The complaint and imposition of the duties

Following a complaint lodged by the European Biodiesel Board in April 2008, the European Commission on March 12, 2009 published regulations to the effect that as of March 13, 2009, all imports into the EU of biodiesel originating in the United States are 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.

While a subsidy duty was widely expected by the industry because the United States 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.”

Provisional (interim) duties are not always imposed by the Commission; however, in this case, the Commission has taken 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 in the underlying Regulations.

The European Biodiesel Board is, in effect, a trade association of European producers. The crux of their members’ complaint was that the U.S. government’s and states’ subsidies were allowing U.S. producers and traders in biodiesel to import into the EU and to undersell producers in the EU. The following figure 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 April 1, 2007 and March 31, 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 (who 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 from which U.S. producers benefited. They then determined the amount gained from each subsidy by each producer as a percentage of their total sales of biodiesel over the investigation 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, while 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 (those that responded to the Commission’s requests for information), are facing combined duties on import into the EU of €342 per tonne of U.S. imported biodiesel, while non-cooperating producers and traders are facing duties of €419 per imported tonne. This will bring biodiesel prices up to “competitive levels,” from the point of view of EU production costs, but will arguably be at a very substantial cost to end-users and consumers of biodiesel.

A significant point, from a competition point of view, is that while it is understandable that non-cooperating companies should receive the highest duties, it is unclear why there are such marked differences in the duties being imposed by the Commission on the sampled companies versus the cooperating companies (i.e., ADM will be paying a duty of €260 per tonne on imported U.S. origin biodiesel, while cooperating companies that were not sampled will pay duties of €342). This is especially important if we consider the duties in the 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 that certain 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. As a consequence, many producers 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 producers such as Peter Cremer that are attempting to reduce their individual 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 anti-dumping 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, as here, sampling is employed, the duties effectively remove competition between the cooperating producers that were not chosen for the Commission’s investigation, and the producers that were not.

We believe that if the definitive duties— which are anticipated to be imposed in July and September by the Council—are kept at the levels of these provisional duties, then 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 and various biodiesel-producing South American and African countries, leading one to suspect that biodiesel from these countries may well fill the gap created by the loss of U.S.-produced biodiesel.

The short-term result of these provisional 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. In particular, one association, representing the interests of Shippers, claimed that the imposition of these measures would have an adverse effect. Diesel is responsible for 20 to 25 percent of the costs of the transport sector, and that, given the low profitability of the sector (i.e., 0–5 percent), the price of diesel is a critical determinant for the survival of thousands of shipping and transport 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 the 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 concerns.