The World Trade Organization (WTO) recently ruled that parts of the EU’s Renewable Energy Directive (RED II) unfairly discriminate against Indonesia’s palm oil exports. The ruling was published on January 10 and is seen as a major victory for Indonesia in its trade dispute with the EU over biofuels.
While the WTO supports the EU’s right to pursue climate and environmental goals, it points to shortcomings in its implementation of RED II. Specifically, the WTO found that the Delegated Act’s inclusion of palm oil as a high-risk source of indirect land use change (ILUC) violated international trade rules. In addition, France’s tax incentives, which exclude palm oil-based biofuels but give preference to rapeseed and soybean alternatives, were also found to be discriminatory.
The EU pledged in a Jan. 10 statement to address these issues in light of the WTO ruling and to bring its policies into line with its international trade obligations. If no appeal is filed, the EU will need to complete the relevant adjustments within 60 days.
As the world’s largest producer of palm oil, Indonesia has long argued that RED II’s restrictions on palm oil are unfair, while European-grown oilseed crops benefit from them. The ruling not only provides legal support for Indonesia’s claims, but also strengthens Jakarta’s position in trade negotiations with the EU and other policy disputes, such as the EU Deforestation Regulation (EUDR), which was recently delayed until the end of 2025.
Airlangga Hartarto, Indonesia’s chief economic affairs officer, said, “This victory proves that Indonesia is able to fight and succeed against discriminatory policies, and further affirms the legitimacy of palm oil biodiesel along with other alternative fuels.”
The WTO ruling also criticized the EU for failing to properly assess data when classifying palm oil as high risk, as well as flaws in the certification process for low ILUC risk biofuels. These findings support Indonesia’s efforts to fight for fair treatment of its exports, especially in the context that 41% of Indonesia’s palm oil industry is supported by small farmers.
Erlanga also mentioned that the ruling provides an opportunity for Indonesia and Malaysia to strengthen their cooperation in order to jointly resist future discriminatory policies. He said, “This clears the way for resolving trade issues, including advancing the stalled Indonesia-EU CEPA (Comprehensive Economic Partnership Agreement) negotiations.”
The dispute, which began in 2019, reveals the tension between trade liberalization and environmental protection.2024 In April, Malaysia won WTO support in a similar case, further forcing the EU to adjust its policies.