Indonesia, Malaysia and the WTO: Will They? Won’t They?
This week heralds the next meeting of the WTO’s Dispute Settlement Body, and the hearing of a request by Indonesia that a panel be convened to hear Indonesia’s complaint regarding the Renewable Energy Directive (RED II).
It is more than likely that the panel will go ahead.
Indonesia’s request covers the basic points that have been covered by POM: The methodology for assessing ILUC risk is opaque and arbitrary; ILUC is unsubstantiated and should be based on performance; palm oil is discriminated against compared with other like vegetable oils.
The request also covers French taxation measures against palm oil that were introduced in 2019.
In our view this will be a test case for the EU’s future regulations when it comes to the climate and trade. As we stated in our last issue, the EU wants to push ahead with greenhouse gas and sustainability limitations on food and agricultural products. We are convinced that the EU will be seeking affirmation that it can apply the ILUC risk methodology to other products – therefore allowing the bloc to keep out other imported goods.
The other question around the case is the involvement of Malaysia. Although the world’s second-largest palm oil producer has joined the consultations – alongside Colombia, Costa Rica, Guatemala, and Thailand (Argentina has requested to join) – it has also stated that it will be filing its own case against the EU.
The most recent statement around this was made last week by Deputy Plantation Industries and Commodities Minister Willie Mongin.
Two successive Malaysian governments have stated that they would take action for more than 12 months. It was first floated in March 2019, then in July 2019. In February of this year, the previous government stated that its strategy would then be to convince EU policymakers to change their treatment of palm oil and that Malaysia “shouldn’t file the suit hastily.”
There is certainly no danger of that. Timidity has been a feature of palm oil decision-making in KL for a few years now.
What has been holding Malaysia back? It is not readily apparent how the Malaysian case would differ on technical grounds. As we’ve pointed out before, Malaysia has a general reluctance towards using the WTO’s dispute settlement system; the last time it launched a dispute was in 1997. That might change, but we’re not holding our breath.
FAO: Indonesia Reduces Primary Forest Loss by Over 80 Per Cent
The FAO has released its Forest Resources Assessment for 2020 (FRA 2020), its global survey of forest data and trends, which is published every five years.
The release of the report will undoubtedly be overshadowed by the COVID crisis, but there are some key takeaways for palm oil producing nations – which often bear the brunt of negative campaigns, particularly in the EU, accusing palm oil of being a driver of deforestation.
The FAO report is the gold-standard in assessing deforestation globally, on the ground. Tellingly, it does not support the EU-NGO claims about palm oil producing countries.
Here are the key takeaways:
Globally, deforestation is slowing. In the most recent five-year period (2015–2020), the annual rate of deforestation was estimated at 10 million ha, down by nearly 20% from 12 million ha in 2010–2015.
Asian forests expanded more than other regions in the past decade. Asia added around 1.2 million ha of forest area annually over the past decade, more than the 0.3 million added annually by Europe, and significantly better than the 2.6 million lost annually in South America.
Indonesia’s primary forest loss has dropped by more than 80 per cent. The average annual rate of loss declined from 713,000 ha in 2000–2010 to 85 700 ha in 2010-2020. Total forest area loss declined more slowly between 2015 and 2020 compared with 2010 and 2015, by roughly 100,000ha annually.
Total burned land area in Asia was less than in Europe between 2001 and 2018. Despite ongoing hysteria about Indonesian fires, the total land area burned at this time in Europe was slightly higher than in Asia (281 million ha versus 262 million ha). The forest area burned in Asia was around half that burned in South America, and less than 10 per cent of the area burned in Southern and Central Africa.
Malaysia increased its forest area. This increases a trend that has been observable for close to 30 years as the country reduced its forest loss to zero.
Both the Indonesian and Malaysian data are clear demonstrations that oil palm development, and the economic gains that accompany it, leads naturally to greater environmental protection over time as societies become more prosperous. Rather than attempting to crimp the economic gains from palm oil, the EU and other critics would be better supporting proactive development measures (including oil palm) to accelerate income growth and therefore usher in greater local support for environmental protections.
The FAO numbers – particularly on primary forest area – are in line with those presented by WRI and GFW. As WRI states, this is largely due to the success of the forest moratorium. Although there is always room for further improvement, the point is that there has been significant improvement already.
OECD Ag Outlook: Palm vs EU oilseeds
The OECD Agricultural Outlook was released on July 16, and the long-term projections make for sobering reading for EU oilseed producers, but positive reading for palm oil producers.
The overall projections for consumption of vegetable oils in the developed world are flat. But worse, biodiesel demand in developed countries – i.e. the European Union, the developed world’s only significant biodiesel market – looks set to flatten and fall over the next decade.
This is contrasted with developing countries, where vegetable oil demand looks set to grow by around 20 per cent over the next decade. Similarly, where all major producers of vegetable oil are expecting production to increase (e.g. palm oil is expecting annual production growth of 1.5 per cent), the EU is looking at a slight decline of 0.2 per cent annually).
This underlines the lack of competitiveness of EU oilseed producers. Although the EU is the second-largest producer of oilseeds (which excludes palm and soy), it is not an exporter of significance. It will never be able to produce vegetable oil to meet demand on global biodiesel and vegetable oil markets.
This further underlines why EU farm groups and policymakers remains consistently paranoid, defensive and protectionist about vegetable oil in the EU.
In Brief
Illegal Soy Imports?
The Brazilian soybean industry appears likely to be in line for ‘palm oil treatment’. A new paper published in Science argues that 17 to 20 per cent of beef and soy exports to the EU from Brazil are ‘contaminated’ with ‘illegal deforestation’. The authors directly target the EU-Mercosur Free Trade Agreement as a way of safeguarding Brazil’s forests going forward. Sound familiar? Unsurprisingly, the work appears to have strong funding links to the European Union.