Trade policy within the European Union (EU) has undergone significant changes in recent years. On the basis of the 2015 ‘Trade for all – Towards a more responsible trade and investment policy’ strategy, the European Commission (EC) has placed greater emphasis on labour rights and environmental matters. These issues have become important factors in the context of the EU’s trade policy and agreements.
In a February 2021 review, the EC published an updated approach toward ‘an open, sustainable and assertive trade policy’ agenda. With respect to trade agreements, it underlines the EU’s commitment to:
The EU also intends to include a chapter on sustainable food systems in future trade agreements. A draft proposal was recently submitted for discussion in the context of the EU-Chile trade negotiations.
Sustainability has become a political issue, as reflected in recent trade agreements. On Dec 16, 2018, Indonesia and the countries within the European Free Trade Agreement (EFTA) – namely, Iceland, Liechtenstein, Norway and Switzerland – concluded the Indonesia-EFTA Comprehensive Economic Partnership Agreement (CEPA).
The CEPA enters into force on the first day of the third month after two EFTA States and Indonesia deposit their instrument for ratification. It is expected to take place this year.
When the CEPA takes effect, Switzerland, for example, will provide specific concessions for certain palm oil products. These comprise tariff-rate quotas for crude palm oil, palm stearin and palm kernel oil. Initially, the tariff-rate quota will stand at 10,000 tonnes; this will gradually increase over five years to 12,500 tonnes.
Indonesia will have to reciprocate by meeting requirements of sustainability and traceability. Its palm oil exports to Switzerland will have to comply with Article 8.10 on ‘Sustainable management of the vegetable oils sector and associated trade’, which is included in the CEPA chapter on Trade and Sustainable Development.
In April 2021, Switzerland further adopted an Ordinance on Preferential Importation of Sustainable Produced Palm Oil from Indonesia, in order to implement Article 8.10. The Ordinance will enter into force at the same time as the CEPA.
Article 2 of the Ordinance lists the four certification systems that will be valid as proof of compliance with the sustainability objectives, namely:
Notably, the Ordinance does not include the Indonesian Sustainable Palm Oil certification.
The EU’s Most Favoured Nation rate currently provides for a relatively low tariff for palm oil products. Its recent free trade agreements (FTAs) have gone further to provide important concessions to palm oil-producing third countries or countries trading in palm oil-derived products with the EU.
For example, the EU has totally liberalised trade in palm oil and derived products, and fully eliminated tariffs on all relevant tariff lines under:
Another example is the EU-Mercosur Association Agreement, which has been concluded and is pending ratification. Under this, the EU will provide a significant reduction of tariffs for certain palm oil products, notably duty-free market access for crude palm oil (but not for technical or industrial uses); and a reduction from 12.8% to 7% for solid palm oil fractions, whether or not refined. While the majority of the Mercosur countries do not produce palm oil, Brazil is the world’s eighth-largest producer.
Trade links with Southeast Asia
Over the past several months, the EU has recalled its commitment to strengthen engagement with the Association of Southeast Asian Nations (ASEAN). However, a prospective EU-ASEAN trade agreement remains a longer-term agenda. If it materialises, it should address trade in vegetable oils, including palm oil, at the region-to-region level.
In the meantime, two bilateral trade agreements have been concluded. Under the FTA with Singapore and Vietnam respectively, the EU has not fully liberalised trade in palm oil and derived products, but has significantly reduced tariffs. It must also be noted that the EU-Vietnam FTA does not liberalise tariffs on a multitude of headings relevant to palm oil, such as palm kernel oil.
As Indonesia looks ahead to the CEPA, Thailand and the Philippines have expressed their willingness to resume negotiations with the EU. Negotiations between the EU and Malaysia were launched in 2010, but were suspended in 2012.
Malaysia stands to significantly benefit from a preferential trade agreement with the EU. The discussions would provide an opportunity to negotiate tariff reductions or other forms of preferential market access – through facilitated and mutually-recognised certification schemes – for palm oil products.
Malaysia has already demonstrated its commitment to producing sustainable palm oil. It is therefore essential that the future EU-Malaysia trade agreement eliminates tariffs on ‘green goods’ like sustainable palm oil. The pact should further ensure that any related sustainability criteria or certification schemes are mutually recognised, and that there is no discrimination against the Malaysian Palm Oil industry.
The eventual EU-Malaysia trade agreement should also address the non-tariff measures adopted by EU member-states, and the anti-competitive practices often implemented in that market by private operators. These include the use of ‘no palm oil’ or ‘palm oil-free’ labels.
Once an agreement is in place, it should introduce regular bilateral dialogues and transparency requirements, so that any issue affecting trade in palm oil and derived products can be raised and resolved bilaterally. Such issues could be dealt with at the technical, legal and diplomatic levels, and linked to the broader economic context of reciprocal concessions and trade advantages.
The UK moves on
Given Britain’s withdrawal from the EU from March 29, 2019, it will not be part of an eventual EU-ASEAN trade agreement. However, the UK has expressed strong interest in direct engagement with ASEAN.
Brexit has had a wide-ranging impact on the UK’s trade and investment relations with third countries. In order to maintain preferential trade, the UK has negotiated ‘roll over’ trade agreements, to allow for the continued application of terms offered under existing EU trade agreements with certain third countries.
At the same time, the UK has been exploring new ways to collaborate with ASEAN member-states. In August 2020, the first formal engagement was held through the UK-ASEAN Economic Dialogue. The parties committed to strengthening trade ties; mitigating the economic impact of the Covid-19 pandemic; and pursuing sustainable growth.
Preparatory work to negotiate a preferential trade agreement between the UK and Malaysia was initiated at the first meeting of the UK-Malaysia Joint Committee on Bilateral Trade and Investment Cooperation, held in November 2020.
It endorsed key areas of cooperation, including education; standardisation and conformity assessment; and development of micro-, small- and medium-enterprises.
The Joint Committee will also provide a platform for Malaysia to address discriminatory trade practices that affect palm oil, such as negative claims by certain food businesses and retailers in the UK.
MPOC Brussels
