Guns out on EU but will Malaysia shoot?

The EU has much to lose like the palm oil producers if it does come to a trade war. Any stand-off on palm oil will never end well


We all love a good drama. A well-written plot, character-based narrative, protagonists which resonate Sean Connery’s unrivalled presence and villains that would eventually perish by the sword.

The David versus Goliath tale of the underdogs taking on the giants.

Such story is far and in between for a small country like Malaysia. But in a rare show of insolence, Malaysia shot a thinly veiled threat of retaliatory actions against the European Union (EU) if the world’s largest trade block makes good of their palm oil import ban rhetorics.

Plantation Industries and Commodities Minister Datuk Seri Mah Siew Keong said “we are prepared to go all the way” and “possibly even match it with retaliatory actions”.

Such valiant statement reminds us of the late Tun Dr Lim Keng Yaik. He was then the Minister of Primary Industries.

In his days, Lim would have grilled the EU and put on extra BBQ sauce just for good measure.

On its surface, Mah’s statement may not hurt a fly in EU’s capital of Brussels. It is perfectly understandable. These are giants.

One fascinating fact though, Malaysia is not alone. Together with Indonesia and Thailand, the three nations accounts for about 90% of the global palm oil production.

“We can also do the same things, taking action against their products because we — Malaysia, Indonesia and Thailand — are also purchasers of a lot of European products,” Mah said.

EU remains adamant to exclude palm oil from its biofuel mix and renewable energy (RE), a ban which will likely cost Malaysia billions in revenue. Recent official figures showed that the EU imports about 6.5 million tonnes of palm oil, almost five times bigger than the US’ import of Malaysia’s main commodity.

Palm oil antagonists run beyond the EU Parliament. Elected representatives in countries like France have been loud to voice their objections against the commodity. Vegetable oil lobbyists are centre to the push. Environmental destruction related to oil palm cultivation is repeatedly used as the reason for any trade sanctions.

The EU Council is expected to vote on the matter within the next two weeks. But can Mah really make good on his retaliatory threats?

After all, one must not forget that the EU is key to Malaysia’s economy. In 2016, the EU was Malaysia’s third-largest trading partner in goods and services after China (16.2%) and Singapore (12.6%)

This is a block with 510 million population and global trade in goods worth €3.4 trillion (RM16.48 trillion) against Malaysia’s €323.9 million.

The EU’s single market represents a €14.8 trillion economy.

The EU is also the largest investor in Asean with foreign direct investment of around €27.5 billion or 31.4% of the total investment inflows into the region in 2016.

Malaysia owes much to the EU. In the January-November 2017 period, trade with the EU is valued at RM157.56 billion compared to a year ago. In comparison, Malaysia’s trade with the US was only RM145.92 billion during the same period.

Malaysia’s total trade for the first 11 months of 2017 was RM1.62 trillion. In November 2017 alone, trade to the EU rose to RM15.22 billion.

For the first 11 months of 2017, exports to the EU increased by 20.2% to RM86.94 billion while imports had risen to RM70.62 billion. In November 2017 alone, Malaysia imported goods worth RM7.07 billion from the EU.

Certainly, Malaysia is worried. Imagine a region that is the second-largest user of palm oil after India.

Imagine the country without the GST (Goods and Services Tax) money. A ban on crude palm oil (CPO) for RE spells bad news on Malaysia’s commodity, which is already bogged with falling CPO price, high inventories and 650,000 struggling smallholders.

Slapping additional tariffs and taxes on EU’s products may incur bigger repercussions. The EU could slap additional taxes on Malaysia’s products entering Europe.

Such tit-for-tat actions would drag the EU and three of the largest Asean economies into uncharted battle grounds.

But can the EU ward off a joined “secret pact” of Malaysia, Indonesia and Thailand?

The EU has much to lose like the palm oil producers if it does come to a trade war. Any stand-off will never end well.

Now, the question is can Mah pull the rabbit out of the hat and end the feud? And if push comes to shove, Mah and his allies need more than just a poker face and veiled threats.