UPDATE 2-Malaysia to respond with 'might and tact' if EU proceeds with palm oil curbs -minister

* No trade talks until palm oil issue resolved - minister

* EU’s draft curbs restrict use of palm oil in biodiesel (Adds minister comment, details)

KUALA LUMPUR, March 6 (Reuters) - Malaysia will respond with “might and tact” if the European Union proceeds with a plan to limit use of palm oil in biodiesel, a cabinet minister said on Tuesday.

“Malaysia does not want a trade war with Europe but if one is foisted on us, we will respond with might and tact,” said Mah Siew Keong, Malaysia’s minister for plantation industries and commodities, speaking at an industry conference in Kuala Lumpur.

The E.U. in mid-January approved draft measures to reform its power market and reduce energy consumption to meet more ambitious climate goals. The draft includes banning the usage of palm oil in motor fuels from 2021.

Mah said Malaysia, the world’s second-biggest producer of the oil used in everything from soap to foodstuffs, would withhold cooperation on trade talks if the E.U. move is confirmed. A significant portion of the palm oil exported to the E.U. is used as feedstock to make biofuel, leaving Malaysia’s producers fearing overall demand will fall.

“There will be no trade negotiations until we solve the palm oil issue,” Mah said in a speech, describing the E.U.’s plan as “discrimination”.

The European Union is the world’s second-largest palm oil importer after India, having bought 6.7 million tonnes in 2016/17, according to U.S. Department of Agriculture data.

Commenting on India’s recent move to increase import duties on palm oil, Mah said the trend of increasing duties is a protectionist policy.

“We will write to our Indian counterparts to ask them to consider,” he told, speaking to reporters at a news conference after his speech.

India has raised import tax on crude and refined palm oil to the highest level in more than a decade, the government said in a statement last Thursday, in a move designed to support local farmers. (Reporting by Emily Chow, Naveen Thukral, Gavin Maguire Editing by Kenneth Maxwell)