EU imposes heavy restrictions on imports of Malaysian and Indonesian palm oil in April 2023.

Context

In April 2023 the European Union passed new legislation, named the EU Deforestation-Free Regulation (EUDR), that heavily restricts imports of commodities viewed as contributing to climate change through the destruction of forests. The Regulation requires firms operating in the EU market to provide evidence that their products were not grown on land that had been deforested any time after 2020. The law was scheduled to come into effect on December 30, 2024 (with additional time allocated for small firms), but in November 2024 was pushed back by 12 months until the end of 2025.  The legislation is not solely aimed at palm oil, and covers other commodities such as cattle, cocoa, coffee, wood and rubber, as well as products derived from these, such as biofuels.

One of the architects of the new legislation, European Parliament negotiator  Christophe Hansen, told press that “European consumers can now rest assured that they will no longer be unwittingly complicit in deforestation”. Malaysian politicians have repeatedly alleged the politicisation of the measure. In December 2022, then Malaysian Deputy Prime Minister and Commodities Minister Fadillah Yusof issued a statement accusing the new regulation of being “a deliberate act by Europe to block market access, hurt small farmers and protect a domestic oilseeds market that is inefficient and cannot compete with the cost of palm oil”.

In December 2022, Indonesian President Widodo spoke of EU coercion, saying ““Partnerships must be based on equality. There must be no coercion”, a comment that was picked up by international media.

Subsequent narratives focussed more on the discriminatory nature of the measure, rather than it being weaponised trade or economic coercion.

In February 2024 Malaysian Foreign Minister Mohamad Hasan said that “it is clear that this regulation is not established in good faith but simply just to support the other (oil) products”. And Malaysia’s Plantation and Commodities Minister Datuk Seri Johari Abdul Ghani was cited by domestic media as saying in March 2024 that “the ban is also seen as biased and will create undue restrictions and contradict free trade practices as it violates the principles of the World Trade Organisation (WTO)”.

Other critiques have included accusations of “regulatory imperalism” by the Indonesian Coordinating Minister for Economic Affairs, Airlangga Hartarto, by others as “green colonialism“

Impact

Reporting has focused on likely environmental impacts of this law, as well as impacts on smallholder farmers in Southeast Asia – of which there over 300,000 in Malaysia and an estimated 2.4 million smallholders in Indonesia.

Responses  

i) Malaysian government and industry responses.

Malaysia sought to coordinate opposition to this measure with Indonesia, and both states extensively lobbied the EU. For example, following a bilateral meeting in June 2023, Malaysian Prime Minister Anwar Ibrahim and Indonesian President Joko Widodo issued a joint statement in which they referred to the law as “[h]ighly detrimental discriminatory measures”.

(ii) European Union government and industry responses

Following Malaysian opposition to the (then proposed) measure, EU Ambassador to Malaysia Michalis Rokas denied that the law would amount to a ban on Malaysian palm oil, telling press in December 2022 that “[d]eforestation-free and legally produced palm oil will continue to be placed on the EU market”.

WTO Disputes

In December 2019, Indonesia initiated a dispute against the EU, and when negotiations failed to resolve the issues, the WTO established a panel in July 2020. The formal name of the dispute is DS593 – European Union — Certain Measures Concerning Palm Oil and Oil Palm Crop-Based Biofuels and the full index of the case can be found here. As at December 2024 (the last edit date of this database) no decision has been released by the WTO.

Malaysia also brought a dispute to the WTO, after unsuccessfully attempting formal negotiations in January 2021. This later case proceeded more quickly than the EU-Indonesia dispute and a report of the WTO Panel was issued on 5 March 2024. The full index of documents can be found here for DS600 – EU and Certain Member States — Palm Oil (Malaysia). While Malaysia did not succeed on all its claims against the European Union, the EU was required to make a number of amendments to the legislation.

Status

At time of writing (November 2024), the EU and Malaysia were in negotiations about the amount of time required for the EU to bring its legislaiton into conformity with the rules of the WTO, as outlined in the Panel Report. No report had been issued by the WTO Panel in the dispute with Indonesia.

However, on October 2, 2024, the European Commission put forward a plan for a 12 month delay on the implementation of the law. In line with this new proposal, the law is currently anticipated to come into force on December 30, 2025 for major firms (and June 30, 2026 for small or micro firms). This proposed delay was supported by Malaysia, with Malaysian industry group Palm Oil Council calling it a “victory for common sense”. 

Reference list

Abnett, K. 2023. “EU lawmakers back ban on goods linked to deforestation.” Reuters. April 20. Available at: https://www.reuters.com/markets/europe/eu-parliament-approves-law-banning-imports-deforestation-linked-goods-2023-04-19/?utm_source=pocket_saves

Arshad, A. 2024. “Guardians of the forest: South-east Asia’s farmers are under threat from new EU rules on palm oil.” Straits Times. August 24. Available at: https://www.straitstimes.com/multimedia/graphics/2024/08/palm-oil-asia/index.html

Balsanek, K., Keyes, G., Sterneberg, R., Giesberts, L., Lake, H., Hausfeld, K., Daya, C., Toker, R., McCaffrey, A., Kovaleva, A., Gebrekirstos, S. 2024. “European Union Deforestation Regulation: What US companies should know.” DLA Piper. September 24. Available at: https://www.dlapiper.com/en/insights/publications/2024/09/european-union-deforestation-regulation

Bernama. 2024. “EU’s ban on palm oil import in biofuel seen as biased.” The Sun (Malaysia). March 21. Available at: https://thesun.my/malaysia-news/eu-s-ban-on-palm-oil-import-in-biofuel-seen-as-biased-GF12243371

Jong, H.N. 2023. “Indonesia, Malaysia cry ‘discrimination’ in lobbying against EU palm oil restrictions.” Eco-Business. May 29. Available at: https://www.eco-business.com/news/indonesia-malaysia-cry-discrimination-in-lobbying-against-eu-palm-oil-restrictions/

Rankin, J. 2024. “Former EU environment chief hits out at plans to delay anti-deforestation law.” The Guardian. October 3. Available at: https://www.theguardian.com/environment/2024/oct/03/former-eu-environment-chief-criticises-plans-to-delay-deforestation-law

Reuters. 2022. “Malaysia slams EU deforestation-free law for blocking palm oil market access.” Euro News. December 23. Available at: https://www.euronews.com/ next/2022/12/23/malaysia-palmoil

Strangjo, S. 2024. “Indonesia, Malaysia Welcome Proposed Delay to EU Deforestation Regulation.” The Diplomat. October 4. Available at: https://thediplomat.com/2024/10/ indonesia-malaysia-welcome-proposed-delay-to-eu-deforestation-regulation/