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Wednesday January 25, 2012

Cries of EU biofuel discrimination grows louder

Commodities Talk- by Hanim Adnan


LATELY, the debate has grown louder over the discriminatory nature of the European Union's (EU) default values for biofuels especially on imported biofuel feedstocks like palm oil and soybean oil.

The latest is Canada's former ambassador to the World Trade Organisation (WTO) John Weekes, who said the EU would likely face WTO challenges on the matter of foreign energy sources disrimination.

He pointed out that the EU's default value calculations make a level playing field between the EU and non-EU producers impossible, and that its process of default value is a trade barrier deliberately designed to keep the competition out.

Currently, Brazil, Indonesia, Malaysia and the United States are believed to have filed complaints to the WTO on the discriminatory-EU restrictions on biofuel imports.

Hence, Weekes' recent comment also makes the EU stance seem particularly ill advised at a time when it is trying to negotiate free trade deals with the same nations its default values are discriminating against.

Ambassador Alan Oxley, who is the World Growth chairman and a former General Agreement on Tariffs and Trade chairman, last month had also brought up the matter saying that unilateral trade barriers like this (EU biofuel policy) simply invite retaliation against EU exports and the EU would end up the biggest loser.

“I could not imagine the Trade Directorate of the European Commission (EC) relishing a trade war with India, China, Canada, the United States and other developing countries,” he said adding that the European governments seemed to be swayed by environmental ideologues that don't care about trade wars.

The EU has the most established biofuel industry with the primary feedstock, rapeseed oil. France and Germay in turn are the largest EC consumers of biofuels.

In Malaysia, the fight to challenge EU default-value calculations on palm oil continues to be an uphill battle.

One point up for Malaysia recently is the research report by a German economist, Dr Gernot Pehnelt who has challenged the EU Renewable Energy Directive (RED) to recalculate the default value assigned to palm oil which is a major biofuel feedstock.

His research concluded that a more accurate default value for palm oil is between 37% and 44%, and as high as 52% for palm oil used in electricity generation. However, the EU RED claims that the palm oil biodiesel is set very much lower at 36% (typical) versus 19% (default). Therefore, palm oil biodiesel exporters to the EU will fail to meet the set targets.

To this end, there are still many questions that cannot be answered without examining the existing conflict between the EU biofuels policy, its default value calculations and the conflict with the global trade rules.

Does the legal status of EU RED really have the ability to be effective over the next 30 years, without running into significant trade disputes? One thing for sure, in future there will be more calls for strong and clearer signals regarding the discriminatory EU-RED biofuels target and policy.

  • Deputy news editor Hanim Adnan hopes the prejudiced nature of the EU RED towards foreign biofuels can be stopped to avoid potential political friction and other trade disputes.

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