The European Union says it has imposed tariffs on imports of subsidised biodiesel from Indonesia to level the playing field with European producers. It now faces retaliation by the Indonesian government on EU farming exports.
The Brussels-based commission said it “found that Indonesian biodiesel producers benefit from grants, tax benefits and access to raw materials below market prices”. The palm oil producers receiving alleged subsidies include Ciliandra Perkasa, Wilmar Bioenergi Indonesia and Musim Mas.
“This inflicts a threat of economic damage to EU producers,” the commission added.
It said its investigation focused on possible subsidies for biodiesel production, whether it involved environmentally ruinous palm oil or less common raw materials.
Malaysia and Indonesia produce 85 per cent of the world’s palm oil.
The probe reported that the European biodiesel market was worth an estimated €9 billion per year, with imports from Indonesia valued at around €400 million.
Trade tensions between Europe and Indonesia have also grown as a result of a separate EU decision this year restricting the types of biofuels from palm oil that can count towards the member states’ renewable-energy targets. In Indonesia, palm oil is the principal raw material used in the production of biodiesel.
Palm oil drives deforestation, with huge swathes of Malaysia and Indonesian rainforest cleared for plantations.
The Indonesian trade minister Enggartiasto Lukita said last week he had told Indonesia’s dairy importers to look for new suppliers outside Europe and threatened to increase EU dairy duties, which currently range from 5 to 10 per cent.
Indonesia President Joko Widodo has asked palm oil stakeholders to speed up the mandatory proportion of diesel blended with crude palm oil from 20 to 30 per cent by January 2020, and 50 per cent by the end of next year to push up the domestic use of palm oil, despite its massive environmental cost.
In an unrelated policy shift, China is removing import tariffs on palm oil in a move that will open up new markets to Indonesian palm oil. “We need to anticipate pressures on CPO [by increasing] domestic demand so that we can have good bargaining positions, whether with the European Union or other parties that try to weaken our bargaining power,” the newly re-elected president said.
Sumatra’s wildlife has been devastated by palm-oil production. Picture credit: Wikimedia