IAS Gyan

Daily News Analysis


23rd July, 2022 International Relations

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  • The World Trade Organization (WTO) could soon rule on two cases brought against the European Union over its decision to phase-out the import of unsustainable palm oil by 2030.
  • The complaints were filed by Indonesia and Malaysia, the world’s two largest palm oil producers, who slammed Brussels’ Renewable Energy Directive II as unfair and “discriminatory.”


  • The EU has been sending mixed signals on the controversial issue.
  • On one hand, its officials have made clear that oil production is a leading cause of deforestation and so cannot comply with renewable energy targets.
  • There is also an issue of pollution — palm oil diesel releases up to three times as many emissions compared to traditional petroleum-based fuel.
  • In early July, EU lawmakers adopted draft rules for the ReFuelEU initiative, which would mean 85% of all used aviation fuel would have to be “sustainable” by 2050. Palm oil by-products would not be acceptable.
  • There is now talk in the European Parliament of bringing forward the final phase-out date for palm oil imports, currently set at 2030.
  • At the same time, Brussels has attempted dialogue with palm oil exporters in recent months, including through the ASEAN-EU Joint Cooperation Committee meeting in Jakarta in late June.
  • And since the Renewable Energy Directive II was introduced in 2018, the EU’s imports of palm oil have actually increased.
  • In 2021, the EU imported €6.3 billion ($6.4 billion) worth of palm oil and palm oil products, most used for biofuels. Indonesia and Malaysia accounted for 44.6% and 25.2% of those imports, respectively.
  • China is currently the world’s second-largest importer of the product, after India.
  • If the WTO panels were to rule against in favor of Indonesia and Malaysia, Brussels has three options:
  • First, the EU could appeal against the panel report. But that could set back a final ruling by years, as any decision would have to come after new members are appointed to the WTO’s Appellate Body.
  • The second option would be for the EU to comply with the WTO ruling and adapt the environmental policies established by the Renewable Energy Directive II. Whether the EU could make cosmetic changes to its palm oil phase-out, while keeping the essence of the policy, is unclear.
  • Lastly, the EU could simply carry on regardless and accept any retaliatory measures imposed by Indonesia and Malaysia.
  • Brussels would not want to unnecessarily frustrate two key actors in Southeast Asia, where the EU is keen on boosting its reputation and signing new free trade deals.