In January 2008 the European Biodiesel Board (EBB) petitioned the European Commission to take legal action against U.S. tax credits that have been critical to the development of the American capacity to produce alternative fuel sources. European producers of biodiesel allege that certain federal tax credits (26 U.S.C. §§ 40A, 6426 and 6427) are illegal subsidies under the World Trade Organization Agreement on Subsidies and Countervailing Measures. The EBB claims that the net effect of U.S. programs renders U.S. biodiesel priced unfairly upon export to EU markets.

European industry has petitioned, and is aggressively lobbying, the European Commission to take several actions to protect the European market from foreign competition.

The EBB filed a legal petition requesting the European Commission launch an anti-dumping and countervailing duty investigation of U.S. producers, blenders and exporters. Its objective is to raise tariffs on U.S. biodiesel and effectively price U.S. biofuels out of the European marketplace. The Office of the U.S. Trade Representative has confirmed its belief that the European Commission will accept this petition and prosecute such action against U.S. companies.

The EBB has also requested the European Commission to pursue a formal complaint through the WTO against alleged U.S. “subsidies.” This type of dispute would challenge the very legality of tax credits in 26 USC pertaining to biofuel production, and could result in a WTO ruling that would require the United States to eliminate these credits from U.S. law. Finally, European industry is pressing the European Commission to change its standards for biodiesel to restrict the access of imports of fuels derived from palm oil to European markets. The industry thus seeks to bar imports from Southeast Asian economies invested in palm oil biodiesel.

U.S. producers, blenders and exporters, involved at all levels of the biodiesel manufacturing process and trade, could face new tariffs on exports to Europe, as well as the distinct possibility that the WTO could rule that U.S. tax laws contravene international trade rules.