Escalating trade uneasiness spells doom to the much delayed FTA

By ALIFAH ZAINUDDIN / Pic By MUHD AMIN NAHARUL

Malaysia’s threat to review imports over the European Union (EU) Parliament’s palm oil bio fuels halt, could see bans on selected products and revision of contracts including commercial aircraft and military equipment.

The world’s second-largest combined economy valued at €14.8 trillion (RM74 trillion), had been insistence on banning palm oil biofuels, affecting South-East Asia nations of Indonesia, Malaysia and Thailand.

In a rare rebuff to the EU, Malaysia has issued a warning that it would review imports from the trade bloc despite the latter is the country’s third-largest trading partner in 2016.

The escalating trade uneasiness between the two trading regions could also spell doom to the much delayed free-trade agreement (FTA) talks which started in 2010.

Sunway University Business School economics Professor Dr Yeah Kim Leng said it would be difficult to impose a ban on EU products as the bloc comprised 28 states.

But, he said the big items that could be included in the country’s “ban list” are commercial aircraft, military equipment and food products.

“If we’re looking at major ones, it will be Airbus planes. Then, there is military equipment. This is another possible area that can get our message across. Of course, there is also food — but we need to identify products that are similar in status so maybe items like chocolate,” Yeah told The Malaysian Reserve.

Official data indicated that trades between the EU and Malaysia has recorded steady growth over the years. The EU’s exports to Malaysia have been increasing at an annual average rate of 3.2%, while Malaysia’s exports to the bloc have been expanding at an average rate of 2.8% between 2006 and 2016.

Much of the trade involved machinery and transport equipment, chemicals and related products — as well as manufactured goods.

In 2016, machinery and transport equipment represented 57.5% of the total €13.2 billion EU’s exports to Malaysia.

Among key deals between Malaysia and EU include AirAsia Bhd’s multibillion euros purchases of Airbus SE aircraft. France is also trying to woo Malaysia to purchase the Rafale to replace the aging Russian-made MiG-29 fighters in a deal which could be worth US$2 billion (RM8 billion).

On Jan 17, European lawmakers voted in favour to amend the renewable-energy (RE) directive. The revised edict aims to boost the EU’s RE use to 35% by 2030, subsequently banning palm oil biofuel mixtures within the next three years.

Indonesia and Malaysia — two of the world’s largest palm oil producers — have condemned the move.

Plantation Industries and Commodities Minister Datuk Seri Mah Siew Keong labelled the action as a form of “crop apartheid”.

Malaysia is the world’s secondlargest exporter of palm oil. In 2016, Malaysia exported palm oil worth RM10.3 billion, or 15.2%, of the country’s total palm oil exports to the continent with 510 million population.

Recent official figures showed that the EU imports about 6.5 million tonnes of palm oil, almost five times bigger than the US’ imports of Malaysia’s main commodity.

Yeah said banning the import of selected products is not the only resolution that Malaysia could also consider.

He said other measures like raising tariff on EU imports, or introducing an almost similar policy to the “Buy British Last” campaign could be taken by the government.

“We can basically raise tariff on some products from the EU. We had the policy of ‘Buying British Last’ in the early ‘80s which could be applied.

“That will be a softer approach, but it will send a message that we are shifting EU from the top of the list to the bottom,” he said.

However, he cautioned such actions would not benefit both regions.

“The threats can be seen as a bargaining tool for posturing, but there is no real benefit to it in the end. In fact, it could intensify to a point where a trade war becomes inevitable if both sides take damaging actions. We should try to avoid this because it could spiral downwards,” Yeah said.

Asian Strategy and Leadership Institute director Tan Sri Dr Ramon Navaratnam (picture) said both parties should engage in a serious discussion as a tit-for-tat action will only harm international trade and investments.

“The EU should recognise that this is not an issue about the environment. It is about human rights and development. There are 600,000 people who are dependent on palm oil. They cannot take action on fundamental rights in the way of development,” Ramon said.