What next for EU Malaysia Free Trade Talks?
- The chaos in the US has occupied news streams to a point where it seems like the world revolves around the US.
- This is far from the truth as developments like the return to free trade talks between the EU and Malaysia seeks to build up trade volumes independent of any US influence.
- A report from Free Malaysia Today with input from EU expert Geoffrey Williams and Malaysian expert Camelo Ferlito identified some of the key issues that must be addressed.
Williams said sustainability issues surrounding palm oil and its derivatives will be a crucial sticking point, as the implementation of the European Union Deforestation Regulation (EUDR) has only been delayed, but its environmental, social and governance (ESG) certification requirements will remain.
In October last year, the Malaysian Palm Oil Council (MPOC) called for the EU to recognise the Malaysian Sustainable Palm Oil (MSPO) certification as EUDR-aligned.
However, Williams said, the EU was unlikely to agree.
“It threatens their dominance in the certification market and will also pressure them into recognising the Indonesia Sustainable Palm Oil scheme, which they do not support. The EU prefers the Roundtable on Sustainable Palm Oil standards, in which they have a strong influence and is certified mostly by EU companies,” Williams added.
There’s a couple of problems with Williams' opinions.
For one, EU importers may favor the RSPO for individual import requirements but when it comes down to legislative issues like recognizing one certification over another, the EU has shown no preference as of yet.
A whole bunch of “expert opinions” pitting the RSPO against the MSPO can be found online. These “experts” including Geoffrey Williams have all missed one key fact.
The RSPO and Malaysia’s national certification for sustainable palm oil, the MSPO, has tried working towards dual certification to meet the demands of the EU.
The EU may want certification it can control as Geoffrey Williams said but this ability to make demands on what certified sustainable palm oil must look like has not been rewarded. The newest and shiniest of RSPO efforts to meet the EU’s demands in RSPO PRISMA has only met a market response of declining imports thus far.
Meanwhile Malaysia’s charge against the EU of protectionism is supported with news of the EU’s own abuse of its ecosystems for food and energy. The highlights from these two reports are that:
Should Malaysia Demand Mirror Clauses in Free Trade Talks?
Considering the environmental harm of the EU’s agriculture sectors and their climate change impacts, it may benefit Malaysia to have the EU make fair comparisons with mirror clauses.
The EU has shied away from mirror clauses as it could open up a Pandora’s box. John Clarke picked out some of the problems with the EU’s Deforestation Regulations in Borderlex.
With forty years of experience as a trade diplomat and negotiator in Geneva, Brussels and Hong Kong, John’s rich knowledge of diplomacy pointed out that:
The exclusion of all planted forests—i.e. not only plantation forests, but also forests planted with agroforestry purposes—from the scope of timber products may require robust evidence to justify the disparate treatment in protection, particularly given that the EU is a major timber exporter.
A further issue that may be raised is the selection of the specific commodities affected by the EUDR. To illustrate, the Regulation focuses on specific high-risk commodities, but its selective approach is open to question in light of the fact that other deforestation-related products, such as tea, are excluded from the legislation’s scope without clear justification.
“Cooperation and not coercion is the way forward” according to John Clarke. He noted with great disappointment that the EU has not included equivalence as a condition of signing free trade agreements.
In an email response, John Clarke reiterated that mirror clauses is not the way to go for Malaysia.
“I negotiated in 1991 the Technical Barriers to Trade agreement and drafted the provision that effectively prohibits mirror clauses.
The WTO strikes a very good balance between protecting the environment, human, animal health, and animal welfare, without allowing protectionism.
It does not in general allow you to impose your domestic production standards on imports if those standards are not reflected in the final product.”
Exceptions to this rule exist whereby:
“if the import is damaging the global commons of the environment such as harming biodiversity or exacerbating climate change.
That’s the basis for the EU’s new regulation banning the imports of products which have been produced via deforestation. This regulation is legitimate because the production method has a transboundary impact. Deforestation increases greenhouse gas emissions and damages the global climate.”
MSPO and Equivalence
In light of what the WTO says about sustainability of products, Malaysia would be well advised to drop mirror clauses which remains a controversy in the EU-Mercosur trade talks and push for equivalence in MEUFTA talks.
In John Clarke’s opinion:
“We could agree equivalence with other countries. The EU could acknowledge that whilst a country’s production standard may be different, it achieves the same result.”
The best argument for Malaysia to dissuade the EU from imposing draconian standards on imports as opposed to equivalence would be to abide by the Technical Barriers to Trade Agreement according to him.
The Technical Barriers to Trade (TBT) Agreement aims to ensure that technical regulations, standards, and conformity assessment procedures are non-discriminatory and do not create unnecessary obstacles to trade. At the same time, it recognises WTO members' right to implement measures to achieve legitimate policy objectives, such as the protection of human health and safety, or protection of the environment.
This would be the best argument for EU Malaysia free trade talks according to John Clarke as the TBT Agreement would require both parties to use performance based standards like the MSPO and not prescriptive ones like the EUDR.
With a firm commitment to no-deforestation palm oil and 55% of land cover in Malaysia covered by natural forests according to Global Forest Watch, any comparison of Malaysian commodities to their EU versions shows that Malaysia clearly has a better hand of cards when it comes down to arguing for sustainable commodities. One has to question whether these are the reasons for the EU’s resistance to mirror clauses or equivalence.
But arguing whose product is more sustainable will only further delay a trade deal between Malaysia and the EU which is so needed to ride out Trump’s chaotic effect on economies.
As far as Malaysia palm oil vs EU rapeseed is concerned, the EU could remove this contentious issue in free trade talks by acknowledging Malaysia’s efforts in producing palm oil sustainably.
Towards that end, economist Carmelo Ferlito from the The Center for Market Education (CME) is urging Malaysia to take a firm stance on Malaysia’s standard for sustainable palm oil production.
“CME adds that the Malaysian Sustainable Palm Oil (MSPO) standard should be the first point of dialogue between Malaysian and the European Union to show the mutual good intentions in achieving an inclusive and sustainable free and fair trade agreement. In fact, the MSPO scheme represents a first and important contributor in the battle against deforestation.
According to the CME, MSPO is an equitable and practical certification scheme that can further strengthen sustainability practices throughout the palm oil production value chain. The MSPO is inclusive as it aims to bring in smallholder farmers and make them more accountable for their actions and farming practices.”
Ferlito further challenged the EU’s determination of green goods by questioning the EU’s subsidies for EVs.
If EVs need subsidies to be "accepted" by the market, then that innovation cannot be considered sustainable, because while it may be "green" it is not sustainable at economic levels.
The same could be questioned of the EU’s “sustainable feedstock” for biodiesel which stands to benefit from a massive multi billion Euro subsidy for EU agriculture.
A draft European Commission calendar of upcoming policies, seen by Reuters, showed the Commission will propose a CAP "simplification package" in the second quarter of this year.
"Simplification measures concerning the Common Agricultural Policy will address sources of complexity and excessive administrative burden for national administrations and farmers," a second draft Commission document said.
The EU’s massive subsidy proposal to alleviate the sustainability burdens on farmers clearly fails Ferlito’s opinion on what makes a product sustainable. It would be unfair of the EU to simplify its green demands on European agriculture while Malaysia has bent over backwards to meet the EU's demands through the MSPO.
Malaysia's investments into making its palm oil sustainable should not be seen as wasted efforts if the EU does give European agriculture an easy out. It should be seen as having proof enough to demand equivalence in a trade deal based on the rules of the WTO where Malaysia has protected human rights and the environment.
Published February 2025 CSPO Watch
In October last year, the Malaysian Palm Oil Council (MPOC) called for the EU to recognise the Malaysian Sustainable Palm Oil (MSPO) certification as EUDR-aligned.
However, Williams said, the EU was unlikely to agree.
“It threatens their dominance in the certification market and will also pressure them into recognising the Indonesia Sustainable Palm Oil scheme, which they do not support. The EU prefers the Roundtable on Sustainable Palm Oil standards, in which they have a strong influence and is certified mostly by EU companies,” Williams added.
There’s a couple of problems with Williams' opinions.
For one, EU importers may favor the RSPO for individual import requirements but when it comes down to legislative issues like recognizing one certification over another, the EU has shown no preference as of yet.
A whole bunch of “expert opinions” pitting the RSPO against the MSPO can be found online. These “experts” including Geoffrey Williams have all missed one key fact.
The RSPO and Malaysia’s national certification for sustainable palm oil, the MSPO, has tried working towards dual certification to meet the demands of the EU.
The EU may want certification it can control as Geoffrey Williams said but this ability to make demands on what certified sustainable palm oil must look like has not been rewarded. The newest and shiniest of RSPO efforts to meet the EU’s demands in RSPO PRISMA has only met a market response of declining imports thus far.
Meanwhile Malaysia’s charge against the EU of protectionism is supported with news of the EU’s own abuse of its ecosystems for food and energy. The highlights from these two reports are that:
- A parallel to Europe’s importation of deforestation via the production for export of palm oil and soy is occurring with the production of fruit and vegetables for export in southern Spain,” Elena Alter, spokeswoman for the Spanish NGO Ecologistas en Acción, told ENDS.
- “Only 3% of Sweden’s forestry doesn’t involve clear-cutting. That should be pretty shocking to anyone who hears it, given Sweden’s reputation as a leader of so-called green practices,” two top conservation photographers tell Mongabay in a wide-ranging interview.
Should Malaysia Demand Mirror Clauses in Free Trade Talks?
Considering the environmental harm of the EU’s agriculture sectors and their climate change impacts, it may benefit Malaysia to have the EU make fair comparisons with mirror clauses.
The EU has shied away from mirror clauses as it could open up a Pandora’s box. John Clarke picked out some of the problems with the EU’s Deforestation Regulations in Borderlex.
With forty years of experience as a trade diplomat and negotiator in Geneva, Brussels and Hong Kong, John’s rich knowledge of diplomacy pointed out that:
The exclusion of all planted forests—i.e. not only plantation forests, but also forests planted with agroforestry purposes—from the scope of timber products may require robust evidence to justify the disparate treatment in protection, particularly given that the EU is a major timber exporter.
A further issue that may be raised is the selection of the specific commodities affected by the EUDR. To illustrate, the Regulation focuses on specific high-risk commodities, but its selective approach is open to question in light of the fact that other deforestation-related products, such as tea, are excluded from the legislation’s scope without clear justification.
“Cooperation and not coercion is the way forward” according to John Clarke. He noted with great disappointment that the EU has not included equivalence as a condition of signing free trade agreements.
In an email response, John Clarke reiterated that mirror clauses is not the way to go for Malaysia.
“I negotiated in 1991 the Technical Barriers to Trade agreement and drafted the provision that effectively prohibits mirror clauses.
The WTO strikes a very good balance between protecting the environment, human, animal health, and animal welfare, without allowing protectionism.
It does not in general allow you to impose your domestic production standards on imports if those standards are not reflected in the final product.”
Exceptions to this rule exist whereby:
“if the import is damaging the global commons of the environment such as harming biodiversity or exacerbating climate change.
That’s the basis for the EU’s new regulation banning the imports of products which have been produced via deforestation. This regulation is legitimate because the production method has a transboundary impact. Deforestation increases greenhouse gas emissions and damages the global climate.”
MSPO and Equivalence
In light of what the WTO says about sustainability of products, Malaysia would be well advised to drop mirror clauses which remains a controversy in the EU-Mercosur trade talks and push for equivalence in MEUFTA talks.
In John Clarke’s opinion:
“We could agree equivalence with other countries. The EU could acknowledge that whilst a country’s production standard may be different, it achieves the same result.”
The best argument for Malaysia to dissuade the EU from imposing draconian standards on imports as opposed to equivalence would be to abide by the Technical Barriers to Trade Agreement according to him.
The Technical Barriers to Trade (TBT) Agreement aims to ensure that technical regulations, standards, and conformity assessment procedures are non-discriminatory and do not create unnecessary obstacles to trade. At the same time, it recognises WTO members' right to implement measures to achieve legitimate policy objectives, such as the protection of human health and safety, or protection of the environment.
This would be the best argument for EU Malaysia free trade talks according to John Clarke as the TBT Agreement would require both parties to use performance based standards like the MSPO and not prescriptive ones like the EUDR.
With a firm commitment to no-deforestation palm oil and 55% of land cover in Malaysia covered by natural forests according to Global Forest Watch, any comparison of Malaysian commodities to their EU versions shows that Malaysia clearly has a better hand of cards when it comes down to arguing for sustainable commodities. One has to question whether these are the reasons for the EU’s resistance to mirror clauses or equivalence.
But arguing whose product is more sustainable will only further delay a trade deal between Malaysia and the EU which is so needed to ride out Trump’s chaotic effect on economies.
As far as Malaysia palm oil vs EU rapeseed is concerned, the EU could remove this contentious issue in free trade talks by acknowledging Malaysia’s efforts in producing palm oil sustainably.
Towards that end, economist Carmelo Ferlito from the The Center for Market Education (CME) is urging Malaysia to take a firm stance on Malaysia’s standard for sustainable palm oil production.
“CME adds that the Malaysian Sustainable Palm Oil (MSPO) standard should be the first point of dialogue between Malaysian and the European Union to show the mutual good intentions in achieving an inclusive and sustainable free and fair trade agreement. In fact, the MSPO scheme represents a first and important contributor in the battle against deforestation.
According to the CME, MSPO is an equitable and practical certification scheme that can further strengthen sustainability practices throughout the palm oil production value chain. The MSPO is inclusive as it aims to bring in smallholder farmers and make them more accountable for their actions and farming practices.”
Ferlito further challenged the EU’s determination of green goods by questioning the EU’s subsidies for EVs.
If EVs need subsidies to be "accepted" by the market, then that innovation cannot be considered sustainable, because while it may be "green" it is not sustainable at economic levels.
The same could be questioned of the EU’s “sustainable feedstock” for biodiesel which stands to benefit from a massive multi billion Euro subsidy for EU agriculture.
A draft European Commission calendar of upcoming policies, seen by Reuters, showed the Commission will propose a CAP "simplification package" in the second quarter of this year.
"Simplification measures concerning the Common Agricultural Policy will address sources of complexity and excessive administrative burden for national administrations and farmers," a second draft Commission document said.
The EU’s massive subsidy proposal to alleviate the sustainability burdens on farmers clearly fails Ferlito’s opinion on what makes a product sustainable. It would be unfair of the EU to simplify its green demands on European agriculture while Malaysia has bent over backwards to meet the EU's demands through the MSPO.
Malaysia's investments into making its palm oil sustainable should not be seen as wasted efforts if the EU does give European agriculture an easy out. It should be seen as having proof enough to demand equivalence in a trade deal based on the rules of the WTO where Malaysia has protected human rights and the environment.
Published February 2025 CSPO Watch