European Union Imposes High Duties on Biodiesel

By Daniel Schwartz & Mark McNeil | May 11, 2009
In early March, the European Commission announced that it would impose tariffs on European Union imports of biodiesel from U.S. producers. The new tariffs, which include both anti-subsidy and anti-dumping components and can reach as high as 69.9 percent of the value of the biodiesel, are imposed provisionally for six months but may be implemented for as long as five years. To understand these tariffs and their impact on a U.S. export business that reached $1.5 billion in 2008, it is helpful to review the law and processes that brought them into being.

The World Trade Organization generally discourages protective tariffs but allows an exception when the exporting company or its government inappropriately reduces the price of the import. When a government subsidy enables a producer to under-price the producers in an importer's market, the importing country can apply "countervailing duties" as protection from the unfair competition. Similarly, when a producer's high prices in its home market (the "normal value") allow it to use a lower export price that undercuts native competitors in a foreign market (a process called "dumping"), the importing country may apply anti-dumping duties. Exporters usually argue that the duties are too high, but the arguments have ended in Europe, and the figures are fixed.

The problem for U.S. producers began in April 2008, when the European Biodiesel Board asked the EC to examine the pricing of U.S. biodiesel. Following standard procedure, the EC asked for information from all relevant exporters, selected a sample of six from the responding 54 (the "cooperating" producers), examined the sample group's pricing for a selected period, developed weighted averages by producer for both normal and export prices, and declared the difference between the averages to be each producer's "dumping margin." These margins varied widely, from 3.4 percent for Archer Daniels Midland Co., to 73.4 percent for Green Earth Fuels of Houston LLC.

The EC also considered subsidies to U.S. producers, quantified the subsidies, and added countervailing duties to the import burden to offset them. These countervailing duties also varied from producer to producer in a narrower range, from 29.1 percent for Imperium Renewables Inc. to 41 percent for Peter Cremer North America LP.

Despite the combination of duties, there is one slightly mitigating factor. Calculations for each of the sample group also included an "injury margin," which represents the injury allegedly done to local producers by the U.S. exporter. This margin acts not as an additional basis for duty but as an upper limit to the duties actually applied. Thus Cargill, with a dumping margin of 10.4 percent and a countervailing duty rate of 34.5 percent, is charged duties of "only" 44.9 percent, despite a calculated injury of 58.9 percent, and Peter Cremer North America LP, with a dumping margin of 57.3 percent and a countervailing duty rate of 41.0 percent, is limited to duties of "only" the injury margin of 69.9 percent, rather than 98.3 percent.

For those producers outside the sample group, the EC made some weighted assumptions, which no doubt seem harsh to companies whose pricing was not examined at all. The dumping margin for cooperating companies outside the sample is assumed to be 33.7 percent and the injury margin 51.4 percent; for those with subsidies, the assumed subsidy rate is 36 percent, with anti-dumping duties lowered to 15.4 percent to meet the limit of 51.4 percent. For the non-cooperating companies, the assumption is that the highest levels found in the study apply a dumping margin of 73.4 percent, a subsidy level of 41.1 percent , and a cap of 69.9 percent. Although challenges and reevaluation may be possible in time, biodiesel exporters currently have a significant hurdle to clear for profitable exporting to the EU.

Daniel Schwartz is an attorney in Lindquist & Vennum's Agribusiness and Energy practice group. He can be reached at (612) 371-3502 or dschwartz@lindquist.com. Mark McNeil leads Lindquist & Vennum's International practice and can be reached at (612) 371-2473 or mmcneil@lindquist.com.
 
 
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