Europe’s Retreat from Asia

The European Parliament voted to ban the use of Palm Oil in the EU’s Renewable Energy Directive (RED), in the Parliament’s plenary session on 17th January.

The vote means that Palm Oil would be treated differently to other biofuel feedstocks in the EU. This is clearly a trade discrimination. This has WTO consequences – and it is worth outlining why the EU Parliament’s plans are discriminatory.

Fredrik Erixon, Director of the European Centre for International Political Economy (ECIPE) stated: “RED adds a new type of policy, technical regulation, to Europe’s toolkit of trade restrictive measures in biofuels… Behind the rhetoric there hide industrial policy concerns that favour domestic biodiesel production at the expense of biodiesel produced abroad.”

The starting point is this: the reason that biofuels are used in the European Union in such volumes is because they are mandated by law. All biofuel imports and consumption in Europe operate under the RED.

Everyone knows this; it has been a fact of the EU’s biofuel policy from Day One. The reason that Palm Oil gets used as a feedstock for European biodiesel is because use of biofuels is mandated by law, and because Palm Oil qualifies for the same treatment as other biofuels under EU rules, i.e. it is considered as meeting the EU criteria and has been certified as meeting those criteria. Removal of Palm Oil from the RED targets is a death sentence, and constitutes discriminatory treatment.

The ban signals a retreat from Europe’s trade commitments in Asia, and will have consequences at the WTO.

It is absolutely no wonder that Malaysia’s Trade Minister made his opinions so clear when he stated that the government will likely raise the issue at the Sanitary and Phytosanitary (SPS), Technical Barriers to Trade (TBT) and Market Access Committees at the WTO over the next three months.

Here’s an excerpt from his statement to Commissioner Malmstrom: “The EU’s move is also a potential violation of WTO rules as it is a deliberate attempt to block the access of palm oil into their market. Malaysia will intensify collaboration with other palm oil producing countries … to voice our strong concern before the various committees under the WTO”

Why would Malaysia threaten this?

Because Europe is not using a level playing field for all biofuels.

The EU action is likely to contravene three of the WTO agreements. This is a big deal. The key arguments against the RED in its 2009 iteration are that the EU: is discriminating between trading peers; is not using an international standard to determine sustainability; and is being overly trade restrictive to achieve its objectives.

The EU Parliament vote is a setback for EU trade strategy in the ASEAN region. They’re currently trying to work out a free trade agreement with Malaysia, and another one with Indonesia. If they want these to proceed, the EU will need firstly to ensure that the Council and Commission reject the EU Parliament’s discriminatory ban against Palm Oil.