WTO Panel Issues Report Regarding EU Measures Affecting Palm Oil, Biofuels from Indonesia

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January 15, 2025

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(World Trade Organization) On 10 January, the WTO circulated the panel report in the case brought by Indonesia in “European Union — Certain measures concerning palm oil and oil palm crop-based biofuels” (DS593) READ MORE

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Summary of Key Findings:

With regard to the EU measures at issue, the Panel found that:

the 7% maximum share and the high ILUC-risk cap and phase-out were technical regulations within the meaning of Annex 1.1 to the TBT Agreement;
Indonesia failed to establish that the 7% maximum share and the high ILUC-risk cap and phase-out were inconsistent with the obligation in Article 2.4 of the TBT Agreement to use relevant international standards as a basis for technical regulations;
Indonesia failed to establish that the 7% maximum share and the high ILUC-risk cap and phase-out were inconsistent with the obligation in Article 2.2 of the TBT Agreement to ensure that technical regulations are not more trade-restrictive than necessary to fulfil a legitimate objective;
the European Union administered the high ILUC-risk cap and phase-out inconsistently with Article 2.1 of the TBT Agreement by failing to conduct a timely review of the data used to determine which biofuels were high ILUC risk, and because there were deficiencies in the design and implementation of the low ILUC-risk criteria, which resulted in arbitrary or unjustifiable discrimination between countries where the same conditions prevail;
Indonesia had not established that the European Union acted inconsistently with Article 2.5 of the TBT Agreement by failing to explain the justification for preparing, adopting or applying the high ILUC-risk cap and phase-out in terms of Articles 2.2 to 2.4 of the TBT Agreement;
Indonesia failed to establish that the high ILUC-risk cap and phase-out was inconsistent with the obligation in Article 2.8 of the TBT Agreement to whenever appropriate specify technical regulations in terms of performance rather than design or descriptive characteristics;
regarding the claims under Article 2.9 of the TBT Agreement, the European Union acted inconsistently with: (i) Article 2.9.2 by failing to notify the proposed 7% maximum share and the proposed high ILUC-risk cap and phase-out measures; and (ii) Article 2.9.4 by having failed to organize a commenting process in respect of the proposed 7% maximum share and the proposed high ILUC-risk cap and phase-out measures in accordance with the requirements of that provision;
the low ILUC-risk certification procedure was a “conformity assessment procedure” within the meaning of Annex 1.3 to the TBT Agreement;
Indonesia failed to establish that the low ILUC-risk certification procedure was inconsistent with the obligation in Article 5.1.1 of the TBT Agreement to ensure that conformity assessment procedures grant access for suppliers of like products originating in the territories of other Members under conditions no less favourable than those accorded to suppliers of like products of national origin or originating in any other country;
the low ILUC-risk certification procedure as set out in Article 6 of the Delegated Regulation was inconsistent with Article 5.1.2 of the TBT Agreement since deficiencies in the implementation of the low ILUC-risk procedure had created unnecessary obstacles to international trade;
Indonesia failed to establish that the European Union acted inconsistently with the obligation in Article 5.2.1 of the TBT Agreement to ensure that conformity assessment procedures are undertaken and completed as expeditiously as possible;
regarding the claims under Article 5.6 of the TBT Agreement, the European Union acted inconsistently with: (i) Article 5.6.1 of the TBT Agreement by failing to publish a notice of the proposed low ILUC-risk certification procedure at an early appropriate stage in such a manner as to enable interested parties in Indonesia and other WTO Members to become acquainted with it; (ii) Article 5.6.2 of the TBT Agreement by failing to notify the proposed low ILUC-risk certification procedure; and (iii) Article 5.6.4 of the TBT Agreement by having failed to organize a commenting process in respect of the proposed low ILUC-risk certification procedure in accordance with the requirements of that provision;
it was unnecessary to rule on Indonesia's alternative claim that the European Union acted inconsistently with the obligation in Article 5.8 of the TBT Agreement to ensure that conformity assessment procedures which have been adopted are published promptly or otherwise made available in such a manner as to enable interested parties in other Members to become acquainted with them;
Indonesia failed to establish that the European Union acted inconsistently with Article 12.3 or 12.1 of the TBT Agreement;
Indonesia had not established that the high ILUC-risk cap and phase-out was inconsistent with the obligation in Article XI:1 of the GATT 1994 to not institute or maintain any prohibitions or restrictions on the importation of any product of the territory of another Member;
the high ILUC-risk cap and phase-out was inconsistent with Article III:4 of the GATT 1994 because it accorded less favourable treatment to palm oil-based biofuel from Indonesia than that accorded to like products of EU origin;
the high ILUC-risk cap and phase-out was inconsistent with Article I:1 of the GATT 1994 because it did not accord an advantage to palm oil-based biofuel from Indonesia that was accorded to like products imported from third countries;
the European Union acted inconsistently with Article X:3(a) of the GATT 1994 by administering the high ILUC-risk cap and phase-out in Article 26 of RED II in a manner that was not reasonable, to the extent that deficiencies in the design and implementation of the low ILUC-risk criteria and procedure did not provide for the elements needed for palm oil-based biofuel to be certified as low ILUC-risk;
with respect to Article XX of the GATT 1994: (i) the high ILUC-risk cap and phase-out was a measure relating to the conservation of exhaustible natural resources that was made effective in conjunction with restrictions on domestic consumption or production within the meaning of Article XX(g); (ii) the high ILUC-risk cap and phase-out was a measure necessary to protect human, animal or plant life or health within the meaning of Article XX(b); (iii) it was unnecessary to rule on whether the high ILUC-risk cap and phase-out was a measure necessary to protect public morals under Article XX(a); and (iv) the high ILUC-risk cap and phase-out had been administered in a manner that constituted arbitrary or unjustifiable discrimination between countries where the same conditions prevail, because the European Union failed to conduct a timely review of the data used to determine which biofuels were high ILUC risk, and because there were deficiencies in the design and implementation of the low ILUC-risk criteria and certification procedure;

With regard to the French TIRIB measure, the Panel found that:

by excluding palm oil-based biofuel from the group of qualifying biofuels, the French TIRIB measure was inconsistent with Article III:2, first sentence of the GATT 1994, because it resulted in the application of internal taxes to imported palm oil-based biofuel in excess of those applied to the like domestic rapeseed and soybean oil crop-based biofuels;
by excluding palm oil-based biofuel from the group of qualifying biofuels, the French TIRIB measure was inconsistent with Article III:2, second sentence of the GATT 1994, because it resulted in dissimilar taxation between imported palm oil-based biofuel and the directly competitive or substitutable domestic rapeseed and soybean oil crop-based biofuels, and this dissimilar taxation was applied so as to afford protection to domestic production;
by excluding palm oil-based biofuel from the group of qualifying biofuels, the French TIRIB measure was inconsistent with Article I:1 of the GATT 1994, because it granted an advantage to imported rapeseed and soybean oil crop-based biofuels that was not immediately and unconditionally accorded to like palm oil-based biofuel imported from Indonesia;
with respect to Article XX of the GATT 1994: (i) the exclusion of palm oil-based biofuel from the group of qualifying biofuels for the purposes of the French TIRIB measure was a measure relating to the conservation of exhaustible natural resources that was made effective in conjunction with restrictions on domestic consumption or production within the meaning of Article XX(g); (ii) the exclusion of palm oil-based biofuel from the group of qualifying biofuels for the purposes of the French TIRIB measure was a measure necessary to protect human, animal or plant life or health within the meaning of Article XX(b); (iii) it was unnecessary to rule on whether the exclusion of palm oil-based biofuel from the group of qualifying biofuels for the purposes of the French TIRIB measure was a measure necessary to protect public morals under Article XX(a); and (iv) the exclusion of palm oil-based biofuel from the group of qualifying biofuels for the purposes of the French TIRIB measure had been administered in a manner that constituted arbitrary or unjustifiable discrimination between countries where the same conditions prevail because the European Union failed to conduct a timely review of the data used to determine which biofuels were high ILUC risk, and had failed to demonstrate the existence of any provisions or flexibilities for palm oil-based biofuels to be certified as low ILUC-risk; and
Indonesia failed to establish that the French TIRIB measure provided a prohibited subsidy within the meaning of Articles 3.1 and 3.2 of the SCM Agreement, or in the alternative a specific subsidy that caused adverse effects in the form of serious prejudice or a threat thereof under Articles 5(c), 6.3(a) and 6.3(c) of the SCM Agreement. READ MORE

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Excerpt from European Commission: In a ruling published today (January 10, 2025), the World Trade Organization (WTO) upheld the EU’s ability to take environmental and climate-based action under the Renewable Energy Directive (‘RED II’).

A WTO panel confirmed the overall WTO compatibility of the RED II legal framework, albeit noting that certain aspects of the implementation and design of an EU Delegated Act under the Directive were inconsistent with WTO rules.

The EU intends to take the necessary steps to adjust the Delegated Act, as this was already required under EU law.

The measures disputed by Indonesia (DS593) concern measures taken by the EU under RED II on palm oil and oil palm crop-based biofuels, as well as certain related French measures. The measures establish renewable energy consumption targets for the EU transport fuel market and limit the use of food and feed crop-based biofuels in achieving these targets.

The Delegated Act which was found to be inconsistent with WTO law by the panel establishes the criteria to determine which food and feed-crop based biofuels have a high risk of increasing greenhouse gas emissions due to the changes in the use of land – such as deforestation – and allows for such crops to be certified as low risk in certain circumstances. The shortcomings identified by the panel will be adjusted under EU law.

Next steps

Unless the WTO panel report is appealed, it should be adopted by the WTO Dispute Settlement Body within the next two months (60 days). If adopted, the report will become binding between Indonesia and the EU. The EU will then take the necessary steps to respect its WTO obligations. The parties usually try to agree on a reasonable period of time for the defending WTO Member to comply. If this cannot be agreed, it will be decided by an arbitrator.

Background

RED II establishes renewable energy consumption targets for the EU transport fuel market. It limits the use of food and feed crop-based biofuels to achieve these targets, because such biofuels are seen as contributing to indirect land-use change. Indirect land-use change arises when a direct change in land use, such as from food to biofuel production, leads to indirect pressure to produce food elsewhere and results in forest being changed into agricultural land, for example. Food and feed crop-based biofuels can thus lead to increased greenhouse gas emissions, rather than emissions savings.

Indonesia challenged the classification of palm oil and oil palm crop-based biofuels as being at high risk of indirect land-use change and argued that the measures are discriminatory. The WTO dispute (DS593) was brought by Indonesia in December 2019. This was followed by consultations held at the WTO between the EU and Indonesia, which failed to resolve the dispute. A panel was established in July 2020.

A parallel WTO dispute on the same issue was brought against the EU by Malaysia (DS600). That dispute was heard by the same panel as heard DS593, with a report adopted by the WTO Dispute Settlement Body on 26 April 2024. The European Union and Malaysia are finalising discussions on the timing for compliance with this report.

For more information

WTO Panel Report (DS593) and Addendum

EU submissions and other documents of the case (DS593)

WTO Panel Report (DS600)

EU submissions and other documents of the case (DS600)

Dispute Settlement in the EU

READ MORE

Excerpt from Hydrocarbon Processing: The result was that palm oil-based diesel would not be considered a biofuel and its use in transport fuel would effectively be phased out between 2023 and 2030.

Indonesia said the measures unfairly targeted Southeast Asian palm oil producers.

The three-person panel ruled that the underlying logic of the EU measures to limit greenhouse gas (GHG) emissions was legitimate and that the EU had a reasonable basis to designate biodiesel from palm oil as "high risk."

However, the panel did find fault in the way the EU had prepared, published and administered its measures, such as by not having a timely review of data to determine high risk and not meeting certain transparency obligations.

It also found that the EU gave less favorable treatment to palm oil-based biofuel from Indonesia than accorded to like products of EU origin or imported from third countries.

Malaysia, the world's second-largest producer, brought a similar challenge to the WTO in 2021.

The EU and Indonesia, which are in free trade negotiations, have a number of outstanding cases before the WTO, including over Indonesian curbs on nickel ore exports and EU duties on Indonesian biodiesel and stainless steel. READ MORE