All parties should put such speculation to rest, says Fernandez

by RAHIMI YUNUS / pic BLOOMBERG

THE European Union (EU) does not want a trade war with Malaysia, despite the economic bloc members’ plan to block the use of palm oil-based biofuel, which could impoverish more than 600,000 smallholders.

Malaysia’s oil palm smallholders, estimated to be about 650,000, are already struggling with low commodity prices, overproduction and heightened objection to palm oil over environmental concerns.

Malaysia and Indonesia, which produce 85% of the world’s palm oil, have threatened retaliatory actions including shunning products from Europe and imposing tariff on imports from the world’s largest economic bloc.

Ambassador and head of EU delegation to Malaysia Maria Castillo Fernandez said the EU has no intention of engaging in a trade war with Malaysia.

She said both Malaysia and the EU are not interested in starting a tariff war and all parties should put such speculation to rest.

“There is no trade war and neither Malaysia nor the EU has an interest in starting one. So, let’s not speculate further,” she said in an email reply to The Malaysian Reserve.

Concerns over the European countries’ stand on palm oil as not being a green fuel rise a few notches as restrictions on the use of the commodity as a biofuel are set to be passed by European Commission next month.

The proposed EU Delegated Act, slated to be tabled before the European Parliament in May 2019, supplements the EU Renewable Energy Directive (RED) II to restrict and ban palm oil biofuel by 2030. The Delegated Act classify palm oil as a “high risk” oil.

The EU is Malaysia’s second biggest market for palm oil after India, buying about 1.9 million tonnes of the commodity, which is used in everything from soap, to shampoo, to chocolate bars.

The whole bloc buys about 7.5 million tonnes of palm oil annually, with about three million tonnes used as a component of the greener fuel.

Fernandez emphasises that the EU has never, and will never, place an absolute ban on palm oil imports. She said that was never the objective of the Delegated Act.

She said the RED is not aimed at import restrictions, but at promoting sustainable renewable energy (RE) and reducing the carbon footprint of the transport sector.

She said the Delegated Act sets out the criteria on how EU member states can calculate if they meet the RE targets. “The criteria and underlying data will be reviewed regularly,” said Fernandez.

Four major local crude palm oil producers — the Federal Land Development Authority, Felcra Bhd, Rubber Industry Smallholders Development Authority and the National Association of Smallholders Malaysia, representing 3.2 million smallholders — handed a petition to Fernandez last week, demanding the EU to cancel the proposed ban.

The four organisations raised questions on why palm oil was considered as “high risk”, while other oils were labelled as low risk.

“It is mind-boggling that less competitive and less efficient oilseeds such as rapeseed, sunflower, canola and soybean oil are classified as low risk,” according to the petition.

Malaysia and Indonesia see the move by the EU member states as trade protectionism as palm oil is a direct competitor to rapeseed, sunflower, canola and soybean oil.

Figures showed that palm oil produces about four to 10 times more yield than other oilseeds for every hectare.

The various smallholder groups are demanding that the EU repeal the Delegated Act and instead strengthen the economic and trading tie between Malaysia and Europe. A decision over the proposed Delegated Act is expected to be concluded next month.

Malaysia and the EU have enjoyed warm economic ties, but the continuous campaign against palm oil has posed a threat to trade growth. The Malaysia-EU Free Trade Agreement (FTA) negotiations have also reached an impasse.

Last year, Malaysia’s trade with the EU grew 4.8% to RM183.4 billion, according to Malaysia External Trade Development Corp.

Malaysia’s exports to the EU climbed 3.5% to RM98.6 billion with Germany, Spain, Italy, France, the Czech Republic, Hungary and Poland as Malaysia’s leading European markets.

Manufactured goods accounted for 90.8% of Malaysia’s total exports to the region, among which major items include chemicals and chemical products, rubber products, iron and steel products, machinery, equipment and parts, transport equipment, as well as petroleum products.

Imports from the EU expanded by 6.5% to RM84.77 billion last year, with major import items such as electrical and electronic products, transport equipment, machinery, equipment and parts.