Argentina challenges Spain's biofuel rules at WTO

GENEVA, June 13 (Reuters) - Argentina is challenging Spain to explain a new biodiesel law that it says breaks World Trade Organization rules and will cost the South American country $1 billion in lost export earnings, an Argentine trade official said on Wednesday.

The challenge, which Argentina plans to make at a meeting of the WTO's Goods Council on June 22, will worsen its trade relations with the European Union, which filed a complaint last month over the country's trade restrictions.

That suit followed the decision by Argentine President Cristina Fernandez to seize control of Argentina's biggest oil firm, YPF, a subsidiary of Spain's Repsol, in April.

The EU and Argentina plan to hold a first round of talks to try to resolve their dispute around July 12-13. If the talks fail to satisfy the EU, it could ask the WTO to set up a panel to adjudicate on the dispute.

The United States and Japan, which are among the countries that have asked to be third party observers in the dispute, are also unhappy with Argentina's import restrictions and both plan to raise the issue at the Goods Council meeting.

That will prolong the war of words over Argentina's alleged protectionism and might be a prelude to more countries joining the EU in its litigation against Argentina.

Argentina's latest concern is about a Spanish law that came into force in April, which the Argentine official said prohibited biodiesel from overseas, barring major suppliers such as Argentina and Indonesia.

"Last year we exported $1 billion of biodiesel to Spain, which was 20-30 percent of our total exports to Spain," the official said.

He said Argentina was speaking to Indonesia and other WTO members who also opposed the Spanish directive, but it was too early to say if the challenge might escalate into litigation, and the EU had not yet responded to the criticism of the Spanish law.

Argentina is also critical of a judgment by the European Court of Justice on Sept. 6, 2011, which restricts imports of honey containing genetically modified material from corn produced with Monsanto's MON810 gene.

The EU, as a single trading bloc, represents Spanish interests in WTO disputes.