Indonesia's WTO Challenge to the European Union's Renewable Energy Directive: Palm Oil & Indirect Land-Use Change

Abstract

The way WTO dispute settlement balances WTO Members’ obligation to avoid unnecessary obstacles to international trade with their right to enact measures in pursuit of legitimate public policy objectives has drawn much criticism. The contours of this balance are about to stretched in a forthcoming dispute in which Indonesia will challenge the European Union’s recast Renewable Energy Directive. For Indonesia, this measure discriminates against palm oil used in biofuel production; for the European Union, the measure serves a legitimate objective, as it addresses the greenhouse gas emissions caused by “indirect land use change” (or ILUC), in which carbon-rich land is cultivated for palm oil production (or food production displaced to accommodate palm plantations). This dispute will take WTO dispute settlement into several new directions, as the panel will, in novel ways, need to assess how measures can address such a legitimate objective in the face of a mismatch between future and historical risks, as well as whether WTO Members can address climate-related risks occurring within other WTO Members. In this article, we step through several of the key claims raised by Indonesia in the early stages of this dispute and assess what a WTO panel’s assessment of those claims, and the EU’s likely invocation of exceptions, might look like. In our view, the EU’s measures are inconsistent with its WTO obligations and cannot be justified under any available exceptions. Perhaps more importantly, it is not clear to us how ILUC can be addressed through trade measures.