A region infuriated: Confidence in EU trade plummets in ASEAN as palm oil sector formally unites

27-Feb-2023 - Last updated on 27-Feb-2023 at 03:56 GMT

ASEAN consumer confidence in regional trade relations with the European Union have plummeted on the back of the latter’s recently-passed deforestation law. ©Getty Images

ASEAN consumer confidence in regional trade relations with the European Union have plummeted on the back of the latter’s recently-passed deforestation law and its impacts on various food commodities, as major palm oil producing countries in the region move to formally protest on the world stage.

The EU parliament approved its long-debated and highly-controversial deforestation regulation in September last year despite widespread protests from countries producing several food commodities in regions from Asia to South America.

They claimed the move was a political ploy and experts warned that this was highly likely to lead to further price hikes amidst inflationary pressures.

This led to major palm oil producer markets such as Malaysia and Indonesia to look at retaliation, with talks of potentially cutting off palm oil trade with the EU.

More recently, the two countries met as part of the intergovernmental organisation Council of Palm Oil Producing Countries (CPOPC) Ministerial Council in February 2023 and – despite their differences in the past – concluded that Malaysia and Indonesia would present a united front to protest the deforestation regulation at the global stage, in front of the World Trade Organisation (WTO).

This was decided by Malaysian Deputy Prime Minister and Minister of Plantation and Commodities Dato’ Sri Fadillah bin Yusof and Indonesian Coordinating Minister for Economic Affairs Airlannga Hatarto.

‘We are gravely concerned on the adoption of the Deforestation-free Commodities regulation [as this will have] significant negative impacts on global palm oil exports as well as other developing countries,” both ministers stated via a formal CPOPC document after the meeting.

“This regulation is a protectionist instrument that will raise costs for exporters of palm oil and reduce their competitiveness against other vegetable oils in the EU, [and] we are disappointed that the EU has not conducted consultations [for this] with its trading partners in a meaningful way.

“We will conduct a joint mission to the EU in communicating the unintended consequences of this regulation to the palm oil sector, especially on possible exclusion of smallholders from the supply chain, and seek a more collaborative approach amongst all parities concerned.

“All parties in the palm oil sector including government, private sector and smallholders need to be united in addressing the prevailing issues plaguing the industry for the good of the palm oil producing countries.”

Hell hath no fury

According to industry experts, there are also clear signs that this entire fiasco is having clear impacts on the longstanding stellar reputation the EU has had with South East Asia in terms of trade relationships, the signs of which are starting to show via a recent survey conducted by the ASEAN Studies Centre at the ISEAS-Yusof Ishak Institute in Singapore.

“There can be zero doubt that the EU’s approach on palm oil has contributed significantly to [increasingly negative] Indonesian and Malaysian attitudes towards it,” palm oil industry expert and American Association of the Indo-Pacific Senior Policy Advisor Khalil Manaf Hegarty said.

“[The ISEAS survey] of ASEAN countries attitudes showed that confidence in the EU being able to champion the global trade agenda has fallen over the past year in both Malaysia and Indonesia, with both now having greater confidence in China.

“In Indonesia, 30% of respondents believe the EU’s [stance] could be to used to threaten the country’s interests and sovereignty (a 13% increase from 17% previously) and 48% have little or no confidence that the EU will ‘do the right thing’ (a 18% increase from 30% previously).”

The survey went as far as to ask respondents which ‘third party’ ASEAN should cast its lot in with to hedge against the uncertainties of the ongoing US-China rivalry, and although the EU still beat out other closer nations such as Australia, India and Japan to get an overall 42.9% of the vote, the numbers still clearly showed a drop in several economically leading countries including Malaysia (dropped 18.1% from 49.6% to 31.5%), Indonesia (dropped 1.7% from 40.5% to 38.8%), Singapore (dropped 0.3% from 39.2% to 38.9%) and the Philippines (dropped 1.2% from 34.5% to 33.3%).

This again highlights the emphasis that the region places on its food commodities, including palm oil, and how the EU’s new law is painting a black mark on itself in the eyes of the ASEAN community.

“The EU policymakers are living in constant denial that palm oil is [a key export commodity] for the region [and instead] continuously highlight that the law is ‘not a ban on any country or commodity from entering the EU market’,” Hegarty added.

“It is precisely these types of statements where they behave as though there is absolutely no reason for exporters to be concerned that infuriate developing countries such as Indonesia and Malaysia.”