The European Union and the world’s largest palm oil exporters, Malaysia and Indonesia, are having their own trade dispute.
In March, the EU announced that it would stop supporting palm oil as a transportation fuel by 2030 because of environmental concerns.
The EU has linked the intensive growing of oil palms to deforestation in Malaysia and Indonesia.
Now, the countries are threatening to bring a case on the issue to the World Trade Organization.
Malaysian Prime Minister Mahathir Mohamad told Reuters that the EU is risking a trade war over “grossly unfair” policies that looked like protectionism. Mohamad also said Malaysia would seek to buy new warplanes from China and not European companies if the EU stopped its palm oil trade.
Reports say Malaysia is considering a deal for new fighter jets worth as much as $1 billion.
The Malaysian Palm Oil Council is an industry group based in Malaysia. It warns that the new EU rules would hurt Malaysia’s palm oil industry, which, it says, makes up six percent of the country’s total economy.
The EU is turning away from palm oil because new rules mean that members will not be able to count palm oil biofuels toward their renewable energy targets. The EU says the crop is the cause of deforestation, which does not help efforts to limit carbon emissions linked to climate change. Malaysia says the EU’s concerns are overblown.
Experts: issue could push Malayasia toward China, Russia
Peter Mumford is with the Eurasia Group, which advises on political risk. He said that Europe does not want to be seen arguing against its own environmental policy. And, he said the countries that wish to sell Malaysia fighter jets might not have enough influence to change the policy supported by the European Commission and European Parliament.
Shankaran Nambiar is with the Malaysian Institute of Economic Research. He said Malaysia’s palm oil exports are not a small matter and that Mohamed might want to continue to press the issue. He also said China and Russia may be willing to buy more palm oil. India is the largest market for Malaysia’s palm oil; the EU is second followed by China.
Malaysian Defense Minister Mohamad Sabu spoke to reporters about the issue. He said that China, Russia and other countries might be willing to trade defense equipment for Malaysia’s palm oil. Malaysia is suffering from the effects of heavy public debt and a weak economy. Trading oil for jets might appear like a good possibility.
China has proved willing to barter in the past and their jets would be less costly than European ones. But Jon Grevatt said there was little discussion of buying from China in March at Malaysia’s LangKawi International Maritime and Aerospace exhibition.
Grevatt said Malaysia still is probably five to 10 years away from buying new, light fighter airplanes. In that time, the new EU rules will more likely show their effects.
Palm oil is used in many products — from processed foods to soap. The EU rules do not bar the importation of palm oil. Instead, they target using palm oil as a biofuel by making it not count towards requirements for using renewable energy.