(Bloomberg) -- Malaysia, the world's second-biggest palm oil producer, is weighing a range of trade curbs to strike back against what it calls unfair policies from the European Union that block market access for the tropical oil.
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The Southeast Asian country will coordinate its response with Indonesia, the largest edible oils supplier globally. Strategies being considered include slowing commodities trade with Europe and reviewing imports from the bloc, according to Malaysia's Deputy Prime Minister Fadillah Yusof.
The EU agreed to a historic law in December that will stop products causing forest destruction from being sold in European shops and supermarkets. Products like wood, rubber, beef, leather, cocoa, coffee, palm oil and soy won't make it past the port unless proven to be deforestation-free. Malaysia and Indonesia are leading international criticism of the policy.
"If they're too firm on their decision, if they do not want to listen to us, I think one of the areas that we can be looking at together with Indonesia is how we should look at Europe," Fadillah, who is also Malaysia's Minister of Plantation and Commodities, said in an interview Tuesday. "If we are not fairly treated, I think there should be some counteraction by us."
The two countries - which together make up more than 80% of the world's palm oil supply - say the rule is discriminatory. It will cut off market access for millions of small farmers across the region, Latin America and Africa who do not have the means to meet the stricter traceability requirements. Palm oil is used to make everything from chocolate to lipstick, soaps and detergents.
"The action by the EU is trying to phase out smallholders from the system," Fadillah said from his office in Putrajaya. The bloc keeps introducing new requirements despite compliance from bigger plantations on international sustainability standards, as well as the Malaysian government's commitment to a greener economy and limiting new plantation areas, he said.
Fadillah will head to Jakarta Wednesday to discuss strategies with Indonesia. The two countries will hold a joint ministerial press conference on Thursday.
On the possible trade measures, he didn't want to go into details of what Malaysia and Indonesia may do, but said it would be part of the discussion.
"Together with Indonesia, we want to make the European Union realize their action is a one-sided, unilateral decision," he said.
Malaysia should be able to fulfill any additional demand from buyers following Indonesia's move to freeze some of its export quotas.
The number of foreign workers entering Malaysia has increased, with most plantations now operating at 70% capacity or more.
Malaysia will be able to boost production this year due to a further easing of the foreign-labor hiring process
The ministry is in favor of increasing its biodiesel mandate, but this will require further discussion with other ministries.
A national cap on oil palm plantation area will be kept at 6.5 million hectares. Planted area was 5.67 million hectares at the end of 2022.
To counter the problem of declining palm yields, Malaysia is developing and providing smallholders with seedlings that can produce fruit faster and are not as tall as regular palm trees.
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