs, including Rainforest Action Network (RAN).
RAN and the International Labor Rights Forum issued a statement last week calling on US Customs and Border Protection (CBP) to impound FELDA’s palm oil imports in the US based on allegations of labour rights violations.
At the heart of the complaint is a series of rules that were introduced under the Obama Administration.
The Obama Administration amended Section 307 of the Tariff Act in 2016 to allow the seizure of goods it suspects are made with forced labour. The changes targets specific companies and specific merchandise rather than looking at goods made in a particular country.
Anyone – a law form, NGO or individual — can submit a complaint or petition to Customs and Border Protection (CBP), and goods can be withheld for as long as three months before being forfeited. The evidence required, according to CBP, is “information that is reasonable but not conclusive”.
If goods are suspended, the company exporting the goods needs to make its case to CBP.
So what’s actually happening?
RAN is joining a labor complaint against FELDA Global Ventures (FGV), which was originally filed in June by law firm Grant and Eisenhofer (G&E).
G&E is a mid-sized US law firm based in Delaware, which specialises in securities lawsuits. It’s also heavily aligned with the Democratic Party.
The interactions between shareholder activism, legal forums and NGOs are often complex in the US.
Hedge funds, retirement funds and private equity firms may engage a law firm to commence regulatory complaints against a company in order to push down its share price, or force a management change. This may also involve enlisting a NGO or other activist group to give the requested changes publicity.
A conspiracy theorist – or a business commentator – might look for a party that could gain from FGV losing its US business. This could include a rival firm. If FGV shipments were impounded, they would just be replaced by palm oil from another firm.
Although the G&E case appears to be aimed at FELDA, there are broader elements at work. The main shareholders in FGV are based in Malaysia – there is only one major FGV shareholder in the US, with a holding of around 1.7 per cent.
G&E’s pro bono practice (the ESG Institute) has strong institutional ties with the New York Pension Funds, CERES, and other activist shareholders and activists.
What happens next?
The fact that RSPO has re-certified FELDA’s plants that were the subject of the original complaint should end the G&E complaint with US authorities.
It’s not entirely clear what G&E’s endgame is here. Do they want US companies to switch to other suppliers? Or to stop using palm oil altogether?
It’s also worth noting RAN and ILRF joined the complaint after FELDA re-gained its RSPO certification.
RAN in particular regularly receives several millions of dollars to campaign against palm oil use in the United States. They may just be spending that money and looking busy.
But with this and new deforestation regulations in the US, it’s clear that the US is emerging as a new policy battleground for the industry.