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Written by Gully Foyle - like this article? You can get Gully a beer here.
In March 2023 the UK substantially concluded negotiations to accede to the 11-member CPTPP trade bloc. In this series of posts, I will look at those 11 existing members and some of the potential future members, exploring the benefits that the trade deal can bring to the UK with each of those countries.
This post will be focusing on Malaysia.
Quick Fire Facts: Malaysia
Quick Fire Facts: Malaysia
Malaysia is a country spread across two separate land-masses – one part on the Malay Peninsula bordering Thailand, and the other as the northern slice of the island of Borneo. With a population of over 32 million (about half of the UK population), it is the 45th biggest country in the world. To put it another way, Malaysia is bigger than 22 of the 27 current EU member states, and is also bigger than the 11 smallest EU member states *combined*.
As well as being the 45th most populous nation, Malaysia also has the 37th largest GDP – showing that it punches above its weight as regards GDP per capita.
Malaysia is not only a CPTPP member but a Commonwealth member too. When the Federation of Malaya gained independence from the UK in 1957, it also became an independent member of the Commonwealth – and so could be said to have been part of the Commonwealth from the outset.
Malaysia’s main exports, which the UK will now see reduced or zeroed tariffs on, are electronics and electrical goods (36%), followed by chemicals (7.1%), petroleum goods (7.0%), liquefied natural gas (6%), and palm oil (5.1%). More on palm oil later.
The PwC “The World in 2050” sees Malaysia rise 4 places in global GDP (PPP) ranking by 2050.
The EU and Malaysia
The EU and Malaysia
At the point of leaving the EU, 7 of the 11 CPTPP members had trade deals with the EU – Malaysia was not one of them (the other three were Australia, Brunei and New Zealand). As is the case, there was no existing FTA for the UK to migrate over as part of departure, and so CPTPP accession will constitute the first time of there being an FTA between the UK and Malaysia.
The CPTPP and Malaysia
The CPTPP and Malaysia
Malaysia was a founder signatory of the CPTPP agreement but did not ratify the agreement (and so bring it into effect) until very late into the negotiations with the UK on accession.
This is widely believed to be due at least in part to only ratified members getting to vote on accession, meaning that Malaysia *had* to accede if they wanted a seat at the negotiating table for UK accession terms.
Is Palm Oil Really That Controversial Now?
Is Palm Oil Really That Controversial Now?
On the announcement that the UK is to accede to the CPTPP, one of the first items to be attacked was the removal of tariffs on the import of palm oil from Malaysia. However, many experts and high-profile environmental organisations feel that the production of palm oil is unfairly stigmatised in the modern climate – especially when replacing palm oil with alternative sources such as rapeseed, olive or soybean would require up to nine times the amount of land.
Globally, palm oil supplies between 35% and 40% of the world’s vegetable oil demand on just under 6% of the land used to produce all vegetable oils. To get the same amount from alternative oils like soybean, coconut, or sunflower oil you would need anything between 4-and-10 times more land according to Chester Zoo, which would just shift the problem to other parts of the world and threaten other habitats, species and communities.
Even the WWF acknowledges that palm oil can contribute to sustainability if it’s managed properly.
At the time of writing this, around 93% of all palm oil imported into Europe is sustainably sourced and so does not require deforestation. In addition to that, around 96% of Malaysian palm oil plantations—many of them run by 300,000 smallholder farmers—are now MSPO-certified under the Malaysia Sustainable Palm Oil scheme. This was a new nationally mandated sustainability standard enforceable by the law, the first of its kind around the world.
As for deforestation, an important piece of research was recently published by Global Forest Watch in June 2023, which noted a sharp reduction in forest loss in Malaysia.
Oil palm corporations appear to be taking action with some 83% of palm oil refining capacity now operating under a ‘No Deforestation, Peat and Exploitation (NDPE)' commitment.
This more recent report from Global Forest Watch should ease the concerns of environmental campaigners and activists, as it suggests that the hard work of Malaysia’s palm oil industry and government is really starting to bear fruit in reversing deforestation. The research also suggests the EU is living in the past with its EUDR legislation, particularly in relation to Malaysia.
Finally, it is worth noting that, as far as AHDB studies have found, the reduction in tariffs on palm oil is not likely to increase the volumes imported into the UK.
Suffice to say that, as far as imports from Malaysia are concerned, anyone raising the import of palm oil as a concern with CPTPP is likely doing so from an outdated perception of a climate concern and not one based in the modern reality of the industry and the country.
What Have the UK Government Said?
What Have the UK Government Said?
The UK government highlighted Malaysia multiple times in their literature regarding the CPTPP accession, pointing out that it would allow for:
much better access to an economy worth £271 billion in GDP in 2021
a boost our services exports to Malaysia, which were worth £1.4bn in 2022
a tapered removal of tariffs of around 80% on UK whisky
a tapered removal of tariffs of 30% on UK cars
a tapered removal of tariff of 10-15% on sugar confectionery and chocolates
a side letter with Malaysia allowing more liberal rules of origin on automotive exports than the usual CPTPP rules - making it easier for UK manufacturers to export finished vehicles to Malaysia at lower tariffs
In Summary
In Summary
The addition of an FTA between the UK and Malaysia can only be a good thing for British trade and British exports. The deal that has been concluded goes further than even the baseline CPTPP agreement does, and the only area of concern raised by those who wish to be naysayers is not grounded in the modern reality of palm oil production.
Gully Foyle is a prolific commentator on international trade and post-Brexit UK trade policy, and can be found on Twitter here.
References
References
PwC Report, February 2017: The World in 2050 - https://www.pwc.com/gx/en/research-insights/economy/the-world-in-2050.html
UK Govt Policy Paper: Conclusion of Negotiations on the Accession of the UK to the CPTPP - https://www.gov.uk/government/publications/comprehensive-and-progressive-agreement-for-trans-pacific-partnershipcptpp-conclusion-of-negotiations/conclusion-of-negotiations-on-the-accession-of-the-united-kingdom-of-great-britain-and-northern-ireland-to-the-comprehensive-and-progressive-trans-pac
AHDB article, April 2023: "The UK will not be over supplied With Malaysian palm oil" - https://ahdb.org.uk/news/the-uk-will-not-be-over-supplied-with-malaysian-palm-oil-grain-market-daily
RSPO article, September 2022: "New report shows Europe is the biggest market for sustainable palm oil" - https://rspo.org/new-report-shows-europe-is-the-biggest-market-for-sustainable-palm-oil/
MPOCC: About the Malaysian Sustainable Palm Oil (MSPO) certification scheme - https://www.mpocc.org.my/about-mspo
WWF Article: "8 things to know about palm oil" - https://www.wwf.org.uk/updates/8-things-know-about-palm-oil
Chester Zoo: "Sustainable palm oil: everything you need to know" - https://www.chesterzoo.org/what-you-can-do/our-campaigns/sustainable-palm-oil/
Sustainable Palm Oil Choice: "No Deforestation, Peat or Exploitation (NDPE) Commitment" - https://www.sustainablepalmoilchoice.eu/ndpe-commitment/
The Spirits Business Article: "UK CPTPP deal to axe 80% Whisky tariff" - https://www.thespiritsbusiness.com/2023/03/uk-cptpp-deal-to-axe-80-whisky-tariff/
UK Govt: Trade and investment factsheet, June 2023 - https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1163385/malaysia-trade-and-investment-factsheet-2023-06-21.pdf
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