ILUC Thorn Needs to be Removed To Ease EU-ASEAN Trade Tension
National certification programs in sustainable palm oil certifications can help break the impasse in EU-ASEAN relations
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Update March 08,2024
Malaysia has won its case against the EU's renewable directive, which sought to exclude palm oil based biofuels from qualifying under EU standards.
Argus Media reported:
A World Trade Organisation (WTO) panel said the EU must adjust its Renewable Energy Directive (RED II) because certain aspects of the act are inconsistent with WTO rules.
The WTO panel found fault with Malaysia's specific complaints but did find enough problems with the EU's position on palm-based biofuels that the EU conceded that it will take the necessary steps to adjust the Delegated Act.
All eyes are now on Indonesia's parallel complaint at the WTO. We will update this page once the summary report is published by the WTO.
Earlier commentary below
The recent suggestion by Malaysian Deputy Prime Minister, Fadillah Yusof, that palm oil producing countries of Indonesia and Malaysia should stop the export of palm oil to EU, has finally sparked the conversation that needs to take place.
EU and ASEAN talks have strengthened relationships in these recent years, notably with the elevation of relationships to Strategic Partners in 2020. It is regrettable to note that in these times of a post-COVID era and the on-going war between Russia and the Ukraine, closer cooperations between the EU-ASEAN and the need for free trade agreements, appear to be out of reach due to what is perceived as a protectionist policy by the EU to restrict its imports of tropical commodities.
The measures by the EU to restrict its imports of tropical commodities through legislative actions in the Corporate Due Diligence and Deforestation Regulations, is therefore seen as an unjustified action against rainforest rich but economically poor tropical countries.
This is considered as discrimination against developing countries, as measures like “having caused no deforestation after 2020” may keep poor tropical countries, poor if they are unable to access the most lucrative market in the EU.
Palm oil producing countries have found this an extreme form of discrimination against developing countries especially in the case of rapeseed/ canola from Australia and Canada. Imported rapeseed continues to enjoy EU biofuel subsidies despite the new knowledge of the importance of carbon storage of soils. It is not surprising then, that a Malaysian Minister labeled the EU position against palm-based biofuels, crop apartheid.
Both Indonesia and Malaysia have since ratcheted up their positions with formal complaints to the WTO.
While the WTO considers the complaints, palm oil producing countries should demand that all crops for biofuels feedstocks in the EU, be placed under one qualification standard where all environmental factors, especially the use of climate changing agri-chemicals, are accounted for.
Malaysia has won its case against the EU's renewable directive, which sought to exclude palm oil based biofuels from qualifying under EU standards.
Argus Media reported:
A World Trade Organisation (WTO) panel said the EU must adjust its Renewable Energy Directive (RED II) because certain aspects of the act are inconsistent with WTO rules.
The WTO panel found fault with Malaysia's specific complaints but did find enough problems with the EU's position on palm-based biofuels that the EU conceded that it will take the necessary steps to adjust the Delegated Act.
All eyes are now on Indonesia's parallel complaint at the WTO. We will update this page once the summary report is published by the WTO.
Earlier commentary below
The recent suggestion by Malaysian Deputy Prime Minister, Fadillah Yusof, that palm oil producing countries of Indonesia and Malaysia should stop the export of palm oil to EU, has finally sparked the conversation that needs to take place.
EU and ASEAN talks have strengthened relationships in these recent years, notably with the elevation of relationships to Strategic Partners in 2020. It is regrettable to note that in these times of a post-COVID era and the on-going war between Russia and the Ukraine, closer cooperations between the EU-ASEAN and the need for free trade agreements, appear to be out of reach due to what is perceived as a protectionist policy by the EU to restrict its imports of tropical commodities.
The measures by the EU to restrict its imports of tropical commodities through legislative actions in the Corporate Due Diligence and Deforestation Regulations, is therefore seen as an unjustified action against rainforest rich but economically poor tropical countries.
This is considered as discrimination against developing countries, as measures like “having caused no deforestation after 2020” may keep poor tropical countries, poor if they are unable to access the most lucrative market in the EU.
Palm oil producing countries have found this an extreme form of discrimination against developing countries especially in the case of rapeseed/ canola from Australia and Canada. Imported rapeseed continues to enjoy EU biofuel subsidies despite the new knowledge of the importance of carbon storage of soils. It is not surprising then, that a Malaysian Minister labeled the EU position against palm-based biofuels, crop apartheid.
Both Indonesia and Malaysia have since ratcheted up their positions with formal complaints to the WTO.
While the WTO considers the complaints, palm oil producing countries should demand that all crops for biofuels feedstocks in the EU, be placed under one qualification standard where all environmental factors, especially the use of climate changing agri-chemicals, are accounted for.
National Certifications The Way To Break the Palm Oil Row
Now that the EU has voted to adopt the CS3D, the joint mission by Indonesia, Malaysia to EU in bid to counter ‘discrimination’ against palm oil industry should focus on the key points below.
-Indonesia and Malaysia should remind the EU, that the contentious strike against palm oil biofuels, based on an unfounded fear of deforestation through ILUC, must be removed first if CS3D is to be accepted by palm oil producing countries.
-That policy makers in the European Union, should heed the advice of European groups for commodity based solutions to fight climate change.
-Indonesia and Malaysia should further urge policy makers in the EU, to hear the call of businesses in Europe that have issued a public letter to MEP Ms Ursula von Der Leyen which stated:
“Many European companies are fighting for their very survival. Soaring energy bills, high inflation, disrupted supply chains, diminishing consumer demand are too many and too serious challenges to face all at once. There is no single silver bullet to solve all these numerous issues. We appreciate the efforts from the European Commission to address these challenges and find the best tools to support competitiveness and maintain investments in Europe. We believe that increasing diversification through new free trade agreements would be one of the key actions to improve the situation and address many of the current challenges.”
- That Indonesia shares the sentiment of BusinessEurope. Malaysian businesses share the same hope for an EU-ASEAN FTA.
-That the ISPO and MSPO can be official assurances to the EU, that palm oil is being produced sustainably and meets the UN SDGs for both producing countries and the EU.
These assurances in national certifications present the best way to break the palm oil row as national schemes for sustainable palm oil in the Malaysian Sustainable Palm Oil and the Indonesian Sustainable Palm Oil, offer the best solutions for government-to-government engagement.
Rationale For Acceptance of ISPO and MSPO by EU for CSDDD
ISPO and MSPO work within the national land use policies of producing countries, which dictate sustainable land use for the full range of commodities produced by governing countries, including palm oil, coffee, rubber, cocoa as relevant to the EU’s targeted commodities.
National mandatory certification programs reduce “leakage” to other markets that do not have a deforestation-free requirement.
But the EU’s deforestation regulations are only one thorn in the side of better relationships between the EU and ASEAN. What riled up palm oil producing countries in the first place, was the EU decision to phase out palm-based biofuels by 2030.
From the perspective of global sustainability, where the EU and palm oil producing countries need each other equally, whether for geopolitical influence or trade, the CS3D requirements could ease all tensions if the same rules are applied to EU biofuels. This will remove the controversial application of ILUC, which palm oil producing countries have argued against, and proven it is unsound science with with their solid policies on land use.
Now that the EU has voted to adopt the CS3D, the joint mission by Indonesia, Malaysia to EU in bid to counter ‘discrimination’ against palm oil industry should focus on the key points below.
-Indonesia and Malaysia should remind the EU, that the contentious strike against palm oil biofuels, based on an unfounded fear of deforestation through ILUC, must be removed first if CS3D is to be accepted by palm oil producing countries.
-That policy makers in the European Union, should heed the advice of European groups for commodity based solutions to fight climate change.
- -European NGOs like FERN are urging the European Union to “build agreements with governments in forested countries to tackle the root causes of deforestation, such as weak forest governance and unclear land tenure. Such agreements could also help producer countries and small producers to comply with the Regulation.”
- -IDH Trade, another European NGO that works actively to create sustainable commodities was quoted in a Reuters report:
- -COCERAL, FEDIOL, and FEFAC, representing the EU grain and oilseed trade, crushing and animal feed industry, urged the Council and European Parliament to ensure mandatory structural engagement between the European Commission and Member States and producing countries in the final text of the EU Regulation on deforestation-free supply chains to mitigate the exclusionary impact of the Regulation on smallholders.”
-Indonesia and Malaysia should further urge policy makers in the EU, to hear the call of businesses in Europe that have issued a public letter to MEP Ms Ursula von Der Leyen which stated:
“Many European companies are fighting for their very survival. Soaring energy bills, high inflation, disrupted supply chains, diminishing consumer demand are too many and too serious challenges to face all at once. There is no single silver bullet to solve all these numerous issues. We appreciate the efforts from the European Commission to address these challenges and find the best tools to support competitiveness and maintain investments in Europe. We believe that increasing diversification through new free trade agreements would be one of the key actions to improve the situation and address many of the current challenges.”
- That Indonesia shares the sentiment of BusinessEurope. Malaysian businesses share the same hope for an EU-ASEAN FTA.
-That the ISPO and MSPO can be official assurances to the EU, that palm oil is being produced sustainably and meets the UN SDGs for both producing countries and the EU.
These assurances in national certifications present the best way to break the palm oil row as national schemes for sustainable palm oil in the Malaysian Sustainable Palm Oil and the Indonesian Sustainable Palm Oil, offer the best solutions for government-to-government engagement.
Rationale For Acceptance of ISPO and MSPO by EU for CSDDD
ISPO and MSPO work within the national land use policies of producing countries, which dictate sustainable land use for the full range of commodities produced by governing countries, including palm oil, coffee, rubber, cocoa as relevant to the EU’s targeted commodities.
- The commitments to sustainable development, by Malaysia, has seen its domestic programs for certified timber, cocoa, rubber and palm oil, all being covered under the national agenda for sustainable land use.
- The commitments to sustainable development, by Indonesia, has seen the introduction of the Forest and Land Use (FOLU) which was introduced after the expiration of the Moratorium on New Palm Oil Licenses.
National mandatory certification programs reduce “leakage” to other markets that do not have a deforestation-free requirement.
- National mandatory certification removes the “burden of proof” from EU importers to producing countries. Creating evidence of “sourced from non-deforestation” is a costly burden to both importer and exporter companies which is at best, a paper exercise as the majority of palm oil imported by the EU, has been disassociated from deforestation.
- At worst, focus on importing palm oil only from “non-deforestation” areas may absolve the EU from deforestation but this only serves to transfer deforestation to other importing countries with no demands for “non-deforestation” palm oil. This effectively reduces any potential impact of the EU’s Deforestation Regulation to save forests in producing countries.
But the EU’s deforestation regulations are only one thorn in the side of better relationships between the EU and ASEAN. What riled up palm oil producing countries in the first place, was the EU decision to phase out palm-based biofuels by 2030.
From the perspective of global sustainability, where the EU and palm oil producing countries need each other equally, whether for geopolitical influence or trade, the CS3D requirements could ease all tensions if the same rules are applied to EU biofuels. This will remove the controversial application of ILUC, which palm oil producing countries have argued against, and proven it is unsound science with with their solid policies on land use.
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Published February, 2023. CSPO Watch