Indonesia has filed a lawsuit at the World Trade Organization against the European Union, claiming the bloc's restrictions on palm oil-based biofuel are unfair in the latest in a series of disputes between the two sides.
The EU launched a complaint at the WTO in late November over Indonesian curbs on nickel ore exports and hit Indonesian biodiesel with tariffs last week.
The two are meanwhile seeking to forge a free trade agreement, with a ninth round due to have taken place this month.
The European Commission concluded this year that palm oil cultivation results in excessive deforestation and should not count towards renewable energy targets.
The result is that palm oil-based diesel would not be considered a biofuel and its use in transport fuel would effectively be phased out between 2023 and 2030.
Indonesia, the world's biggest producer of palm oil, has repeatedly said it will challenge the EU's renewable energy directive, known as RED II, at the WTO's dispute settlement body.
Indonesia sent a request for consultations with the EU on December 9, 2019, as the initial initiation stage in the lawsuit, the trade ministry said in statement said.
"The Commission seems to be well-prepared for this," said Hosuk Lee-Makiyama, director of Brussels-based think tank ECIPE.
"It's a political case and how these fare is not solely to do with the law."
The consultation phase lasts 60 days. If no solution is found, the EU can then request that the WTO set up a panel to adjudicate on the issue.
EU consumption of palm oil in food has been in steady decline, but its use as a biofuel has increased. Last year, the bloc consumed more than 7 million tonnes of palm oil, with some 65% of it used for energy.
Indonesia trade minister Agus Suparmanto said the decision to go to the WTO was made after assessing scientific studies and after meetings with associations and businesses involved in the palm oil sector.
"With this lawsuit, Indonesia hopes the EU can change their RED II and delegated regulation policies," said Suparmanto.
Indonesia's Director General of Foreign Trade Indrasari Wisnu Wardhana said the EU's policy would not just impact Indonesia's palm oil exports to Europe, but would also tarnish the image of palm oil products globally.