EU to investigate Indonesian biodiesel amid tax concerns

European Commission officials have launched an investigation into biodiesel imports following suspicions that Indonesian biodiesel is transiting through China and the United Kingdom in a bid to circumvent taxes.

Under EU law, biodiesel from Indonesia is subject to a 6.5% customs duty. This tax, known as a countervailing duty, is applied to neutralise subsidies given by the Indonesian state.

It is suspected that Indonesian biodiesel is therefore being sent to China and the UK – countries not subject to such a custom duty – where it is relabelled as being of Chinese and British origin, thereby avoiding import taxes.

Domestic biodiesel producers pressured EU officials to take action to combat the potentially fraudulent activity, having suspected that Indonesian biodiesel was transiting through third countries for some years.

In 2022, the Chinese Island of Hainan accounted for around a third of Chinese biodiesel exports to Europe, some 2.3 million tonnes, despite the island having limited biofuel production capacity.

Formal request

The European Biodiesel Board (EBB), a trade association representing producers, submitted a formal request for investigation to DG TRADE in July, arguing that alleged fraudulent imports were harming the integrity of the EU biodiesel market.

EURACTIV understands that DG TRADE was in correspondence with the trade association to examine the claims, subsequently confirming that it will launch an official investigation into the discrepancies. It is expected that the investigation will take nine months to complete.

According to the EU’s official journal, the request from EBB “contains sufficient evidence that the existing countervailing measures on imports of the product concerned are being circumvented by imports of the product under investigation”.

The routing of biodiesel via China and the UK appears to have “insufficient due cause or economic justification other than the imposition of the duty”, the journal states.

Moreover, “significant volumes of imports of the product under investigation appear to have entered the Union market”, with “sufficient evidence that imports of the product under investigation are made at injurious prices”.

Dickon Posnett, the president of EBB, praised the “fast action taken by the Commission to defend us against unfair and illegal trade practices”.

“We cannot, and will not, allow fraudulent trading, such as circumvention, to go unchallenged,” he said in a statement.

Posnett added that such practices have “severely disrupted the entire EU biodiesel market, causing us huge injury which must be repaired”, warning that there would be “retroactive financial implications” for any companies involved.

EBB estimates that in 2022 alone duties totalling around EUR221 million were avoided by circumvention activities.

The investigation will see officials from DG TRADE invite companies involved to answer questions in an effort to determine whether a breach has occurred. Hearings may also be held.

EURACTIV understands that similar investigations in the past, such as into whether Chinese firms fraudulently included palm oil in their biodiesel exports, were largely ignored by foreign companies.

However, a refusal to participate does not preclude the EU officials from presenting their findings, which are based on the evidence available.

If a company is found to have engaged in deceptive practices, its certificate to trade with the EU may be suspended.

Trade issues

The current spat is the latest in a series of trade disagreements between Indonesia and EU, which have slowed progress on a mooted free trade agreement in the works since 2016.

A recent EU deforestation law aiming to ban commodities, including palm oil, from entering the bloc if they are linked to the illicit clearing of forests has become a source of tension between the two parties.

Indonesia and Malaysia have accused the law of unfairly penalising small farmers, arguing that the regulation’s complex administrative requirements will place a financial strain on those least able to afford it.

Ministers from the two nations travelled to Brussels in June to express their concerns, urging EU lawmakers to provide greater clarity on the new rules.

The EU has also taken a strong stance against palm oil as a feedstock for biofuel production in the bloc, passing a law that would see its use phased out by 2030. The law was in reaction to the alleged clearing of forests to grow palm crops.

Indonesia, the world’s largest palm oil producer, branded the move protectionist and discriminatory, filing a lawsuit against the EU at the World Trade Organization (WTO).

[Edited by Nathalie Weatherald]