The EU’s Policy to Reduce Greenhouse Gas Emissions in Transport : A Legitimate Environmental Objective or an Unjustifiable Trade Restriction?

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The EU’s Policy to Reduce Greenhouse Gas Emissions in

Transport: A Legitimate Environmental Objective or an

Unjustifiable Trade Restriction?

To what extent are the EU’s GHG emissions savings measures for biofuels, as

stipulated in Directive 2009/28 and as amended by Directive 2015, compatible

with the WTO?

Faculty of law

Name: Mariët Druif Student number: 5932963 Supervisor: E. Partiti

Master track: International Trade and Investment Law Submission deadline: 17th of August 2017

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ABSTRACT: In 2015, the European Union introduced the Indirect Land Use Change Directive, amending both the 2009 Renewable Energy Directive and the Fuel Quality Directives. These Directives introduced ‘sustainability’ requirements for biofuels. This article examines to what extent these requirements are compatible with the GATT and TBT Agreement. It demonstrates that all three measures may cause de facto discrimination under both the GATT and the TBT agreement. Furthermore, it shows that the requirements could be justified under Article XX paragraph b and/or g of the GATT. It is unclear, however, whether the conditions in the chapeau of Article XX will be met in order to qualify as a legitimate justification since the Appellate Body has not been consistent in interpreting these terms. In particular with regard to whether or not the reasons for justification must be related to the general objective of the measure, the Appellate Body’s approach has been ambivalent. Moreover, the article finds that the Appellate Body introduced a requirement similar to the Article XX-chapeau for the TBT Agreement; the even-handedness requirement. Under this requirement the Appellate Body conceded the possibility to include reasons unrelated to the general objective for a legitimate objective. This conclusion provides an argument to include unrelated reasons under the GATT as well as the agreements should be interpreted in a coherent and consistent manner.

Introduction

Since their introduction, biofuels have been promoted as a sustainable alternative to fossil fuels due to their potential to reduce the greenhouse gas (GHG) emissions of fuel use. Biofuel is the umbrella term for different kinds of fuels produced from biomass and are often divided between first, second and third generation biofuels. How a biofuel is classified, depends on the carbon source it is derived from. For first generation biofuels the source is sugar, lipid or starch directly extracted from a plant. Second generation biofuels are derived from cellulose, hemicellulose, lignin or pectin. For example this may include agricultural, forestry wastes or residues, or purpose-grown non-food feedstock. Lastly, third generation biofuels are derived from aquatic autotrophic organism, for example algae. Although it is often assumed that second and third generation biofuels are more sustainable than first generation biofuels, this is necessarily true since other elements like land use, food security and the efficiency of the production process need to be taken into account as well.1

As the worldwide biofuels production increased, several organizations and scholars expressed their concerns regarding actual benefits of GHG savings. They argued that the increased production of biofuels caused e.g. land use change and therewith less emission savings than expected.2 For this reason, the European Union has introduced several Directives

1

ETIP Bioenergy ‘Strategic Energy Technology Plan’,

<http://www.etipbioenergy.eu/?option=com_content&view=article&id=287?%3E> Accessed: August 12, 2017.

2

See for example T. Searchinger and others (2008) 'Use Of U.S. Croplands For Biofuels Increases Greenhouse Gases Through Emissions From Land-Use Change', 319.

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aiming to ensure biofuels’ sustainability. In 2009, the EU introduced the Renewable Energy Directive (RED) and the Fuel Quality Directive (FQD), which included sustainability criteria for biofuels. However, concerns remained, especially regarding indirect land use change (ILUC) due to biofuels production. ILUC is the displacement of activities and land-use changes elsewhere due to biofuels production. Natural lands, such as rainforests and grasslands are cleared in order to produce the food crops that were diverted elsewhere to biofuels’ production. Natural lands store carbon in their soil and biomass. If these are replaced for agricultural production this could translate to a net increase in GHG emissions.3 For this reason, in 2015 the EU introduced the ILUC Directive. The main feature of this amendment is the 7% cap on food crop based biofuels. In this way the Directive aims to reduce the risk of ILUC and stimulate the use advanced biofuels, contributing to the general objective of the EU’s renewable energy policy: increase the use of renewable sources and reduce GHG emissions. Several organizations differentiate between ‘conventional’ and ‘advanced’ biofuels. The European Industrial Bioenergy Initiative (EIBI) describes advanced biofuels as those that are ‘(1) produced from lignocellulosic feedstocks (i.e. agricultural and forestry residues, e.g. wheat straw/corn stover/bagasse, wood based biomass), non-food crops (i.e. grasses, miscanthus, algae), or industrial waste and residue streams, (2) having low CO2 emission or high GHG reduction, and (3) reaching zero or low ILUC impact.’4

Upon the introduction of the Directives in 2009, concerns were already expressed regarding the WTO compatibility of these ‘sustainability’ requirements that the EU imposed on biofuels.5 Besides, it has been argued that the sustainability criteria were invented to protect the EU’s domestic biofuels industry.6

With the additional ILUC requirement of the 2015 Directive, it has become even more questionable whether the EU policy complies with the WTO. Therefore, this essay addresses the following research question: to what extent are the EU’s GHG emissions savings measures for biofuels, as stipulated in Directive 2009/28 and as amended by Directive 2015, compatible with the WTO?

To answer this question, this essay will firstly address development of EU regulations regarding biofuels and its GHG emissions savings measures. Secondly, it will discuss why the GATT and TBT agreement are relevant for this research. Thirdly, it will examine the applicability and compatibility of GATT Article I:1, III:4, XI:1 and XX. Then it will address

3

S. C Bhatia (2013) ‘Advanced Renewable Energy Systems, Part 1 And 2’, 698.

4

There is no widely accepted definition of ‘advanced biofuels’. In this essay the definition of the EIBI is used as this essay focusses on the EU’s Directives regarding biofuels.

5

See, among others, A. Swinbank (2009) in ‘Presidential Address: EU Policies on Bioenergy and the Potential Clash with the WTO’, Journal of Agricultural Economics, 60(3), 485-503.

6

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the connection/relationship between the GATT and the TBT agreement and assesses the applicability and compatibility with TBT agreement Articles 2.1, 2.2 and 2.4 and finally it ends with the conclusion.

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Chapter 1 | The road to the EU’s biofuels sustainability requirements: the 2003 Biofuels Directive, the 2009 Renewable Energy Directive and the 2015 ILUC Directive

Directive 2003/30/EC, better known as the Biofuels Directive, was the first significant step in the development of the EU biofuels policy. The Directive’s aim was to promote the use of biofuels and other renewable fuels for transport. It required Member States to set an indicative, non-binding, target of 2% for the inclusion of biofuels in petrol and diesel for transport by 2005 and 5.75% by 2010. The Directive did not require any individual targets for separate Member States. However, several Members set their own targets. For example, in 2006 Germany passed the Biokraftstoffquotengesetz that specified the minimum percentage of biofuel in diesel and petrol by energy content.7 In 2007, the European Commission published the Renewable Energy Road in which it proposed a legally binding target of 20% for renewable energy’s share of the total energy consumption in the EU by the year 2020.8

Moreover, the Commission proposed a legally binding minimum target of 10% for biofuels for the overall consumption of petrol and diesel in transport and stated that biofuels were the ‘only form of renewable energy to reduce the GHG emissions in transport.’9

In 2009 this resulted in the Renewable Energy Directive, Directive 2009/28. The Directive creates a common framework to promote energy from renewable sources with the aim to limit greenhouse gas (GHG) emissions and promote cleaner transport. Article 3 paragraph 1 prescribes a mandatory national target of 20% ‘for the overall share of energy from renewable sources in Community’s gross final consumption of energy in 2020’ and paragraph 4 stipulates the target of renewable energy in transport; ‘Each Member State shall ensure that the share of energy from renewable sources in all forms of transport in 2020 is at least 10 % of the final consumption of energy in transport in that Member State.’ Moreover, in order to be counted for the 10% target of renewable energy in transport or be eligible for financial support, biofuels must comply with the sustainability criteria set out in Article 17. Firstly, Article 17 paragraph 2 stipulates that GHG savings from biofuels shall be at least 35%. From January 2017 this shall be at least 50%. Secondly, paragraph 3 to 5 stipulate the land requirements and stipulate that biofuels shall not be made from raw material obtained from land with high biodiversity value, high carbon stock or peatland. Moreover, the Directive

7

A. van Grinsven & B. Kampman (2015) ‘Assessing progress towards implementation of the ILUC Directive’, CE Delft, Annex E Germany.

<http://www.theicct.org/sites/default/files/publications/CE_Delft_4H38_Assessing_progress_towards_implementation_IL UC_dir.pdf> Accessed: August 12, 2017.

8

The European Commission (2007) Communication from the Commission to the Council and the European Parliament, ‘Renewable Energy Roadmap renewable energies in the 21st century: building a more sustainable future’ (Renewable Roadmap 2007) 3.

9

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established a method to calculate of actual greenhouse gas emission savings of biofuels. In 2009 another Directive was established, the Fuel Quality Directive (FQD) 2009/30, the aim of this Directive was similar to the RED and aimed at reducing the emission of air pollutants released from transport fuels, and to facilitate the achievement of the EU’s 2020 target for transport.10 Article 7.b in Directive 2009/30/EC, defining sustainability criteria for biofuels, corresponds to Article 17 in Directive 2009/28/EC, which defines sustainability criteria for biofuels. In 2012 the Commission proposed to amend the above mentioned Directives because, although the Directives established sustainability criteria for biofuels, it did not take into account concerns regarding indirect land use change (ILUC) and food security. The Commission noted that ‘scientific work indicated that emissions from indirect land-use change can vary substantially between feedstocks and can negate some or all of the greenhouse gas savings of individual biofuels relative to the fossil fuels they replace.’11 In 2015, this resulted in ILUC Directive 2015/1513, amending both the RED and the FQD. The Directive aims to ‘reduce the risk of indirect land use change and to prepare the transition towards advanced biofuels.’12 The ILUC Directive includes the following key elements: Firstly, and most importantly, the Directive added an extra paragraph d to Article 17, which stipulates:

‘‘ for the calculation of biofuels in the numerator, the share of energy from biofuels produced from cereal and other starch-rich crops, sugars and oil crops and from crops grown as main crops primarily for energy purposes on agricultural land shall be no more than 7 % of the final consumption of energy in transport in the Member States in 2020.’’

Thus, the EU seems to differentiate between food crop based biofuels and non-food crop based biofuels. Secondly, the new paragraph sets non-binding national targets for advanced biofuels, taking as a reference value 0.5 percent share of the renewable energy consumed by transport in 2020. Thirdly, it amended Article 17 of the RED and replaced paragraph 2 requiring that biofuels taken into account for the 10% target and financial support ‘’ emissions savings shall be at least 60 % for biofuels and bioliquids produced in installations starting operation after 5 October 2015. In the case of installations that were in operation on or before

10

E.Pavlovskaia (2014) ‘Legal Analysis of the EU Policy for Sustainable Transport Biofuels’ Environment and Ecology Research (2): 60-75, 2014, 63.

11

European Commission (2012) ‘Proposal for a directive of the European Parliament and the Council amending Directive 98/70/EC relating to the quality of petrol and diesel fuels and amending Directive 2009/28/EC on the promotion of the use of energy from renewable sources’ <

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52012PC0595&from=EN> Accessed: August 12, 2017.

12

European Commission ‘Land Use Change’ http://ec.europa.eu/energy/en/topics/renewable-energy/biofuels/land-use-change Accessed: August 12, 2017.

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5 October 2015, biofuels and bioliquids shall achieve a greenhouse gas emission saving of at least 35 % until 31 December 2017 and at least 50 % from 1 January 2018.’ Compared to the 2009/28 Directive, the amendment extends the 50% to 2018, thus requiring less emissions savings as under the old Directive. Lastly, fuel suppliers are required to include ILUC emissions in their reports.

Thus, from the three Directives together, the relevant sustainability measures applicable to biofuels can be summarized as followed: In order to be counted to the 10% mandatory target and be eligible for financial support, biofuels must comply with the following requirements (i) the emission savings requirement and (ii) the land related sustainability requirement (iii) the ILUC requirement, meaning that only 7% of the target may come from food crop based biofuels and main crops primarily for energy purposes grown on agricultural land.

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Chapter 2 | The relevance of the GATT and TBT Agreement for the EU biofuels requirements

The EU’s biofuels requirements create a distinction between ‘sustainable’ and ‘non-sustainable’ biofuels and the consequences attached to it may affect the biofuel trade between countries and consequently WTO compatibility. The GATT agreement could be relevant in assessing the WTO compatibility of the EU measures as biofuels are goods and this agreement aims to regulate the trade in goods. Article I:1 (the Most Favoured Nation Treatment) (MFN) could be relevant as it prohibits discrimination among like biofuels originating in or destined for different countries. Besides, Article II:4 (the National Treatment) could be relevant as it prohibits discrimination between imported products vis-à-vis like domestic products. Lastly, Article XI:1 could be relevant as it requires that the sustainability measures do not amount to a quantitative restriction for the imports of biofuels. However, violations of these provisions may be justified under the general exception clause, Article XX GATT. Moreover, the TBT agreement could be relevant as it ‘aims to ensure that technical regulations, standards, and conformity assessment procedures are non-discriminatory and do not create unnecessary obstacles to trade.’13 This agreement would be applicable if it can be established that the measures constitute ‘technical regulations’.

It is important to note that the three measures apply to all biofuels, regardless which country they come from or whether they are produced domestically. This means that the measures do not discriminate de jure. However, as explained by the Appellate Body in Canada-Auto and US-Clove Cigarettes, under the GATT and the TBT de facto discrimination is also prohibited and the incentives to comply with the sustainability requirements and to use advanced biofuels may potentially amount to de facto discrimination as it might affect the competitive opportunities between domestic and imported products.14 This would then be inconsistent under the GATT and the TBT. Additionally, the Subsidies and Countervailing Measures (SCM) Agreement might be relevant since fuels which include sustainable biofuels could receive tax exemption and this exemption could be considered as a subsidy within the meaning of the’ SCM Agreement. However, this agreement is not within the scope of this essay as this essay focusses on the consistency of the above mentioned ‘sustainability’ requirements of the EU and not on the tax exemption as such. Therefore, this essay discusses

13

WTO ‘Technical Barriers to Trade’ https://www.wto.org/english/tratop_e/tbt_e/tbt_e.htm Accessed: August 12, 2017.

14

Appellate Body Report, Canada — Certain Measures Affecting the Automotive Industry (Canada- Autos), WT/DS139/AB/R, WT/DS142/AB/R, Adopted 31 May 2000, 78 & Appellate Body Report, United States – Measures Affecting the Production

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the applicability and compatibility of the EU Renewable Energy Directive and the ILUC Directive with the GATT and TBT agreements.

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Chapter 3 | Compatibility with the GATT Agreement

In order to comply with the GATT, the EU has thus to ensure that its emission savings requirement, land related sustainability requirement and its ILUC requirement do not discriminate among like biofuels originating in or destined for different countries; between imported products vis-à-vis like domestic products and may not amount to a quantitative restriction for the imports of biofuels. In case the measures do discriminate, this discrimination could potentially be justified under the general exception clause, Article XX GATT.

3.1 Analytical framework Article I: General Most-Favoured-Nation Treatment

Article I:1 describes a fundamental non-discrimination obligation under the GATT 1994. The purpose of the Article ‘is to prohibit discrimination among like products originating in or destined for different countries.’15 Fundamentally, the Article is concerned ‘with protecting expectations of equal competitive opportunities for like imported products from all Members.’16

In examining a violation of Article I, the Panel in Indonesia-Autos explained that it must be established that there is ‘an advantage, of the type covered by Article I and which is not accorded unconditionally to all ‘like products’ of all WTO Members.’ Applying this analysis to the present case, it should firstly be examined whether the measures imposed by the EU are ‘advantages of the types covered by Article I.’ Secondly, it should be assessed ‘whether the advantages are offered (i) to all like products and (ii) unconditionally.’17

According to the Panel in EC-Bananas III ‘’advantages’’ are those that create ‘more favorable import opportunities’ or affect the commercial relationship between products of different origins.18 In US-Poultry (China), the Panel explained that the determination whether products are ‘’like’’ products should always be done on a case-by-case basis. The Panel further stated that ‘the traditional approach for determining "likeness" has four elements: (i) the properties, nature and quality of the products; (ii) the end-uses of the products; (iii) consumers' tastes and habits; and (iv) the tariff classification of the products.’19 An important question is whether the process or productions methods (PPMs) by which a product is produced influences the

15

Canada-Autos para. 84.

16

Appellate Body Report, European Communities – Measures Prohibiting the Importation and Marketing of Seal Products

(EC- Seals), WT/DS400/AB/R, WT/DS401/AB/R, adopted 22 May 2014, para. 5.88.

17

Panel Report, Indonesia — Certain Measures Affecting the Automobile Industry (Indonesia-Autos), WT/DS54/R, WT/DS55/R, WT/DS59/R , WT/DS64/R, Adopted 2 July 1998, para. 14.138.

18

Panel Report, European Communities — Regime for the Importation, Sale and Distribution of Bananas (EC — Bananas

III),(Guatemala and Honduras) ,WT/DS27/R/HND, Adopted 22 May 1997.

19

Panel Report, United States – Certain Measures Affecting Imports of Poultry from China ( US-Poultry), WT/DS392/R, adopted 29 September 2010, para. 7.452.

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‘’likeness’’ of the product. PPMs could be distinguished in two types: product related PPMs and non-product related (npr) PPMs. ‘Product-related PPMs are used to assure the functionality of the product or to safeguard the consumer who uses the product’ while npr-PPMs are used to achieve a social purpose.20 Hence, product-related PPMs most likely affect the physical characteristics of the product while npr-PPMs do not influence these characteristics. For this reason, the prevailing view is that npr-PPMs are not relevant in assessing likeness.21 Regarding the term ‘unconditionally’ the Panel in Canada-Autos considered ‘that the obligation to accord ‘unconditionally’ to third countries which are WTO Members an advantage which has been granted to any other country means that the extension of that advantage may not be made subject to conditions with respect to the situation or conduct of those countries.’22 Thus, an advantage to any WTO Member’s product must also be accorded to like products of all other Members without discrimination related to origin.23 In EC-Seals the Appellate Body further explained that this also means that it is allowed to impose conditions that are unrelated to the origin and do not generate a detrimental impact.24

3.1.2 The compatibility of the EU biofuels requirements with Article I:1

Thus, in assessing the compatibility of the EU measures, one should firstly determine whether the measures confer an advantage on biofuels meeting these requirements. In this case, biofuels meeting the sustainability requirements have an advantage over those that do not meet the requirements since sustainable biofuels count to the 10% target and are eligible for financial support. It encourages Members to use those biofuels that satisfy the sustainability criteria over those that do not with respect to government procurement. Moreover, Member States will introduce regulations to encourage the purchase biofuels meeting the sustainability criteria over those that do not.25 Next one should determine whether biofuels meeting the requirements and those that do not meet the requirement are ‘like’ products. In assessing likeness it is useful to differentiate between biofuels ‘within the same type or’ and

20

S. Charnovitz (2002) ‘The Law of Environmental PPMs in the WTO: Debunking the Myth of Illegality’, Yale J. Int’l L. 2002, 59-110, 65.

21

P. van den Bossche (2005) The Law and Policy of the World Trade Organization. Text Cases and Materials’, Cambridge University Press, 376.

22

Panel Report, Canada – Certain Measures Affecting the Automotive Industry (Panel Canada-Autos), WT/DS139/R; WT/DS142/R, Adopted 11 February 2000, paras. 10.22–10.25.

23

Ibid para. 10.25.

24

EC-Seals, para. 5.88.

25

A. Mitchell and C. Tran (2010) ‘The Consistency of the European Union Renewable Energy Directive with World Trade Organization Agreements: The Case of Biofuels’, Renewable Energy L. & Pol'y Rev. 33, 35.

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biofuels ‘not within the same type’. Biofuels not within the same type are for example, bioethanol and biodiesel. The chemical and physical properties of these two types differ as bioethanol is a form of alcohol, while biodiesel is an ester. Biofuels within the same type, for example ethanol, are more likely to have the same physical characteristics. Furthermore, as mentioned in the introduction biofuels are also distinguished based on their generation. This distinction, however, is based on the input e.g. food crops for 1st generation, not on the output, thus the final product, the biofuel. Therefore, a biofuel produced from a 1st generation could have the same physical properties as biofuels from 2nd and 3rd generation. Besides the physical differences, tariff classification for biofuels could differ as well. This is because biofuels fall under different product categories in the tariff schedule. Bioethanol faces particularly high tariffs of around 25% while biodiesel faces a tariff of 6.5%. Moreover, palm oil can be imported duty-free while soybean oil faces a tariff of 3.2%.26 On the other hand, they would probably have the same end-use as all biofuels are used as transportation fuels. However, it could also be argued that the end-uses are different as e.g. biodiesel is only suitable for particular engines and bioethanol for others. Lastly, it is questionable whether consumers perceive biodiesel and bioethanol differently, since most of the biofuels used in the EU are consumed blended with fossil fuels. For biofuels from different generations consumers might perceive them differently as first generation biofuels have an impact on food security whereas second and third generation biofuels do not have an impact on food security. However, the results from a poll conducted in December 2016 by German research firm Dalia, and commissioned by ePURE, the European renewable ethanol association, showed that 68 percent of Europeans favor EU policies to support crop-based conventional biofuels, while just 12 percent are against such policies.27 As a consequence it is uncertain whether biofuels not within the same type will be considered as ‘like products’, independently of whether they meet the emission savings- land-related- or ILUC requirement. For biofuels within the same type it is more likely that they will be considered like as in most cases they will have almost similar physical properties, tariff-classification and end-uses and will be perceived as like products by consumers. In the remaining of this chapter the compatibility of the emission savings measure, land related measures, and ILUC measures will be examined respectively.

26

A. Lendle and M. Schaus (2010) ‘Sustainability Criteria in the EU Renewable Energy Directive: Consistent with WTO Rules?’, ICTSD information note No. 2, September 2010, 5.

27

ePURE(2017) ’Poll: Europeans want EU policy to promote crop-based biofuels’, <http://epure.org/media/1569/170123-eu-biofuels-opinion-survey-def.pdf> Accessed August 13, 2017.

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Compatibility of the emissions savings measure

One should examine whether biofuels compliant with the emissions savings requirement and non-compliant biofuels within one biofuel type are ‘like products’. Contrary to what some scholars argue,28 the properties, nature and quality of both are similar since the method used to calculate the emissions does not relate to the biofuel itself. The sum of emissions comes from the extraction and cultivation of raw materials, e.g. sugarcane thus not the biofuel, (ii) land-use change, (iii) processing and (iiii) transport and distribution. None of these characteristics relate to the product itself or leave a trace in the final product. It thus concerns non-product-related-ppms and therefore does not influence the likeness. Moreover, biofuels (within the same type) meeting the emissions savings requirement do not have different end-uses than non-compliant biofuels and consumers will probably not perceive them differently as this difference is not visible for consumers. Lastly, the EU does not make a distinction between compliant and non-compliant biofuels in its tariff classification, only between different types. As a consequence, it is likely that within the same type of biofuels, biofuels meeting the emissions savings requirement and those that do not meet the requirement will be considered as like products. Once established that compliant and non-compliant biofuels are like and only biofuels meeting the savings requirement are eligible for a the advantage, thus imposing and condition on the advantage, it should be determined whether the advantage created by this requirement has a detrimental impact on the competitive opportunities for like imported products from any member because only these advantages are considered inconsistent with Article I:1. The emissions savings requirement applies to all biofuels irrespective of their origin, thus the advantage created by this requirement does not have a detrimental impact on the competitive opportunities de jure between biofuels of different origins. However, as noted above, Article I:1 also covers de facto discrimination. Therefore, it needs to be assessed whether the emissions savings requirement creates de facto discrimination between foreign producers. The question then arises whether the thresholds of 35%, 50% and 60% have a detrimental impact on the competitive opportunities between different foreign producers. Most biofuels, depending on the process methods, are able the reach the 35% threshold. However, from 2018 this threshold increases to 50% and consequently more countries will not be able to meet the threshold and this may amount to de facto discrimination between countries. For example, the US produces mainly corn ethanol, and corn ethanol will likely qualify under the 35%, however it will not meet the 50%

28

Mitchell and Tran (n 26), 36 state for example: ‘biofuels that differ only on the basis of the emissions-related sustainability criteria are probably not like because gas emissions created by burning these products are physical characteristics.’

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threshold. Brazil in contrast, the second largest producer of ethanol and mainly producing ethanol from sugar cane, will be able to meet the 50% threshold as the emissions savings from sugar cane are around 70%. 29 Moreover, the inclusion of transport emissions could lead to de facto origin-based discrimination due to the fact that transport emissions from certain countries are lower than other countries. There could be cases where a product does not fulfil the GHG savings criteria only because of the location (e.g. if the transport emissions reduce the calculated savings from 51% to 49%.30

Compatibility of the land-related measure

Like the emissions savings requirement, the land related requirement does not relate to the biofuel itself but to the non-product related (npr) production process methods and therefore does not affect the characteristics of the biofuel itself. With regard to the other likeness criteria the outcomes are likely to be the same as under the emissions savings requirement. Accordingly, the land related requirement does not affect the likeness, thus ‘biofuels that are different only in terms of the land from which they were produced are probably "like" products.’31

The land related requirement applies to all biofuels regardless their origin too, thus it does not de jure discriminate other countries either. Therefore it should be examined whether this requirement constitutes de facto discrimination. To comply with this requirement biofuels cannot be produced on high biodiverse land and peatland. As some countries producing biofuels consists in large part of these kinds of lands while other countries do not, this may lead to de facto discrimination between countries. For example, in Indonesia and Malaysia a considerable amount of palm oil plantations are on former peat land while in the US biofuel production does not take place on these kinds of lands.32

Compatibility of the 7% cap on food crop based biofuels measure

The 2015 Directive added a new requirement in meeting the 10% target, namely that only 7% may come from food crop based biofuels. Moreover, as already stipulated in the RED, advanced biofuels are counted twice to the target. Firstly, it should be examined whether food crop based biofuels and non-food crop based biofuels are ‘like’ products. First this depends on

29

Lendle and Schauss (n 27) 8.

30

Ibid 7.

31

Mitchell and Tran (n 26) 36.

32

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the physical characteristics. This distinction concerns the ‘input’ for the biofuel and, as mentioned above, this does not say anything on the ’output’. Thus the physical characteristics of food crop based and non-food crop based biofuels could be similar. Second, taking into account the results of the poll conducted by Dalia, only 12 percent of the EU citizens are against policies promoting conventional, food-crop based biofuels while 68% supports these policies. This indicates that the majority of the EU citizens are not concerned about the potential negative effects of conventional biofuels and therefore they probably do not perceive food-crop based and non-food crop based biofuels differently. Lastly, the outcomes of the end-use and tariff criteria are likely to be the same as under the other requirements. Thus, depending on which type of biofuel is produced from the input, the physical characteristics, end-use, consumers’ perception and tariff classification could be the same for both food crop based and non-food crop based biofuels and therefore could be considered ‘like’ products. If determined that the particular biofuels under examination are considered ‘like’ it should be determined whether there is an advantage which has a detrimental impact on the competitive opportunities between members of different origin. As noted above, the difference that non-food crop based biofuels may always count to the 10% target may induce Members to only use biofuels that count towards the target and therewith creating an advantage for non-food based crops over food-based crops. As this measure applies equally to all Members it does not have a detrimental impact on the competitive opportunities de jure. However, de facto discrimination may exist when certain countries produce primarily advanced biofuels while other members only produce food-based crops biofuels. While countries as Indonesia and Malaysia produce primarily food-based crops and hardly any non-food based crops, countries as the US and Canada are steadily increasing their non-non-food crop based biofuels. This may amount to de facto discrimination between countries.

3.2 Analytical framework Article III: National Treatment

While Article I prohibits ‘discriminatory treatment between and among like products of different origins’ Article III prohibits ‘discriminatory treatment of imported products vis-à-vis like domestic products.’ 33 The purpose of Article III is to ensure that internal measures ‘not be applied to imported or domestic products so as to afford protection to domestic production.’ According to the Appellate Body in Japan-Alcoholic beverages II, Article III obliges Members of the WTO to provide equality of competitive conditions for imported products in

33

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relation to domestic products.34 In Korea — Various Measures on Beef, the Appellate Body explained the three elements that must be satisfied for a violation of Article III:4: (i)‘the imported and domestic products at issue are ‘like products’ (ii) that the measure at issue is a ‘law, regulation, or requirement affecting their internal sale, offering for sale, purchase, transportation, distribution, or use’ (iii) the imported products must be accorded ‘less favourable’ treatment than that accorded to like domestic products.’35

As is shown under Article I:1, the concept of ‘like products’ is used in several Articles of the GATT. However, the concept is not defined in the GATT. In Japan – Alcoholic Beverages II, the Appellate Body explained that:

‘’there can be no one precise and absolute definition of what is “like”. The concept of “likeness” is a relative one that evokes the image of an accordion. The accordion of “likeness” stretches and squeezes in different places as different provisions of the WTO Agreement are applied. The width of the accordion in any one of those places must be determined by the particular provision in which the term “like” is encountered as well as by the context and the circumstances that prevail in any given case to which that provision may apply.’’

However, the approach for analyzing ‘likeness’ that has been developed in case law consists of employing the same general criteria as for Article I. 36 For example, the Appellate Body in EC-Asbestos used the following elements to determine ‘likeness’ under Article III:4; ‘(i) the physical properties of the products; (ii) the extent to which the products are capable of serving the same or similar end-uses; (iii) the extent to which consumers perceive and treat the products as alternative means of performing particular functions in order to satisfy a particular want or demand; and (iv) the international classification of the products for tariff purposes.’37 Moreover, in this essay it concerns the same circumstances and context under both articles. Therefore, the outcomes of the ‘likeness’’ analysis under Article I will be used. With respect to the second element, the Panel in Canada-Autos found that it has not been contested that ‘Article III:4 applies not only to mandatory measures but also to conditions that an enterprise accepts in order to receive an advantage, including in cases where the advantage

34

Appellate Body Report, Japan – Taxes on Alcoholic Beverages (Japan — Alcoholic Beverages II), WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R 4, adopted October 1 1996, para. 5.5(b).

35

Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Bees (Korea-Various Measures on

Beef), WT/DS161/AB/R, WT/DS169/AB/R, adopted 11 December 2000, para.113.

36

Appellate Body Report, European Communities-Measures Affecting Asbestos and Asbestos-Containing Products

(EC-Asbestos), WT/DS135/AB/R, Adopted: 12 March 2001, para. 109.

37

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is in the form of a benefit with respect to the conditions of importation of a product.’38 Regarding the term ‘affecting’, the Appellate Body in EC-Bananas III stated that ‘the ordinary meaning of the word ‘affecting’ implies a measure that has ‘an effect on’ and thus indicates a broad scope of application.39 Moreover, the word ‘affecting’ in Article III:4 of the GATT has been interpreted to cover ‘not only laws and regulations which directly govern the conditions of sale or purchase but also any laws or regulations which might adversely modify the conditions of competition between domestic and imported products.’40 Furthermore, with regard to the third element, the Appellate Body in EC-Seals aptly summarized the established propositions by Panels and the Appellate Body in prior disputes on the meaning of the term ‘’treatment no less favourable’’. It stated that the term first ‘requires effective equality of opportunities for imported products to compete with like domestic products’. If it can be established that the measure has a detrimental impact on the conditions of competition for like imported products, then such detrimental impact will amount to treatment that is "less favourable" within the meaning of Article III:4. Finally, ‘there must be a "genuine relationship" between the measure at issue and the adverse impact on competitive opportunities for imported products.’41

3.2.1 The compatibility of the EU biofuels requirements with Article III:4

Firstly, as Article III uses the same criteria to establish ‘likeness’ of products as Article I, the outcome is presumably the same and biofuels compliant with the three sustainability requirements and those that do not comply with these requirements could be considered as ‘like’ products (although for the ILUC measure this depends on the type of biofuel produced). Secondly, it concerns requirements imposed by the EU and as the term ‘affecting’ is interpreted broadly and applies not only to mandatory measures but also to conditions that an enterprise accepts in order to receive an advantage, the second element is also fulfilled. Thirdly, it needs to be determined whether imported products are treated less favorably than like domestic products, thus whether the emissions savings-, land related- and/or the ILUC measures have a detrimental impact on the conditions of competition for like imported products and have a genuine relationship with the adverse impact. All requirements apply to

38

Canada-Autos para. 10.73.

39

Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas (EC — Bananas III), WT/DS27/AB/R, adopted 9 September 1997, para. 220.

40

Panel Report, Italian Discrimination Against Imported Agricultural Machinery (Italy — Agricultural Machinery) L/833-7S/60, Adopted: 15 July 1958, para. 12.

41

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all biofuels regardless whether they are domestically produced or imported, thus there is no de jure discrimination. Therefore, it needs to be assessed whether the requirements create de facto discrimination between imported biofuels and domestic biofuels.

The detrimental impact generated by the emissions savings requirement

It is questionable whether the targets of transport emissions lead to de facto discrimination between imported biofuels and EU biofuels. Most imported and domestic produced biofuels will be able to meet the 35% threshold. This will change, however, when the threshold will be increased to 50%. The EU’s main biofuel, biodiesel, will not be able to reach this target, like many other imported food crop based biofuels. Thus no discrimination between imported and domestic biofuels will be generated. The inclusion of transport emissions, though, might lead to de facto discrimination, because the emissions for biofuels from the EU are lower than for biofuels imported from example Brazil.’42 Moreover, the EU is making a transition to advanced biofuels and these emissions savings will be well above the 50% threshold, while many countries still primarily produce food crop based biofuels. In this way de facto discrimination could exist between domestic and imported biofuels if these will be considered like products.

The detrimental impact generated by the land related requirement

The land related requirement refers to the land used for biofuels cultivation therewith it refers to the origin of the product. It could be argued that this constitutes de facto discrimination if it is proven that most land with high biodiversity and peatland is not situated within the EU, while tropical countries exporting biofuels typically produce biofuels on peat land or land with high biodiversity.43 For example, the expansion of arable land in the EU would mostly occur on permanent grassland or agricultural land that is not in use thus the EU would not be affected by this measure.44 In contrast, in ‘Indonesia for instance, 27% of palm oil concessions (planned plantations in 2006) are on peat-forest.’45 Therefore, part of Indonesian palm oil biodiesel may not meet the land requirement which could lead to de facto discrimination. Thus, assuming that the EU’s own production will not be constrained

42

Lendle & Schauss (n 27) 7.

43

W. Weiss (2011) Biofuels and WTO Law, European Y.B. Intl. Econ. L. 2011, p.169-203, 181.

44

Lendlee & Schauss (n 27) 9.

45

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by the land-use requirement, it does seem to constrain for example Indonesian biofuels and therewith treat their discriminate against their imports.46

The detrimental impact generated by the 7% cap on food crop based biofuels

In case it is determined that food crop based and non-food crop based biofuels are ‘like’ products, it should be examined whether this requirement has a detrimental impact on the conditions of competition between imported and domestic biofuels. This depends on how much advanced biofuels the EU produces or can produce compared to other countries. As noted above, while countries as Brazil, Indonesia and Malaysia produce primarily food-based crops and hardly any non-food based crops, the EU is steadily increasing its non-food crop based biofuels. Consequently, this may lead to de facto discrimination.

3.3 The compatibility of the EU biofuels requirements with Article XI:1

If no violation is found under Article III, alternatively, the measures could be examined under Article XI:1. To ensure compliance with Article XI, the EU may not impose ‘prohibitions or restrictions on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.’ As was noted by the panel in Japan — Trade in Semiconductors, the scope of the term ‘restriction’ is broad, as seen in its ordinary meaning, which is ‘a limitation on action, a limiting condition or regulation’.47

Besides, the Panel in India — Autos stated that Article XI also covers ‘situations where products are technically allowed into the market without an express formal quantitative restriction, but are only allowed under certain conditions which make the importation more onerous than if the condition had not existed, thus generating a disincentive to import.’48 Moreover, Article XI:1 does not only cover de jure restrictions but also restrictions of a de facto nature.

Thus, it has to be determined whether the measures generate a disincentive to import. As noted above, biofuels not complying with the emissions savings requirement, land related requirement and ILUC are not prohibited to import. However, only biofuels meetings these requirements will be counted to the 10% target and therewith induces EU Members to only

46

Lendle and Schaus (n 12) 9-10.

47

Panel Report, Japan- Trade in Semi-Conducturs (Japan — Semi-Conductors), L/6309 - 35S/116, Adopted 4 May 1988, para. 104.

48

Panel Report, India – Measures Affecting the Automotive Sector (India-Autos), WT/DS146/R, WT/DS175/R Adopted 21 December 2001, paras. 7.269–7.270.

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import biofuels meeting the requirements. Moreover non-compliant biofuels will probably not be able to compete with fossil fuels as they are more expensive and do not receive financial support. Accordingly, this will create a disincentive for fuel suppliers to import unsustainable biofuels and a violation of Article XI:1.

3.4 Preliminary Conclusion

In short, none of the EU measures constitutes de jure discrimination since the measures apply to all biofuels regardless of their origin. Biofuels within the same type will be considered as ‘like’ products, regardless of whether they meet the emissions savings requirement. Most biofuels from other countries and from the EU will meet the 35% threshold, thus it seems that there will be no de facto discrimination on this threshold under Article I:1 and Article III:4. However, if the threshold increases to 50% more biofuels will not meet the requirement and de facto discrimination might be created under Article I:1. It is uncertain whether it also leads to discrimination under III:4 as EU’s main biofuel will not meet this requirement. The land related requirement is likely to induce de facto discrimination because they seem to be directed at specific foreign countries and therewith create a violation under Article I:1. Moreover, it would violate Article III:4 if proven that EU has not much of such land compared to other specific countries. If food crop based and non-food crop based biofuels under the ILUC requirement will be considered ‘like’ products, the measure might violate the Articles as de facto discrimination might exists between and among other countries and with domestic biofuels as advanced biofuels are primarily produced in countries like the US and Canada and in the EU. In case Articles I:1 and III:4 do not apply, it is likely that a violation will be found under Article XI if the complaining party can demonstrate that the measures create a disincentive on the importation of its biofuels. The established violations, however, could still be justified if they meet the requirements of Article XX and its chapeau.

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Chapter 4 | Justifications under Article XX GATT

If determined that the measures violate either Article I:1, III:4 or XI this violation could still be justified under Article XX GATT.49 This Article gives Members the right to adopt measures for non-trade objectives. The Appellate Body in US-Gasoline presented a two-tiered test (i) the justification the measure must fall under one of the exceptions listed in paragraphs a to j Article XX and (ii) the justification must satisfy the requirements of the chapeau of Article XX.50 Looking at the aims of the measures in the Directives, arguably the relevant exceptions are those under subparagraph (b) and (g). Thus for a justification of the EU measures, the measures must satisfy the conditions in either paragraph b or g and the requirements of the Chapeau.

4.1 Justification under paragraph b; measures necessary to protect human, animal or plant life or health

For a justification under paragraph b the EU needs to establish that the measures fall within the scope of this paragraph. This requires that a sufficient nexus exists between the measures and the purposes of paragraphs b.51,52 It should be determined whether the policy objectives of these three measures is the protection of human, animal or plant life or health (HAP-LH). The objective of the emissions savings measure is the reduction of GHG emissions. The EU could argue that GHG emissions may cause climate change which results in extreme weather, increased temperature, and rise in sea level and consequently threatens human, animal, and plant life and health.’’ To be successful, the EU has to deliver sufficient prove that a correlation exists. With regard to the land related requirement, the EU could argue that the increased use of biofuels may have the effect of destroying biodiverse lands. In paragraph 69 of the RED the EU elaborates on this policy objective. The EU thus has to establish that animal and plants are destroyed due to the use of biofuels on biodiverse lands. In this way it can establish that its objective aims to protect animal and plant life. It must be noted though that the objectives of two measures under the RED are exceptions to the general objective of the RED. While the general objective is to achieve at least a 20 % gross final consumption

49

L. Bartels (2015) 'The Chapeau Of The General Exceptions In The WTO GATT And GATS Agreements: A Reconstruction' 109 The American Journal of International Law, 95.

50

Appellate Body Report, United States - Standards for Reformulated and Conventional Gasoline (US-Gasoline), WT/DS2/AB/R 29 April 1996, p. 22.

51

Appellate Body Report, United States-Import Prohibition of Certain Shrimp and Shrimp Products (US-Shrimp), WT/DS58/AB/R, Adopted 12 October 1998, para 133.

52

Appellate Body Report, United States-Measures Affecting the Cross-Border Supply of Gambling and Betting Services

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from renewable sources in the EU by 2020, the objectives of the two measures limit the production of biofuels and therewith renewable sources and compete therefore with the general objective. This issue will be further addressed below under the chapeau section. The objective of the ILUC requirement is to promote advanced biofuels and reduce food-crop based biofuels and therewith reduce ILUC and consequently GHG emissions. The EU could use the same argumentation as under the emissions savings requirement. The EU then needs to establish that food-crop based biofuels cause ILUC and ILUC causes increased GHG emissions. This, however, is a speculative assessment. It would be hard to provide scientific evidence that forests or grasslands are displaced by agricultural land because that agricultural land has been displaced for food crop based biofuels elsewhere.

Next, it should be examined whether the measures are ‘necessary’ in order to achieve the above mentioned objectives. The Appellate Body in Brazil-Retreaded Tyres explained in this regard that it must be assessed whether the measure ‘is apt to produce a material contribution to the achievement of its objective’53 Furthermore, the Appellate Body in Korea-Various Measures on Beef explained that it should be examined whether ‘WTO-Consistent alternative measure is available, ‘or whether a less WTO-inconsistent measure is ‘reasonably available.’54

The term ‘’ less WTO inconsistent’’ has been interpreted in two different ways. In Thailand- Cigarettes (Philippines) the Appellate Body interpreted the term as that the measure must be no more discriminatory than any other reasonably available alternative measure.55 By contrast, in other cases the Appellate Body interpreted it only referring to the trade-restrictiveness of the measure. 56 In most cases, though, ‘the Appellate Body has cited the “less WTO-inconsistent” test of Korea—Various Measures on Beef but has then gone on to consider solely the trade-restrictive effects of the measure at issue. 57 Therefore, only the trade-restrictiveness of the biofuels sustainability measures will be addressed.

In assessing the necessity of the EU measures, the EU thus has to establish that its measures make a significant contribution in protecting HAP-LH and no less trade restrictive measure is available. The GHG emissions requirement reduces GHG emissions in transport and since transport is a necessary element in reducing GHG emissions, it could be argued that this measure will contribute to the protection of HAP-LH. Moreover, it seems that there is no

53

Appellate Body Report, Brazil- Measures Affecting Imports of Retreaded Tyres (Brazil-Retreaded Tyres), WT/DS332/AB/R, Adopted 3 December 2007, para. 150.

54

Bartels (n 49) 106 & Korea-Various Measures on Beef, para. 166.

55

Appellate Body Report, Thailand—Customs and Fiscal Measures on Cigarettes from the Philippines (Thailand Cigarettes

(Philippines), WT/DS371/AB/R, Adopted 17 June 2011, para. 179.

56

Bartels (n 49) 106-107.

57

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less trade restrictive measure available that would still make a significant contribution. Regarding the land related measure the EU might establish it makes a significant contribution in protecting animal and plant life. However, this measure may be overly trade restrictive as it determines whether land is highly biodiverse on the basis of its status of January 2008 or earlier. It could be possible that in the meantime the land has lost its biodiversity (due to reasons unrelated to biofuels), but it would still not be allowed to produce biofuels.58 With respect to the ILUC measure, as noted above, it will be difficult to establish that the measure reduces GHG emissions and therewith protects HAP-LH and therefore even more difficult to establish that the contribution of this measure is significant. Thus, potentially the measures under the RED could qualify for the exception under paragraph b, for the ILUC measure it would be more difficult to qualify.

4.2 Justification under Article XX paragraph g; relating to the conservation of exhaustible natural resources

For a justification under paragraph g the measure must relate to the conservation of exhaustible natural resources. Therefore, it should first be examined whether the ‘sustainability’ measures concern exhaustible natural resources. As mentioned above, the measures concern the reduction of GHG emissions and the protection of biodiversity. The EU could argue that reduction of GHG emissions relate to clean air. In US-Gasoline it was established that clean air is considered natural and could be depleted and therefore an exhaustible natural resource.59 Moreover, the preservation of land with high biodiversity, for instance, animals and plants, is also considered natural and could be depleted thus also an exhaustible natural resource.

Then it should be examined whether the EU measures were “related to” the conservation of clean air and/or preservation animals and plants. The Panel in Herring and Salmon stated that ‘while a trade measure did not have to be necessary or essential to the conservation of an exhaustible natural resource, it had to be primarily aimed at the conservation of an exhaustible natural resource to be considered as "relating to" conservation within the meaning of Article XX:(g).’60 Since the RED measures aim to reduce GHG emissions and preserve biodiversity by only counting biofuels that meet the 35%, 50%

58

Mitchell and Tran (n 13) 41.

59

Panel Report, United States - Standards for Reformulated and Conventional Gasoline (Panel US-Gasoline),WT/DS2?R, Adopted 29 January 1996, para. 6.37.

60

Panel Report, Canada - Measures Affecting Exports of Unprocessed Herring and Salmon, BISD 35S/98, adopted 22 March 1988, para. 4.6; cited in Panel US-Gasoline para. 6.39.

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threshold to the 10% target and financial support and biofuels that are not produced on high biodiverse land, these measures are primarily aimed at the conservation of clean air and animal and plants, respectively. For the ILUC measure it is more difficult to establish this relationship. However, if it is assumed that the GHG emissions from food crop based biofuels is considerably higher than those from non-food crop based biofuels this measure could also be seen as primarily aimed at the conservation of clean air.

Finally, the EU measures must be made effective in conjunction with restrictions on domestic production or consumption. The Appellate Body in US-Gasoline explained this as ‘a requirement that the measures concerned impose restrictions, not just in respect of imported gasoline but also with respect to domestic gasoline.’61As mentioned above, the EU measures apply to all biofuels regardless their origin, thus to both imported and domestic biofuels. In short, the EU measures seem to qualify for the exception under paragraph (g).

4.3 The Chapeau of Article XX

The function of the chapeau is to prevent abuse of the exceptions in the paragraphs of Article XX.62 The chapeau prohibits measures that arbitrarily or unjustifiably discriminate between countries where the same conditions prevail or that constitute a disguised restriction on international trade. Hence, the chapeau contains three elements that should be tested, (i) arbitrary discrimination, (ii) unjustifiable discrimination, and (iii) a disguised restriction on international trade.63 However, the condition ‘’disguised restriction on international trade’’ has so far not been tested properly by panels and the Appellate Body.64 Moreover, the Appellate Body’s examination of ‘’unjustifiable discrimination’’ has not been consistent; the element has been interpreted differently by the Appellate Body. On the one hand, the Appellate Body in US- Shrimp rejected the argument that ‘an alleged “discrimination between countries where the same conditions prevail” is not “unjustifiable” where the policy goal of the Article XX exception being applied provides a rationale for the justification.’65 In rejecting this argument it stated that ‘the policy goal of a measure at issue cannot provide its rationale or justification under the standards of the chapeau of Article XX.’66 Instead, the Appellate Body assessed the flexibility of the measure, transparency and due process and the

61

US-Gasoline p.20.

62

Brazil- Retreaded Tyres para. 226 & Appellate Body Report, US – Gasoline p. 22.

63

United Nations Publication (2003) ‘Trade and Environment Review 2003’,United Nations Conference on Trade and Development, United Nations New York and Geneva 2004, 13.

64 Bartels (n 49) 97. 65 US-Shrimp para. 148. 66 Ibid 149.

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level of engagement in serious negotiations with other Members before implementing the measure.67 Regarding the flexibility of the measure the Appellate Body clarified that a member may not require another Member to ‘adopt essentially the same comprehensive regulatory program, to achieve a certain policy goal, as that in force within that Member's territory, without taking into consideration different conditions which may occur in the territories of those other Members.’68 It must provide the member some flexibility in achieving the policy goal.69 The emissions savings requirement and land related requirement offer other Members some flexibility in showing compliance with the two requirements. The EU RED and its implementing guidelines provide different kinds of methods to show compliance. For instance, the voluntary schemes, default value and actual value. Moreover, the EU RED also provides exemptions from under the EU biofuel sustainability criteria in a limited amount of situations.70 For these reasons it could be argued that the measures offer some flexibility. Besides, transparency and due process for affected stakeholders is required. Although the EU has provided much information, it could be argued that the EU has given little information of why the emissions savings levels are set on 35%, 50% and 60% and why these thresholds were changed in the ILUC Directive. Moreover, the EU used scientific data in determining the typical and default values but did not publish any scientific data or explained from where it retrieved this data. Due this the lack of evidence and information it is questionable whether the measures are justifiable and non-arbitrary. A similar argument could be made for the ILUC requirement. The EU has not provided scientific evidence proving that food-crop based biofuels cause ILUC and therewith increased GHG emissions compared to non-food crop based biofuels. Moreover, the EU has not provided scientific evidence why the threshold is set on 7% and does not motivate why it has chosen for these particular crops. Even if it is determined that the measures are flexible and transparent, it is questionable if the EU will meet the serious negotiations requirement.71 Although the EU held several public consultations, these were primarily aimed at stakeholders within the EU. Therefore, it is unlikely that the serious negotiations requirement will be satisfied.

This approach, not taking into account the policy goal of a measure and therewith providing a rationale for justification, has been criticized. Accordingly, in Brazil-Retreaded Tyres the Appellate Body revised its approach and did take into account the rationale offered

67 US-Shrimp, para. 166. 68 Ibid, para. 164. 69

Ibid para.161 & 164

70

Article 17 Paragraph 3(b), 4(c) and 5 provide exemptions

71

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by the party responsible for the discrimination in determining whether a discriminatory measure can be justified. However, it excluded reasons that ‘bear no rational connection to the objective falling within the purview of a paragraph of Article XX, or would go against that objective.’72

In EC-Seals the Appellate Body was confronted with the question whether a legitimate purpose could justify discrimination under the chapeau even if this rationale was competing, or going against, the principal objective of the seal regime.73 Its answer was ambivalent; the Appellate Body first confirmed the statement in Brazil-Retreaded Tyres that ‘discrimination can only be justified by reasons that are rationally related to the main objective of the measure’.74

However, as Duran argues the ’second part of the statement appears to suggest something subtler: discrimination may, in principle, be justified by reasons that are unrelated to the main objective of the measure, provided the responding WTO member can establish that the two purposes are genuinely competing and implicate a regulatory trade-off.’75 Furthermore, the Appellate Body explained that:

‘’ The relationship of the discrimination to the objective of a measure is one of the most important factors, but not the sole test, that is relevant to the assessment of arbitrary or unjustifiable discrimination. In other words, depending on the nature of the measure at issue and the circumstances of the case at hand, there could be additional factors that may also be relevant to that overall assessment.’’76

These statements of the Appellate Body are relevant for the present case as, as noted above, the main objective of the RED, promoting renewable sources, competes with the sustainability requirements as they restrict biofuel production. The Appellate Body in EC-Seals thus seems to accept that measures non-related or competing with the main objective may be justified if a party could prove that the objectives are genuinely competing and it cannot do anything further to achieve the objective while being less inconsistent with the main objective.77 For the EU this would mean that in needs to prove that the two purposes are competing and there is no reasonable alternative that would achieve the sustainable production of biofuels while being less inconsistent with the promotion of biofuels objective.

72

G.M. Duran (2016) ‘Measures with Multiple Competing Purposes after EC-Seals: Avoiding a Conflict between GATT Article XX-Chapeau and Article 2.1. TBT Agreement’, Journal of International Economic Law, 2016, 19, 467-495, 475 & Brazil-Retreaded Tyres, para. 227.

73

Duran (n 72) 477.

74

EC-Seals, para. 5.318.

75

Duran (n 72) 478 & EC-Seals, para. 5.320.

76

EC-Seals 5.321.

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In short, the measures potentially qualify for the justifications under paragraph (b) and/or (g). However, they also need to comply with the conditions in the chapeau. According to the approach in EC-Seals, the EU would then need to prove that the measures are genuinely competing and require a trade-off. Nevertheless, additional factors as flexibility, transparency and negotiations may be relevant as well for the overall assessment and could impose extra conditions for the EU to justify its measures.

The EU’s Policy to Reduce Greenhouse Gas Emissions in Transport : A Legitimate Environmental Objective or an Unjustifiable Trade Restriction?