EU FTA MOVES MALAYSIA AWAY FROM CHINA DEPENDENCE

The Malaysian government's approach to international trade, has been seen as a positive move as its will be beneficial for the country in general and the currency in particular. According to CME, it is peculiarly important the reopening of the discussion with the European Union about a Malaysia-EU FTA, as announced by Prime Minister Anwar Ibrahim in March. In 2023, the Euro-area alone represented 7% of Malaysia's international trade, standing at 7% both as export market destination and as import source.

The message was recently reinforced by Malaysia's Minister of Investment, Trade and Industry, Tengku Zafrul Aziz, according to whom the country will continue to diversify and at the same time reduce its reliance on major trading partners to cushion blows from geopolitical tensions. He said that, while China's economic recovery had benefitted the nation through the improvement in trade figures, the ministry would continue to reduce its reliance on a single economy. In 2023, China accounted for 13.5% of Malaysia's export and 21.3% of Malaysia's import.

CME CEO Dr Carmelo Ferlitto said the high dependence on China is one of the reasons behind the ringgit weakness and diversification can only benefit Malaysia.

These two recent statements move in the direction advocated by CME of making Malaysia a country committed to free international trade through diversification in terms of products and geographical focus. According the body, such a diversification will also help strengthening the currency in the present difficult moment.

CME adds that the Malaysian Sustainable Palm Oil (MSPO) standard should be the first point of dialogue between Malaysian and the European Union to show the mutual good intentions in achieving an inclusive and sustainable free and fair trade agreement. In fact, the MSPO scheme represents a first and important contributor in the battle against deforestation.

MSPO is an equitable and practical certification scheme that can further strengthen sustainability practices throughout the palm oil production value chain. «The MSPO is inclusive as it aims to bring in smallholder farmers and make them more accountable for their actions and farming practices», Dr Ferlito added.

He continued: «Oil palm is a source of income for over seven million smallholder famers globally and in Malaysia, smallholder production accounts for 40% of total palm oil plantation areas».

While MSPO shares the same objectives and goals with certification schemes like the Roundtable on Sustainable Palm Oil or RSPO, the core differentiation is in MSPO's focus towards addressing the needs of smallholder farmers and the demands placed upon them». He went on to add, «For one, the significantly lower cost for MSPO certification has made it more attractive to smallholder farmers that depend on palm oil for their livelihoods».

Naturally, if it is expensive to be certified, cost-sensitive and financially-limited smallholder farmers will turn away from any form of certification, depriving them of an opportunity to improve their operations in a sustainable manner and potentially impact their access to international markets», Dr Ferlito added.

The lower cost factor coupled with making MSPO certification compulsory has resulted in 96% of all palm oil farming in Malaysia being MSPO certified. This means that nearly all companies and smallholders in Malaysia are producing and selling Fresh Fruit Bunches (FFB) from a planted area that is managed in an environmentally and socially responsible manner.

MSPO is also a mandatory organization that requires all participants to adhere to its rules and standards, which are comprehensive and stringent», Dr Ferlito said.

As suggested by the Minister of Plantation and Commodities, Datuk Johari bin Abdul Ghani, the right approach should be based on gradualism and mutual recognition of the common interest in achieving important targets in terms of sustainability; such targets should be achieved through the acknowledgment of the conditions on the ground and the trading partners should accompany each other toward the common goal.

CME said it underlines how free trade is a fundamental pillar for human flourishing: it should be pursued with both ideal commitment and practical spirit. These two elements applied to the palm oil certification can be an important testing ground in the achievement of a very much welcomed Malaysia-EU free trade agreement.