Sign in Subscribe
European Union

EU's "Standard Risk" Label on Malaysia Wrecks FTA Talks

Strategic Insights

— 2 min read

Malaysia's free trade agreement talks with the European Union are at risk of being derailed due to the EU's "standard risk" label on the country, economists warn. The label, which is based on the EU Deforestation Regulation (EUDR), has thrown a wrench into the negotiations, which are set to resume next month. Economists say the classification reflects the EU's intent to use non-tariff barriers as its main negotiating tool.

Key Takeaways:

  • The EU's "standard risk" label on Malaysia under the EU Deforestation Regulation (EUDR) has cast a shadow over the upcoming free trade agreement (FTA) talks between the two parties.
  • Economists warn that the classification reflects the EU's intent to use non-tariff barriers as its main negotiating tool, which may hinder the progress of the talks.
  • Malaysia's palm oil remains a key export commodity to the EU, and the "standard risk" label will likely be a point of contention in the negotiations.
  • The current EU posture suggests that little has changed since the talks first began in 2010, with non-tariff sustainability restrictions on palm oil and stringent technological standards on electrical and electronics products still being used as bargaining tools.
  • The EU's risk assessment may be based on outdated data or misconceptions rather than the current realities on the ground, according to Universiti Utara Malaysia's Assoc Prof Dr Irwan Shah Zainal Abidin.
  • Malaysia has demonstrated greater agility in forging trade deals, with swift conclusion of an FTA with the United Kingdom and a tariff arrangement with the US.
  • The "standard risk" designation has drawn sharp criticism from the Malaysian Palm Oil Council, which argues that the label undermines Malaysia's national sustainability standards.
  • A "low risk" designation would reassure EU buyers that Malaysian palm oil is generally safe from compliance breaches, while the "standard risk" tag damages brand perception and consumer confidence.

Statistics:

  • Malaysia exported about 1.07 million tonnes of palm oil to the EU in 2023, representing about 7.1 per cent of its total palm oil exports.
  • The export value of crude palm oil alone amounted to roughly US$446 million, with a volume of 392,811 tonnes.
  • Between July 2022 and March 2023, Malaysia's palm oil exports to the EU fell by around 30 per cent, totalling 426,000 tonnes.

Sources:

  • Muhammed Ahmad Hamdan, "EU's 'standard risk' label on Malaysia throws wrench into free trade agreement talks", The Malay Mail, 23 August 2023
  • Geoffrey Williams, economist, interview with The Malay Mail, 23 August 2023
  • Irwan Shah Zainal Abidin, Assoc Prof Dr, Universiti Utara Malaysia, interview with The Malay Mail, 23 August 2023

Read more