The World Trade Organisation's (WTO) rulings are usually clear, but its decision on Tuesday following Malaysia's request to rule on the European Union's (EU) discriminatory regulations against the country's palm oil is an exception.
Moments after the WTO announced its ruling, the media, competing with each other to be the first to break the story, skewed the headlines in favour of the EU.
One read: WTO backs EU in deforestation case against Malaysia. That is not exactly right. For one thing it isn't a deforestation case. What it was is this: it was one rule for EU's rapeseed and sunflower oil and one rule for palm oil.
Malaysia's complaint was about discriminatory regulations and directives. Here, contrary to the media headlines, the WTO backed Malaysia by saying the way the regulations' measures were prepared and administered needed adjustments. The EU has agreed to comply and Malaysia is keeping a watch on the ordered adjustments.
But the challenge for Malaysia's palm oil doesn't end there. The EU has trade muscle and it will flex it when it sees fit.
Never mind if Malaysia says its regulations against the country's palm oil is discriminatory. Never mind even if Indonesia, the world's largest producer, says the EU is discriminating against palm oil as it would soon in a case pending at the WTO.
American Professor Marc L. Busch of Georgetown University was right. Writing in his blog — happily republished in the Council of Oil Palm Producing Countries — he said the EU's war against palm oil had nothing to do with global warming. Instead, he argued it was raw protectionism, unsupported by neither WTO law nor science.
Besides keeping an eye on EU's compliance with WTO's Tuesday's ruling, Malaysia has to do at least three things. First, it has to work hard to find alternative markets for the 7.4 per cent of palm oil that is being exported to the EU. History tells us the European market isn't oil palm-friendly.
The European bloc's loss may turn out to be a gain for China, where exports of the oil is expected to be doubled. India is another Asian target for the growth of the commodity.
Africa, home to 1.2 billion people, is a market worth growing. Last year, the continent accounted for 16 per cent of Malaysian palm oil and oil palm products exported. With production expected to reach 18.75 million tonnes this year, an export push becomes necessary.
Second, creative ways must be found to help the 450,000 smallholders, who make up between 30 and 40 per cent of the oil palm industry in the country.
This backbone of the industry may be the hardest hit by the EU decision. One innovation — consolidation of smallholdings — is on the way, Plantation and Commodities Minister Datuk Seri Johari Abdul Ghani disclosed on Tuesday after launching an industry-related conference in Kuala Lumpur.
Not easy to do, but if properly done and if the smallholders are made to see the benefits, buy-in shouldn't be a hard climb, though it was in the rice industry. A revisit of the resistance there may offer a cure for the consolidation of the oil palm smallholdings.
Finally, a few words on rule-setting. Thus far it has been the work of the West. The Global South is big enough to do that now.
