The headline is that Europe is waging a war on palm oil. But it’s so much bigger than that.
To hear Brussels tell it, palm oil contributes to deforestation and global warming, and thus runs afoul of “public morals” in the European Union (EU). Indonesia and Malaysia disagree. Both sued the EU at the World Trade Organization (WTO), arguing that Brussels is short-changing palm oil to protect domestic biofuels, including rapeseed and sunflower oil.
The EU will lose this case, and Brussels knows it. Europe’s handling of palm oil is no more grounded in WTO law than it is in science.
The backstory is that in 2018, the EU’s Renewable Energy Directive, known as RED II, came on line. It sets renewable energy targets through 2030, and is “supplemented” by Delegated Regulation 2019/807, which defines sustainability and greenhouse gas emissions savings criteria for biofuels, bioliquids and biomass fuel. Importantly, it distinguishes between feed crops that have a high versus low indirect land-use change (ILUC). This is the deforestation angle. The only feed crop identified as having a high ILUC is palm oil.
Indonesia and Malaysia see this as proof that RED II is protectionist. They argue it violates WTO agreements on technical barriers, and trade in goods (subsidies are alleged against France). Europe disagrees, arguing that RED II isn’t a technical regulation, and that, because palm oil is not “like” rapeseed or sunflower oil, there’s no violation of most-favored nation (MFN) and national treatment provisions. Just in case, however, the EU invoked the first-ever three-in-one exception, “concurrently” raising affirmative legal defenses on public morals, human health and safety, and non-renewable natural resources.
If RED II is a technical regulation, it gives Indonesia and Malaysia more room to argue that it’s not grounded in science, and is overly trade restrictive. The betting is that it’s not a technical regulation. Still, Indonesia and Malaysia will win on MFN and national treatment if palm oil, rapeseed and sunflower oil, for example, are “like goods.”
Ironically, the EU gives them ammunition with each antidumping and countervailing duty filed against palm oil. These defensive trade actions are about palm oil being “like” rapeseed, for example. And when these decisions are challenged at the WTO, like in EU—Biodiesel (Indonesia) and EU—Biodiesel (Argentina), the term “like goods” is everywhere. This inconvenient fact comes back to haunt Europe’s first submission in EU—Palm Oil (Indonesia).
On public morals, Europe’s third-party submission in US—Tariff Measures (China) will not help either.
In that case, the U.S. also invoked public morals to defend the “China tariffs.” The EU wasn’t having it. Brussels demanded the tariffs weren’t “designed” to protect public morals and weren’t “necessary” to secure them. The EU was right. The bar should be set high for using public morals.
Now, the EU wants to dramatically lower the bar, if not discard it. In its second submission in EU—Palm Oil (Indonesia), Brussels says it’s using a three-in-one “composite defense” involving public morals, health and safety, and nonrenewable natural resources. It says “[t]his means that the three values-based and science-based objectives are intertwined and […] to fail it would mean that the three justifications should fail together.”
And there you have it. To help domestic biofuels, the EU is inviting the same abuse of the public morals exception it railed against in US—Tariff Measures (China). In fact, Europe is making things worse by creating a three-in-one exception that is so convoluted it can’t possibly be put to any serious “necessity” test.
It’s not just the law that’s against the EU. It’s also the science. Keep in mind that the Paris Agreement bases calculations of greenhouse gas emissions on production, not consumption, and not on an extraterritorial basis.
There’s more. A working paper by the Kiel Institute for the World Economy estimates that RED II’s treatment of palm oil will not help combat global warming. In fact, it will hurt. Fully three times the amount of land that would be saved from deforestation will be lost to producing rapeseed and soybean oil. Worse, whereas 90 percent of palm oil sold in the EU is certified as “sustainable,” the same cannot be said of soybean oil.
Two weeks ago, the European Parliament voted its final position on RED III. It’s debatable, but RED III could include a ban on palm oil. There’s also a new EU antidumping duty investigation on palm oil. This bout of protectionism is going to hurt the cause of free trade, and do nothing to reduce global warming.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.