EXCLUSIVE: DEFRA’s Stealthy Plot to Undermine Britain’s Free Trade Deals in SE Asia Exposed 

POM has been leaked some information on new plans from the UK Government’s Environment Ministry, known as DEFRA, that would restrict palm oil imports in the UK.

Here’s the deal: DEFRA is planning a ‘write-around’ process, where other Government departments will be asked for input on DEFRA’s plans to restrict palm oil. Our understanding is the process hasn’t formally begun yet, but is in the planning stage.

There are two elements that need to be considered:

  • First, the DEFRA plans themselves, and the GRI standard; and
  • Second, the major negative impact this could have on the UK’s plan for improved trade and diplomatic relations with ASEAN, post-Brexit. We imagine that UK trade officials will understand the damage that could be caused by such an anti-palm oil policy.

First, on the standard itself. DEFRA’s plans are based around introducing a Due Diligence requirement for companies seeking to import palm oil for use in the UK. This would be based on the Global Reporting Initiative (GRI) standard for due diligence, which is used when assessing suppliers for environmental impacts.

In practice, DEFRA’s proposed scheme would likely operate in a similar manner to the current requirements for timber products being imported into the UK under the EU Timber Regulation (EUTR) Due Diligence procedures.

Under the EUTR, companies are required to undertake due diligence to ensure that the timber products that they are importing have not been ‘illegally’ harvested. Companies are able to rely upon a number of procedures to ensure this is the case, such as using their own internal checks and procedures, relying on an external standard (such as FSC or PEFC) or a combination of the two.

According to our sources, DEFRA’s objective is to implement a similar regulation for palm oil.

In the past we have always been adamant that attempting to introduce a ‘Due Diligence’ process for palm oil would be fraught with risks. This is because: 1) agreeing on what constitutes ‘sustainably produced’ is difficult at a government-to-government level; and 2) doing so would require the same processes be applied to all ‘like products’, i.e. vegetable oils.

We go through these in detail below.

Sustainably Produced

Rather than attempting to find an agreement on what is ‘sustainably produced’, DEFRA appears to be asking companies to undertake due diligence on whether the palm oil they are sourcing has ‘negative environmental impacts’.

The UK – as a key proponent of the Amsterdam Declaration – has always sought to have palm oil other than RSPO-certified palm oil banned from use in the UK. However, this has never yet morphed into coercing the private sector through regulation – a much bigger step that has had ramifications for other European countries who have tried it (e.g. France and the Nutella Tax or the Dutch Differential Tax for certified sustainable palm oil).

A ‘negative impact’ due diligence requirement would permit companies to report on any negative environmental impacts their suppliers have, and list any approaches they are undertaking to address these impacts. This is part of the GRI reporting standard.

Of course, it is more than likely that a ‘shortcut’ for importers will be to use existing certification standards as a means of addressing any negative impacts.  The certification system of choice among UK officials is RSPO.

However, it will be important that policymakers in the UK understand that requiring UK companies to use only RSPO certification: 1) ignores other certification standards such as Indonesia’s ISPO standard; and 2) can potentially lock out small farmer producers.

The irony of this second point is that GRI’s due diligence standards also have a standard for negative social impacts. Will any negative social impacts from ‘mandatory RSPO’ be included in the due diligence process?

The similarities between the DEFRA approach and the FERN report we analysed last week should not be overlooked. FERN was advocating for a due diligence measure; the FERN report was funded by the UK’s DFID and co-authored by a key architect of the EU’s illegal logging strategy in Indonesia.

In 2017, a recommendation was made to the UK Government on its Forest Governance, Markets and Climate program, which we mentioned last week. It stated:
In the context of Brexit, it is recommended that the three UK government agencies involved in FMCG (DFID, the Business, Energy and Industrial Strategy (BEIS) and the Department for Environment Food and Rural Affairs (DEFRA)) advocate for retention of EUTR-like due diligence regulatory requirements for timber imports. In the framework of new UK trade agreements that will be negotiated with timber-producing countries, it is recommended that these agencies make the case for maintaining current legal provisions but also consider “raising the bar” above and beyond VPAs, to include palm oil and other FRCs.
This is the direction in which DEFRA and DFID want to take the UK’s approach on palm oil. But it would appear trade implications aren’t being considered.

Trade Implications

DEFRA and other departments should be considering two impacts on trade. First, the impact this would have on the UK’s international legal obligations, and second, the impact on the UK’s trade and strategic relations with producing countries such as Indonesia.

As with all regulatory measures against palm oil, the trade component needs to be considered. Singling out palm oil for a specific non-tariff measure is particularly risky, as there are other products that can be used in its place; this includes rapeseed/canola, soybean and sunflower oils.  For the due diligence requirement to avoid any international legal challenge, similar requirements would need to be imposed on these other vegetable oils that are used in the same processes for biodiesel, food and oleochemicals. Why? Because they meet the definition of ‘like products’.

The ‘like products’ debate in the timber debate was distinctly different. That concerned whether ‘legal’ and ‘illegal’ products were the same, irrespective of the tree or the country they came from. This regulation may set out different requirements for oils that are used in the same – or similar – processes.

And, of course, there is the new UK Government’s trade policy agenda. The UK is seeking new trade arrangements with leading Asian economies, after its exit from the European Union. London is also seeking Dialogue Partner status with ASEAN. Arbitrarily penalising ASEAN’s largest agricultural export will not, to put it mildly, advance these goals.

The Indonesian Government, in particular, has been extremely clear that if partner countries pursue anti-palm oil policies, trade deals are off the table. Most recently, that has been expressed publicly in the context of the EU-Indonesian CEPA: from both President Joko Widodo, and Deputy Foreign Minister Mahendra Siregar. Millions of Indonesians depend on palm oil production, and so the protection of palm oil farmers comes from the very top in Jakarta.

DEFRA vs Trade

For those who have observed the palm debate over the past decade, the involvement of DEFRA is not surprising. DEFRA was an early mover on the palm oil debate in the UK, advocating for restrictions. DEFRA has funded a number of projects that have examined the impact of imported feedstocks for food.

DEFRA should currently be paying more attention to trade. The UK is very far from self-sufficiency on food; imported foodstuffs are essential for the UK. Current disruptions to global supply chains underline how important a diverse supply chain is – particularly for food. The Department for International Trade (DIT) should be acutely aware of how unnecessary restrictions on food imports can inflict damage on the UK not just in terms of trade relations, but broader food security. DIT should, therefore, be wary of anything coming from DEFRA on trade.

What is particularly strange is that this spectacular own-goal would really bring no benefits for the UK – so why risk trade strategy in SE Asia? Is it simply to appease the environmental NGO community that buzzes around DEFRA? It will be interesting to see how other UK Ministries react – in particular Trade (DIT) and Foreign Affairs (FCO).

In Jakarta, President Jokowi has accused the EU of starting a ‘trade war’, when they proposed discriminatory measures against palm oil. The ‘due diligence’ being contemplated by DEFRA is just such a measure. It would be quite a feat if DEFRA managed to start a trade war several months before the UK actually regains control of trade policy.