Indonesia palm oil plantation
An Indonesian palm oil plantation on rainforest peatland, Borneo. Photo: Glenn Hurowitz
The European Commission has imposed tariffs of 8 to 18% on imported subsidised Indonesian biodiesel, arguing the move was necessary to maintain a level playing field for EU producers.
Coming into effect last week, the anti-subsidy will last for at least four months but could be extended for as much as five years.
"The new import duties are imposed on a provisional basis and the investigation will continue with a possibility to impose definitive measures by mid-December 2019," said a statement by the European Commission.
In retaliation, Indonesia's trade minister Enggartiasto Lukita said that he would be recommending a 20 to 25% tariff on imported EU dairy products.
The EU tariffs are the latest in a line of blows to Indonesia's biodiesel industry following the announcement in March that the bloc will be phasing palm oil out of renewable fuels by 2030 due to negative effects of mass palm production on the environment, such as deforestation.
Indonesia is the world's biggest producer of palm oil, which is used in a wide variety of products from fuels, to food, to cosmetics.
The imposition of the tariffs comes following an investigation, launched last December, by the European Commission in response to a complaint by the European Biodiesel Board. It said that its investigation had shown that grants, tax breaks and access to below-market-price raw materials had given Indonesian biodiesel producers an unfair advantage.
The EU biodiesel market is worth around €9-billion per year. By comparison, imports from Indonesia account for around €400-million.
M. P. Tumanggor, the chairman of Indonesia Biofuels Producers Association told Reuters that the anti-subsidy tariffs will likely force many companies affected by it to renegotiate their contracts with EU buyers, potentially reducing the country's biodiesel exports in 2019.
"We initially targeted 1.4 million tonnes in exports this year to Europe. That will not be reached," said Mr Tumanggor, adding that the new estimate had been reduced to around 1 million tonnes and that the association was currently working with the government to formulate a response.
Trade Minister Lukita said that an official objection will be filed within five days.
The ministry has said it will also open a programme to help Indonesian dairy importers to find alternative sources for products usually brought in from the EU with goods from the United States or elsewhere.
The preliminary EU rates vary depending on the producer. Ciliandra Perkasa is at 8%, 15.7% for Wilmar Group and 16.3 per cent for the Musim Mas Group, both based in Singapore, and 18% for Permata Group and all other Indonesian biodiesel exporters.
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