Argentina suspended a trade complaint against the European Union over Spanish biofuel curbs after Spain dropped its plan.

The Spanish government issued a law in April last year requiring that only EU fuel could meet quotas for biofuels used in transport. That prompted a World Trade Organization challenge by Argentina, the world’s largest exporter of soybean biodiesel, which said the plan was discriminatory and a violation of WTO rules. Spain said on Oct. 16 that it would abandon the order incorporating the EU’s renewable energy law into national legislation.

“We decided not to proceed with the case,” Enrique Ferrer, a diplomat in Argentina’s mission in Geneva, said in a telephone interview today. “Spain’s government issued a new decree, so for the time being we are able to export biodiesel to Spain. We are still following it very closely to see if our exports don’t have any problems in the market and then we won’t proceed with the case.”

The EU said its order was designed to protect the environment by increasing the use of renewable energy and to contribute to the security of the energy supply. Argentina’s Foreign Ministry said the real intention was retaliation after President Cristina Fernandez de Kirchner’s government seized a 51 percent YPF SA stake from Spain’s Repsol SA in April.

Spanish Industry Minister Jose Manuel Soria said on April 16, the same day YPF was nationalized, that his government would take “decisive” action against Argentina within days. The seizure of YPF could not be challenged under WTO rules.

Spanish Retreat

Marking a retreat from Soria’s threat to retaliate with “clear and decisive” measures on trade, industry and energy, Deputy Prime Minister Soraya Saenz de Santamaria said on April 20 that Spain would undermine demand for Argentine biodiesel by offering incentives to use Spanish and EU biodiesel.

Fernandez and Spanish Prime Minister Mariano Rajoy are both due to attend a summit of the EU and the Community of Latin American and Caribbean States starting in Santiago tomorrow.

Relations between Argentina and its major trading partners have soured under Fernandez’s presidency and led to the Latin American country’s growing political and economic isolation. Along with the EU, the U.S. and Japan have complained separately at the WTO about Argentina’s import policies, saying they hinder foreign goods and discriminate between imported and domestic products.

“The measure in question foresees a procedure for allocation of biodiesels quantities among producers, and only biodiesels from producers with an assigned quantity would count towards meeting compulsory targets on the use of biofuels,” John Clancy, a European Commission spokesman, said in an e- mailed reply to questions. “Additionally, in December, Spain amended certain aspects of the ministerial order subject of the complaint.”

The 27-nation EU is Argentina’s second-biggest trading partner after Brazil. Argentina’s $448 billion economy is South America’s largest, after Brazil.

Copyright 2013 Bloomberg

Lead image: Biofuel illustration via Shutterstock