The many mistakes of the proposed French palm oil tax

Since the end of January, the French Parliament has been debating a Draft Law on biodiversity, which includes a proposal to impose an additional tax on palm oil of up to EUR 90 per tonne by 2020.

Environment Minister Segolene Royal and her parliamentary allies are lobbying aggressively in favour of the proposed tax. It is planned to increase the tax on palm kernel oil and coconut oil as well.

This planned tax on the three oils – and products that contain them – is mistaken and misleading on every conceivable level. Members of Parliament, and Senators before them, have advanced essentially two arguments: one economic, one environmental. Both are utterly untrue.

First, the economic argument. Genevieve Gaillard, the rapporteur for the Biodiversity Bill in the National Assembly, claims that the EUR 90 tax will ‘even up’ the taxes on vegetable oils, because palm oil is currently ‘under-taxed’ in France. This is patently false.

The numbers used by Gaillard and her colleagues are, in fact, based on an excise table which calculates only absolute taxes applied. Any economist knows that this is not how taxes are compared in reality: they are compared by value – in other words, by the percentage of tax paid relative to the price of the commodity.

When the current taxes on oils are analysed correctly, by percentage, the argument for a palm oil tax falls apart. Palm oil is currently taxed at 21.67% in France. This is more than rapeseed oil (11.69%); sunflower oil (15.79%) and much, much more than olive oil (4.9%).

The figures are clear. Any claim that palm oil is currently ‘under-taxed’ is factually and materially wrong.

Second, the environmental argument. Senators from the Green Party claim that palm oil is destructive and causing forest loss. The facts prove otherwise.Malaysia now has over 60% of land area protected as forest. This is set out in the latest United Nations report on Global Forest Assessment.

The Malaysian Government has committed to protecting a minimum of 50% of land as forest in perpetuity. This is a bold commitment unmatched across the world, including in France, which now has 29% of its land under forest.

Again, the figures are clear.

Malaysia is recognised worldwide as being among leaders in forest protection. French MPs therefore have no moral standing to lecture Malaysia on this subject.

Scare-mongering about palm oil has been peddled throughout the debate on the proposed French tax. Again, let’s examine the facts. Palm oil covers just 0.3% of the world’s agricultural land. It has the highest yield of any oilseed crop, which means that it uses less land per tonne of oil. This means more land can be protected or used for other beneficial purposes.

Likely impact of tax

The proposed tax on palm oil is drafted as a ‘differential’ tax – meaning that ‘sustainable palm oil’ could be exempt from the new tax. This would of course mean France would be unilaterally launching its own definition of ‘sustainability’ for palm oil. This is unacceptable for producers, to be dictated to by the French Government in this manner.

The proposed ‘differential’ tax would negatively impact over 300,000 small farmers in Malaysia whose livelihoods depend on palm oil. It would be a major blow to poor and remote rural communities.

Importantly, it is becoming clear that the proposed tax is, almost certainly, contrary to France’s commitments to the World Trade Organisation (WTO). It is to be expected that any such illegal assault on a strategic sector would be met with consequences at the WTO.

The tax is also a clear breach of the EU’s market rules. In 2013, the European Commission had announced that such a tax on palm oil (as proposed at the time) would harm the ongoing EU-Malaysia trade negotiations.

The EU also made it clear that it had spoken to the French Government about the negative ‘wider impact’ of a palm oil tax. Those in both Paris and Brussels should be aware of such consequences once more.

Only a few short years ago, French Foreign Minister Jean-Marc Ayrault promised to the people of Malaysia that he would not tax palm oil. On a visit to Malaysia, he had promised our 300,000 small farmers that France would not harm them with a new tax.

Yet, this spectre has been revived.

It is for palm oil producing countries to defend their interests against the harmful, discriminatory measures that continue to flow from France and elsewhere.

Tan Sri Datuk Dr Yusof Basiron