EU Push for Sustainable Palm Oil
Countries in the European Union (EU) take turns to hold the ‘Presidency’ of the bloc for six months. In January 2016, the Dutch government started its term and will drive the EU agenda up to July.
The Dutch government has shown recent signs that, as part of this agenda, it intends to push for greater scrutiny of palm oil that comes into Europe. This could mark the first time that the EU Presidency has made palm oil a strategic focus of its sustainability agenda. This is a significant move.
Foremost on the Dutch agenda will surely be certified sustainable palm oil (CSPO), and the relative sparsity of uptake by European buyers and manufacturers. The low uptake – which is causing discontent among palm oil stakeholders – is critical because of Europe’s position in the sustainability debate.
Europe is the key source – really the only source – of NGO-approved palm oil demand. Much of the demand for CSPO certified by Western NGOs is a result of anti-palm oil campaigns and risk-averse companies that have invested considerable amounts in their branded consumer products.
Despite this, the uptake remains relatively low at roughly 50%; there is, as such, no premium on CSPO, even with higher production costs. However, there appears to be a new concerted policy push by both European governments and the private sector to increase the uptake of CSPO via regulation.
This culminated in a new policy announcement by five European governments and a number of European bodies involved in palm oil. Late last year, the UK, the Netherlands, Germany, Denmark and France signed on to a commitment to support ‘100% sustainable palm oil production’ by 2020. They also requested that the European Commission convene a session of member-states to examine the issue and policy options.
This declaration indicates a political appetite among European policy makers and businesses – particularly in Northern European countries – for more stringent measures on palm oil.
It looks as though the Dutch Presidency of the EU will push broader trade and environmental goals as well. Indeed, the Dutch trade minister indicated in a speech in December 2015 that the Netherlands would draft in the support of the private sector to push other non-trade goals.
This is not the first time that trade controls through regulation have been attempted in Europe, with the goal of supporting increased CSPO uptake (i.e. securing regulatory advantage for CSPO, or disadvantage for non-CSPO palm oil – which amounts to the same thing).
Dutch importers during the last Dutch EU Presidency lobbied for a reduced tariff on palm oil certified as sustainable – an effort that clearly would have run into problems with trade law and with trading partners in Southeast Asia. As a result, the proposed reduced tariff, which was effectively an increased tariff on non-CSPO palm oil, never got out of the gate.
A more recent attempt was made in Italy to introduce discriminatory regulations favouring CSPO – in this case, a tax on all non-CSPO palm oil – that was proposed as part of the Parliamentary budget process. Again, the proposal died straight away.
The Dutch Presidency appears to be drawing from three separate policy initiatives related to forestry that emerged from Europe over the past decade or so. These are likely the potential ‘blueprints’ that the Dutch effort could attempt to follow:
- The first was a UK procurement initiative that emerged around 2010 – this was effectively a voluntary measure that was instituted by the UK Department of the Environment, Food and Rural Areas. The initiative worked with palm oil importers towards an aspirational target to have all palm oil going to the UK certified as sustainable by 2015. The initiative fell well short of its target and was disbanded after three years. However, the new initiative appears to have adopted almost the same approach.
- The second was in the Netherlands, which had a similar approach to that in the UK. This was known as the Dutch Task Force on Sustainable Palm Oil, led by the Product Board for Fats and Oils. It speaks on behalf of and provides services to the oils and fats industry and trade in the Netherlands. While nominally a private-sector push, the task force relies on significant Dutch, Danish and Swiss government funding via the Dutch body IDH, also known as the Sustainable Trade Initiative. The Task Force has pushed for similar goals to the UK measures, i.e. to have all palm oil imported into the Netherlands to be CSPO.
- The third, and arguably most significant is the EU’s Forest Law Enforcement, Governance and Trade (FLEGT) programme. It concerns for the most part the ‘legality’ of timber products exported to the EU. FLEGT has been a multi-million dollar programme with two significant policy measures.
- One is the introduction of ‘due diligence’ rules for European importers. They must – under threat of legal penalty – assess the legality of any timber products they are importing.
- Another is the establishment of an environmental trade agreement known as a voluntary partnership agreement. Under this, timber will only be exported to the EU if it meets a particular agreed standard for legality, which includes environmental regulations.
The EU is currently exploring the possibility of extending the FLEGT programme to other commodities imported by the region.
This is similar also to approaches taken in relation to conflict minerals on both sides of the Atlantic and, more recently, with reporting on policies in relation to child or trafficked labour in the State of California.
In these cases, the reporting requirements are those that basically demonstrate that some level of risk management has been undertaken. However, the requirements make parties that are essentially innocent so paranoid about auditing that extreme levels of compliance are implemented that don’t actually go towards solving any social or environmental problems.
Risks for trade
The three policies, in combination with the most recent announcement in the Netherlands, indicate that the EU is taking some sort of environmental trade control seriously.
This has not gone unnoticed. Efforts by the Dutch Presidency to implement the policies would risk disagreement with palm oil – producing countries – key trading partners for the EU in general, and the Netherlands in particular.
The bigger question is whether the EU is of the opinion that it can undertake these measures unilaterally in the light of recent policy initiatives in both Malaysia and Indonesia. Each has introduced government-backed sustainability standards for palm oil production. The Malaysian standard in particular follows national standards procedures and conforms to norms established in the International Standards Organisation.
Any move by the EU – or its member-states – to push a private, non-governmental standard – rather than recognise one that has been established by a sovereign government – could have further ramifications for European trade policy, and for any trade push by the EU into Southeast Asia’s palm oil-producing region. The idea that the EU wouldn’t to some extent recognise a standard established by one of its trading partners could be politically sensitive.
The EU recently announced a new trade strategy called ‘Trade for All’. It looks to work towards a more responsible trade and investment policy. The policy states that Asia is crucial to Europe’s economic interests; yet Asia appears to be something of an afterthought in EU foreign policy.
The EU-Singapore free trade agreement went ahead because there was nothing contentious in it; in some ways it can simply be considered an agreement on investment and services. The EU-Vietnam agreement negotiations concluded in December 2015; and there is still at least an 18-month legal review and ratification period ahead.
But the reality is that the EU’s trade relationship with most ASEAN countries has stagnated. Still, as demand in Europe wanes, its manufacturers and service providers need greater market access in growing markets.
The only way this will happen is with careful and considered bilateral or multilateral engagement that covers national standards; EU trade regulations such as due diligence laws; and broader trade engagement.
If European countries want to determine which sources of palm oil can enter Europe and which can’t, they must be made aware that this will encounter serious problems.