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In recent weeks a war of words has been waged between diplomats representing Indonesia and the European Union over how Europe plans to treat the importation of Indonesian biofuel and other palm-based products. Europe’s diplomats have elected to put European domestic political interest ahead of sound economics and environmental policy. If they don’t reconsider their views, they are risking escalating the dispute into a full-scale trade war. The casualties will be European consumers and the Indonesian economy.

The uproar is over a decision by Europe’s energy commissioner, Gunther Oettinger, and officials in the EU to add new environmental standards for biofuels to have full access to its market.

These new standards will discriminate against producers in Asia, Africa and Latin America, and make Europe’s biofuel policy even more protectionist than it already is.

The effect of new standards will be to limit the importation of foreign biofuels in the European market.

The stakes for Indonesia are high. The new standards run the risk of closing Europe’s market entirely for the nation’s biofuels exporters, jeopardizing both the economy and many jobs.

In an unintended irony, the global environment will also be a casualty of this protectionism as the main effect of Europe’s new move will be to slow down the shift from fossil fuels to cleaner biofuels.

The new rules are the result of months of pressure from a coalition of radical environmental NGOs in Europe and their allies in the European biofuels industry.

But the Indonesian government could put an end to it. Europe’s new policy on biofuels production standards — known as the Renewable Energy Directive — almost certainly runs afoul of international law under World Trade Organization’s regulations.

WTO rules are especially attentive to discrimination and the principle that like products should be treated equally.

There is good reason for this: The architects of the trade group knew that domestic interests pressure governments to trump up bogus charges to keep foreign products out.

Thus a regulation that prevents biofuels from entering Europe’s market just because it has been produced in peat lands, for example, would be met with suspicion by WTO authorities.

And yet this is precisely what the RED intends to do — block Asian biofuel because it is produced in the tropics.

But the physical product characteristics of Indonesian palm-based biofuel will be the same as those for a biofuel produced in Europe, and in the eyes of the WTO, this is what matters.

In similar cases in the past, the Appellate Body, the highest court of the WTO, ruled that methodologies used in the creation of a product can only be the basis for treating product as unlike (i.e. discrimination) if they affect physical characteristics.

This is clearly not the case with Europe’s new land-based criteria for access to its market.

It’s true that the WTO allows members to deviate from its obligations, but rarely. A member country is justified to deviate if it can prove a measure is necessary to protect the environment, for example.

But here Europe runs into problems. A trade restriction against foreign biofuels will limit the supply in Europe and increase prices.

This makes the transition away from more polluting fuels such as oil and gas more difficult.

Indeed, slowing down the shift away from fossil fuels — which the planned European regulation would do — fails to advance broader ecological interests.

EU representatives say they welcome a WTO complaint over its new biofuels standards. Julian Wilson, the head of an EU delegation to Indonesia and Brunei, recently said, “We really hope to have a debate at the WTO on the matter and we welcome it.”

Indonesia should take Wilson up on that invitation.

Rather than retaliating by other means, it is better to solve disputes in a legal and structured form in the WTO. Indonesia also stands a good chance to win. Europe is erring on the side of protectionism.


Fredrik Erixon is a director at the European Center for International Political Economy, a research group in Brussels.