Fia Hamid-Walker – In January 2025, the World Trade Organisation (WTO) ruled in favour of Indonesia's legal challenge to the European Union's (EU) restrictions on palm oil, which Indonesia said were unfair and detrimental to its exports.
The EU presented the restrictions as a climate-conscious policy aimed at reducing greenhouse gas emissions and protecting biodiversity. Indonesia – the world's largest palm oil producer – contested the restrictions as arbitrary, discriminatory, and incompatible with WTO regulations.
At the heart of the case was the EU's Renewable Energy Directive II (RED II), which classified palm oil as a high indirect land-use change (ILUC) risk commodity, leading to a gradual phase-out by 2030 and limiting its use to no more than 7% of transport energy consumption.
The WTO panel's ruling, which upholds some of Indonesia's claims while recognising the EU's environmental objectives as legitimate, has sparked renewed debate about the relationship between global trade governance and sustainability. The panel ruled that the EU can pursue environmental goals, but must do so in a way that treats trading partners fairly, provides equal opportunities, and avoids hidden protectionism.
In my view, the WTO's decision in favour of Indonesia represents an assertion of Global South resistance, though it falls short of adequately addressing the structural inequalities entrenched in global trade governance. This is because the decision is still framed by a doctrinal evaluation of the WTO legality, obscuring the deeper power dynamics and exclusionary structures inherent in the dispute.
Why Indonesia challenged EU's biofuel regulation
As mentioned, the EU had established a series of directives and regulations to promote renewable energy and reduce greenhouse gas emissions, particularly in the transport sector.
These include Directive 2009/28/EC (RED I) and Directive 2018/2001 (RED II), which set sustainability and greenhouse gas (GHG) savings criteria for biofuels. Indonesia challenged three specific measures under RED II:
- It limits biofuels made from food and feed crops (including palm oil) to a maximum of 7% of final energy consumption in transport.
- It defines biofuels associated with a high risk of indirect land use change (ILUC), particularly palm oil, and phases them out by 2030. ILUC refers to the unintended environmental impacts caused by the agricultural expansion for biofuels, displacing other land uses and leading to deforestation.
- It exempts specific biofuels from the phase-out if producers can demonstrate compliance with low ILUC-risk criteria, such as having no connection to deforestation or use of degraded land.
These measures obstructed exports of palm oil to the EU by Indonesia, which, as mentioned, is the world's largest palm oil exporter. It viewed the measures as discriminatory, establishing trade barriers under the pretence of environmental protection.
However, the EU defended the measures as essential for achieving its climate goals under the Paris Agreement, decreasing GHG emissions, and tackling biodiversity loss caused by land-use change in tropical regions.
What did the WTO say about the RI-EU dispute?
The Panel determined that the 7% cap constituted a technical regulation under the Agreement on Technical Barriers to Trade. Although the cap was designed to pursue legitimate climate goals, it was considered a restriction on trade and not justified as the least trade-restrictive option.
Indonesia partially demonstrated that the measure violated WTO rules, particularly Article 2.2 of the Agreement on Technical barriers to Trade (known as the necessity test).
The Panel agreed that palm oil was treated less favourably than other biofuels (such as rapeseed or soybean oil) due to its classification as "high ILUC risk. " It acknowledged the EU's environmental concerns were valid but stated that the cap lacked consistent application and disproportionately burdened Indonesian palm oil. The EU was therefore deemed to have violated Article 2.1 (non-discrimination) of the Agreement on Technical barriers to Trade.
Indonesia also contested the Low ILUC-Risk Certification scheme process as burdensome, lacking transparency, and favouring EU producers. It demonstrated that this certification process favoured EU producers and penalised Indonesian exporters
The certification scheme was evaluated against Article 5 (conformity assessment procedures) of the Agreement on Technical barriers to Trade. The Panel found it created unnecessary trade barriers and lacked sufficient transparency and consideration of the needs of developing countries.
Sustainability or eco-protectionism?
The EU justified its palm oil restrictions on environmental and climate protection grounds. However, the WTO ruling indicates that the EU may have instrumentalised "universal" environmental norms to preserve economic and regulatory dominance, particularly over commodities produced in Indonesia. The selective application of ILUC-risk categories, which mainly target palm oil but not other EU-favoured crops, raises concerns about eco-protectionism masquerading as sustainability.
The low ILUC-risk certification system and associated sustainability criteria were developed without meaningful input from Indonesian producers. These standards demand technical capacity, documentation, and auditing systems that disproportionately burden developing countries like Indonesia.
The Panel accepted that the EU's objectives (climate goals, biodiversity protection) were legitimate despite the discriminatory measures. But Indonesia strategically used WTO law to counter this, asserting that the EU's measures undermined its development priorities and violated its rights as a WTO member.
A win for the Global South
The outcome of Indonesia v. the EU may encourage more Global South states to scrutinise climate-linked trade rules for disguised discrimination. It will encourage fairer standard-setting, including more inclusive voices in defining sustainability, and the development of a shared certification system that competes with EU-imposed frameworks.
Neither Indonesia nor the EU appealed the panel's findings within the 60-day period permitted, which led the WTO Dispute Settlement Body to formally adopt the panel report on March 24, 2025. After adoption, the EU expressed its intent to adjust its policies to comply with the WTO's recommendations.
The EU is therefore expected to revise aspects of RED II and related delegated acts to address the inconsistencies identified by the WTO panel. Meanwhile, Indonesia has welcomed the WTO's findings, viewing them as a validation of its claims regarding discriminatory treatment of palm oil-based biofuels.
The palm oil dispute between Indonesia and the EU is certainly about trade, but it is more than that; it is also about setting rules, valuing voices, and defining global sustainability.
The big question is how to create a global trade system that is both legal and just, and the WTO ruling in favour of Indonesia shows it is possible to challenge unfair practices in international law.
It shows that environmental goals must be developed with, rather than imposed on, the Global South. Indonesia and its partners should advocate for inclusive standards, equitable sustainability, and a fair economy that prioritises development while also pursuing green initiatives. Indonesia's victory against the EU is a good precedent.