This article first appeared in The Edge Malaysia Weekly on December 5, 2022 - December 11, 2022

THE European Commission’s proposed regulation for deforestation-free products, aimed at minimising the degradation of forests globally, has received mixed reactions from developed and developing countries.

While the EU’s intention was seen as noble in wanting to make a real impact on reducing worldwide biodiversity loss, the developing nations that export most of these commodities to the West perceive the regulation as a trade protectionist tool.

According to the proposed regulation, six commodities — palm oil, beef, wood, soybean, cocoa and coffee and their derivative products, which were grown or raised on land that was subjected to deforestation or forest degradation — will be banned from entering the EU after the regulation is passed by the Council of the EU.

The regulation was approved by the EU Parliament in September and member states are now negotiating the final text. With the law, companies must verify that goods sold to the EU were not produced on deforested or degraded land anywhere in the world.

Malaysia and Indonesia are the world’s top producers of palm oil, of which Europe is a major buyer for food, cosmetics and biofuel production. Thus, the proposed regulation could present more complexity and challenges to producers.

For the EU, preserving biodiversity has almost been elevated to a moral imperative, with more regulations and directives put forward to halt climate change. Equally, for developing nations, these “ideals” are often translated as evoking “trade protectionism” and “oppression”.

“I think they [the Europeans] are taking a very discriminatory approach instead of being more engaging to try to appreciate what’s going on in this sector — not just reading headlines and relying on reports — instead getting on the ground and see what’s going on,” says United Plantations Bhd CEO Datuk Carl Bek-Nielsen, who is co-chair of the Roundtable on Sustainable Palm Oil (RSPO).

Europe has been a key buyer of RSPO-certified sustainable palm oil (CSPO), accounting for 45% of global CSPO use.

Bek-Nielsen says producers that are not committed to a policy of no deforestation, no peat, no exploitation (NDPE) can forget about selling to the region. With up to 20% of global palm oil production RSPO-certified and committed to NDPE, these producers should be taken seriously.

To him, the proposed regulation appears to have more to do “with trying to protect the EU domestically grown vegetable oilseeds”, which are less efficient than palm oil. It is worth noting that an oil palm tree produces more oil per land area than any other equivalent vegetable oil crop.

“European farmers are facilitated to remain efficient and remain competitive in the world market due to artificial subsidies given out by the common agricultural policy — that is a fact. We must not fall victim or prey to invisible trade barriers,” Bek-Nielsen tells The Edge in an interview.

Is the EU, in fact, resisting being undercut by cheaper imports of palm oil? No, according to Forest Risk Commodities analyst Micheal Rice of Clientearth, a London-based environmental non-governmental organisation, who says European-produced crops such as rapeseed and sunflower oil are not associated with biodiversity loss as much as palm oil and therefore was omitted from the Deforestation Regulation altogether.

“I have some sympathy for this argument, but don’t think this EU regulation could seriously be called protectionist. Obviously, there is no EU palm oil production industry to protect, so the argument is that the EU is trying to protect industries of other vegetable oils that are produced in the EU, like rapeseed or sunflower seed oil,” Rice tells The Edge at the RSPO Annual Roundtable Conference (RT2022) that was held in Kuala Lumpur on Nov 30.

“But there is a very good reason why those crops are not included in this law — their production is not highly associated with deforestation, biodiversity loss or human rights violations. The law itself makes no distinction between products produced inside the EU and products produced outside the EU — the same requirements apply.”

He adds that some of the other products that will be covered by this regulation are produced in the EU, such as wood, beef, some cocoa products like chocolate, and even some palm oil derivative products that are refined and produced inside the EU, which goes to prove the regulation is not discriminatory in nature towards oil-palm-producing countries.

The Council of Palm Oil Producing Countries (CPOPC) has said it is unlikely that a political agreement could be reached soon to pass the EU’s Deforestation Regulation, which is expected to be implemented next year.

“Within the EU, there are disagreements. The problem with the EU — its commission, council and the countries involved are three different matters. Implementation is carried out by each country, therefore even though the commission made a decision and the council endorsed it, the decision has to be transposed into the national legislation. Therefore, I don’t think a political agreement for the deforestation regulation can be reached by next year,” says CPOPC deputy secretary-general Datuk Nageeb Wahab, adding that the EU should engage with producing countries on the proposed regulation as they are already actively getting sustainable certification under national standards such as the Malaysian Sustainable Palm Oil (MSPO) and Indonesia Sustainable Palm Oil (ISPO).

“It is important that there is engagement from Southeast Asia. Here, the G3 — Indonesia, Malaysia and Thailand — the three biggest [palm oil] producers in the world, there should be joint efforts by the governments of these three nations, to carve out a simple, unbureaucratic strategy in terms of what they are committed to doing and use RSPO to show and demonstrate [how it can be done],” says Bek-Nielsen.

“Because in individual countries, they have companies that are RSPO-certified. And show them how it is done. I’m sure RSPO will work together with them.”

In 2021, the EU imported €6.3 billion (RM29.1 billion) worth of palm oil and palm oil products, mostly used for biofuels. Indonesia and Malaysia accounted for 44.6% and 25.2% of those imports respectively, according to publicly available government data.

On the emergence of national certification standards, RSPO CEO Joseph D’Cruz says national standards, which are mandatory, set the baseline for what is acceptable in a specific country and the RSPO pushes those boundaries at an international level by being able to provide certification to the end buyer.

“In this way, we see the RSPO and national certifications as complementary and fulfilling different roles in the global market. As a global industry, having common global standards underpinned by certification is important to facilitate global trade and production, which is an invaluable role we believe the RSPO plays in providing,” he adds.

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