European Union – CERTAIN MEASURES CONCERNING
PALM OIL AND OIL PALM CROP-BASED BIOFUELS

Report of the Panel

Table of contents

1   Introduction.. 27

1.1   Complaint by Indonesia. 27

1.2   Panel establishment and composition. 27

1.3   Panel proceedings. 27

1.3.1   General 27

1.3.2   Additional Working Procedures on Business Confidential Information (BCI) 28

1.3.3   Additional Working Procedures for meetings with remote participation. 28

1.3.4   Requests for enhanced third-party rights. 28

1.3.5   The establishment of a separate panel in DS600. 29

1.3.6   Admissibility of Exhibit IDN-91. 31

1.3.7   Admissibility of amicus curiae brief 31

2   Factual aspects. 32

2.1   Overall EU-wide regulatory context 33

2.2   Background to the specific measures at issue. 33

2.2.1   Directive 2003/30/EC, RED I and relevant amendments concerning indirect land- use change (ILUC) 33

2.2.2   RED II 36

2.2.2.1   General requirements. 37

2.2.2.2   Requirements relating to the use of renewable energy in the transport sector 37

2.2.2.3   Requirements applicable to biofuels, bioliquids and biomass fuels. 38

2.3   The specific EU measures at issue. 41

2.3.1   7% maximum share of biofuels made from food and feed crops. 41

2.3.2   The high ILUC-risk cap and phase-out 42

2.3.3   Low ILUC-risk certification. 45

2.4   Summary of main relevant rules in RED II 47

2.5   French TIRIB measure. 48

2.6   Conventional biofuel production and land use change. 51

2.6.1   Land use change (LUC) 51

2.6.2   Direct land use change (DLUC) 51

2.6.3   Indirect land use change (ILUC) 51

3   Parties' requests for findings and recommendations. 52

4   Arguments of the parties. 54

5   Arguments of the third parties. 54

6   Interim review.. 54

6.1   Introduction. 54

6.2   General considerations. 55

6.3   Claims in respect of the EU measures. 56

6.3.1   Preliminary considerations. 56

6.3.2   Annex 1.1 – Existence of a "technical regulation" 56

6.3.3   Article 2.2 – Necessary to fulfil a legitimate objective. 58

6.3.4   Article 2.1 – Non-discrimination. 59

6.3.5   Article 2.5 – Explanation of justification for technical regulation. 62

6.3.6   Article 2.8 – Requirements specified in terms of performance. 62

6.4   Claims in respect of the French measure. 63

6.5   Separate opinion by one panelist 64

7   Findings. 67

7.1   Claims in respect of the EU measures: the 7% maximum share, the high ILUC-risk cap
and phase-out, and low ILUC-risk certification. 67

7.1.1   Preliminary considerations. 67

7.1.1.1   Preliminary considerations relating to the definition of the EU measures at issue. 67

7.1.1.1.1   The measures at issue as individual measures distinct from the broader Biofuels
regime. 67

7.1.1.1.2   The relationship among the measures and related terminology. 71

7.1.1.1.2.1   7% maximum share. 71

7.1.1.1.2.2   The high ILUC-risk cap and phase-out 72

A single measure or two distinct measures. 72

Relationship to low ILUC-risk certification. 72

7.1.1.1.2.3   Low ILUC-risk certification. 75

7.1.1.1.3   Temporal scope issues arising from the ongoing implementation of RED II and the Delegated Regulation. 76

7.1.1.2   Order of analysis. 80

7.1.1.2.1   Between the TBT Agreement and the GATT 1994. 80

7.1.1.2.2   Claims under the TBT Agreement 81

7.1.1.2.3   Claims under the GATT 1994. 82

7.1.2   Claims under Article 2 of the TBT Agreement 83

7.1.2.1   Annex 1.1 – Existence of a "technical regulation" 83

7.1.2.1.1   Introduction. 83

7.1.2.1.2   Legal standard. 84

7.1.2.1.3   'identifiable group of products' 85

7.1.2.1.4   "lays down product characteristics" 86

7.1.2.1.5   "with which compliance is mandatory" 91

7.1.2.1.6   Conclusion on Annex 1.1. 95

7.1.2.2   Article 2.4 – Relevant international standards. 95

7.1.2.2.1   Introduction. 95

7.1.2.2.2   Legal standard. 96

7.1.2.2.3   Description of the general content of the four ISO standards. 96

7.1.2.2.4   How the four ISO standards relate to the issue of ILUC. 98

7.1.2.2.5   The requirements of Article 2.4. 103

7.1.2.2.6   Conclusion on Article 2.4. 105

7.1.2.3   Article 2.2 – Necessary to fulfil a legitimate objective. 105

7.1.2.3.1   Introduction. 105

7.1.2.3.2   Legal standard. 107

7.1.2.3.3   Identification of the objective pursued. 108

7.1.2.3.3.1   The stated rationale behind the 7% maximum share and the high ILUC-risk cap
and phase-out 110

7.1.2.3.3.2   The wider objectives of the EU Biofuels regime. 112

7.1.2.3.3.3   ILUC-related biodiversity and public morals concerns. 114

7.1.2.3.3.4   The allegation of protectionism in the guise of environmental protection. 116

7.1.2.3.3.5   Conclusion on the identification of the objective. 124

7.1.2.3.4   Legitimacy of the objective. 124

7.1.2.3.4.1   Relation to the legitimate objectives specified in Article 2.2, the Preamble to
the TBT Agreement, and Article XX. 124

7.1.2.3.4.2   The status of ILUC under current international standards. 127

7.1.2.3.4.3   The existence of a risk of ILUC-related GHG emissions associated with the
production of crop-based biofuels. 128

7.1.2.3.4.4   The agricultural activities and associated ILUC and ILUC-related GHG emissions
in question occurring outside of the territory of the European Union. 131

7.1.2.3.4.5   Conclusion on the legitimacy of the objective. 133

7.1.2.3.5   Trade-restrictiveness, risks of non-fulfilment, and contribution to the objective. 133

7.1.2.3.5.1   Trade-restrictiveness. 134

7.1.2.3.5.2   Risks of non-fulfilment of the objective. 136

7.1.2.3.5.3   Contribution to the objective. 138

7.1.2.3.5.4   Weighing and balancing of the three factors. 141

7.1.2.3.6   Alternative measures. 142

7.1.2.3.6.1   The purpose of identifying alternative measures. 142

7.1.2.3.6.2   Assessment of the alternative measures proposed by Indonesia. 144

First proposed alternative: reduce GHG emissions in respect of risks arising within the European Union's own territory. 144

Second proposed alternative: extend GHG emissions accounting to other agricultural products using LCA analysis in accordance with international standards. 145

Third proposed alternative: offer technical and financial support to assist Indonesia
in its efforts to preserve forests. 146

Fourth proposed alternative: tax meat and dairy products to drive down global
feed demand. 147

Fifth proposed alternative: remove the 7% maximum share or set it at a higher level 148

Sixth proposed alternative: replace the 7% maximum share and high ILUC-risk cap
and phase-out with "properly designed low ILUC-risk criteria" applied to all food and
 feed crop-based biofuels. 148

Seventh proposed alternative: label fuel as ILUC-risk when sold to consumers
purchasing fuel to drive their cars. 150

Eighth proposed alternative: introduce a certification requirement for all major food
and feed crops addressing DLUC-related GHG emissions. 150

7.1.2.3.6.3   Conclusion on the proposed alternative measures. 151

7.1.2.3.7   Conclusion on Article 2.2. 151

7.1.2.4   Article 2.1 - Non-discrimination. 152

7.1.2.4.1   Introduction. 152

7.1.2.4.2   Legal standard. 152

7.1.2.4.3   Like products. 153

7.1.2.4.3.1   Preliminary considerations. 154

Characteristics of biofuels. 154

Identification of the universe of like products. 154

7.1.2.4.3.2   The likeness analysis. 156

Physical properties. 158

End-uses. 159

Consumer perceptions. 163

Tariff classification. 164

Conclusion on the likeness of RME, SBME and PME. 165

7.1.2.4.4   Detrimental impact on palm oil-based biofuel 165

7.1.2.4.4.1   Modification of conditions of competition on the biofuel market 166

7.1.2.4.4.2   De facto nature of the detrimental impact 170

7.1.2.4.4.3   Attributability of the detrimental impact to the high ILUC-risk cap and phase-out 170

7.1.2.4.4.4   Conclusion on detrimental impact 171

7.1.2.4.5   Legitimate regulatory distinction. 171

7.1.2.4.5.1   The regulatory distinction at issue. 174

7.1.2.4.5.2   Legitimacy of the regulatory distinction. 175

Share of expansion rate into land with high-carbon stock as proxy of ILUC risk. 176

The relationship between the share of crop's expansion into land with high-carbon
stock and EU biofuel demand. 179

Distinguishing between different biofuel feedstocks based on their degree of ILUC risk  180

The alleged protectionist motive of the measure. 181

Conclusion on the a priori legitimacy of the regulatory distinction based on high
ILUC-risk. 182

7.1.2.4.5.3   Application of the regulatory distinction at issue. 183

Relative share of expansion rate into land with high-carbon stock. 184

Reliance on past data. 185

Calculation of the share of expansion rate into land with high-carbon stock. 189

Significant share of expansion threshold. 193

The low ILUC-risk criteria. 194

Conclusion on the application of the regulatory distinction at issue. 203

7.1.2.4.6   Conclusion on Article 2.1. 204

7.1.2.5   Article 2.5 (first sentence) – Explanation of justification for technical regulation. 204

7.1.2.5.1   Introduction. 204

7.1.2.5.2   Legal standard. 204

7.1.2.5.3   "may have a significant effect on trade of other Members" 205

7.1.2.5.4   "upon the request of another Member" 208

7.1.2.5.5   "explain the justification for that technical regulation in terms of the provisions
of paragraphs 2 to 4" of Article 2. 209

7.1.2.5.6   Conclusion on Article 2.5. 212

7.1.2.6   Article 2.8 – Requirements specified in terms of performance. 212

7.1.2.6.1   Introduction. 212

7.1.2.6.2   Legal standard. 213

7.1.2.6.3   Assessment by the Panel 213

7.1.2.6.4   Conclusion on Article 2.8. 215

7.1.2.7   Articles 2.9.2 and 2.9.4 – Proposed technical regulations. 215

7.1.2.7.1   Introduction. 215

7.1.2.7.2   Legal standard. 216

7.1.2.7.3   Chapeau of Article 2.9. 216

7.1.2.7.4   Article 2.9.2 – notification of proposed technical regulations. 217

7.1.2.7.5   Article 2.9.4 – commenting process for proposed technical regulations. 218

7.1.2.7.6   Conclusion on Articles 2.9.2 and 2.9.4. 219

7.1.3   Claims under Article 5 of the TBT Agreement 220

7.1.3.1   Annex 1.3 – Existence of a "conformity assessment procedure" 220

7.1.3.1.1   Introduction. 220

7.1.3.1.2   Legal standard. 220

7.1.3.1.3   "any procedure" 221

7.1.3.1.4   "used, directly or indirectly, to determine that relevant requirements in technical regulations are fulfilled" 225

7.1.3.1.5   Other requirements for the applicability of Article 5. 228

7.1.3.1.6   Conclusion on Annex 1.3. 229

7.1.3.2   Article 5.1.1 – Non-discrimination. 229

7.1.3.2.1   Introduction. 229

7.1.3.2.2   Legal standard. 230

7.1.3.2.3   Assessment by the Panel 230

7.1.3.2.4   Conclusion on Article 5.1.1. 234

7.1.3.3   Article 5.1.2 – Unnecessary obstacles to international trade. 234

7.1.3.3.1   Introduction. 234

7.1.3.3.2   Legal standard. 234

7.1.3.3.3   Preparation, adoption or application of a conformity assessment procedure. 235

7.1.3.3.4   Unnecessary obstacle to international trade. 236

7.1.3.3.5   Strictness and strict application of low ILUC-risk certification. 239

7.1.3.3.6   Conclusion on Article 5.1.2. 239

7.1.3.4   Article 5.2.1 – As expeditiously as possible. 240

7.1.3.4.1   Introduction. 240

7.1.3.4.2   Legal standard. 240

7.1.3.4.3   Assessment by the Panel 241

7.1.3.4.4   Conclusion on Article 5.2.1. 243

7.1.3.5   Articles 5.6.1, 5.6.2 and 5.6.4 – Proposed conformity assessment procedures. 243

7.1.3.5.1   Introduction. 243

7.1.3.5.2   Legal standard. 243

7.1.3.5.3   Chapeau of Article 5.6. 244

7.1.3.5.4   Article 5.6.1 – notification of an intention to regulate. 245

7.1.3.5.5   Article 5.6.2 – notification to the WTO Secretariat 246

7.1.3.5.6   Article 5.6.4 – commenting process. 246

7.1.3.5.7   Conclusion on Articles 5.6.1, 5.6.2 and 5.6.4. 247

7.1.3.6   Article 5.8 – Publication of adopted conformity assessment procedures. 247

7.1.3.6.1   Introduction. 247

7.1.3.6.2   Legal standard. 248

7.1.3.6.3   Assessment by the Panel 249

7.1.3.6.4   Conclusion on Article 5.8. 249

7.1.4   Claims under Article 12 of the TBT Agreement 249

7.1.4.1   Introduction. 249

7.1.4.2   Article 12.3 – Taking account of special needs. 249

7.1.4.2.1   Introduction. 249

7.1.4.2.2   Legal standard. 250

7.1.4.2.3   "developing country Members" 251

7.1.4.2.4   "special development, financial and trade needs" 251

7.1.4.2.5   "take account of" 253

7.1.4.3   Article 12.1 – General obligation. 259

7.1.4.4   Conclusion on Article 12. 260

7.1.5   Claims under GATT 1994. 260

7.1.5.1   Article XI:1 – Restrictions on importation. 260

7.1.5.1.1   Introduction. 260

7.1.5.1.2   Legal standard. 261

7.1.5.1.3   Assessment by the Panel 261

7.1.5.1.4   Conclusion on Article XI:1. 265

7.1.5.2   Article III:4 – National treatment 265

7.1.5.2.1   Introduction. 265

7.1.5.2.2   Legal standard. 266

7.1.5.2.3   Palm oil-, rapeseed oil-, and soybean oil-based biofuels. 266

7.1.5.2.3.1   Like products. 266

7.1.5.2.3.2   The scope of application of Article III:4. 267

7.1.5.2.3.3   Treatment no less favourable. 268

7.1.5.2.4   Biofuel feedstocks. 269

7.1.5.2.5   Conclusion on Article III:4. 269

7.1.5.3   Article I:1 – Most-favoured nation treatment 269

7.1.5.3.1   Introduction. 269

7.1.5.3.2   Legal standard. 270

7.1.5.3.3   The scope of Article I:1. 271

7.1.5.3.4   Palm oil-, rapeseed oil- and soybean oil-based biofuels. 271

7.1.5.3.4.1   Like products. 271

7.1.5.3.4.2   Advantage, favour, privilege, or immunity. 272

7.1.5.3.4.3   Accorded immediately and unconditionally. 273

7.1.5.3.5   Biofuel feedstocks. 274

7.1.5.3.6   Conclusion on Article I:1. 274

7.1.5.4   Article X:3(a) – Reasonable and impartial administration. 274

7.1.5.4.1   Introduction. 274

7.1.5.4.2   Legal standard. 275

7.1.5.4.3   Administering or putting into effect a legal instrument of the type listed in
Article X:1. 275

7.1.5.4.4   Manner of administration. 277

7.1.5.4.5   Conclusion on Article X:3(a) 278

7.1.5.5   Article XX – General exceptions. 278

7.1.5.5.1   Introduction. 278

7.1.5.5.2   Legal standard. 279

7.1.5.5.3   Article XX(g) – relating to the conservation of exhaustible natural resources. 279

7.1.5.5.4   Article XX(b) – necessary to protect human, animal or plant life or health. 281

7.1.5.5.5   Article XX(a) – necessary to protect public morals. 282

7.1.5.5.6   Chapeau – arbitrary or unjustifiable discrimination between countries where
the same conditions prevail 283

7.1.5.5.7   Conclusion on Article XX. 284

7.2   Claims in respect of the French measure. 284

7.2.1   Preliminary considerations. 284

7.2.1.1   Preliminary considerations relating to the definition of the French TIRIB measure. 284

7.2.1.2   Order of analysis under the SCM Agreement and the GATT 1994. 285

7.2.2   Claims under the GATT 1994. 286

7.2.2.1   The European Union's preliminary objection on the basis of Article 6.2 of the DSU
with respect to Indonesia's claims under Article III:2. 286

7.2.2.1.1   Introduction. 286

7.2.2.1.2   Legal standard. 286

7.2.2.1.3   Assessment by the Panel 287

7.2.2.1.4   Conclusion on the preliminary objection. 287

7.2.2.2   Article III:2, first sentence. 288

7.2.2.2.1   Introduction. 288

7.2.2.2.2   Legal standard. 288

7.2.2.2.3   Internal taxes applied, directly or indirectly, to products. 289

7.2.2.2.4   Like products. 289

7.2.2.2.4.1   Physical properties. 290

7.2.2.2.4.2   End-uses. 291

7.2.2.2.4.3   Consumer perceptions. 292

7.2.2.2.4.4   Tariff classification. 293

7.2.2.2.4.5   Conclusion on like products. 293

7.2.2.2.5   Taxation in excess of 294

7.2.2.2.6   Conclusion on Article III:2, first sentence. 297

7.2.2.3   Article III:2, second sentence. 297

7.2.2.3.1   Introduction. 297

7.2.2.3.2   Legal standard. 297

7.2.2.3.3   Directly competitive or substitutable products. 298

7.2.2.3.4   Dissimilar taxation. 299

7.2.2.3.5   So as to afford protection to domestic production. 301

7.2.2.3.6   Conclusion on Article III:2, second sentence. 304

7.2.2.4   Article I:1. 304

7.2.2.4.1   Introduction. 304

7.2.2.4.2   Legal standard. 304

7.2.2.4.3   Scope of application of Article I:1. 305

7.2.2.4.4   Like products. 306

7.2.2.4.5   Advantage granted to a product originating in the territory of any other country. 306

7.2.2.4.6   Not accorded immediately and unconditionally to like products originating in the territory of all Members. 308

7.2.2.4.7   Conclusion on Article I:1. 309

7.2.2.5   Article XX – General exceptions. 309

7.2.2.5.1   Introduction. 309

7.2.2.5.2   Legal standard. 310

7.2.2.5.3   The Panel's assessment 310

7.2.2.5.3.1   Article XX(b) – necessary to protect human, animal or plant life or health. 310

7.2.2.5.3.2   Article XX(g) – relating to the conservation of exhaustible natural resources. 313

7.2.2.5.3.3   Article XX(a) – necessary to protect public morals. 314

7.2.2.5.3.4   Chapeau – arbitrary or unjustifiable discrimination between countries where
the same conditions prevail 314

7.2.2.5.4   Conclusion on Article XX. 315

7.2.3   Claims under the SCM Agreement 316

7.2.3.1   Article 1 - Existence of a subsidy. 316

7.2.3.1.1   Introduction. 316

7.2.3.1.2   Legal standard. 316

7.2.3.1.3   Financial contribution. 317

7.2.3.1.3.1   The tax treatment applicable to the alleged subsidy recipients. 318

7.2.3.1.3.2   Preliminary assessment of possible normative benchmarks. 318

The General Tax on Polluting Activities. 318

The tax treatment associated with the release of fuel fully satisfying the incorporation targets. 319

The tax treatment associated with the release of fuel that does not satisfy any part
of the incorporation targets. 320

The tax payable according to the TIRIB formula. 321

7.2.3.1.3.3   Final assessment of the appropriate normative benchmark. 321

7.2.3.1.3.4   Conclusion on financial contribution. 324

7.2.3.1.4   Benefit 324

7.2.3.1.5   Conclusion on the existence of a financial contribution. 324

7.2.3.2   Further assessment assuming arguendo the existence of a financial contribution. 324

7.2.3.2.1   Benefit 325

7.2.3.2.2   Articles 3.1(b) and 3.2 – Prohibited subsidy claims. 325

7.2.3.2.2.1   Introduction. 325

7.2.3.2.2.2   Legal standard. 326

7.2.3.2.2.3   De facto contingency. 327

7.2.3.2.2.4   Conclusion on Articles 3.1(b) and 3.2. 329

7.2.3.2.3   Article 2 - Specificity. 329

7.2.3.2.3.1   Introduction. 329

7.2.3.2.3.2   Legal standard. 330

7.2.3.2.3.3   Assessment by the Panel 331

7.2.3.2.3.4   Conclusion on Article 2. 335

7.2.3.2.4   Articles 5(c), 6.3(a) and 6.3(c) – Adverse effects and serious prejudice. 335

7.2.3.2.4.1   Introduction. 335

7.2.3.2.4.2   Legal standard. 336

7.2.3.2.4.3   General approach to the assessment of adverse effects and serious prejudice. 336

7.2.3.2.4.4   The appropriate counterfactual analysis. 337

7.2.3.2.4.5   Conclusion on adverse effects and serious prejudice. 340

7.2.3.3   Overall conclusion on the claims under the SCM Agreement 340

7.3   Separate opinion by one panelist 340

8   Conclusions and Recommendation.. 345