Malaysia, Indonesia seek allies in EU deforestation row

Malaysia and Indonesia want to bring other Southeast Asian countries on their side amid ongoing disputes with the European Union over environmental and deforestation regulations that are set to take effect in late 2024, with the two nations worried about the regulations' impact on the region's agriculture exports.

Malaysian Prime Minister Anwar Ibrahim said earlier this month that his Thai counterpart, Srettha Thavisin, "has given me the assurance that Thailand would come on board to work together with Malaysia and Indonesia, and hopefully other countries, in presenting our case, particularly to the EU."

Indonesia and Malaysia, which together account for around 85% of global palm oil production, argue that the EU Deforestation-Free Regulation is discriminatory and unfairly punishes small-scale farmers who will struggle to cope with the bureaucratic demands set by Brussels.

What is the new EU deforestation regulation?

The EU's regulation will ban imports of cattle, cocoa, coffee, palm oil, rubber, soy and wooden items if they are produced on land that was found to have been deforested after December 31, 2020.

Both Southeast Asian states have independently initiated complaints against the EU to the World Trade Organization (WTO).

Whereas Jakarta has accused Brussels of "regulatory imperialism" and Malaysian producers have bemoaned "crop apartheid," other Southeast Asian states have taken a more diplomatic approach, seeking to understand the EU directives unilaterally in one-on-one discussions with EU officials.

Southeast Asian governments and producers are most concerned about the incoming EU bureaucratic hurdles necessary to prove their products haven't been grown on deforested land.

Under the new EU directive, local companies will have to provide extensive mapping of their entire supply chains, including geolocation data.

According to the EU's terms, these compliance mechanisms will be mandatory for larger companies from December 2024 and a few months later for smaller firms.

"The issue of perception is crucial. If the EU's intentions are perceived as illegitimate, policies may be met with skepticism, seen as regulatory imperialism or disguised protectionism," said Bernd Lange, chair of the European Parliament's Committee on International Trade.

"Active engagement with the countries through, for example, their embassies in Brussels is key," Lange told DW. "I have started such a process and already learned a lot. Understanding specific concerns is essential for finding solutions."

Could Thailand join dispute?

Thailand is the world's third-largest producer of palm oil, after Indonesia and Malaysia. It is also a significant exporter of other products, such as timber, cocoa and rubber, that EU regulations will impact.

The country is also the world's biggest rubber producer, and exports of these goods to the EU were worth €1.5 billion ($1.6 billion) last year, according to government data. Malaysia currently sells around 17% of its rubber products to the EU. Vietnam is another major rubber exporter focused on the European bloc.

According to Thai government estimates, small-scale palm oil accounts for 70% of the country's production. But EU officials contend that the deforestation regulation targets large-scale illegal deforestation, not smallholders.

Bridget Welsh, an honorary research associate at the University of Nottingham Asia Research Institute Malaysia, reckons the chances are "reasonably good" that Thailand will join Indonesia and Malaysia's campaign as they "are concerned with the issue and leaning away from the EU in their foreign policy."

However, a Thai government official, who requested anonymity because they were not permitted to talk about the issue, told DW it was improbable that Bangkok would join Malaysia and Indonesia in any legal complaints against Brussels, not least because Thailand this year gave the go-ahead to restart stalled talks over a free-trade agreement with the EU.

Instead, Thailand would become more vocal about the economic impacts of the EU directive and perhaps join Malaysia and Indonesia's Joint Task Force set up in June with the European Union that saw its first roundtable discussions in August, the official said.

What do Indonesia and Malaysia want?

Chris Humphrey, executive director of the EU-ASEAN Business Council, said his organization has long been worried "about the possibility of concerns from Southeast Asian nations on the EU Green Deal escalating into a significant trade dispute."

"There are legitimate concerns over implementation, but equally, the objectives of the policies are also legitimate," Humphrey added.

"It is clear to us that more needs to be done to bridge the gap between both the EU and ASEAN, but that is being done now and hopefully will prevent a further escalation of the dispute."

Indeed, Jakarta and Kuala Lumpur have steered away from their legal challenges and now seem more focused on negotiations with Brussels to lessen the impact of green directives on their economies.

As part of a new forum established this year, the two countries are lobbying the EU to be classified as low-risk countries for deforestation, which would simplify due diligence procedures for their companies. Countries deemed a high risk will still have more rigorous checks.

They also want the EU's demands to conform to the international standard laid out in 2004, under the Roundtable on Sustainable Palm Oil, and to match deforestation laws of national governments.

"It is now our common responsibility to find a solution to regional concerns about the ability of smaller Southeast Asian suppliers to compete," said David McAllister, chair of the European Parliament's Committee on Foreign Affairs.

"This should be done in a non-patronizing tone of mutual respect," he told DW.

"Through joint certification, the Joint Task Force that brings producing countries and the European Commission together, as well as through financial support for forest partnerships, we can make meaningful progress."

According to a European Commission official speaking on condition of anonymity, the EU is "significantly stepping up its engagement … to ensure the new law is effectively implemented while working in partnership with producer countries."

The official said a new initiative related to these disputes will be launched at COP28, which is set to begin in the United Arab Emirates on Thursday.

Edited by: Wesley Rahn