Biodiesel—a domestic, renewable fuel for diesel engines derived from natural oils such as soybean oil—may be at the center of the next dispute facing the World Trade Organization (“WTO”). The European Biodiesel Board (“EBB”), whose combined members constitute approximately 80 percent of EU biodiesel producers, has lodged a joint anti-dumping and anti-subsidy complaint to the European Commission against exports of US “B99,” a blended biodiesel product. The EBB indicated that a complaint to the WTO may also follow shortly.

Products are considered to have been “dumped” in Europe when the export price is at a level below the normal domestic price in the exporting country. The European Commission may take action where it determines that a dumped product is causing injury to the Community Industry, and where it believes that it is in the Community’s interest to intervene. In order to affect the “Community Industry” a complaint must be supported by a significant amount of European Community producers, who, in this case, are represented by the EBB.

The EU biodiesel industry is unhappy about a tax regime whereby the Internal Revenue Service (“IRS”) gives a US$ 1/gallon (US$ 300/ton) blend credit to any company that blends biodiesel with diesel in order to encourage the use of biodiesel in the US. The blend can consist of any percentage and therefore producers in the U.S. have blended 0.1 percent of diesel in their biodiesel and are now exporting this product as B99. On top of the U.S. subsidy, B99 exports are also eligible for a European subsidy. This relief enables U.S. exporters to offer their product in the European market at a lower price than EU producers can offer and who are losing business as a result of their inability to compete on price.

According to the figures put forward by EBB, it is estimated that 700,000 tons of U.S. methyl ester entered the EU in the first nine months of 2007, as opposed to 90,000 tons for the whole of 2006. B99 blends from the US are sometimes sold in the EU at a lower price than one of the raw materials purchased by the EU industry for producing biodiesel.

Procedure

The EBB’s complaint was officially lodged on 25 April 2008. Thereafter, the Commission had 45 days to decide whether to launch an investigation, which it did on June 13.

The investigation may take up to a maximum of nine months to come to a provisional determination. If warranted, provisional antidumping/ anti-subsidy duties may be imposed at this stage. It may take up to a further six months (four months for anti-subsidy cases) to come to a definitive determination that could support the imposition of definitive antidumping/ anti-subsidy duties.

The rate of any duty imposed by the Commission must not exceed the dumping margin, and should be less if a lesser duty would remove the injury. Provisional duties may be imposed for six months and extended for a further three months or imposed for nine months. If the Commission believes provisional measures are necessary, such measures can be imposed 60 days from initiation of the investigation. In practice, most of the provisional measures are imposed shortly before the expiration of the nine-month deadline. Definitive anti-dumping measures normally have a duration of five years.

The Commission may also accept voluntary undertakings by exporters to cease exports or to increase their export price to a nondumped level, where the Commission is satisfied that the injurious effect will be eliminated.

Who may be exposed to duties?

The regulations allow a duty to be imposed on several parties. The duty would normally be imposed on the exporter entity. Traders may potentially also be subjected to the imposition of such duties. There has been at least one case where a trader was subject to the residual duty computed in a punitive way – Large Aluminium Electrolytic Capacitors. This involved two exporters from Taiwan, one of which was a trading company that was subject to a residual duty of 75.8 percent, while the other exporter was subject to 10.7 percent.

When may duties be imposed?

Exposure to duty usually starts from the beginning of the investigation, and interim duties can be imposed while the investigation continues. However, duties can also be imposed retroactively where there is a history of dumping or where the importer should have been aware of the dumping, and where there is a substantial rise in imports, which is likely to undermine the remedial effect of the duties.

What other action could the EU take?

(1) Increasing the 6.5 percent import tariff?

All goods imported into the EU are classified under an eight-digit “combined nomenclature” customs code, used for statistical and tariff purposes. At present there is no dedicated code specifically for biodiesel; we understand that it is currently imported under code 38249098, which attracts an import tariff of 6.5 percent. Could the EU reduce the injury being caused to the EU biodiesel industry by increasing this import tariff?

The simple answer is no, not without great difficulty. The tariff duties are controlled by the World Customs Organization (“WCO”). For there to be an increase, the Commission would have to approach the WCO to lobby for such a change. Increases in import duties virtually never happen. The Commission does publish a Regulation every year toward the end of October amending/updating EU import duties, but these merely represent those WCO tariffs and any related tariff suspensions that the Commission has implemented.

(2) Introduction of a new TARIC code

TARIC codes are 10-digit codes that represent a further breakdown of the eight-digit combined nomenclature codes. TARIC codes contain information on tariff quotas, all third country and preferential duty rates, tariff suspensions, and other trade measures.

Could the Commission introduce a new combined nomenclature/ TARIC code specifically to cover biodiesel? We understand that the Commission may be looking to introduce a specific combined (continued) nomenclature code for biodiesel in the foreseeable future. The introduction of a new TARIC code can in theory be a very quick process, but there must be some legislative basis for it. We understand that there is currently no legislative basis for the introduction of a biodiesel/blended biodiesel TARIC code.

(3) 100 percent biofuel requirement

Any change requiring the specification of the product currently imported as biofuel to be changed to 100 percent biofuel, rather than a blend, would have to be introduced by Council Regulation. This is a fairly lengthy process.

DG Trade has decided to investigate both subsidy and dumping. It published notice of the investigations in the Official Journal on June 13. The Council has 15 months from the publication date to produce a definitive measure, if it decides to do so. In the meantime, the Commission will have produced a provisional measure that will become effective for six months, or until the Council adopts its definitive measure. The overall timescale would depend on how long it takes the Commission to examine the initial complaint and decide whether to take the matter further.