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Rich nations are not looking good in the palm-oil dispute

There is perturbation among green campaigners. The Financial Times revealed this week that the UK is planning to eliminate its tariffs on Malaysian palm oil as the price of entering the Comprehensive and Progressive Trans-Pacific Partnership, the jewel in Britain’s otherwise unimpressive post-Brexit crown of trade agreements.

Palm oil, which is used as a biofuel and the World Wildlife Fund estimates is also found in about half of all rich-world supermarket packaged products, has become a test for rewriting the world trading regime to protect the environment. The experiment is not producing encouraging results. Rich-world governments, particularly the EU, are struggling to create green trade-related regulations that are predictable, effective and comply with international law.

Palm oil shot to fame, or notoriety, when it featured in a viral Greenpeace campaign starring Rang-tan, a cartoon orangutan whose forest habitat was destroyed by palm oil plantations. The oil and its derivative products now encounter multiple rich-world consumer and corporate boycotts and official restrictions. The EU has already in effect prevented imports of palm oil for biofuels under its renewable energy directive, and is bringing in a tough new deforestation law targeting the product along with cattle, soy, coffee, cocoa, timber and rubber.

For Indonesia and Malaysia, the world’s two main palm oil producers and both former European imperial possessions, this is rich-world neocolonialism destroying the livelihoods of smallholders. The videoed annual statement of the Indonesian ministry of foreign affairs featured a brief scene of a jackboot marked “EU” trampling a palm oil plantation. Jakarta and Kuala Lumpur have already launched World Trade Organization cases against Brussels over the renewable energy directive, and the issue has jeopardised trade deals the EU is trying to sign in south-east Asia.

Some of the producers’ arguments are reasonable. Blanket bans on palm oil imports make little sense. The WWF points out that palm plantations have impressively heavy yields. Replacing them with soya bean, coconut or sunflower would require between four and ten times as much land, leading to environmental degradation elsewhere.

Criticisms of the UK’s cut in tariffs similarly miss the point. You can make a strong case in principle for placing green conditions on trade if you’re protecting a public good (carbon-sink forests and wildlife habitats), and they are equivalent to domestic environmental regulations. But tariffs are a bad way to do it. They do not discriminate between destructive and sustainable producers within each country, thus failing to create an incentive for individual growers to improve their practices.

The EU says it is trying to address the latter issue through its new rules on deforestation, which apply to a much wider range of palm oil derivatives, not just biofuel. They set precise criteria for products being allowed into the EU single market, including banning those grown on land that was deforested after December 31 2020. This will require detailed technical efforts involving geolocation and record-keeping to prove compliance, and is much tougher than the UK’s anti-deforestation regime, which merely requires that producers follow local laws.

Seen from Kuala Lumpur and Jakarta, the EU always has some kind of trade restriction in place — it’s just the rationales and instruments that change. There’s always a strong suspicion that its actions are driven by lobbying from European oilseeds producers. As well as the renewable energy directive, Brussels has also put antidumping duties on Indonesian biodiesel (which were later declared illegal by a WTO panel), and more recently on other products made from palm oil including fatty acids.

On the related issue of logging, Indonesia spent five years between 2011 and 2016 agreeing a “voluntary partnership arrangement” with the EU to certify that its timber exports were from sustainably managed forests. Now the EU deforestation initiative, which involves onerous customs inspections of consignments, means starting a whole new process.

Here too, the complainants have a point. Uncertain, onerous and ever-changing regulations act as an unfair trade barrier, whether or not the secret intent is nefarious protectionism. The European Commission is bracing itself for an onslaught of WTO cases over the deforestation rules, not least because Brazil, which has a record of successful litigation, is also affected. Future WTO rulings may at least sort out whether the EU regulations are proportionate and targeted. But WTO dispute settlement is a slow and painful process — the cases against the EU on biofuels are yet to produce rulings after years of litigation — and in the meantime millions of livelihoods are affected.

The EU and other rich economies are failing to address concerns that their actions are arbitrary and lacking in good faith. There’s a case for environmental regulations on trade, but Brussels is making it poorly at the moment, and bringing the whole idea into disrepute.


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