UK: Biodiesel - Is The Double Duty Imposed By The European Commission Over The Top?

Last Updated: 16 April 2009
Article by Marjorie C. Holmes and Alun J. Jones

Biodiesel prices to shoot up

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

Whilst a subsidy duty was widely expected by the industry because the US Government have 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 US imports was sufficiently material to warrant the introduction of new duties prior to the deadlines as set out under the underlying Regulations for enforcement of definitive anti-subsidy and anti-dumping duties in July and September of 2009 respectively.

The European Biodiesel Board is in effect a trade association of European producers. The crux of their members' complaint was that US Government and State subsidies were allowing US producers and traders in biodiesel to import into the EU and to undersell producers in the EU. The figure below illustrates the difference between the average prices at which the EU producers were selling their biodiesel and the average prices at which the US producers were exporting their biodiesel to the EU in 2007.

Year 2007
Complainant's average sales price (Euro/tonne) 840-890
US biodiesel average eport price (Euro/tonne) 500-550

This naturally lead to the US importers' market share in the EU rising from 0.1% in 2004 to 17.2% during the Commission's investigation period between 01 April 2007 and 31 March 2008.

Having advised all interested parties in the USA and the EU at the outset of the investigation, including the Government of the USA and the US National Biodiesel Board; the Commission used a sample of EU and US producers which 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 and which US producers benefited. They then expressed the amount gained from each subsidy by each producer as a percentage of their total sales of biodiesel over the investigated period. To establish dumping margins, the weighted average normal value of the biodiesel for each of the sampled US 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%.

As stated, whilst the anti-subsidy duties were expected, the anti-dumping duties were not. However, the anti-dumping duties have been limited due to the Commission's approach of not allowing the anti-subsidy duty and anti-dumping duty combined to exceed the injury margins established.

The result is that outside the sampled companies, cooperating producers (that is to say, those which responded to the Commission's requests for information), are facing combined duties on import into the EU of Euro 342 per tonne of US imported biodiesel, while non-cooperating producers and traders are facing duties of Euro 419 per imported tonne. This will bring biodiesel prices up to "competitive levels", from the point of view of EU production costs versus the subsidies obtainable by US exporters, at very significant cost to end-users and consumers of biodiesel.

We believe that, if the definitive duties to be imposed in July and September are kept at the levels of these provisional duties, then it may never be viable for the producers of and traders in US biodiesel to export biodiesel into the EU again. This is reinforced by the fact that discussions have been held between the EU and Brazil and various biodiesel producing African countries, leading us to suspect that biodiesel from these countries may well fill the gap created by the loss of US produced biodiesel.

The coming month is absolutely crucial in the development of this matter from both a producer's and a trader's point of view. It should be noted that according to recent cases where provisional anti-subsidy and anti-dumping duties have been imposed (such as the case where regulations imposed duties on imports of Sulphanilic Acid from India and PR China- 573/ 2002; 575/ 2002; 1338/2002 and 1339/2002) arguments put forward by concerned parties at this stage have resulted in the definitive duties being changed. It should not be assumed that the provisional duties will be automatically sanctioned by the Council (ministers of the Member States).

For example we believe that the 'fair' profit margin for the Community biodiesel industry, established at 15% is certainly challengeable, as it seems a high figure in comparison to some related cases.

Interested parties may request disclosure of the essential facts and considerations on the basis of which this Regulation was adopted, make their views known in writing and apply to be heard orally by the Commission within 16 days of the date of the Regulation becoming effective.

The new duties took affect on 13 March 2009. This means that for any cargoes arriving security for the duty will now have to be given. Whether it will eventually be collected will depend upon the final decision to be taken by the Council.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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