Malaysia's World Trade Organization Challenge to the European Union's Renewable Energy Directive: An Economic Analysis

Authors

Michael W. Meredity

Abstract

Recent negotiations between Malaysia and the European Union (“EU”), aimed at establishing a free trade agreement, have come to a standstill, due in part to a policy implemented by the EU known as the Renewable Energy Directive. The Renewable Energy Directive grants a tax credit to renewable fuel sources that emit at least 35% less greenhouse gas than traditional fossil fuels. Malaysian officials have criticized the 35% level included in the EU policy because it grants a tax credit to rapeseed oil biofuel, produced mainly in Europe (which emits 38% less greenhouse gas than traditional fossil fuels), but does not extend the credit to imported Malaysian palm oil biofuel (which emits about 19% less greenhouse gas than traditional fossil fuels). Malaysia asserts that the 35% standard is arbitrary and uses environmental policy to achieve unrelated protectionist ends at the expense of Malaysian producers. Malaysian officials have even gone so far as to threaten a lawsuit against the EU at the World Trade Organization (“WTO”), arguing that the policy’s differential treatment of rapeseed oil biofuel and palm oil biofuel violates the WTO’s policy of non-discrimination. The WTO policy of non-discrimination stands for the proposition that like products should not be taxed or sanctioned differently simply due to their nation of origin. Traditionally, to determine if two products are alike within the meaning of the non-discrimination principle, the WTO compares the physical characteristics of the products in question as well as their end use in the consumer market. Because both EU- and Malaysian-produced biofuels are used for the same purpose and look almost identical, many commentators have suggested that the two products should be considered alike and that a Malaysian suit challenging their differential taxation under the EU Renewable Energy Directive would be successful. Malaysia’s proposed suit, however, raises a number of questions for the international trading arena that cannot effectively be addressed by traditional methods of determining likeness. Therefore, this comment suggests that the WTO should use this opportunity to adopt an economic, market-based approach to its likeness determinations, which would not only more completely and correctly address the relationship between Malaysian and EU-made products, but also indicate that Malaysia’s proposed suit should fail.

First Page

399

Recommended Citation

Michael W. Meredity, Comment, Malaysia's World Trade Organization Challenge to the European Union's Renewable Energy Directive: An Economic Analysis, 21 Pac. Rim L & Pol'y J. 399 (2012).
Available at: https://digitalcommons.law.uw.edu/wilj/vol21/iss2/6