Baptists and Bootleggers in the Biodiesel Trade: EU-Biodiesel (Indonesia)

Abstract

EU-Biodiesel (Indonesia) is the latest in two lines of cases. On the one hand, the case offers yet another example of the Dispute Settlement Body striking down creative interpretations of antidumping rules by developed countries. Applying the Appellate Body's decision in EU-Biodiesel (Argentina), the panel found that the EU could not use antidumping duties to counteract the effects of Indonesia's export tax on palm oil. On the other hand, the decision is another chapter in the battle over renewable energy markets. Both the EU and Indonesia had intervened in their markets to promote the development of domestic biodiesel industries. The panel's decision prevents the EU from using antidumping duties to preserve market opportunities created by its Renewable Energy Directive for its domestic biodiesel producers. The EU has responded in two ways. First, through regulations that disfavor palm-based biodiesel, but not biodiesel made from from other foodstocks, such as rapeseed oil commonly produced in the EU. Second, the EU has imposed countervailing duties on Indonesian biodiesel, finding that Indonesia's export tax on crude palm oil constitutes a subsidy to Indonesian biodiesel producers. The EU's apparently inelastic demand for protection raises two questions: First, when domestic political bargains rest on both protectionist and non-protectionist motives and policies have both protectionist and non-protectonist effects, what are the welfare consequences of restraining only overt protectionism? Second, under what circumstances may regulatory approaches be even less desirable than duties for addressing combined protectionist and environmental interests, and would the WTO have the right powers to discipline them in an environmentally sound way?