Reuters

KUALA LUMPUR (Reuters) - Malaysia, the world's No.2 producer of palm oil, on Thursday said the European Union's decision to curb imports of the commodity could impact France's hopes of winning one of Asia's biggest fighter jet deals.

 

France's Rafale jet, built by Dassault Aviation <AVMD.PA>, had until recently been seen as the frontrunner in Malaysia's plan to buy up to 18 new fighter planes in a deal potentially worth over $2 billion, but negotiations hit a snag after European lawmakers pushed to stop using palm oil in motor fuels.

 

Malaysia said earlier this week that it would not shy away from a trade war and that it would respond with "might and tact" if the EU does not back down on curbing palm imports.

 

"As you know, the jet fighters the French are looking at, the Rafale, are also competing with the Brits who have left the EU. So they have to take that into consideration (in relation to palm oil curbs)," Malaysia's defense minister, Hishammuddin Hussein, said at a news conference outside parliament.

 

Britain's BAE Systems <BAES.L> has been on a consistent and public campaign for nearly a decade now to win the Malaysia contract, even establishing a regional office in the capital, Kuala Lumpur.

 

Hishammuddin's latest statement raises hopes for BAE, which looked to be on the backfoot after Malaysian Prime Minister Najib Razak said that he had discussed the possible purchase of Rafale fighters with Francois Hollande during the then-French president's visit in March last year.

Both Dassault and BAE did not immediately respond to requests for comment.

Southeast Asia's third-largest economy could lose some $500 million in annual revenue if the EU goes ahead with its plan to crimp palm imports, analysts have estimated.

The move also adds to the troubles of Prime Minister Najib, whose ruling coalition will rely heavily on the votes of over 600,000 palm oil plantation smallholders and their families in national polls that must be held by August.

Hishammuddin said Malaysia "cannot put a price tag" on the interests of the country and its people when negotiating bilateral deals.

"So (to) those who want to have strong bilateral relations with us, do not just look at economic considerations separate from other considerations, especially when it come to defense because we do have other options," he said.

Malaysia has for several years been weighing France's Rafale jet and the Eurofighter Typhoon, built by a European consortium including BAE, as it looks to replace its Russian MiG-29s - most of which are grounded.

However, a decision has been delayed due to the upcoming national polls and a shift in Malaysia's focus toward upgrading aerial surveillance capabilities.

(Reporting by Joseph Sipalan; Editing by Joseph Radford)