DS-593: European Union — Certain measures concerning palm oil and oil palm crop-based biofuels

Complainant: Indonesia Respondent: European Union Third Parties: Argentina; Australia; Brazil; Canada; China; Colombia; Costa Rica; Ecuador; Guatemala; Honduras; India; Japan; Malaysia; Norway; Russian Federation; Singapore; Korea, Republic of; Thailand; Turkey; United States In 2018, the Renewable Energy Directive Recast (RED II) came into force in the European Union. RED II introduces measures to phase out biofuels which pose high risk significant GHG emissions from indirect land-use change (ILUC), which is defined as occurring where there is “cultivation of crops for biofuels, bioliquids and biomass fuels displaces traditional production of crops for food and feed purposes.” The European Commission’s Delegated Regulation 2019/807 introduced pursuant to RED II laid down the criteria for determining high-ILUC feedstock and certifying low ILUC-risk biofuels, bioliquids and biomass fuels. Based on the criteria set by the EU biofuel measures in determining high ILUC-risk fuels, only palm-oil-based biofuels, which are usually imported, will be phased out by 2030 (unless certified as low ILUC-risk). By contrast, biofuels based on oil crops, which are more likely to be produced domestically in EU, such as sunflower or rapeseed, are not subject to the phase out. On December 9, 2019, Indonesia brought a claim against the EU at the WTO. Indonesia claimed that certain measures imposed by virtue of RED II, including the criteria for determining the high ILUC-risk feedstock, and the sustainability and GHG emission savings criteria are discriminatory against palm-oil-based biofuels and are therefore inconsistent with their obligations in violation of (a) Article 2.2 of the TBT Agreement as the measures at issue appear to create unnecessary obstacles to international trade in oil palm crop-based biofuels going beyond what is required for achieving a legitimate objective; (b) Article 2.1 of the TBT Agreement as the measures at issue appear to discriminate among like biofuels of different origins, and between imported oil palm crop-based biofuels and like biofuels of EU origin; (c) Article 2.4 of the TBT Agreement as EU appears to have failed to use relevant international standards as a basis for its technical regulations; (d) Article 2.5 of the TBT Agreement as the EU appears to have failed, upon the request of Indonesia, to explain the justification for those measures in terms of Articles 2.2 to 2.4 of the TBT Agreement; (e) Article 2.8 of the TBT Agreement, because by regulating trade in biofuels based on a description of an abstract and unsubstantiated high-ILUC risk concept instead of the performance of such biofuels; (f) Article 2.9 of the TBT Agreement by adopting a technical regulation that has a significant effect on trade of other Members in circumstances where either a relevant international standard does not exist or the content of the technical regulation does not accord with a relevant international standard without the required publication and notification of that regulation and organising an adequate process for commenting; (g) Article 5.1.1 of the TBT Agreement by preparing, adopting or applying conformity assessment procedures for certifying only oil palm crop-based biofuels as low ILUC-risk, the European Union appears to treat suppliers of oil palm crop-based biofuels from Indonesia less favorably than suppliers of like biofuels from other countries, in a comparable situation (h) Article 5.1.2 of the TBT Agreement by preparing, adopting or applying conformity assessment procedures for certifying oil palm crop-based biofuels as low ILUC-risk, the European Union appears to create unnecessary obstacles to international trade; (i) Article 5.2 of the TBT Agreement by failing to make available conformity assessment procedures for certifying oil palm crop-based biofuels as low ILUC-risk; (j) Article 5.6 of the TBT Agreement by requiring certification that has a significant effect on trade of other Members in circumstances where either a relevant international standard does not exist or the content of the conformity assessment procedures does not accord with a relevant international standard without the required publication and notification of that certification procedure and organising an adequate process for commenting; (k) Article 5.8 of the TBT Agreement by failing to publish promptly or otherwise make available the conformity assessment procedures for low ILUC-risk certification; (l) Articles 12.1 and 12.3 of the TBT Agreement by failing to take into account, in the preparation and application of the technical regulations and conformity assessment procedures at issue, circumstances specific to the developing countries where palm oil and oil palm crop-based biofuel are produced, the European Union appears to have failed to ensure that those measures do not create unnecessary obstacles to exports from developing country Members; (m) Article XI:1 of the GATT 1994 as the measures at issue appear to restrict importation of palm oil and oil palm crop-based biofuels (n) Article I:1 of the GATT 1994 as the measures at issue appear to discriminate among like crops and biofuels originating in third countries; (o) Article III:4 of the GATT 1994 as the measures at issue appear to discriminate between imported palm oil and oil palm crop-based biofuels and like products of EU origin; and (p) Article X:3(a) of the GATT 1994 as by adopting the criteria laid down in Articles 3 to 5 of Delegated Regulation 2019/807, the EU appears to have failed to administer RED II in a reasonable, impartial and uniform manner. The EU’s contention is that the measures are not in breach of its WTO obligations. EU has also submitted that the measures implemented are justified as they are intended to pursue EU’s legitimate policy objectives of climate change mitigation, environmental protection, preserving biodiversity, and ensuring energy security and sustainability. On 18 March 2020, Indonesia requested the establishment of a panel to address a dispute. On 29 July 2020, the Dispute Settlement Body (DSB) established the panel, and several countries, including Argentina, Brazil, Canada, China, and others, reserved their third-party rights in the dispute. On 2 November 2020, Indonesia requested that the panel's composition be determined under Article 8.7 of the Dispute Settlement Understanding (DSU), and by 12 November 2020, Deputy Director-General Yonov Frederick Agah, acting in place of the Director-General, composed the panel. On 10 January 2025, the panel's final report was circulated to WTO Members, and on 24 February 2025, the DSB formally adopted the panel report. The report highlights the EU's non-compliance with various WTO rules, including technical regulations, trade restrictions, and discriminatory measures against Indonesian biofuels, along with the need for corrective actions. Panel's conclusions and recommendations in the case concerning the European Union's measures on palm oil and oil palm crop-based biofuels: 1. EU Measures at Issue: The Panel finds that the 7% maximum share and the high ILUC-risk cap and phase-out are technical regulations within the meaning of Annex 1.1 to the TBT Agreement. Indonesia has failed to establish that the 7% maximum share and the high ILUC-risk cap and phase-out are inconsistent with the obligation in Article 2.4 of the TBT Agreement to use relevant international standards as a basis for technical regulations. Indonesia has failed to establish that the 7% maximum share and the high ILUC-risk cap and phase-out are inconsistent with the obligation in Article 2.2 of the TBT Agreement to ensure that technical regulations are not more trade-restrictive than necessary to fulfil a legitimate objective. The European Union has administered the high ILUC-risk cap and phase-out inconsistently with Article 2.1 of the TBT Agreement by failing to conduct a timely review of the data used to determine which biofuels are high ILUC-risk, and because there are deficiencies in the design and implementation of the low ILUC-risk criteria, which results in arbitrary or unjustifiable discrimination between countries where the same conditions prevail. Indonesia has not established that the European Union has acted inconsistently with Article 2.5 of the TBT Agreement by failing to explain the justification for preparing, adopting, or applying the high ILUC-risk cap and phase-out in terms of Articles 2.2 to 2.4 of the TBT Agreement. Indonesia has failed to establish that the high ILUC-risk cap and phase-out are inconsistent with the obligation in Article 2.8 of the TBT Agreement to whenever appropriate specify technical regulations in terms of performance rather than design or descriptive characteristics. Regarding the claims under Article 2.9 of the TBT Agreement, the European Union has acted inconsistently with: (a) Article 2.9.2 by failing to notify the proposed 7% maximum share and the proposed high ILUC-risk cap and phase-out measures; and (b) Article 2.9.4 by having failed to organize a commenting process in respect of the proposed 7% maximum share and the proposed high ILUC-risk cap and phase-out measures in accordance with the requirements of that provision. The low ILUC-risk certification procedure is a ""conformity assessment procedure"" within the meaning of Annex 1.3 to the TBT Agreement. Indonesia has failed to establish that the low ILUC-risk certification procedure is inconsistent with the obligation in Article 5.1.1 of the TBT Agreement to ensure that conformity assessment procedures grant access for suppliers of like products originating in the territories of other Members under conditions no less favourable than those accorded to suppliers of like products of national origin or originating in any other country. The low ILUC-risk certification procedure as set out in Article 6 of the Delegated Regulation is inconsistent with Article 5.1.2 of the TBT Agreement since deficiencies in the implementation of the low ILUC-risk procedure have created unnecessary obstacles to international trade. Indonesia has failed to establish that the European Union has acted inconsistently with the obligation in Article 5.2.1 of the TBT Agreement to ensure that conformity assessment procedures are undertaken and completed as expeditiously as possible. Regarding the claims under Article 5.6 of the TBT Agreement, the European Union has acted inconsistently with: (a) Article 5.6.1 by failing to publish a notice of the proposed low ILUC-risk certification procedure at an early appropriate stage in such a manner as to enable interested parties in Indonesia and other WTO Members to become acquainted with it; (b) Article 5.6.2 by failing to notify the proposed low ILUC-risk certification procedure; and (c) Article 5.6.4 by having failed to organize a commenting process in respect of the proposed low ILUC-risk certification procedure in accordance with the requirements of that provision. It is unnecessary to rule on Indonesia's alternative claim that the European Union acted inconsistently with the obligation in Article 5.8 of the TBT Agreement to ensure that conformity assessment procedures which have been adopted are published promptly or otherwise made available in such a manner as to enable interested parties in other Members to become acquainted with them. Indonesia has failed to establish that the European Union has acted inconsistently with Articles 12.3 or 12.1 of the TBT Agreement. Indonesia has not established that the high ILUC-risk cap and phase-out are inconsistent with the obligation in Article XI:1 of the GATT 1994 to not institute or maintain any prohibitions or restrictions on the importation of any product of the territory of another Member. The high ILUC-risk cap and phase-out are inconsistent with Article III:4 of the GATT 1994 because they accord less favourable treatment to palm oil-based biofuel from Indonesia than that accorded to like products of EU origin. The high ILUC-risk cap and phase-out are inconsistent with Article I:1 of the GATT 1994 because they do not accord an advantage to palm oil-based biofuel from Indonesia that is accorded to like products imported from third countries. The European Union has acted inconsistently with Article X:3(a) of the GATT 1994 by administering the high ILUC-risk cap and phase-out in Article 26 of RED II in a manner that is not reasonable, to the extent that deficiencies in the design and implementation of the low ILUC-risk criteria and procedure do not provide for the elements needed for palm oil-based biofuel to be certified as low ILUC-risk; with respect to Article XX of the GATT 1994: (a) The high ILUC-risk cap and phase-out is a measure relating to the conservation of exhaustible natural resources that is made effective in conjunction with restrictions on domestic production or consumption within the meaning of Article XX(g); (b) The high ILUC-risk cap and phase-out is a measure necessary to protect human, animal, or plant life or health within the meaning of Article XX(b); (c) It is unnecessary to rule on whether the high ILUC-risk cap and phase-out is a measure necessary to protect public morals under Article XX(a); (d) The high ILUC-risk cap and phase-out has been administered in a manner that constitutes arbitrary or unjustifiable discrimination between countries where the same conditions prevail because the European Union failed to conduct a timely review of the data used to determine which biofuels are high ILUC risk, and because there are deficiencies in the design and implementation of the low ILUC-risk criteria and certification procedure. 2. French TIRIB Measure: By excluding palm oil-based biofuel from the group of qualifying biofuels, the French TIRIB measure is inconsistent with Article III:2, first sentence of the GATT 1994, because it results in the application of internal taxes to imported palm oil-based biofuel in excess of those applied to like domestic rapeseed and soybean oil-based biofuels. By excluding palm oil-based biofuel from the group of qualifying biofuels, the French TIRIB measure is inconsistent with Article III:2, second sentence of the GATT 1994, because it results in dissimilar taxation between imported palm oil-based biofuel and the directly competitive or substitutable domestic rapeseed and soybean oil-based biofuels, and this dissimilar taxation is applied so as to afford protection to domestic production. By excluding palm oil-based biofuel from the group of qualifying biofuels, the French TIRIB measure is inconsistent with Article I:1 of the GATT 1994, because it grants an advantage to imported rapeseed and soybean oil-based biofuels that is not immediately and unconditionally accorded to like palm oil-based biofuel imported from Indonesia; with respect to Article XX of the GATT 1994: (a) The exclusion of palm oil-based biofuel from the group of qualifying biofuels for the purposes of the French TIRIB measure is a measure relating to the conservation of exhaustible natural resources that is made effective in conjunction with restrictions on domestic production or consumption within the meaning of Article XX(g); (b) The exclusion of palm oil-based biofuel from the group of qualifying biofuels for the purposes of the French TIRIB measure is a measure necessary to protect human, animal or plant life or health within the meaning of Article XX(b); (c) It is unnecessary to rule on whether the exclusion of palm oil-based biofuel from the group of qualifying biofuels for the purposes of the French TIRIB measure is a measure necessary to protect public morals under Article XX(a); (d) The exclusion of palm oil-based biofuel from the group of qualifying biofuels for the purposes of the French TIRIB measure has been administered in a manner that constitutes arbitrary or unjustifiable discrimination between countries where the same conditions prevail because the European Union has failed to conduct a timely review of the data used to determine which biofuels are high ILUC risk, and has failed to demonstrate the existence of any provisions or flexibilities for palm oil-based biofuels to be certified as low ILUC-risk. Indonesia has failed to establish that the French TIRIB measure provides a prohibited subsidy within the meaning of Articles 3.1 and 3.2 of the SCM Agreement, or in the alternative a specific subsidy that causes adverse effects in the form of serious prejudice or a threat thereof under Articles 5(c), 6.3(a) and 6.3(c) of the SCM Agreement. Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment. The Panel concludes that, to the extent that the measures at issue are inconsistent with the TBT Agreement and the GATT 1994, they have nullified or impaired benefits accruing to Indonesia under those agreements.