EU probes biodiesel subsidies in new trade row

BRUSSELS (Reuters) - The European Union, opening up a newtransatlantic trade spat, will investigate whether soaringimports of U.S. biodiesel break global trade rules because ofsubsidies, the EU's executive Commission said on Friday.

"We have always said that the EU will not tolerate unfairtrade practices and will pursue vigorously any well-foundedcomplaint," said Peter Power, a spokesman for EU TradeCommissioner Peter Mandelson.

"The Commission will leave no stone unturned in thisinvestigation and will act in accordance with its findings."

In April, EU biodiesel producers requested the Commissionimpose duties on imports from the United States and on Fridayit said there was enough evidence to warrant anti-subsidy andanti-dumping investigations.

European producers say their U.S. rivals benefit fromgenerous subsidies when they blend biodiesel with small amountsof mineral diesel in the United States, creating unfaircompetition that has put much of EU industry out of business.

U.S. imports into the EU, which are larger than from anyother country, increased from about 7,000 tonnes in 2005 toabout 1 million tonnes in 2007, the Commission said.

U.S. producers deny that their exports are the main reasonbehind the problems of European producers which have also beencaused by new biodiesel taxes in Germany.

The American industry has suggested it might hit back withaction of its own, saying EU biodiesel fuel specifications arediscriminatory against imports.

Brussels now has up to nine months, until March 13 2009, todecide whether U.S. imports need to be hit with duties on aprovisional, six-month basis, and after a further six months itcould extend them definitively, usually meaning for five years.

Any decision by the Commission to impose duties would haveto be backed by EU member states.

The European Biodiesel Board, representing EU producers,pointed to U.S. federal excise and income tax credits and aprogramme of grants to finance increased capacity, plusstate-level subsidy programmes, as evidence in the anti-subsidycase, the Commission said.

The Commission is trying to encourage the use of biofuelsas part of its strategy to fight climate change. But it said inits statement on Friday that the decision to launch theinvestigations was not linked to that policy.

Biofuels have come under attack by many scientists andenvironmental groups that contend their production hascontributed to food price inflation, depleted rainforests andfailed to save substantial greenhouse gas emissions.

Biodiesel is the second most important biofuel and ismainly produced from vegetable oils such as soybean oil,rapeseed oil and palm oil. Other feedstocks such as tallow andused cooking oil are also used.

(Reporting by David Brunnstrom; writing by WilliamSchomberg and David Brunnstrom, edited by Dominic Evans)