Palm oil trade war? ASEAN-EU relations sour over sustainability debate even as UK softens stance

Palm oil has become a major reason for stalled discussions in the ASEAN-EU Strategic Partnership joint working group, where so far not even a meeting agenda has been approved.

This is because the EU has been adamant on including the EU Green Deal​, which features its Farm-to-Fork strategy. This is seen as being detrimental to palm oil-producing nations, so ASEAN has refused to accept it.

“The meeting was first set for January, then February then April and was since postponed again, with both sides not agreeing to the agenda the other wants,”​ Trade Policy Director at consultancy firm Article Three and palm oil industry expert Khalil Hegarty told FoodNavigator-Asia​.

“In addition to talks at the working group not materialising, discussions for the Indonesia-EU FTA have also hit an impasse because the EU has been continuously adding things to the sustainable development part of the conversation – so that has stalled as well.”​

Ironically, despite being openly opposed to Indonesia’s largest commodity export and determined to cut off one of the nation’s major economic lifelines, which would also be very detrimental to the economics in the ASEAN region, the EU has also been trying to improve trade relations with the region – which is what brought around the ASEAN EU Strategic Partnership in the first place.  However, its inflexibility on sustainable discussions continues to stall progress.

“The EU’s position on sustainability discussions remains a very serious threat to the palm oil industry,”​ said Hegarty.

“It is very inflexible in terms of its new policy positions e.g. the New Green Deal – and due to the complexity of the process where any policies need to be lined up with all 27 member states then go to the European Commission before any changes are made means that it could take years and years to make any changes at all.​

“So despite the improvements and changes made [by the palm oil industry], the fact is at present these issues at the EU are just going to keep on going and remain a real problem for the industry.”​

The palm oil industry has already felt the very real impacts of these delays. Earlier this year, the Belgian government announced a palm oil ban beginning 2022, inciting the Indonesian government’s rage and prompting threats to implement a reciprocal ban on Belgian dairy products.

“Indonesia should consider a reciprocal ban on Belgian exports, for example milk and dairy products produced by Belgian farmers, also starting in 2022,”​ said Member of the Trade Commission in the Indonesian Parliament Dr Herman Khaeron.

“The Belgian Government has decided to start a trade war and this hostile act has consequences in our international trading system​.”

According to Hegarty, the Indonesian government is understandably ‘really annoyed’​ at this and the trade ministry is losing patience with the back and forth surrounding palm oil sustainability. This could seriously impact trade relations even further with Indonesia – and likely Malaysia, and possibly the whole of ASEAN.

“I believe that the Indonesian government is taking this really seriously, and if they do implement a ban on Belgian dairy, it would send a real signal to Belgium and Brussels – it may not get the ban revoked, but I dare say it would make them more wary of taking such sweeping actions on palm oil,”​ he said.

“This is how it would go: Imagine the EU introduces a trade measure on palm oil. Indonesia [or Malaysia] retaliates by going slow on clearing EU shipments at customs, say French cognac. What happens at this point is that someone from the EU industry will call up the relevant EU trade attache and say that shipments aren’t being cleared through, and then, finally, word reaches Brussels and then they freak out.​

“So this would be at a smaller scale and the warning would be to Belgium first, but it definitely would show Brussels too that they need to be more careful about what they do and the implications of their decisions.”​

Is palm oil gaining an ally in the UK?​

The UK used to be one of palm oil’s most vocal opposers when part of the EU, but with the advent of Brexit, it appears to have significantly softened its stance with its eye on ASEAN as a major trade partner.

The UK was recently accepted by ASEAN as a dialogue partner and is involved in multiple trade partnerships with either the bloc as a whole or individual ASEAN countries. These partnerships are growing relatively quickly too, given the country’s search to diversify trade partners after splitting from the EU.

“The UK has already split from the EU in terms of palm oil opposition in my view – at the very least they have already moved away from tougher deforestation regulations and are showing greater interest in national certification systems such as the Malaysian Sustainable Palm Oil (MSPO) and Indonesian Sustainable Palm Oil (ISPO) schemes,”​ said Hegarty.

“The UK government has already embarked on the setting up of a Joint Working Group with Indonesia to discuss agricultural commodities and sustainable production, which is likely to make the certification pathway smoother – I didn’t think it would ever happen, but it did.”​

National schemes like ISPO and MSPO would be different from voluntary schemes such as the Roundtable on Sustainable Palm Oil (RSPO) scheme which has taken precedence in global discussions so far, but it appears that national schemes are looking to hold more weight in terms of sustainable certification as these would be national standards.

“It would be a government-to-government situation which really holds more water than a voluntary situation, so these national schemes are increasingly important,”​ said Hegarty.

“If ISPO is successfully reducing deforestation, policymakers in the EU and elsewhere will have no reason not accept it. This would similarly mean that the entire certification infrastructure that has been created over the past 15 years by [environmental] NGOs and Western companies will become less relevant.”​

“It is the reason environmental NGOs are now increasing their attacks and pushback on the ISPO as of late, as these green groups are worried the EU could start taking these seriously.”​

Light at the end​

With green groups watching and protesting every inch of progress and the EU not showing any signs of flexibility over sustainability policies, the question still remains whether there is any way out of the rut for the palm oil industry.

According to Hegarty, one way would be to persist with national standards such as ISPO and MSPO, as these are the most likely ones that the EU would accept, if it ever loosened its stance.

“These national standards are really the way forward and where Brussels has some real latitude over, so bodes better for acceptance at both sides,”​ he said.

Another possible ray of light lies in the fact that other nations are now rivalling the EU for market share.

“EU’s ​position in the global vegetable oil trade is further being outstripped by China and India as their markets increase in size,”​ he added.

China imported as much vegetable oil as the EU in 2018, and as of this year is importing some two million tonnes (15%) more than the EU, a situation expected to grow as China’s population continues to increase.

2020 was also the first year that more palm oil was imported by China than the EU, and 2021 is expected to be no different.

“This is in part a result of Brexit; the UK’s imports are no longer counted against the bloc’s totals. However, as the UK seeks its own trade path, it is apparent that the EU’s global trade clout has been diminished significantly,” ​said Hegarty.