[WTO and International Trade Case Review Series No. 44] EU – Palm Oil (DS593&DS600) – Regulations on palm oil based on ILUC risk

This matter concerns the EU's measures to set a cap on the proportion of food and feed crops-based biofuels that can count towards their renewable energy consumption target, as part of its climate change measures, based on the risk of indirect land use change (ILUC) associated with these feedstocks. Specifically, palm oil-based biofuels are classified as having a high ILUC risk, which subjects them to a stricter cap and a phase-out obligation. Malaysia and Indonesia, as palm oil-producers, filed a complaint against these measures through the WTO dispute settlement procedure. In analyzing TBT Agreement Articles 2.1 and 2.2 and the GATT non-discrimination principle and Article XX, the Panel emphasized the global nature of climate change measures in providing an affirmative assessment of the legitimacy of policy objective relating to climate change and the contribution of these measures to that objective. The Panel applied a standard of review focused on whether the regulatory distinctions and their application had a reasonable basis, and found a reasonable basis for various core elements of the measures at issue, not requiring a quantitative or strict causal link between the EU demand and ILUC-related GHG emission, and concluded that they were not inconsistent with the relevant provisions. These findings effectively reduce the likelihood that future climate change measures will be found inconsistent with these rules, provided that the implementing country can demonstrate some rational basis. Conversely, the Panel did find inconsistencies regarding delays in establishing implementing rules and updating underlying data, which is expected to constrain the EU's various regulations which are prone to such implementation delays. The Panel also made notable findings on the "technical regulation" requirement under the TBT Agreement, as well as on the requirements of "financial contribution", "income support", and "serious prejudice" under the Subsidies Agreement with regard to a relevant French tax measure.