Slamming the Door on Trade Policy Discretion? The WTO Appellate Body’s Ruling on Market Distortions and Production Costs in EU–Biodiesel (Argentina)

This paper presents a legal–economic analysis of the Appellate Body's decision in EU–Biodiesel (Argentina) that the WTO's Anti-Dumping Agreement (ADA) does not permit countries to take into account government-created price distortions of major inputs when calculating anti-dumping duties. In this case, the EU made adjustments to the price of biodiesel's principal input – soybeans – in determining the cost of production of biodiesel in Argentina. The adjustment was made based on the uncontested finding that the price of soybeans in Argentina was distorted by the existence of an export tax scheme that resulted in artificially low soybean prices. The Appellate Body found that the EU was not permitted to take tax policy-induced price distortions into account in calculating dumping margins. We analyze the economic rationale for Argentina's export tax system, distortions in biodiesel markets in Argentina and the EU, and the remaining trade policy options for addressing distorted international prices. We also assess whether existing subsidies disciplines would be more effective in addressing this problem and conclude that they would not.