EU Finds U.S. Evasion Of Biodiesel Tax

The European Union executive plans to widen punitive import taxes on U.S. biodiesel and extend them to Canada, citing evidence of illegal tariff evasion, people familiar with the case said on Friday.

Certain biodiesel blends entering the EU from Canada and all U.S. blends will face tariffs of up to more than €400 per ton of biodiesel according to initial European Commission plans, the sources told Reuters.

The plan, which needs approval from EU governments, highlights the intensifying battle to clinch a slice of a renewable energy market that has been growing amid global efforts to fight climate change.

It follows a year of investigations and seizures of biodiesel shipments suspected as originating from the United States but labeled as coming from other countries' ports.

The EU imposed tariffs on U.S. diesel blends containing at least one in four parts of biodiesel in 2009, after it found U.S. exporters benefited from illegal subsidies and sold their blends to Europe at below cost, hurting EU producers.

The Commission now says it has evidence of illegal transshipments via Canada and that U.S. exporters switched to weaker biodiesel blends, hurting EU producers, according to the sources.

If endorsed by EU governments, the Commission's plan could result in extended duties launching in November 2011 and staying in place until 2014.

U.S. exports to the EU plummeted in 2009 to less than 400,000 tonnes from 1.5 million tons n 2008. At the same time, EU data shows Canadian sales to the EU soared to more than 140,000 tons in 2009, from about 1,700 tons in 2008 - a move Canada has attributed to growing EU demand and a supply gap left by the United States.

Singapore, which had also been investigated as a potential transhipment port for U.S. biodiesel, will be exempt from duties under the plan, the sources said.

Canadian exporters BIOX Corp and Rothsay Biodiesel, affiliated to Maple Leaf Foods, are to be exempted under the plan, the sources said.

"The Commission found the two companies were able to prove they were not involved in circumvention," said one source.

Yet the inclusion of Canadian exports is likely to sour talks for a multi-billion dollar trade deal between the EU and Canada already troubled by EU environmental standards.

The plan - on which EU industry, U.S. and Canadian exporters and later EU governments must comment - is likely also to open debate on the EU's strategy for sourcing fuel from renewable sources and questions on what measures are allowed under EU law to battle circumvention.

U.S. and Canadian biodiesel industry groups could not be reached for comment.