17 April 2018

Why the UK should oppose the EU’s proposed palm oil ban

by Brian Sturgess & Oni Oviri

Trade deals with the nations of the world are one of the great prizes of leaving the European Union. A key reason that an independent trade policy is so desirable is that the EU’s trade policy (which the UK is currently forced to follow) is in reality highly protectionist. The EU Commission focuses trade negotiations on regulatory issues – environment, labour and product regulations. As the IEA’s Shanker Singham has argued, trade policy should be about breaking down barriers, not building them up.

Singham highlights the example of palm oil – one of the most important agricultural exports for fast-growing countries in Africa, Latin America and Asia. The EU is currently planning to ban some palm oil imports in a protectionist measure designed to benefit the already rich and coddled EU farming sector. Palm oil exporting countries, from Colombia to Nigeria to Malaysia, have reacted furiously. For Nigeria, which used to be the world’s largest producer of palm oil and has only recently started to reinvest in the crop after decades of neglect, an EU ban would be a major blow to its agricultural ambitions. The measure has been compared – with some justification – to President Trump’s foolish steel tariffs. The EU will suffer retaliation from potentially dozens of countries in Asia, Latin America and Africa if it moves ahead with the ban.

The UK, despite being poised at the EU exit door, is affected by this in three ways. First, the UK government seems to support this protectionist move inside the Council of the EU, the body which makes the final decision: a crazy stance, given that we are crushing thousands of export jobs in these countries only a few months before we turn around and ask them for a free trade deal (hint: they will not want to help us if we do this). Second, the free-market movement is harmed because bans such as this propagate the dangerous idea that trade should be focused on environmental, rather than economic, objectives. Third, and perhaps most importantly, we are undermining global trade rules and the rules-based order if we support actions that are so clearly against WTO rules, and which harm our friends and allies.

This highlights the difficult choice between populism and free trade. Banning palm oil is populist: it makes zero economic or political sense. However, it appeals to niche, but noisy, elements in the media and civil society who will cheer it loudly. Iceland (the supermarket, not the country) proved this point over the past week when it played to the populist gallery and announced no more palm oil in its own-brand products. Virtue signallers everywhere rejoiced.

Iceland’s announcement was classic protectionist-populist rhetoric. Using environmental arguments to justify a trade-restrictive measure is a trick used often by the EU regulators in Brussels. A March 2017 report by the European Parliament led to misleading and incorrect figures being cited in the media, including the ludicrous claim that palm oil is responsible for 40 percent of global deforestation. Those arguments, when subjected to scrutiny, are thin at best. In this case, Iceland also claims that palm oil causes deforestation: Malaysia, the major palm oil exporting country to the UK, actually has a growing forest area according to official UN data, and is one of the world’s leading preservers of rainforest. Iceland’s corporate leaders are clearly more interested in populist virtue signalling than in facts.

These two protectionist moves – one perpetrated by a regulator in Brussels, the other by a supermarket in Deeside – illustrate a central challenge for future UK trade policy. We cannot behave arrogantly or claim to be superior to our new trading partners around the world: such paternalism is antithetical to a successful free trade policy. The UK’s new trade policy will be dead on arrival if we intend to start banning the exports of our trading partners – especially when those bans turn out to be based on false claims, as in this case.

Instead, we need to send a welcoming message that Britain is open for business. The good news is we can start right now – before we even formally become an independent trading nation – by pledging to oppose any such protectionist nonsense in Brussels while we remain a member of the EU. Opposing the palm oil ban is a good place to start, but there are so many other EU tariffs and restrictions we can also publicly oppose over the coming months. Doing so will send a signal to the world that our commitment to free trade is expressed in deeds, as well as mere words.

Brian Sturgess

Brian Sturgess is Managing Editor and Chief Economist at World Economics, and worked as a consultant to the Competition Directorate of the European Commission.

Oni Oviri

Oni Oviri is Managing Director of Sasare Associates, a consultancy advising on best practice Supply Chain and Logistics Management for global private sector and UK public sector organisations.