Most Favoured Nations: Orangutans
Palm oil, charts, palm oil and cloud sovereignty
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As the UK’s CPTPP accession inches ever closer, stories are starting to emerge about the content of the arrangement. This week, the big news is that the UK will cut import tariffs on Malaysian palm oil (FT £).
This is one of those things that everyone paying attention already knew, but also the UK government would have preferred not to hit the newspapers. The main reason for this is that the British public bloody love orangutans, arguably more than they love people. But … it was always going to come up, so c'est la vie.
But what impact will these tariff cuts actually have? Or rather, will the tariff cuts lead to more imported Malaysian palm oil? Here, the answer is probably yes, but it’s actually quite difficult to be definitive.
This is because the UK’s MFN tariff on palm oil is, in some instances, already low/zero.
As you can see from the screenshot below, depending on what it will be used for, the UK tariff for imported palm oil is either 0%, 2%, 12%, 10%, 4% or 8%.
So the impact on trade will depend on what the UK traditionally import palm oil for. If it is crude palm oil for industrial use (tariff already 0%), the impact would be lower than if it is imported in solid fractions in immediate packings of a net content not exceeding 1kg (tariff 12%), for example.
Chart break
MFN fan favourite, Chad Bown, has published a new piece digging deeper into the claim that, despite all the hostility, US exports to China reached record highs in 2022.
In summary, this stat is mainly driven by agrifood prices spiking, and in terms of everything that actually matters, exports are actually flat or falling. See charts:
More Malaysia
Back in July 2021, before anyone else cared about CPTPP/Malaysia/palm oil/orangutans, I wrote in MFN about whether the EU legacy palm oil disputes with Malaysia could cause a problem for the UK’s desire to accede to CPTPP.
The TL;DR answer is “no”, but I thought it might be useful to reshare given the recent interest in the topic (note the bits I’ve put in bold … yes, I am a prophet.):
Originally published in the 10th edition of Most Favoured Nation:
You may or may not know that Malaysia has recently opened a WTO dispute with the EU and a couple of member-states over the implementation of the EU’s upgraded renewable energy sources directive (RED II), on the basis that the EU is (allegedly) discriminating against Malaysian palm oil.
Among other things, RED II binds member-states to reduce (eventually to 0%) the gross final energy consumption share of biofuels associated with a high risk of indirect land-use change. Malaysia argues that this method, in practice, penalises palm oil, while letting domestically produced biofuel feedstocks such as rapeseed and soy off the hook. Malaysia is also challenging some individual member-state implementing measures by France and Lithuania, which explicitly single out palm oil – the French measure, for example, doesn’t consider palm oil as a biofuel, and therefore doesn’t allow transport fuels containing palm oil to qualify for a tax break.
Anyway, this got me thinking. The UK, as a former EU member, has implemented RED II in UK law and wants to accede to CPTPP, an agreement that Malaysia (if it every gets round to ratifying it, which it might not) is party to. Couldn’t this, y’know, cause some problems?
Annoyingly (from an amusement perspective), the answer seems to be “no”.
*sad face*
While the UK does estimate emissions related to indirect land-use change using the same methodology as the EU, it doesn’t seem to do anything in particular with these estimates. Instead, to reduce the emissions associated with indirect land-use change, the UK has introduced a blanket ‘crop cap’ that introduces an upper limit, by volume, on the contribution that crop-derived biofuels can make to meeting a supplier’s renewable energy targets:
The important thing here is that this crop cap applies to all types of crop-based biofuels, including rapeseed, soy, etc., not just palm oil. So no discrimination. So no WTO case. So no UK problems with Malaysia when it comes to joining CPTPP. (Although I imagine someone will still bring up orangutans.)
Lawyers can tell me I’m wrong [and please do!], but I think the UK’s going to be okay here. Well done, UK.
Head in the clouds
Zach Meyers, of my old bailiwick CER, has published a fascinating piece on the EU efforts to establish so-called cloud sovereignty.
The EU cloud sovereignty agenda can be viewed through two lenses, one cynical, one less so:
Cynical. The EU is annoyed that all of the main cloud services providers are American, so is looking for an excuse to prevent foreign providers from storing certain types of data in the hope restrictions lead to the emergence of domestic, European, alternatives.
Less cynical. The EU is worried about cloud providers being forced to hand over sensitive EU data to foreign governments.
Whatever your preferred explanation, Zach explains that …
The EU’s cybersecurity agency is currently developing a security certification scheme for cloud computing services, called EUCS. These member-states want cloud computing firms to be eligible for the highest level of certification only if they are ‘immune’ from foreign law – which, reportedly, might require firms to have their headquarters within the EU, to store European data within the EU, and to only allow personnel in the EU to access that data. News reports suggest that not all EU member-states agree. But any compromise will probably still include the concept of ‘foreign law immunity’ in one shape or form. The scheme will be voluntary, but it will make a difference: EU businesses and governments will think twice before buying a service that lacks the highest security certification. A recent EU law will also allow the Commission to make the scheme mandatory for companies like telecommunications and energy firms when they buy cloud services.
I know what you’re thinking … this sounds a lot like forced data localisation.
Zach runs through the main reasons why the EU approach could be counterproductive – EUCS would force companies to use smaller cloud providers, which are ironically less secure; it would reduce competition within the EU, leading to higher prices and perhaps lower uptake of cloud; and it would potentially but the EU in breach of its WTO commitments, as well as commitments made bilaterally under, for example the EU-UK Trade and Co-operation Agreement – but I think it is his final point that is most interesting: from the Cynical point of view … it wouldn’t even work:
Finally, the EU’s current proposal would not even help European cloud firms become globally successful. On the contrary, European cloud firms would have stronger incentives to stay out of the US and many other markets – or to have only a minimal presence, such as having a US subsidiary that cannot directly access data in the EU. If those firms expanded overseas, or properly integrated their US and European operations, they could become subject to the [US]] CLOUD Act, lose their European security certification, and find it harder to compete in Europe. The cloud computing market is dominated by a small handful of companies (often referred to as ‘hyperscalers’) because securing the greatest possible economies of scale is critical to being competitive. Forcing European firms to choose between their opportunities in Europe and their opportunities overseas is therefore defeatist. The EU would be left with an inefficient industry, in turn making it harder for European businesses to make effective use of cloud services to digitise. Competition authorities across Europe are already closely scrutinising the cloud market. If there are problems with the market which mean European competitors are not getting a fair chance to succeed, then this is best addressed through sensible pro-competitive interventions rather than by excluding foreign firms.
As ever, do let me know if you have any questions or comments.
Best,
Sam