European Parliament’s disturbing resolution on palm oil potentially discriminatory

On 3 November 2016, the European Parliament’s Committee on the Environment, Public Health and Food Safety (hereinafter, ENVI Committee) published its Draft Report on “Palm oil and deforestation of rainforests”, prepared by the rapporteur and Member of the European Parliament MEP Kateřina Konečná. The Draft Report contains a motion for a European Parliament Resolution, as well as an explanatory statement on the issue.

Import duties – a matter of international trade

A key element of the Draft Report is the issue of market access of palm oil. Recommendation no. 10, as provided in the Draft Report, “[c]alls on the Commission to increase import duties on palm oil that is directly linked to deforestation and that does not reflect the real costs associated with the environmental burden; notes that this instrument will require the involvement of certification schemes”.

In today’s globalised world, the issue of tariffs and import duties is delicate and highly regulated through multilateral (i.e., through the rules elaborated within the World Trade Organization), bilateral (i.e., through preferential trade agreements) and unilateral (i.e., through schemes like the Generalised System of Preferences, hereinafter, GSP) commitments. Those commitments define the potential scope of measures affecting duties levied at importation.

Import duties on palm oil depend on the specific palm oil product being imported and almost 50% of EU palm oil imports currently enter the EU duty free. Crude palm oil for foodstuffs is subject to a most-favoured nation (MFN) duty rate of 3.8%, while countries benefitting from GSP (excluding Indonesia), GSP+ and Economic Partnership Agreements (EPAs), benefit from a 0% duty rate. Biodiesel imports into the EU are subject to a 6.5% most-favoured nation duty rate and, again, a 0% duty rate under the GSP (excluding India and Indonesia) and GSP+ schemes.

When dealing with import duties on palm oil, it must also be considered that the EU is currently negotiating, in bilateral contexts, a number of preferential free trade agreements with palm oil producing countries, including with Indonesia and Malaysia, which are by far the biggest producers of palm oil worldwide. In those negotiations, the issue of import duties and, more generally, palm oil and sustainability, plays and will undoubtedly play a significant role, as they are key export drivers for the two countries.

At the same time, a careful analysis of the proposed recommendation emphasizes the impracticalities and most likely even the WTO illegality of this idea. The recommendation aims at increasing import duties only for palm oil that is “directly linked to deforestation and that does not reflect the real costs associated with the environmental burden”.

Notably, under WTO rules, the EU may only increase its import duties on an MFN basis if its bound rates allow it.  If there is no margin of manoeuvre (i.e., if the EU import rates are already bound at 0% or if the EU’s applied rates are already as high as the bound rates) the EU could only increase the import duties through complex tariff renegotiations under the GATT or by breaking WTO rules, which is not really an option.

Furthermore, since this ‘sustainability policy’ would have to be applied in a non-discriminatory manner vis-à-vis all imported palm oil products and all countries of origin, it beggars belief that the EU would want to do this unilaterally, rather than on the basis of a multilateral global sustainability standard for palm oil, and only for palm oil, which it does not produce, and not for all vegetable oils (e.g., soy, sunflower, rapeseed, etc.).

This proposed policy looks potentially discriminatory, smells like protectionism, and stands out as yet again an attempt by EU authorities to target palm oil for political or populist reasons.

The debate on disproportional excise taxes in EU Member States

Apart from the international trade issue of import duties, a number of EU Member States are also considering excise taxes on vegetable oils and, in particular, palm oil. Over the course of 2016 and as early as 2012, the French legislature intensively debated the issue of a special tax on palm oil, palm kernel oil and coconut oil as part of the French biodiversity law. Proposals included a tax of up to EUR 900 per metric tonne.

Due to the successful intervention by palm oil producing countries and EU stakeholders, the final French biodiversity law does not include any increase in palm oil taxation. However, the law now contains a provision with the request that the French State establish, within 6 months from the promulgation of the biodiversity law, a “simple, harmonised and non-discriminatory” taxation scheme for all vegetable oils, which is to privilege oils that are produced in a sustainable way. Sustainability is supposed to be certified based on objective criteria.

Therefore, this debate is poised to gain traction again in 2017, when a proposal for a reform of vegetable oil taxation in France is to be expected. Already at the end of 2016, the taxation of vegetable oils was once again raised within the French National Assembly’s debate on certain finance laws for 2017, with one amendment repeating the proposal for a disproportional tax increase from earlier in the year.

Once again, palm oil producing countries, led by Malaysia and Indonesia, must take swift action in order to prevent that this issue be dominated by certain countries and constituencies with clear protectionist interests, while at the same time neglecting the perspective of palm oil producing countries, the achievements with respect to sustainable palm oil and the important benefits of palm oil cultivation for smallholders and the local economies in palm oil producing countries.

The dire need for a globally agreed sustainability standard

Key to tackling this issue and ending this questionable and oftentimes hypocritical debate is the development of a globally agreed, multilateral and inter-governmental sustainability standard for palm oil. This standard should take into account the three pillars of sustainability, namely, the economic, the environmental and the social dimension.

An important element, however, is the multilateral nature of the standard and the participation of palm oil producing countries. Considering the various initiatives at the EU level and within individual EU Member States, the issue of a globally agreed sustainability standard for palm oil must become the predominant palm oil issue of 2017.

There is an urgent need for a truly international and multilateral standard for palm oil sustainability, which must be negotiated by and with palm oil producing countries. Anything less than that would be a mockery and likely a unilateral cover for trade discrimination and distortion.

Contributed by : Fratini Vergano