KUALA LUMPUR: Malaysia has won key parts of its dispute with the European Union (EU) over the latter's renewable energy directive known as RED II, according to Plantation and Commodities Minister Datuk Seri Johari Abdul Ghani.
Putrajaya was also successful in challenging several measures maintained by France, the minister told FMT.
Malaysia's initial challenges, Johari said, were against the EU's use of "indirect land-use change" (ILUC) and its requirement of "low ILUC risk" for trade restrictions on palm oil biofuel exports.
Johari said a three-member panel had ruled that several measures undertaken by the EU and France were "inconsistent with World Trade Organisation (WTO) rules".
Particularly, restrictions like the "high ILUC risk cap" and "phase-out" regulations violated trade agreements aimed at preventing unnecessary trade barriers, he told the portal.
The panel also noted that other similar products available in the EU market were not subject to the same restrictions.
"The EU and France must now bring their measures into conformity with their WTO obligations," he said.
Johari said the panel report found that the "high ILUC risk cap" and "phase-out" regulations imposed by the EU violated the WTO's Technical Barriers to Trade (TBT) agreement which was designed to prevent unnecessary obstacles to doing business in the European grouping.
The EU's calculation of ILUC risk and France's implementation of low ILUC risk procedures were found lacking.
He said the panel also ruled that the regulations breached a multilateral agreement on trade in goods, known as the General Agreement on Tariffs and Trade 1994 (GATT 1994).
"The panel said the EU was wrong to discriminate against Malaysia by giving less favourable treatment to our palm oil-based biofuel than to similar products of EU origin," he added.
Johari said another area where the EU was found to have discriminated against Malaysia was in the calculation of the ILUC risk.
"The panel found that the EU had breached its obligations by failing to undertake a regular risk review and update underlying data."
The panel also found deficiencies in France's implementation of low ILUC risk procedures.
The rules were made so that some biofuels made from oil palm crops could still be sold in the EU, even though they planned to stop using them by 2030.
The panel decided that a tax cut on biofuels in France was unfair because it did not include those made from palm oil in Malaysia.
"The EU failed to consider oil palm as a perennial crop," said Johari.
He said the EU must suggest new rules to a WTO TBT committee to allow for a proper discussion of the proposed measures.
"Malaysia repeatedly requested the discussion during the EU legislative process in the lead-up to the adoption of RED II, but was ignored," said Johari.
He, however, said most of the three-member WTO panel did not agree with Malaysia on several matters.
The WTO panel said the EU's rules about saving limited natural resources were important to protect people, animals or plants, even though they seemed unfair.
"This means the EU will be allowed to maintain the high ILUC risk cap and phase-out regulations.
"Unfortunately, this will result in a progressive removal of Malaysia's palm oil biofuels from the EU market, resulting in the loss of future commercial opportunities," said Johari.
The panel also rejected various measures proposed by the government as viable alternatives to the ILUC mechanism.
They also did not agree when Malaysia said that a biofuel tax reduction given by France violated a WTO agreement on subsidies and countervailing measures.
Johari said the sole dissenting panellist had ruled in Malaysia's favour on all issues.
Johari in a statement on Wednesday said the panel had unfairly discriminated against Malaysia by placing restrictions on its palm oil biofuels.
He said the EU had agreed to follow the WTO ruling before putting any limits on the import of Malaysian palm oil biofuels.
Johari also said that the government will keep a close eye on this to make sure the EU adjusts its rules according to the results.