EU to Comply with WTO Ruling on Indonesia’s Palm Oil Biofuel Lawsuit

The European Union recently said that they would comply with the international trade court ruling on its renewable energy policy that Indonesia accused of being discriminatory to palm oil-based biofuel.

In 2019, the world’s largest palm oil producer Indonesia sued the EU at the World Trade Organization (WTO) over the group’s Renewable Energy Directive II (RED II) policy. Under the RED II, the EU plans to phase out the use of palm oil-based biofuel by 2030 if they indicate a high risk of causing “indirect land use change” (ILUC).

This is a term that refers to when agricultural land previously destined for food gets converted for biofuel production, thus forcing farmers to grow their crops elsewhere and leading indirectly to an increase in emissions. Just two weeks ago, the three-person panel at the WTO found that the EU failed to conduct a timely review of the data used to determine which biofuels have a high risk of causing ILUC.

“The EU will strictly take necessary measures to comply fully with the panel’s report,” EU’s deputy head of mission to Indonesia Stéphane Mechati told reporters in Jakarta on Thursday.

Mechati acknowledged that the report had called on the EU to make some adjustments to the policy. “We will agree on a time frame to do that,” the envoy said.

Mechati refused to give further comment when asked whether the EU would lodge an appeal on this palm oil biofuel lawsuit. Unless the WTO panel report gets appealed, the WTO dispute settlement body will adopt the document within the next two months. The report will become binding between Indonesia and the EU if adopted.

When the ruling first came out, the European Commission said that they would make the necessary adjustments in response to the policy’s shortcomings that the panel had identified.

Chief Economic Minister Airlangga Hartarto, on the other hand, said that the ruling could add more force for Indonesia and fellow palm oil producer Malaysia in their fight against the EU’s anti-deforestation regulation (EUDR). This is a separate policy that requires companies who wish to enter the European market to prove that their palm oil does not come from deforested land.

The Indonesian Palm Oil Association (Gapki) data shows that Indonesian annual exports of its top commodity to the EU could reach millions of tons. However, Indonesia’s EU-bound palm oil export had gone down from 4.1 million tons in 2022 to 3.7 million tons the following year.

Indonesia and the EU are suing each other at the WTO. The WTO had backed the EU in a dispute in which Europe accused Indonesia of violating WTO rules by banning exports of unprocessed nickel ore. Indonesia has filed an appeal. However, the WTO’s body that is in charge of reviewing appeals remains absent to this day, thus putting the case in limbo.

Tags: WTO, palm oil, World Trade Organization, biofuel, Renewable Energy Directive II, RED II, Indonesia, European Union, Production