Trade Update: Malaysia and WTO, EU goes harder on RI
Malaysian officials stated that it would file its WTO complaint on the EU Renewable Energy Directive (RED) in the first quarter of 2020.
At an event in Malaysia last week, Malaysian Prime Minister Dr. Mahathir Mohamad stated:
“Despite our best efforts, if certain importing countries choose to impose discriminatory trade barriers against palm oil producing countries, we must not keep silent nor hesitate to take counter measures.”
It is understood that the Attorney General’s office in Malaysia is completing a report on the RED and its compatibility with WTO rules.
Malaysia’s cabinet will then take a decision on whether to pursue further legal action.
It is also understood in both countries that there is some trepidation about filing a WTO suit.
Malaysia, in particular, has been reluctant to use the WTO to air its grievances, preferring to join other cases as a ‘third party’. At the same time, there is the belief that ‘provoking’ the EU could result in impacts on other industries.
In Indonesia, similarly, some industries see the spat over palm oil as a potential threat to the Indonesia-EU trade agreement.
In our view, this approach is mistaken. Indonesia and/or Malaysia moving ahead with a WTO complaint on the RED is perfectly compatible with pursuing concurrent bilateral trade negotiations. The world’s major economies consider trade negotiations and trade defence to operate quite independently. A dispute over dumping, technical barriers or subsidies should not prevent the completion of negotiations. A case in point is the Korea-Japan trade spat, which made no impact on the status of the RCEP agreement.
To underline this point, the EU currently has its sights on other Indonesian policies. It is currently investigating the country’s rolled steel exports in an antidumping case, and is also considering a countervailing action in response to its nickel export ban, which has EU steel manufacturers up in arms.
Steel is one of the most sensitive traded goods globally, so this isn’t entirely surprising.
However, it does nothing to support the idea that the EU is being a friendly trading partner in the region.
EU officials to smallholders: EU will win WTO lawsuit
Palm Oil Monitor has heard from reliable sources in both Brussels and Jakarta that EU Commission roadshows on the Renewable Energy Directive earlier this month have been attempting to convince stakeholders that Indonesia ‘would not win’ the WTO case.
This outreach included meetings between EU climate envoys and smallholder groups across the region.
If this is the case, it feels like a step up in EU communications to internal stakeholders inside Indonesia. There is a difference between stating that the EU is ‘confident’ that its new measures are WTO consistent, and attempting to push local stakeholders into believing that the action is not desirable, or not wise.
It’s possible that these EU communications are designed to push stakeholders to pressurise the governments of both countries from taking WTO action.
Would such action constitute foreign interference? This is treading a fine line, particularly for the EU, which prides itself on moral superiority.
But if this is the case, it would indicate that the EU is not as confident as it seems when it comes to the WTO case. This is underlined by the EU’s refusal to notify the TBT Committee in the WTO of the RED measures, despite knowing full well that it would disrupt bilateral trade.
Malaysia launches Trace app, prioritises food
The Malaysian Palm Oil Certification Council (MPOCC) has launched its Trace app, which is designed to provide certification and traceability in real-time for MPOCC certified palm oil. The app uses real-time data and chain-of-custody certificates to provide sustainability assurances for customers. Around 60 per cent of Malaysian palm oil is certified under the country’s national standard.
At the same time, Malaysia has made meeting proposed EU standards on food a priority, with the Minister of Primary Industries Ms. Teresa Kok noting that the Malaysian industry will meet the proposed EU standard on 3-MCPDE by 2021.
Indonesia calls off cooperation with WWF
Indonesia’s Ministry for Forests and the Environment has called off its cooperation programme with WWF. According to a letter from the Ministry of Forests and Environment dated October 4th, the cooperation agreement between WWF and Government of Indonesia is now null and void. The ministry cited a performance and evaluation investigation of the NGO by the government agency.
At the centre of the case is a WWF-owned company, PT Panda Lestri, which is the majority shareholder of PT Alam Bukit Tigahpuluh.
The company was granted a forest concession license for forest and environmental restoration for a particular area in Jambi, Sumatra.
According to news reports, the concession was subject to a number of fires during the recent prolonged fire season and is now under investigation. In addition, there are accusations of social conflict on company land.
COMMENT: Getting a handle on fire data
POM generally doesn’t go into the aspects of deforestation or fires in the Amazon – or soybean – but a quick look at Amazon fire data for 2019 shows that the news-cycle narrative on the Amazon fires really hasn’t lived up to the hype.
Although the Amazon had it highest fire counts on record in the month of August, the cumulative count for the year has it lower than 2012 and 2017.
It’s worth noting that the levels of deforestation this year still aren’t as high as they were in the period between 2003 and 2008.
INPE researchers note that the Amazon fires were less the result of adverse weather conditions (i.e. a prolonged dry season) and more about the lighting of so-called ‘deforestation fires’, i.e. using fire for land clearing.
Given that the cleared land will be used for cattle ranching and soy cultivation, we’re still confused as to how soybean can be considered as ‘low ILUC risk’ in the context of the EU Renewable Energy Directive.
It’s also worth noting that although Indonesian fire alerts this year have been relatively high – in the vicinity of 126,000 – this is smaller than the number of fire alerts in Brazil and the United States at 497,000 and 146,000 respectively.
In less than two weeks, the annual UNCCC climate change meeting will take place in Madrid. The conference will undoubtedly be marked by a large number of NGOs taking aim at both the palm oil sector and the Bolsonaro government.
Let’s see if anyone mentions soybean.
IN BRIEF: EU launches ASEAN peat management facility
The EU has launched a USD26 million fund to assist ASEAN countries mitigate peatland fires. The program – the Sustainable Use of Peatland and Haze Mitigation in ASEAN (SUPA) – comprises two components, one run by German development agency GIZ, and the other via civil society groups WRI, IDH and others.
Malaysia and India appear to have resolved their trade spat over palm oil. The trade spat was caused by political differences of opinion over Kashmir. According to news reports, a small discount on the palm oil price was enough to satisfy buyers. However, it also appears that the spat was commercially- rather than politically-driven. No actual trade measures were issued by the Indian Government. It appears this was simply a matter of buyers whipping up a frenzy to force a discount.