Biodiesel, dumping or protectionism?

Why the European Union imposed antidumping duties on Argentine biodiesel in 2013, what Argentina complained about before the WTO, and why the measure seems protectionist. October 2015 report.

In 2012, the European Union launched two investigations: one into alleged dumping of biodiesel exports and the other into subsidies. Both involved Argentina and Indonesia as the countries under investigation.

The application was submitted on behalf of a number of producers in the Union. These producers collectively accounted for more than 60% of the Union's total biodiesel production.

The dumping investigation covered the period from July 1, 2011 to June 30, 2012. The analysis of trends relevant to assessing injury covered from January 1, 2009 to the end of the investigation period.

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Provisional and definitive antidumping duties

As a result of the above, on May 27, 2013, the same European Commission decided to impose a provisional anti-dumping duty of between €65,24 and €104,92 per tonne on imports of biodiesel originating from Argentina, pursuant to Regulation (EU) No 490/2013.

In October 2013, the same Commission decided to suspend the investigation it had initiated into subsidies for biodiesel imports originating in Argentina. This occurred after the European Biodiesel Board withdrew its complaint and doubts arose as to whether the differentials between export duties applied to Argentine biodiesel and crude soybean oil exports could be considered subsidies under the terms of the World Trade Organization's Agreement on Subsidies and Countervailing Measures.

While the EU dismissed the investigation into subsidies, it did not do the same with the other ongoing investigation. In November 2013, definitive antidumping duties were set for five years. For biofuel originating in Argentina, these duties range from €216 to €245 per net ton. For biofuel originating in Indonesia, they range from €76 to €178 per net ton.

In practice, the European decision effectively closed the European market to Argentine biodiesel. It should be noted that in 2011, biodiesel exports to the European Union totaled $1.847 billion. This represented 13 percent of the country's total shipments to the European market and positioned Argentina as the bloc's leading supplier. Between January and August 2013, these exports plummeted to just $390 million due to the restrictive measures implemented by the EU.

Why the Commission considered the costs distorted

The European Commission observed that the domestic prices of the main raw material used by Argentine biodiesel producers, soybeans and soybean oil, were artificially lower than international prices due to the distortion created by the export taxes ( withholdings ) applied by our country and, therefore, the costs of the main raw material were not reasonably reflected in the records of the Argentine producers investigated.

Since some production costs, and specifically the costs of the main raw materials ( soybeans and soybean oil in Argentina and crude palm oil in Indonesia), were found to be distorted, these costs were calculated based on reference prices published by the competent authorities of the countries concerned. These prices reflect the level of international prices.

Reference Prices: they are official FOB prices or indices that act as the tax base for export duties that levy exports for consumption. In practice they operate as minimum FOB export values.

Argentina's complaint to the WTO

In response to the imposition of antidumping measures, Argentina requested consultations with the EU in December 2013. This request was made within the framework of the Dispute Settlement Body (DSB) of the World Trade Organization (WTO).

Consultations are the main non-judicial/diplomatic instrument of the WTO dispute settlement system. They allow the parties to clarify the facts of the case and the complainant's allegations. This dispels any potential misunderstandings regarding the true nature of the disputed measure.

In this sense, consultations serve to lay the foundations for a solution or to carry out the procedure under the Dispute Settlement Understanding (DSU).

The primary objective of the DSU is for Members to resolve disputes among themselves in a manner consistent with the WTO Agreements. Consequently, bilateral consultations between the parties are the first stage of the formal dispute settlement system.

These consultations give the parties the opportunity to discuss the issue and find a satisfactory solution without resorting to litigation. Only if these mandatory consultations have not provided a satisfactory solution within 60 days may the complainant request resolution by a panel.

The Argentine arguments and the Court of Justice

Argentina's claim in this case is based on criticisms of the method used to calculate biodiesel production costs. It also argues that the antidumping duty exceeds the calculated dumping margin and that there are shortcomings in the evidence used to determine injury. Finally, it points to problems in establishing the causal link between imports and the alleged dumping.

In this regard, the Argentine Association of Biofuels Exporting Producers ( Carbio ) and the Argentine authorities argued that an adjustment of the costs borne by the companies is only possible when the records, and not the costs incurred by the companies, do not reasonably reflect the costs related to the production and sale of the product concerned.

For its part, in mid-2014 the Court of Justice of the European Union notified the European Commission of its acceptance of the claim made by Argentine biodiesel supplier companies in relation to the antidumping measures in force since November 2013.

This acceptance opens the possibility of discussing the legality of these measures. The first results of the process are expected in 2015.

This acceptance of the claim is not accidental, especially when considering the context in which these measures are being implemented. That is, the disparity in the development and operation of the Argentine biodiesel industry compared to its European counterpart.

Argentina has the most modern biodiesel industry in the world and is one of the global leaders in biodiesel production. Furthermore, it meets the highest quality standards in technical, environmental, and economic terms.

What differentiates this sector in the international context?

Among the advantages that position Argentina among the world's leading biodiesel producers is that it is the world's leading producer of soybean oil, the main input for biodiesel.

Argentine exporting companies also have clear competitive advantages , such as a significant soybean supply and proximity to their growing regions. They also have direct access to private deep-water ports, allowing them to export without incurring high transportation costs. Furthermore, they boast highly efficient production scales, factors not available to European producers.

A regulated and subsidized European industry

For its part, the European biodiesel industry emerged as a basically regulated industry, both by energy, climate and environmental policy regulations, as well as by tax benefits and incentives set to increase domestic demand for biofuels (Renewable Energy Directive and Fuel Quality Directive).

Likewise, agricultural producers of biodiesel raw materials also receive funds through the Common Agricultural Policy.

The Common Agricultural Policy is one of the most important agricultural policies in the world. It is responsible for generating subsidies and investments to stimulate the agricultural sector of all those countries that make up the Union.

All these incentives help make an otherwise unprofitable industry profitable. However, this framework of measures has also led to an over-expansion of the industry, with imbalances between production and consumption. This creates a vicious cycle.

Under this scenario, it becomes essential for the European Union to use tariff and non-tariff barriers in order to maintain an industry that would otherwise die out.

Furthermore, it is important at this point to clarify the significant role the European biodiesel market plays globally. This market is worth approximately €12.000 billion. The European Union is the largest producer, accounting for 41% of global production.

In the European domestic market, biodiesel acquired greater development and represents 70% of the biofuels market for transport. Germany, France, Spain and Italy are the main producers within the European Union.

Dumping or protectionism?

In conclusion, it can be argued that the application of antidumping duties to biodiesel originating from Argentina and Indonesia is not an isolated measure, but rather part of a broader, clearly protectionist policy implemented by the EU, given the competitive advantages enjoyed by countries such as Argentina and Indonesia and the lack of efficiency of EU producers in competing, on the one hand, and the significant importance of this sector to the European Union, on the other.

Therefore, the injury caused by imports under fair conditions should not be subject to antidumping or countervailing measures.

Open access, for use and citation

The report is available freely and without charge, under a Creative Commons license (CC BY-NC-SA 4.0):

Biodiesel, ¿dumping o proteccionismo? Informes del Observatorio UNR N.º 13 — Serie Puente Académico N.º 3, octubre de 2015. ISSN 2683-9067 / 2683-9091. Autores: Germán A. Tessmer y Carolina Paz.