EXPOSED: Internal EU Documents Reveal Brussels’ ‘Need to Know’ Strategy on Palm Oil

Palm Oil Monitor has come into possession of a vast number of official European Union documents that are probably best referred to as the EU Palm Oil Files. These clearly spell out the European Union’s deliberate and calculated strategy to keep palm oil out of the EU.   

The EU documents that Palm Oil Monitor is publishing – starting today – lay bare their covert approach. They also demonstrate the obvious contempt that the EU has for governments, citizens and farmers in Malaysia and Indonesia. 

The private documents contrast with the EU’s ham-fisted charm offensive in southeast Asia. Officials have spun deliberately vague information and attempted to put a substantial amount of lipstick on the EU’s palm oil policy.

For example, just last week, EU Ambassador to Malaysia said it would be a “shame” if Malaysia did not negotiate with the EU on a trade deal as a result of the EU’s policies on palm oil. She vigorously defended the EU policies, and implied that Malaysia was simply overreacting – despite, surely, knowing the impact that the EU’s plans would have on millions of ASEAN smallholders.

EU Parliamentarian Bas Eickhout also said days ago that Malaysia and Indonesia should ‘bring it on’ with a WTO challenge to the EU’s Renewables Policy.

Our documents show that even before the EU’s Renewable Energy Directive was released, officials at the highest level in the EU knew that the policy would jeopardise a potential free trade agreement and trade relations more broadly with ASEAN nations. They also had clear internal legal advice it would break WTO rules.

Our documents show that this EU-ASEAN ‘trade war’ was started knowingly by the EU.

They were aware of the consequences and went ahead regardless. They even stated that their advice on trade implications be kept secret, on a ‘need to know’ basis.  

Demarty to Ristori: A ‘need to know’ basis

We begin with hand-signed internal legal advice from EU’s Director General for Trade Jean Luc Demarty to Director General of Energy Dominique Ristori.

It’s no secret that the various arms of the European Union government – the Commission, Council and Parliament – dislike palm oil.

Much of this antipathy is illogical and ill-informed. It has prompted glaringly inaccurate statements from Parliamentarians and seemingly inexplicable policy decisions about the use of palm oil in Europe.

The hostile attitude towards palm oil is the result of the aligned interests of several groups. Green NGOs and politicians dislike the expansion of agriculture developing countries, as do oilseed European rapeseed farmers who can’t compete with palm oil. European bureaucrats struggle with the disruptive impact that palm oil has on food and feed crops in the EU – this is because if European farmers don’t plant oilseeds, demand for imported animal feed in the EU increases.

It is for this reason that keeping palm oil out of the European Union is a strategic objective, even if it offends the rules of the World Trade Organization and European claims of supporting global free trade.

The new document shows that the most senior EU officials were completely aware that Renewable Energy Directive proposals on palm oil would fall afoul of the World Trade Organization Agreements.

Hand-signed legal advice from EU’s Director General for Trade Jean Luc Demarty to Director General of Energy Dominique Ristori stated clearly that banning palm oil:

(or an equivalent) proposal in the REDII would create serious risks of exposing the EU to WTO challenges with no solid defence.

The detailed legal advice Demarty provides from DG Trade is that a ban on palm oil for the RED – even if it’s hidden behind an environmental argument around the level of emissions – would not be compatible with the General Agreement on Tariffs and Trade (GATT), the foundation agreement of the WTO.

How serious was this? Demarty stated that this advice should only be circulated on a ‘need-to-know basis’.

Anyone who has looked at the EU’s past form on palm oil and the RED knows that this isn’t unusual. This was the impetus behind Argentina’s original case on the RED that prohibited the country’s soybean biodiesel exports from participating in the scheme.

The more alarming aspects of the EU’s approach are as follows.

The Commission did not follow its own advice

Demarty is a highly-respected Commission official, with decades of service. He stated clearly that the Commission’s original proposal – that did not discriminate between any biofuels, and did not single out palm oil – was the best option.

“the Commission’s original proposal remains the safest option to avoid risks of incompatibility with the EU’s obligations under the WTO. Therefore, and in line with the position already agreed in the GRI discussions so far, I wish once more to stress the need for the Commission to uphold its original proposal throughout the trilogue process.”

This was indeed the case. The trilogue eventually moved the Renewable Energy Directive to a position that didn’t discriminate against palm oil. But this sensible and fair position was undone by the Delegated Act, which quickly reversed the ‘Demarty position’. This reversal took place in two steps.

The Commission was forced into a political compromise as a result of pressure from palm oil producers, notably Malaysia’s small farmer interest group, Human Faces. The Commission’s proposal would see all crop-based biofuels allowed under the RED. The alternative was that they were all banned – arguably the preferred option of EU farmers. But there was a problem: Commission President Juncker had green-lit soybean purchases and soybean sustainability certification in a bid to keep the US from imposing tariffs on European exports. So: the EU couldn’t ban everyone.

The eventual plan – cooked up in a last-minute crisis meeting – resulted in a hasty re-tabling of scientifically indefensible ‘methodology’ for arguing that palm oil’s ILUC footprint was the largest of all oilseed crops.

The EU has been contradicting its legal advice in public

Despite the clear singling out of palm oil, the EU has maintained publicly that the Delegated Act is consistent with WTO rules. It has maintained in various statements that the new rules are consistent with WTO obligations. (This is despite these documents showing that the EU’s chief trade official explicitly stated this is not the case)

For example, EU foreign policy chief Federica Mogherini stated “we are confident that what we are doing is in line with our WTO obligations.”

This is wishful thinking at best – the EU has been avoiding the truth of its WTO obligations around the RED. And its public statements are the polar opposite of its private discussions.

The EU has maintained its legal fiction within the WTO itself

Earlier this year, the EU did notify the WTO Technical Barriers to Trade (TBT Committee) of the RED and the Delegated Act.  WTO members are supposed to inform each other of any laws or regulations that will disrupt trade.

Demarty’s letter states:

“…it is clear that biofuels/bioliquids represent an important end-use for palm oil in the EU, and a measure that would disincentivise it would have a significant impact on trade flows, in particular with South-East Asian countries.”

Yet the Indonesian Government received a letter from the Commission in May of this year stating that the “technical requirements contained in the Delegated Regulations are beyond the scope of the WTO TBT Agreement” – hence the EU breaking with WTO norms.

The evidence we have revealed today confirms the letter from the Commission signed by Dominique Ristori is not truthful.

The EU has been content to economically damage Indonesia and Malaysia, and harm EU relationships in the region, to placate EU Green and farm lobbies

The Commission – in Trade and Energy – was acutely aware that a RED that discriminated against palm oil would jeopardise FTAs with Indonesia and Malaysia. It was obviously completely prepared to ignore WTO protocols and throw ASEAN agreements under a bus in order to keep palm oil out the European market and keep the unholy alliance of Greens, farmers and bureaucrats happy. The letter states:

“Broader impacts on trade relations could also be expected, notably with regard to the possible adoption by palm oil producing countries of retaliatory measures against EU products or risk jeopardising the negotiations for Free Trade Agreements (FTAs) with Indonesia and Malaysia.”

And for anyone that doubts that the Commission wasn’t anticipating that palm oil would be taken out of the RED, the EU was anticipating that this would happen as late as January 2019. In the Commission’s 2018 agricultural outlook, the demand scenarios rely upon a phasing out of ‘high risk ILUC’ crops for the Renewable Energy Directive, which prompt an increase in domestic rapeseed production. The report describes a clear intention to bar soybean and palm oil from the RED, ahead of any supposedly scientific findings.

But what wasn’t anticipated was President Juncker’s last-minute intervention in order to keep soybean inside the RED tent.

***

The legal advice from DG Trade to DG Energy makes one point clear: the EU knew that what it was attempting to do – take palm oil out of the EU renewables market – would flout WTO rules. It also knew that it would severely disrupt the trade and diplomatic relationships with Malaysia and Indonesia. The EU has made it clear that it thinks this is a reasonable price to pay.

The lesson for exporters – Indonesia and Malaysia – is that this was no accident, and that the EU had intended this all along. Scientific and technical arguments are irrelevant. This is post-truth trade policy.

It’s reasonably clear that the EU will lose the WTO case. That may not matter to European officials as the decision takes years to wash through.

Most of all, these documents expose the fiction that EU Ambassadors and others are spreading inside ASEAN capitals: pretending that there isn’t a palm oil ban, and that the EU is really a friend. Falling for their misinformation is even worse.

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