US slaps Argentine, Indonesian biodiesel producers with huge anti-dumping penalties

In Washington, the US Commerce Department issued a preliminary countervailing duty determination from the Commerce Department regarding subsidized biodiesel imports from Argentina and Indonesia. The Commerce Department found that Argentina and Indonesia provide subsidies to their biodiesel producers in violation of international trade rules.

In addition, Commerce found “critical circumstances” to address the post-petition surge of imports from Argentina, paving the way for the imposition of retroactive duties, going back to May 2017.

Biodiesel imports from Argentina and Indonesia surged by 464 percent from 2014 to 2016, taking 18.3 percentage points of market share from U.S. manufacturers. Imports of biodiesel from Argentina again jumped 144.5 percent following the filing of the petitions, triggering the “critical circumstances” ruling.

As a result of Commerce’s ruling, importers of Argentinian and Indonesian biodiesel will be required to pay cash deposits on biodiesel imported from those countries.

The penalties

One unnamed Argentine producer in the ruling was hit with a 50.29 percent duty, one with 64.17 percent, and the remainder received an average between the two of 57 percent. One Indonesian producer was slapped with a 41.06 percent duty, one at 68.28 percent, and the remainder will receive an mid-range penalty The Digest understands will be at 48 percent.

Cash deposit requirements will be imposed when this preliminary determination is published in the Federal Register sometime the week of August 28.. In addition, based on Commerce’s “critical circumstances” finding, these rates for Argentina will apply retroactively 90 days from the date of the Federal Register notice.

Next steps towards a final ruling

Between the preliminary and final determinations, the Commerce Department will audit the foreign producers and governments to confirm the accuracy of their data submissions. Parties will file briefs on issues arising from the agency’s preliminary countervailing duty determinations, and the Commerce Department will hold a hearing. Preliminary determinations in the companion antidumping investigations are due to be issued in October. Final Commerce determinations will be issued later this year, or in early 2018, with a final determination by the International Trade Commission soon thereafter.

We have yet to learn if Indonesia or Argentina will appeal the ruling in US courts or seek relief via the World Trade Organization.

The backstory

The NBB Fair Trade Coalition filed these petitions to address a flood of subsidized and dumped imports from Argentina and Indonesia that has resulted in market share losses and depressed prices for domestic producers. According to the National Biodiesel Board, “these surging, low-priced imports prevented producers from earning adequate returns on their substantial investments and caused U.S. producers to pull back on further investments to serve a growing market.”

In June, we reported that Louis Dreyfus’ CEO said he is confident the country will win its anti- antidumping case against the US currently under investigation by the US Department of Commerce. He referred to “unjust” claims that the country sells its fuel below the cost of production.

Mirroring the EU dispute actively running since 2013

In 2013, we reported that the European Union imposed its final five-year tariffs on biodiesel from Argentina and Indonesia with levies of up to 25.7% for three Argentine biodiesel companies. The duties were more than double the temporary ones put in place in May. In the 12 months through June 2012, biodiesel imports into Europe from the two countries reached 19% market share, something that is expected to come to a halt as a result of the anti-dumping tariffs. The same happened when the EU put anti-dumping duties on biodiesel coming from the US in 2009.

Argentina railed against EU duties as protectionist and said it would cost Argentina $1.6 billion each year it was in place. Subsequently, Argentina took the dispute to the World Trade Organization in late 2013, and Indonesia followed in 2014.

In March 2016, we reported that the WTO ruled that the European Union’s anti-dumping tariffs against Argentine biodiesel imports weren’t inherently illegal but ruled in favor of Argentina on several counts where the EU inconsistently applied the WTO’s antidumping rules, including how it calculated the tariffs. Both sides have 60 days to appeal the decision which the Argentines see as good news that may help them re-open the European market.

Following appeals, the European Court and the WTO subsequently affirmed the decisions.

In July, we reported that the European Union held off on a vote that was supposed to lower duties on biodiesel from Argentina and Indonesia in response to Argentina’s challenge to the EU’s anti-dumping duties placed on biodiesel imports from Argentina and Indonesia. The vote was postponed for their next meeting on September 7.

Reaction from US producers

“The Commerce Department has recognized what this industry has known all along—that foreign biodiesel producers have benefited from massive subsidies that have severely injured U.S. biodiesel producers. We’re grateful that the Commerce Department has taken preliminary steps that will allow our industry to compete on a level playing field,” said Doug Whitehead, chief operating officer of the National Biodiesel Board.

“This is a victory for American manufacturing and job creation.,” said REG Interim President and CEO Randy Howard. “The Commerce Department stood up for fairness for American biodiesel producers and leveling the playing field against imported biofuel that was unjustly subsidized. And with the critical circumstances finding against Argentina, the U.S. government sent a strong signal that these trade practices should not continue as this case proceeds.

Howard also noted, “This should give American biodiesel producers the opportunity to make more cleaner-burning advanced biofuel here at home.  As we and others have testified to the EPA and the Administration during the public comment period on the RVO’s earlier this month, our domestic industry can easily increase production to match volumes similar to what we have seen from Argentina and Indonesia.  We can then realize the increasing benefits biodiesel provides for American workers, our economy and our environment.”

Reaction from truckstop operators and off-shore producers

We are particularly concerned by Commerce’s application of critical conditions in this matter, which will retroactively and unfairly punish biodiesel importers who have complied with all laws and U.S. standards in their business.

Michael McAdams, President of the Advanced Biofuels Association, said “I am surprised by the result on Indonesian biodiesel, as the U.S. has yet to import a single gallon of Indonesian biodiesel in 2017. How has Indonesia caused damage if we are not importing any fuel? As for Argentina, we believe that the Department of Commerce was incorrect in its finding in this matter. We also have concerns that these proceedings may stir up controversy with countries in Latin America with whom we have good relationships.”

McAdams continued, “This overreaching decision will cost American consumers. Fuel provided from ocean-going trade is far cheaper for coastal communities than Midwest products transported via rail. We believe that the federal government is capable of finding a better resolution to this issue that will benefit all countries involved, as well as both producers and American consumers. The good news is that this initial finding is just one step in the decision-making process. ABFA’s members will continue to engage with the Department of Commerce and ITC to contest this ruling.”

David Fialkov, Vice President of Government Relations at the National Association of Truckstop Operators. said ”Any outcome that results in cutting off Americans’ access to cleaner burning fuels, such as biodiesel, from foreign markets is a bad day for the United States. First, it will raise fuel prices in the U.S. If American businesses can no longer import biodiesel from Argentina, that product will likely flow to Europe or into vegetable oil markets.

Fiakov added, “Second, cutting off foreign supplies of biodiesel and renewable diesel would substantially disrupt the Renewable Fuel Standard, threatening our ability to satisfy advanced biofuel mandates established by EPA every year. This is exactly the wrong time to undercut a program that has largely been successful.”

The Digest’s Take: Who wins?

Clearly, a massive win for US biodiesel producers. The ruling will effectively shut down the import trade from Argentina and Indonesia which will clear the way for US production to fill the gap. We can expect biodiesel prices to rise, but it is not going to be clear for some time the impact on overall diesel prices — and given that biodiesel represents less than 4 percent of overall US diesel usage and less than 8 percent of on-road diesel usage, it could be that the price impact is relatively dilute for truckers and other diesel customers.

Clearly, a big hit for global trade and for a range of Argentine producers, who have yet to unlock themselves from a similar tangle in the EU and face the prospect of limited markets from biodiesel until the EU re-opens to them, no later than mid-2018. Since Indonesia has not exported biodiesel to the US this year, the impact would have a negligible effect on trade volumes but can be expected to negatively impact trade prices.

It’s also a timely win for the National Biodiesel Board and its membership, who have been on a hard-luck streak of late on RVOs and producer tax credits, and now have a solid win to celebrate that will help to boost domestic production.

For greenhouse gas emissions, the result will be fairly muted, as most of the imports were based on soy biodiesel but most of the resulting increase in domestic US production will be picked up using soybeans as a feedstock — any increase in waste-based or corn oil-based production will result in a welcome, if minor, dip in overall emissions.

Energy security hawks. But for two of the other pillars that sustain the coalition behind renewable fuels — domestic energy security and economic development opportunities — stakeholders will find reasons to cheer the ruling. Clearly, supporters of renewable fuels who label themselves as energy security hawks place a huge premium on domestic production and will cheer the ruling.

US economic development supporters. And those communities that generate support for renewables because of the impact on jobs and crop demand will also see the prospect of substantial benefits. State governors in the Midwest may also breathe a sign of relief that the ruling could put upward pressure on land prices, which have been in free-fall in the farm states — and that means good news for the tax base in many rural states, to the extent that they depend on property taxes to fund state government.

Don’t Dump Under Trump? Could this be a sign of the Trump Administration’s economic nationalism and focus on fair trade vs free trade? We think so, since the ruling issued from the Trump Administration via the Commerce Department — the test for the new Administration is the extent to which they studied the WTO rulings on the European Union’s anti-dumping tariffs. The WTO will be as vigilant on rampant protectionism as the US Commerce Department has been on what it found to be rampant dumping.