Biodiesel battle: Indonesia wants EU to back down on its tariffs

Indonesia called on Monday for the European Union to immediately abolish countervailing duties on biodiesel imports after the World Trade Organization (WTO) upheld several of its key arguments in a complaint filed with the organization. The dispute is another chapter in the conflict between the two parties, which are nearing a free trade agreement.

The world's largest palm oil exporter argued in its 2023 complaint that the duties imposed by the European Union—which is Indonesia's third-largest market for palm oil products, including biofuels—violate WTO rules. The organization has now agreed with Indonesia's arguments.

"We call on the EU to immediately abolish these countervailing import duties, which are inconsistent with WTO rules," Indonesian Trade Minister Budi Santoso said in a statement following last week's WTO ruling.

The EU has imposed countervailing duties since 2019, ranging from 8–18%. The duties were introduced after the Court of Justice of the EU ordered the abolition of anti-dumping duties on imports of Indonesian biodiesel. They are justified by the claim that Indonesian biodiesel producers benefit from subsidies, tax breaks and access to raw materials at below-market prices.

According to Indonesia's Ministry of Trade, the WTO ruled that Indonesia's export tax and export levy on palm oil cannot be classified as subsidies. It also said the European Commission had failed to demonstrate that imports of fuel from Indonesia threatened to cause material injury to European biodiesel producers.

The Indonesian Biofuel Producers Association said, however, that based on its experience, the EU is unlikely to respond to the call.

Free trade agreement

The EU and Indonesia announced in July that they were speeding up negotiations on a comprehensive economic partnership agreement (CEPA). An agreement had already been said to be imminent in June. Free trade would benefit both sides, which have been seeking to cooperate for a long time. Indonesia was also hit hard by US tariffs introduced by the Trump administration in the first half of this year. An agreement with the EU would therefore open up new markets and opportunities.

Palm oil, however, is one of the main barriers in the negotiations. Two aspects of European law are particularly relevant: the Renewable Energy Directive (RED II) and the Deforestation Regulation (EUDR). RED II effectively excluded palm oil and biofuels made from it from Europe's renewable energy targets, and was the original reason Indonesia turned to the WTO in 2019. The EUDR, meanwhile, requires commodities such as coffee, palm oil, soy, rubber and timber to be unconnected with deforestation. Several studies have confirmed a link between the expansion of oil palm cultivation and negative climate impacts.

Under the regulation, however, producers are responsible for demonstrating compliance. Indonesian environmental organizations warn that the vast majority of local farmers are not prepared for this. Since Indonesia's palm oil production relies mainly on smallholders, it is difficult for them to prove that their products comply with the EUDR. This is one reason countries such as Indonesia and Malaysia consider the regulation discriminatory.

Current situation and outlook

Indonesia's palm-oil-based biodiesel exports reached 27 thousand kiloliters in 2024. They have remained at similar levels following a sharp drop from 1.32 million kl in 2019 to 36 thousand kl in 2020.

The WTO ruling can be appealed. However, a final ruling is not possible because the WTO's highest appeal body ceased functioning in 2019 amid repeated blockages of judicial appointments during US President Donald Trump's first administration. Jakarta is therefore relying more on the forthcoming free trade agreement than on the WTO.