MAJOR palm oil producing countries such as Malaysia and Indonesia must
be watchful for the “cascading” effects of the proposed European Union’s
(EU) Renewable Energy Directive (RED) next year, warned a visiting
European economist.
The EU may be the first to start on a
technical regulation and methodology like its RED to address climate
change, but the move, if left unchecked, could lead to similar actions
by other countries.
Fredrik Erixon, who is with Brussels-based
European Centre for International Political Economy (ECIPE) – a trade
policy think-tank, said the RED faces the risk of running afoul of
Europe’s obligations in the agreements of the World Trade Organisation
(WTO).
“If the EU goes ahead and is not legally challenged by
the WTO, then there would be others like the US which would also proceed
with similar legislation for biofuel producers … because no one has
the guts to take action,” he told Business Times in an interview in
Kuala Lumpur.
European leaders are committed to a binding EU-wide target to source
20 per cent of their energy needs from renewables including biomass,
hydro, wind and solar power by 2020.
Europe’s tariffs on
biofuels vary. Ethanol is protected with tariff equivalents of between
39 per cent and 63 per cent. Biodiesel is less protected by tariffs as
vegetable oils for biodiesel production have tariffs at 3.2 per cent.
Although the policy is targeted to reduce the use of fossil fuels and
reduce emissions of greenhouse gases, it will affect the production
costs as well as the trading system, he said.
“The RED
effectively cuts off market access for foreign competitors of European
rapeseed oil like palm oil for biofuel use in Europe,” Erixon said.
It directs the EU to adopt technical regulations and so-called process
and production method standards and producers which do not meet those
standards will not qualify for the excise-tax exemption or the national
targets that EU member states should comply with.
Erixon said
the RED is inconsistent with several articles of the General Agreement
on Tariffs and Trade (GATT), the predecessor of the WTO, including that
any advantage given to one product must also be given to like products.
A sustainability criteria used in the RED’s technical regulation says
that the greenhouse gas saving from a new entity of biofuels entering
into the EU market should be at least 35 per cent to qualify for the
target and tax preference.
According to the EU’s calculation,
the use of palm oil-based biodiesel from Malaysia failed the requirement
as it achieved only 19 per cent, preventing it from qualifying for the
incentives.
Malaysian stakeholders in the palm oil industry have urged the EU not to discriminate against palm oil.
Both Malaysia and Indonesia have expressed their intention to initiate
action against the EU when it implements the directive next year.
Erixon said most countries are hesitant to bring about a dispute
against the EU, which is a sizeably large market with 27-member states.
“It’s a valid point that you will upset a major client but one needs
to demystify and depoliticise what a dispute in the WTO is. It can be
done on the basis of legal obligations and in a fair and open manner
with no retaliation of trade wars.”
In almost 600 of the
disputes brought up in the WTO, he said, almost all of them were solved
in a good manner and policies adjusted.
Although the EU is
currently undertaking bilateral free trade agreements with several
Southeast Asian economies like Malaysia, he said, they would not be a
right platform as the issue could upset the entire negotiation.
Aggrieved parties can constantly bring up their grouses about the RED
to the Technical Barriers to Trade meetings in the WTO before moving to
the next course of action.
