China To Enforce Rules on Palm Oil

27/12/2012 (New Straits Times) - Malaysia’s palm oil exporters will be trading at their own risk when selling cooking oil to China as the world’s most populous nation seeks to enforce rules, which were introduced in 2009.

“We are unable to yield to China’s cost-adding measures that are not of usual business practice,” said Palm Oil Refiners’ Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad.

This dilemma has wide implications because China is Malaysia’s biggest trading partner.

One of Malaysia’s significant exports to China is palm cooking oil for daily use. Every year, China spends some US$4 billion (RM12.3 billion) to buy close to four million tonnes of the kitchen staple from Malaysia.

It was reported that from Jan 1, China’s Inspection and Quarantine Bureau will start  enforcing a new set of technical specifications requiring the quality of imported edible oils to be of "landed quality" instead of "shipped quality".

Palm oil shipments into China that do not meet the new specifications would be turned away, said Jaaffar.

Explaining the implications of the new rules on imported edible oils, he likened the process to a consumer buying fruits from the supermarket and bringing them home.

"If you buy apples from the supermarket, you accept the quality as it is, at the time of purchase. You do not hold the supermarket responsible if, on the way home, the apples get bruised or deteriorate in quality because of oxidation from the high heat of your car parked under the sun."

The move seems to hold palm oil exporters responsible for the deterioration of the oil although the price paid is not that of door-to-door delivery.

"If the Chinese quarantine authorities want guaranteed landing quality, new cost-adding arrangements have to be paid for."

Jaaffar said the problem was not new as in the late 1970s to early 1980s, trading corporations in Pakistan and India had insisted on similar demands without wanting to pay for cost-adding arrangements.

"At that time, India and Pakistan wanted guaranteed landing quality and weight. After years of negotiation, we finally came to a compromise to give in to the cargo weight (final) but we cannot offer the quality for the same price."

Now, this demand, which was over and above trading norms, was being revisited with China.

"We've appealed on the practicalities of trading in meeting the new technical specification but the Chinese authorities seem to insist that 'off-spec' shipments will no longer be allowed to be re-refined at its shores.

"We are aware that authorities from China and Malaysia need to ensure imported cooking oil remains affordable and safe to consume by China's 1.3 billion population and, at the same time, reap steady income for palm oil exporters here," Jaaffar said.

In April last year, during his second official visit to Malaysia, Premier Wen Jiabao promised Prime Minister Datuk Seri Najib Razak closer diplomatic and trade ties.

Even though China had long been running a trade deficit with Malaysia, Wen reportedly said China had no complaints. In fact, China agreed to continue buying Malaysian palm oil.

"Malaysia and China are facing economic development challenges. Therefore, with deep cooperation, we can deal with such challenges and fulfil our mutual interests," Wen reportedly said.

Jaaffar expressed hope that both countries would come up with mutually beneficial arrangements.

"It is in the interest of Chinese consumers that they should be able to go on buying affordable and nutritious cooking oil. It is also in the interest of palm oil exporters that shipments into China should not be rejected for reasons they have no control over."