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Palm oil trade barriers a priority issue

KUALA LUMPUR: BARRIERS to palm oil trade is a priority issue in Malaysia’s negotiation of free trade agreements with developed nations, says Plantation Industries and Commodities Minister Datuk Seri Douglas Uggah Embas. 

“Our main concern is better access of our commodity exports into these markets. I’ll bring up this matter in Cabinet,” the minister told reporters here yesterday after hosting a dialogue with various stakeholders in the palm oil industry.

Malaysia earns some US$20 billion (RM65.2 billion) from palm oil exports every year.

The Ministry of International Trade and Industry, while currently negotiating a free trade agreement with EU, is also involved in the Trans-Pacific Partnership Agreement (TPPA) talks.

The TPPA, conceived in 2010, is a free trade pact among the US, Mexico, Canada, Peru, Chile, Malaysia, Singapore, Brunei, Australia, New Zealand, Vietnam and Japan.

Apart from import duties imposed on palm oil in consuming countries, barriers to trade include smear campaigns against the commodity.

In the last 15 years or so, Western environmental activists had launched many campaigns alleging that the expansion of oil palm plantations destroyed rainforests, threatened many endangered wildlife and robbed indigenous peoples of their land.

Indeed, this sits oddly with the fact that oil palm is one of the world’s most sustainable crops. 

Oil World, a Hamburg-based trade journal, noted that the oil palm tree is the world’s most efficient oil crop because one can harvest five tonnes of oil per hectare. This is 10 times more productive than soyabeans planted in the US and five times more than rapeseeds, Europe’s main oil crop. 

By criticising the virtues of oil palm planting and ignoring the evidence that economic development leads to better environmental protection, it is questionable whether these activists’ true commitment is to the environment or to erection of trade barriers to benefit rapeseed farmers who are already heavily subsidised by the EU government.

This hand-in-glove fit is also seen in the activists’ campaign against palm oil imports, especially for biofuels, which is very much aligned with the EU’s Renewable Energy Directive that seeks to discriminate against palm biodiesel.

Malaysia, in its TPPA negotiation, is expected to seriously address such barriers to palm oil trade because almost a million jobs are at stake. The sprawling palm oil industry also supports some two million livelihoods in the economy.

Meanwhile, Uggah said the Malaysia Sustainable Palm Oil (MSPO) certification scheme, to be implemented in 2014, is a tool to overturn smear campaigns against palm oil. 

“The Roundtable on Sustainable Palm Oil certification scheme is very costly and their goalposts keep changing. It’s time we set our own standards. Hopefully, the MSPO can yield some premium for planters,” said Uggah.

During the industry dialogue, oil palm planters once again appealed against the myriad of taxes they have to pay to the federal and state governments.

Today, oil palm planters in Peninsular Malaysia pay a windfall tax when the average crude palm oil (CPO) price surpasses RM2,500 per tonne in the cash market. Planters in Sabah and Sarawak, however, only need to pay a windfall tax if the price crosses RM3,000 per tonne.

Oil palm planters argued that the formulation of the windfall tax is flawed because it is based on the CPO selling price instead of actual profits.

Palm oil is already the world’s most heavily taxed vegetable oil, with oil palm planters having to pay 26 per cent corporate tax, cess amounting to RM13 per tonne of crude palm oil, 7.5 per cent and 5 per cent sales tax in Sabah and Sarawak, respectively. Also, there are varying import duties in consuming countries.

When compared to businesses in other sectors that just pay 25 per cent of corporate tax, oil palm planters is seen to pay more.

This is because when all the cess and taxes are added up, planters in Peninsular Malaysia pay an effective tax rate of 26 per cent. In Sabah and Sarawak, it is even more punishing. For every RM1 an oil palm planter in Sabah earns, he pays 40 sen in total cess and taxes, while in Sarawak, the amount is 37 sen.

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