VZCZCXRO6769
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHLO #2318 1661457
ZNR UUUUU ZZH
R 151457Z JUN 07
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC 4009
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHRC/USDA FAS WASHDC 0686
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS LONDON 002318 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD ENRG EAGR UK
SUBJECT: UK CALLS ON EU TO INVESTIGATE U.S. BIODIESEL SUBSIDIES 
 
 
¶1.  Summary:  The UK Government has associated itself with its 
biodiesel industry in asking the EU to investigate whether US 
subsidies on biodiesel are trade distorting and should give rise to 
countervailing duties.  HMG has "no appetite for a fight" about 
this, and wants to continue importing biodiesel, but worries that 
the low-priced US product is stifling investment in a potentially 
important industry based in some of the poorer regions of the UK. 
Ireland, Germany, the Netherlands and possibly France may also weigh 
in alongside the UK.  End Summary. 
 
¶2.  Fergus Harradence, Head of Unit, and Phil Richards, Sr. Policy 
Advisor, Multilateral Trade Negotiations, Dept of Trade and Industry 
briefed EconCouns June 14 on UK concerns about US subsidies on 
biodiesels.  DTI was sensitized to this issue by the Depts. of 
Transport and HMTreasury and by the British biodiesel industry. 
According to the industry, US subsidies result in a $100/tonne price 
advantage for US biodiesel in the UK market ($675/tonne vs. $775 on 
average for UK-produced biodiesel.)  Imports from the US also 
benefit from subsidies given to European producers, which the EU 
allows the various member states to offer their nascent industries. 
In the UK it is 20 pence per liter.  The industry argues that it is 
impossible to compete with US-subsidized product, even using the 
lowest cost inputs available to them such as waste vegetable oil 
from "chip shops" (French fry vendors). 
 
¶3.  As troubling as the direct price competition is, the industry 
contends that the relatively small amount of US imported biodiesel 
is having a more far-reaching effect on overall price expectations 
in the entire market, our DTI contacts continued. The industry 
argues that the low price for US product, even though not widely 
available, drives the price the rest of industry can charge.  This 
low price point is damping down investment in British biodiesel. 
This is particularly troubling for the UK government because the 
British biodiesel industry is centered in the economically depressed 
regions in the north east and north west of the UK, areas the 
government has targeted for development.  The areas have many 
advantages for biodiesel: cheap land prices, existing energy 
infrastructure and expertise, and deep water ports.  Not 
insignificantly, a key minister for this issue, Environment's David 
Milliband, a rising star in the Labour Party, is an MP from a 
constituency in the north east, Harradence noted. 
 
¶4.  In response to the industry's lobbying, four ministers (from 
DTI, Treasury, Transport and DEFRA (Dept of Environment, Farming and 
Rural Affairs) wrote to EU Trade DG Peter Mandelson to request a 
countervailing duty investigation.  Harradence stressed that HMG had 
no "appetite for a full scale fight" on this.  They did not want to 
push for a ban on imports, for example, even if a Commission 
investigation confirmed the industry's allegations that the US 
subsidy was distorting trade.  The only remedy under consideration 
was a countervailing duty.   He noted that both sides to the dispute 
were subsidizing their producers in various ways and amounts. The EU 
needed biodiesel imports to meet its own targets.  It had little 
arable land available for this.  There are few other alternative 
sources, moreover.  Brazil produces bioethanol.  South Africa 
produces some biodiesel but does not export much. 
 
¶5.  The industry, represented by the European Biodiesel Board (EBB) 
on behalf of its member associations at the national level, will 
need several months to prepare its submission to the Commission.  If 
the submission convinced the Commission there was sufficient prima 
facie evidence of a problem, the Commission could then take up to 13 
months to investigate.  It is possible that it will conclude that no 
harm has been done.  The initial reaction from the Commission has 
been somewhat skeptical about the EBB's allegations.  Harradence 
considered it quite possible that an investigation would conclude 
that no injury was done.  He was also skeptical about press reports 
of EU traders sending biodiesel roundtrip across the Atlantic to 
collect US subsidies and return to the EU market, the so-called 
"splash and dash" gambit. He thought it more likely that biodiesel 
from Malaysia or elsewhere had benefited from this approach. 
 
¶6.  Ireland, Germany and the Netherlands also share the UK's 
concerns.  Harradence expected France to join in as well, but has 
not heard from them.   Other EU biofuel producers, such as Sweden, 
are less concerned because they produce bioethanol, not biodiesel. 
He said the key EU interlocutor at the Commission was a Briton, 
Steve Gospage. 
TUTTLE