# Explainer-Why Malaysia is considering a ban on palm oil exports to the European Union
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-01-13
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Malaysia considers halting palm oil exports to EU over
Meta Description: Discover why Malaysia may stop palm oil exports to the EU due to import restrictions and trade barriers over deforestation concerns.
URL: https://financedigest.com/explainer-why-malaysia-is-considering-a-ban-on-palm-oil-exports-to-the-european-unionhtml

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By Mei Mei Chu

KUALA LUMPUR (Reuters) – Malaysia, the world’s second-largest palm oil producer, on Thursday said it might stop palm exports to the European Union after the bloc imposed additional import restrictions on the edible oil due to concerns over deforestation.

WHAT IS THE DISAGREEMENT ABOUT?

Malaysia and Indonesia have for years been at loggerheads with the European Union over curbs on imports of palm oil, which the two countries say are [trade barriers and protectionist measures for the bloc’s domestic oilseed industries](https://www.financedigest.com/eu-recovers-appetite-for-trade-in-green-industry-push.html "EU recovers appetite for trade in green industry push").

The EU deforestation regulation is in addition to an EU renewable-energy directive, announced in 2018, that requires the phasing out of palm-based transportation fuels by 2030.

The bloc has also [set a separate safety limit on food](https://www.financedigest.com/average-annual-uk-food-bill-set-to-rise-454-pounds-as-inflation-soars.html "Average annual UK food bill set to rise 454 pounds as inflation soars") contaminant 3-MCPD esters for palm oil compared to soft oils derived from crops such as soybean, canola and sunflower.

WHAT HAS MALAYSIA DONE ABOUT EU RESTRICTIONS?

Indonesia and Malaysia, which account for 85% of the [world’s palm oil exports](https://www.financedigest.com/at-chinas-largest-trade-fair-exporters-worry-about-world-economy.html "At China’s largest trade fair, exporters worry about world economy"), have filed separate World Trade Organisation suits against the EU over the renewable-energy directive.

The palm [oil producers say they have taken steps to meet](https://www.financedigest.com/oil-prices-steady-as-news-of-saudi-russia-meeting-calms-investors.html "Oil prices steady as news of Saudi, Russia meeting calms investors") EU requirements, including stepping up their national sustainable palm oil certification standards and improving environmental protection and food safety standards, but that the bloc keeps imposing new restrictions.

EU officials [say their regulations do not target any one country and are aimed at ensuring that commodity production](https://www.financedigest.com/over-half-of-britons-say-loyalty-cards-encourage-them-to-buy-a-product-niq.html "Over half of Britons say loyalty cards encourage them to buy a product – NIQ") does not further drive deforestation and forest degradation.

HOW IS THE MARKET REACTING?

Bursa Malaysia’s benchmark [crude palm oil](https://www.financedigest.com/oil-dips-after-fed-comments-us-crude-stock-build.html "Oil dips after Fed comments, US crude stock build") futures have yet to react to Malaysia’s proposal, although some traders said they see it as a bearish signal. \[POI/\]

Some in the palm [industry view the proposed ban](https://www.financedigest.com/is-googles-payday-lender-ad-ban-singling-out-the-industry.html "Is Google’s payday lender ad ban singling out the industry?") as a knee-jerk reaction that will hurt the sector, and others laud Malaysia for putting its foot down.

Malaysia said it will [discuss with Indonesia the possible ban and other strategies](https://www.financedigest.com/new-zealand-pm-meets-biden-to-discuss-u-s-indo-pacific-strategy.html "New Zealand PM meets Biden to discuss U.S. Indo-Pacific strategy") to tackle the EU measures, as both have agreed to increase cooperation to fight “discrimination” against the commodity.

HOW WILL MALAYSIA HALT EXPORTS TO EU?

It is not clear whether Malaysia is [considering a direct ban](https://www.financedigest.com/eu-considers-ban-on-forever-chemicals-urges-search-for-alternatives.html "EU considers ban on ‘forever chemicals’, urges search for alternatives") on exports to the European Union or enacting tariffs.

WHAT ABOUT MALAYSIAN PALM [OIL EXPORTS TO EUROPE](https://www.financedigest.com/u-s-oil-exports-to-europe-hit-record-in-march-on-steep-discounts.html "U.S. oil exports to Europe hit record in March on steep discounts")?

The EU accounts for 9.4% of Malaysia’s export volume in 2022. Malaysian Palm [Oil Board data](https://www.financedigest.com/oil-jumps-on-lower-than-expected-us-inflation-data.html "Oil jumps on lower-than-expected US inflation data") indicates that exports to the 27-member bloc have been declining since 2015.

In 2022, Malaysia’s exports to the EU fell 10% from the [previous year](https://www.financedigest.com/glastons-interim-report-1-january-31-march-2018-orders-received-grew-23-comparable-operating-profit-at-previous-years-level.html "Glaston’s Interim Report 1 January – 31 March 2018: Orders received grew 23%, comparable operating profit at previous year’s level") to 1.47 million tonnes. That is a 40% plunge from 2.43 million tonnes in 2015.

The Malaysian Biodiesel Association last [year urged industry officials](https://www.financedigest.com/hong-kong-finance-official-to-make-first-visit-to-britain-in-three-years.html "Hong Kong finance official to make first visit to Britain in three years") to come to terms with a steady decline in shipments of palm-based biofuels to the EU.

WHERE ELSE CAN MALAYSIA [PALM OIL](https://www.financedigest.com/watchdogs-new-chief-says-high-prices-can-support-greener-palm-oil.html "Watchdog’s new chief says high prices can support greener palm oil") EXPORTS GO?

The palm [oil industry](https://www.financedigest.com/apple-seed-oil-market-2022-outlook-current-and-future-industry-landscape-analysis-2026.html "Apple Seed Oil Market 2022 Outlook, Current and Future Industry Landscape Analysis 2026") makes up about 5% of Malaysia’s economy. Malaysia has in recent years actively explored new markets to offset [losses from Europe](https://www.financedigest.com/uk-card-fraud-losses-climbed-18-percent-in-2015-largest-rise-in-europe.html "UK CARD FRAUD LOSSES CLIMBED 18 PERCENT IN 2015, LARGEST RISE IN EUROPE"), including food-importing countries in the Middle East, Central Asia and North Africa.

Several publicly-listed Malaysian palm [oil companies](https://www.financedigest.com/exxon-sues-eu-in-move-to-block-new-windfall-tax-on-oil-companies.html "Exxon sues EU in move to block new windfall tax on oil companies"), however, have established refineries in Europe and an export ban would disrupt their operations.

(Reporting by Mei Mei Chu; Editing by Tom Hogue)


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