Cambodia, Energy & Environment, EU FTAs & bilateral ties, Free comment, GSP, GSP Plus, EBA, Indonesia, Myanmar, Philippines, Social & human rights, South Asia & ASEAN, Vietnam

Unsustainable unilateralism: Sanctions or sustainability compliance

Aerial view of a Malaysian palm oil factory © Marufish
A new EU rule makes Malaysian palm oil unviable as a biofuel stock

Europe’s efforts towards sustainable trade is a paradox. While it successfully works with sticks and carrots for sustainable fisheries, the EU imposes rules on biofuels that cannot be complied with, writes Hosuk Lee-Makiyama.

The EU relationship with ASEAN countries has reached a historical nadir: in late January 2019, the South Eastern Asian countries demonstratively refused to designate Europe as its “strategic partner”. Since then, the Singapore trade and investment agreements are ratified, but effectively all other negotiations or ratification processes with the region have come to a halt.

The cause of this diplomatic rift – as highlighted in our recent report – is the new EU rules for renewable energy that make Indonesian and Malaysian palm oil commercially unviable as a biofuel stock: a recently-proposed ‘delegated act’, in which the EU cuts all support for palm oil-based biofuels from South-East Asia, regardless of whether the actual production is sustainable or not.

Indonesia is now cancelling its orders of Airbus aircraft despite being one of the victims of the fatal accidents involving Boeing 737 Max. This week, Jakarta has also shut its import quotas for EU alcoholic beverages and reallocated them to our competitors. Malaysia is reviewing its decision to purchase the French fighter plane Rafale, which would have broken decades of Russian monopoly. Both countries are also considering tax investigations on European luxury brands who they claim avoid local taxes.

Current exports of biofuels to the EU will be quickly swallowed up by China and India, where the demand for alternatives to fossil fuel is surging. Nonetheless, Indonesia is planning to lodge a WTO dispute out of principle, over what it deems illegal discrimination. In other words, there are neither signs of effect nor compliance with EU rules on renewable energy.

Known pre-conditions

This episode follows on recent attempts by German social democrats in the European Parliament who tried to delay the of the EU-Japan Economic Partnership Agreement because as Tokyo had not yet ratified international conventions on, for example equal pay, although such anti-discrimination provisions are enforced under domestic law. The same MEPs also currently refuse to ratify the EU-Vietnam agreement unless they see some significant reforms in Vietnam’s labour conditions – something which the country is unlikely to put on offer. Both in the case of Japan and Vietnam, the MEPs were reacting to facts that were already known before the negotiations – yet they never raised them until the European elections.

With sustainability becoming a central objective of European trade policy, the current episode raises legitimate questions whether the EU achieves tangible changes for the environment or workers’ rights by leveraging access to its single market. The EU is also increasingly moving towards imposing sustainability ‘pre-conditions’ – i.e. it is demanding verifiable change in policy or behaviour before opening up or concluding trade negotiations. This severely limits the number of countries it can negotiate with.

EU has proved its power in tackling fishing problems

However economic diplomacy is a conscious choice to engage the world for what it really is, rather than use the imperfections as an excuse to disengage. The EU has also proven its diplomatic prowess in tackling illegal, unreported and unregulated (IUU) fishing, which threatens sustainable fish stocks and the marine environment. The EU regulation calls on other governments to abide by UN convention and adequately legislate against illegal fishing. If that fails, the EU enters into a formal dialogue to remedy the situation – and imposes a trade ban as a last resort.

Thailand and the Philippines have already reformed their laws thanks to EU pressure, and Vietnam is in midst of discussions with the EU. Relative success on IUU shows that sustainability does not become an obstacle to trade negotiations or agreements if there are intergovernmental processes and well-recognised international conventions. The IUU commitments are then further ‘locked in’ by the sustainability chapters in the EU and US FTAs, as well as the CPTPP.

Perceived as unilateral sanctions

In comparison, there are no pre-existing international consensus or intergovernmental bodies that provide basic rules and definitions on biofuels. Unlike in fisheries, where Europe assesses the laws of the trading partners, EU regulations either promote or disqualify entire crops regardless if they are sustainably produced or not. There is no path towards sustainability compliance for crops that are grown in tropical Asia.

Such cases bear many resemblances to recent ‘soft’ sanctions, where the EU has withdrawn aid or trade benefits — such as revocation of trade privileges, as in the recent case in Cambodia and Myanmar. The targeted countries of such sanctions tend to dig in their heels, but rarely comply with the desired objectives. Their citizens tend to ‘rally around the flag’: They call on their governments to be firm against foreigners and retaliate.

Ironically, the EU is more successful on its sustainability objectives with centralised and high-handed executives (say, the martial rule in Thailand or a strongman like President Duterte) who are less accountable to their farmers and fishers, rather than federal democracies like Indonesia and Malaysia, where the rural population has a strong standing in domestic politics.


Hosuk Lee-Makiyama Director at the European Centre for International Political Economy in Brussels



Hosuk Lee-Makiyama (@leemakiyama) is Director at the European Centre for International Political Economy in Brussels.



Opinion pieces published by Borderlex are those of their authors only.

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