The EU’s nominee to be its next Trade Commissioner is Maros Sefcovic, a long-time EU official originally from Slovakia. He is expected to be confirmed by the EU Parliament in November.
What should the Malaysian palm oil sector look out for, as the next five-year term of trade policy begins in Brussels? There are two ways to look at the question: the general, and the specific.
In general terms, EU trade policy is likely to continue its recent trend away from the objective of liberalising trade and signing new deals – in favour of trade defence, trade protectionism, and trade enforcement.
EU Commission President Ursula von der Leyen has stated clearly in her instructions to Commissioner Sefcovic that “economic statecraft and economic security will be central priorities of this Commission” and that a new “Economic Security Strategy” should be developed. There is only a brief mention of free trade deals. Malaysia and ASEAN are not mentioned at all, despite the fact that there are ongoing negotiations on a Free Trade Agreement. It is a simple conclusion to reach, that such liberalisation – even with willing partners such as Malaysia – is less of a priority than in the past.
On the specifics, Malaysian palm oil has a number of policy questions and opportunities to pursue in the coming five years. The recently-announced delay of the EU’s Deforestation Regulation (EUDR), and the delay of ‘high risk/low risk’ country classification, means an opportunity to re-state the argument that Green non-tariff barriers are harmful for trade. The EU Commission’s DG Trade should take such concerns seriously, because the effect of such barriers would be to harm investment in Europe and raise prices for European consumers.
Both on the general and the specific, an interesting question is whether or not EU trade policy, as it relates to Malaysian palm oil, will continue to diverge from other significant markets. The United Kingdom, since leaving the EU, has taken a more positive and proactive stance towards recognising Malaysia’s track record of sustainability, for example. The UK’s Trade & Agriculture Committee (TAC) praised Malaysia as a positive example for reducing deforestation, and the UK’s commitment to the multilateral CPTPP trade deal included an agreement to reduce tariffs on Malaysian palm oil. That reduction means lower costs for both Malaysian producers, and British consumers.
The U.K. has also taken steps to recognise Malaysia’s legal commitment to zero deforestation. The U.K.’s ‘Environment Act’ included a legality standard for imports, recognising the success of Malaysia’s efforts to reduce deforestation and promote sustainable agriculture, including the success of the mandatory MSPO certification. This is a simpler and more effective approach, when compared with the EU’s burdensome EUDR.
Other major markets – including China and Japan are also taking this approach, recognising that Malaysia has a strong track record of forest protection and certification. Will the EU continue to be an outlier, or will some of the opportunities be taken to build closer cooperation between Malaysia and Europe, over sustainable palm oil?
The past five years in many ways have provided a strong case for the importance of Malaysian palm oil to the European market. The strong and resilient supply chains from Malaysian plantations were displayed during the Covid pandemic. Palm oil’s role as a reliable and low-cost oil helped to stabilise food prices following disruption caused by the war in Ukraine in 2022. Even the EU’s recent decision to delay EUDR is a recognition that commodity imports are essential, and it is not in Brussels’ interest to create barriers that cause chaos for European importers and consumers.
Although these lessons are important, the direction of travel on EU trade policy still looks to be tilting towards further protectionism. For Malaysia’s palm oil exporters, and other trade partners selling into Europe, it could be a challenging five years ahead.