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Trade coercion on palm oil

MELBOURNE, Australia: ENVIRONMENTAL non-governmental organisations (NGOs) have, for the past decade, been pressuring governments to restrict palm oil imports unless production systems comply with their standards.

Now, commercial coercion joins trade coercion to restrict growth of palm oil trade.

When it comes to commercial coercion, these activists are practised at pressuring consumer goods manufacturers, processors and traders to purchase only palm oil produced according to NGOs’ standards. Why go to such lengths?

Commercial coercion works. Major companies fear attacks on their brands. Some chief executives, for example of Unilever, the strongest business backer of the Roundtable on Sustainable Palm Oil (RSPO), even appear to enjoy being lauded by NGOs.

Does trade coercion work? Only if governments allow it to do so. Rules in trade agreements are quite strict.

The restrictions imposed by the European Union on imports of palm oil-based biodiesel are considered by trade experts as wholly in breach of World Trade Organisation (WTO) rules. The United States Environment Protection Agency is considering similar measures. They, too, would breach Malaysia’s WTO rights to supply the US market.

It is also probable that efforts by the backers of RSPO to pressure businesses to buy only its certified palm oil breach the Code of Practice attached to the WTO Agreement on Technical Barriers to Trade. It specifies non-governmental certification systems may create unnecessary obstacles to trade. Malaysia can seek to enforce this WTO agreement to ensure this does not occur.

Free trade means businesses are free to compete in foreign markets. The domestic cousin of free trade is free competition.

It is also clear that environmental NGOs are pressuring businesses, such as Wilmar, to deal only with palm oil producers whom they endorse. This is market coercion.

As well as exercising its rights as a member of the WTO to challenge restrictions by others on its palm oil exports, the Malaysian Government is fully entitled to adopt laws or regulations which penalise those who engage in any activity that clamps down the palm oil supply chain and producers’ livelihoods.

Normally, free marketers would not advise governments to increase business regulations. But when commercial entities willingly bow to coercion from NGOs to distort trade and markets, it is the consumers and producers who suffer; it is entirely appropriate for governments to adopt regulations which penalise businesses which are complicit in actions that restrict competition.

Alan Oxley is chairman of World Growth, an observer at the United Nations Climate Change Conferences. He formerly served as chairman of the General Agreement on Tariffs and Trade (GATT), the predecessor to the WTO.

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