March 17, 2016 / 3:33 PM / 4 years ago

UPDATE 4-French assembly adopts softer tax on palm oil used in food

* New tax exempts environment-friendly palm oil

* Minister says in line with international trade rules

* Tax still needs to be reviewed by upper house (Adds comments from Indonesia, Malaysia)

By Sybille de La Hamaide

PARIS, March 18 (Reuters) - France’s plans to impose an additional tax on palm oil used in food from 2017 moved a step closer as the National Assembly approved the levy, which has been vehemently opposed by top producers Indonesia and Malaysia.

However, the extra tax aimed at encouraging the sector to reduce the environmental damage palm oil plantations can cause, has been sharply reduced from an initial proposal in January and now excludes oils produced in a sustainable way.

Lawmakers on Friday also agreed to introduce the new tax gradually to soften its impact. The tax would now start at 30 euros ($34) in 2017 and rise by 20 euros per year to 90 euros in 2020, rather than start at a flat rate of 90 euros.

The new levy, which would add to an existing tax of 104 euros per tonne, would be well below the upper house’s original proposal that started at 300 euros.

The French government backs the tax, originally proposed by a senator, since it has been reduced and excludes oils that were produced in a sustainable way.

The levy, part of a wider biodiversity bill expected to be adopted on Friday, still needs to be reviewed in the upper house, likely in May or June.

“The introduction into France’s fiscal legislation of a tax on products whose impact on deforestation is recognised worldwide, gives a strong signal by France in terms of environmental protection,” Barbara Pompili, Junior Minister for the environment in charge of biodiversity, told the National Assembly.

France says the tax respects World Trade Organisation (WTO) rules because it only targets oils that that do not meet sustainable environmental criteria.

But Indonesia and Malaysia have said it is discriminatory and Indonesia raised the issue at the WTO earlier this month.

“The ‘differential’ tax proposal is a clear violation of both WTO and EU rules,” Yusof Basiron head of the Malaysian Palm Oil Council said in a statement.

The additional tax is likely to reduce palm oil’s discount to competing vegetable oils, giving an advantage to soybean oil shipments from the United States and Argentina, a Malaysian analyst said.

“The concern is over competitiveness between palm and soy,” said Ivy Ng, plantations analyst at CIMB Investment Bank. “The tax would narrow the spread between the two and wipe out some of palm’s current discount.”

COCONUT, PALM KERNEL OILS ALSO TAXED

The new tax would also apply to copra (coconut) and palm kernel oil, which are commonly used in commercial cooking, but would not affect vegetable oils used in cosmetics and biofuels.

While French imports of palm oil are not large, producers are concerned the new tax could be taken up in other countries.

France imports about 100,000 tonnes of Indonesian palm oil a year and imported 11,000 tonnes of Malaysian palm oil last year.

Previous French attempts to impose a special tax on palm oil have failed, mainly due to strong lobbying from producers.

Past proposals were dubbed the “Nutella tax” by the French media because the popular chocolate-hazelnut paste contains about 20 percent palm oil.

However, since 2013, Nutella sold in France has been made only with palm oil from sustainable supplies, the maker, privately owned Ferrero, says.

Several French supermarkets have committed to ban the use of palm oil in their own-brand products by the end of the decade, partly due to public concerns that high levels of saturated fat may be harmful to human health.

Producers on Friday pledged to continue to oppose any environmental taxes.

“We will keep expressing our objection and will keep lobbying,” said Bayu Krisnamurthi, president director of Indonesia Estate Crop Fund agency, which funds palm oil promotion as a part of its duties.

$1 = 0.8829 euros Additional reporting by Emile Picy, Emily Chow in Kuala Lumpur and Bernadette Christina Munthe in Jakarta, editing by Susan Fenton and Richard Pullin

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