The complaint and imposition of the duties

Following a complaint lodged by the European Biodiesel Board in April 2008, on 12 March 2009, the European Commission published regulations to the effect that, since 13 March 2009, all imports into the EU of biodiesel originating in the United States have been subject to both anti-subsidy and anti-dumping duties.

Under Council regulation (EC) No 2026/1997, the European Commission has powers to impose protection against subsidised imports from countries not members of the European Community, in the form of duties. Under Council regulation (EC) No 3283/1994, the European Commission has similar powers to impose protection against dumped imports. This policy is based on principles found in the General Agreement on Trade and Tariffs of the World Trade Organisation. The Commission investigates, on average, 30 new anti-dumping matters each year.

Whilst a subsidy duty was widely expected by the industry because the U.S. government has been providing a $1 per gallon subsidy on biodiesel, an anti-dumping duty on top of this was not expected. The duties introduced are expressed to be “provisional” currently.

Provisional (interim) duties are not always imposed by the Commission; however, in this case, the Commission took the view that the harm being caused to the European biodiesel industry by U.S. imports was sufficiently material to warrant the introduction of new duties prior to the deadlines as set out under the underlying Regulations for enforcement of definitive antisubsidy and anti-dumping duties in July and September 2009, respectively.

In a Commission meeting at the end of May, most Member States’ representatives agreed to back plans to impose definitive anti-subsidy and antidumping measures, which will see the duties extended for five years. The definitive duties are expected to be introduced by 12 July; the deadline for five-year anti-subsidy measures.

The European Biodiesel Board is in effect a trade association of European producers. The crux of their members’ complaint was that U.S. government and state subsidies were allowing U.S. producers and traders in biodiesel to import into the EU and to undersell producers in the EU. The figure below illustrates the difference between the average prices at which the EU producers were selling their biodiesel and the average prices at which the U.S. producers were exporting their biodiesel to the EU in 2007.

Please click here to view table.

This naturally led to the U.S. importers’ market share in the EU rising from 0.1 percent in 2004 to 17.2 percent during the Commission’s investigation period between 01 April 2007 and 31 March 2008.

Having advised all interested parties in the United States and the EU at the outset of the investigation, including the U.S. government and the U.S. National Biodiesel Board; the Commission used a sample of EU and U.S. producers that had responded to the Commission’s initial communications to work out the “injury” being caused to the EU industry, as well as to calculate the specific figures for the subsidy margins and dumping margins. To establish subsidy margins, the Commission considered all of the federal and state subsidies available, and which U.S. producers benefited. They then expressed the amount gained from each subsidy by each producer as a percentage of their total sales of biodiesel over the investigated period. To establish dumping margins, the weighted average normal value of the biodiesel for each of the sampled U.S. producers was compared with their weighted average export price.

The injury margins determined by the Commission for the sampled companies are based on: the volume of the dumped imports; the effect of the dumped imports on prices in the Community market; and the consequent impact on the Community industry. The Commission also determined, based on the injury sustained and reasonable projections for the EU industry, what they described as a “fair’ profit margin for European producers of biodiesel, of 15 percent. As stated, whilst the anti-subsidy duties were expected, the anti-dumping duties were not. However, the anti-dumping duties have been limited because of the Commission’s approach of not allowing the anti-subsidy duty and anti-dumping duty combined to exceed the injury margins established.

Competition issues

Outside the sampled companies, cooperating producers (that is to say, those that responded to the Commission’s requests for information), are paying, under the provisional scheme, combined duties on import into the EU of €342 per tonne of U.S. imported biodiesel, while non-cooperating producers and traders are paying duties of €419 per imported tonne. This brings biodiesel prices up to “competitive levels,” from the point of view of EU production costs versus the subsidies obtainable by U.S. exporters, which will arguably be at very significant cost to end-users and consumers of biodiesel.

A significant point, from a competition point of view, is that while it is understandable that noncooperating companies should receive the highest duties, why are such markedly different duties being imposed by the Commission on the sampled companies and the cooperating companies (as an example, ADM pays a duty of €260 per tonne on imported U.S.-origin biodiesel, while cooperating companies who were not sampled pay duties of €342 under the provisional duties)? This is especially important if we consider the duties in light of the fact that the cooperating companies’ duty rates have been established by calculating the weighted average of the sampled companies’ duties, and that it is clear from the individual duties imposed that companies such as Peter Cremer have pulled the weighted average up considerably.

Sampling makes investigation of producers manageable, but, in this case at least, it is harsh on the cooperating producers who are not able to compete on a level playing field because of the variation in duties imposed. Many producers as a consequence may be considering applying for individual duties; however, at this stage, the options are limited. Perhaps a more realistic approach would be to side with Peter Cremer to attempt to reduce their duties and thereby the weighted average duties.

As noted by Advocate General Van Gerven in his opinion in the leading case of Nolle; “The primary aim of competition policy under the Treaty is to safeguard competition on the Community market in the ultimate interest of the consumer, whilst the system of the anti-dumping scheme is intended to protect European industry (that is, the competitors) against competition (regarded as unfair) from imported products sold below their normal value. The imposition of an antidumping duty may therefore result, with the aim of protecting European industry, in a price increase and a diminution of global competition within the common market.”

Advocate General Jacobs, in his opinion in Extramet, which discussed the potential for conflict between competition policy and anti-dumping policy, was also of the opinion that where applicable, a consideration of competition law should be made in anti-dumping investigations. In this regard, it was thought that if an anti-dumping measure would have the effect of contravening EC competition law, then it should not be implemented.

Although it is accepted that the Regulations do refer to Competition issues, this is normally only in the context of restoring effective competition within the Community and eliminating the injury caused to the EC industry, i.e., normal competition conditions in the absence of dumped imports. However, where sampling took place, this does not address the fact that the duties effectively remove competition between cooperating producers that were not chosen for the Commission’s investigation and those producers that were.

Under the proposals for definitive duties, it has been reported that there will be some adjustments to the current provisional duties imposed. For example: Archer Daniels Midland (ADM) looks to face an increased duty of €359 per metric ton of U.S. biodiesel imported into the EU, up from the interim duty of €261; Cargill would have to pay €213.80 instead of €275; and, while the companies that cooperated with the Commission’s investigation will pay €335, all other companies would pay €409, which is a reduction from the interim duty of €419. We believe that the consequence of introducing these definitive duties will be that it may never be viable for the producers of and traders in U.S. biodiesel to export biodiesel into the EU again. This is reinforced by the fact that discussions have been held between the EU various biodiesel-producing South American and African countries, leading us to suspect that biodiesel from these countries may well fill the gap created by the loss of U.S.-produced biodiesel, whilst the European producers rebuild their production levels.

The short-term result of these measures will undoubtedly be a marked increase in the costs of biodiesel to end-users and consumers. This was a factor brought up and considered by the Commission during the investigation, with one association representing the interests of Shippers in one Member State claiming that the imposition of measures would have an adverse effect on the activity of its members. It alleged that diesel is responsible for 20 to 25 percent of the costs of the transport sector, and that given the low profitability of the sector (0–5 percent), the price of diesel is determinant for the survival of thousands of companies.

A final point to note is that U.S. commentators on the duties imposed see the steps taken by the Commission as the latest in a series of protectionist ploys, with the U.S. National Biodiesel Board stating that there are “significant procedural and factual shortcomings in the EC’s provisional ruling.” Furthermore, in light of the current global economic and financial crisis, and international recognition of the need to avoid protectionism, it is argued that the Council, in its deliberations as to whether to make these provisional duties definitive, will need to fully consider each of these issues and, in particular, EU competition policy considerations.