Argentina, Spain and Biodiesel - Tit for Tat?

Reports of Argentina challenging a Ministerial order of Spain at the WTO related to sourcing of biodiesel produced in EU based plants to satisfy the quota system are trickling in here, here here and here. In fact, this has been brewing for sometime now as reported here, here and here.

A Ministerial order issued in April 2012 by Spain which is at the heart of the controversy establishes a biodiesel production quota system. This Ministerial Order lays down the rules to allocate biodiesel production quotas to EU based biodiesel producers whose production would be eligible to meet consumption mandates. In other words, to meet the consumption targets of biodeisel, it would be essential to source the biodiesel from EU based biodiesel plants. This effects Argentinian exports of biodiesel which hitherto occupied about 90 % of the Spanish market.

The Biodiesel Magazine captures the contours of the dispute well here. A United States Department of Agriculture (USDA) report captures the implications of the Spanish measure in this study. It concludes:

"Impact on biodiesel production, raw materials use and trade The publication of this Ministerial Order would likely result in an increased domestic production –in Spain and possibly in other EU MS– as well as in increased imports needs of raw materials that would replace finished product imports.

In 2011, data available show that domestic consumption of biodiesel reached 1.5 million MT, about 30 percent of capacity installed. The quota allocation will ensure that domestic consumption is supplied by EU based plants, however, full capacity use of Spain’s based is not assured, unless biodiesel exports become grow, as other MS plants can participate in the quota system and the overcapacity installed compared to projected consumption in Spain."

The issue raises several interesting questions:

1. By mandating that biodiesel should be sourced only from EU based plants, is not the measure in violation of the national treatment principle enshrined in the GATT and TBT Agreements? Is the measure not treating imported biodiesel less favourably than domestically produced biodiesel? Which exception in the WTO rules would Spain try to utilise to justify this measure?

2. In recent times Argentina has been accused by several countries of becoming "protectionist" by mandating import licensing requirements that are inconsistent with the provisions of WTO rules. I have blogged about this issue here and here. Also, Spanish interests were affected by the nationalisation of Argentina's biggest oil firm. Is this Ministerial order in response to this? Was this Spain's tit for tat measure?

3. Is this another  example of a protectionist wave? Are inward looking measures being justified on the grounds that it is a general practice? Does this not indicate the futility of protectionist measures since protectionism is a double edged sword - while one's protectionist measure might be temporarily beneficial, an other country's protectionist measure is bound to have an impact on your exporters. Hence, to challenge another country's protectionist measure with a moral authority, one's track record would also play a role.

4. Are we going to see a rise in such reactionary protectionist measures and what impact would it have on the dispute settlement mechanism? Without sounding alarmist, is this a start of a trade war scenario or should it be considered as a normal progression of the longstanding tension between domestic policy making and multilateral trade rules? As Dani Rodrik predicted in his "The End of the World as We Know it" in the Project Syndicate piece will we be seeing trade wars?

"Over the next few years, the world economy slumps into what future historians will call the Second Great Depression. Unemployment rises to record-high levels. Governments without fiscal resources are left with little option but to respond in ways that will only exacerbate problems for other countries: trade protection and competitive exchange-rate depreciation. As countries sink into economic autarky, repeated global economic summits yield few results beyond empty promises of cooperation."

Will multilateralism prevail or will it be the days of protectionist, unilateral measures once again? Time will tell?