Putrajaya was also successful in challenging several measures maintained by France, he said.

Speaking exclusively to FMT, Johari said Malaysia’s primary success was in its challenge to the EU’s use of “indirect land-use change” (ILUC) and its requirement of “low ILUC risk” to place trade restrictions on Malaysia’s palm oil biofuel exports.

ILUC refers to the effect that an increasing demand for biofuels feedstock can have on global agriculture, including through land expansion and deforestation, while ILUC risk measures the potential indirect impact of biofuel production.

Breaking down the ruling handed down by the World Trade Organization (WTO) on Tuesday, Johari said a three-member panel had ruled that several measures undertaken by the EU and France were “inconsistent with WTO rules”.

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.

In particular, 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.

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).

EU breaches, discrimination

“The panel said the EU was wrong to discriminate against Malaysia by according less favourable treatment to our palm oil-based biofuel than to similar products of EU origin,” he said.

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.”

Johari said the panel also found deficiencies in France’s implementation of low ILUC risk procedures. The procedures were designed to allow some oil palm crop-based biofuels back into the EU market despite a planned 2030 phase-out.

The panel likewise ruled that a biofuel tax cut in France which did not apply to palm oil-based biofuels from Malaysia was discriminatory.

“The EU failed to consider oil palm as a perennial crop,” said Johari.

He said the EU was ordered to propose draft measures 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,” he said.

Johari said there was a similar lack of engagement and dialogue in other restrictive measures imposed by the EU, such as its regulations on deforestation-free products, known as the EUDR.

Adverse findings against Malaysia

However, Johari noted that a majority of the three-member WTO panel had disagreed with Malaysia’s position on several matters.

The panel ruled that the EU’s policy on the conservation of exhaustible natural resources was necessary to protect human, animal or plant life or health despite it bearing certain “discriminatory and arbitrary traits”.

“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,” he said.

The panel also rejected various measures proposed by the government as viable alternatives to the ILUC mechanism.

It likewise rejected Malaysia’s contention 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.

In a brief statement on Wednesday, Johari said the EU had unfairly discriminated against Malaysia by placing restrictions on its palm oil biofuels.

He said the EU had agreed to comply with the WTO ruling before imposing any restrictions on the import of Malaysian palm oil biofuels, and that the government would closely monitor the matter to ensure that the EU brings its regulations in line with the findings.