Argentina ready to take EU to WTO in biodiesel row -sources
* Buenos Aires to challenge EU's five-year duties of biodiesel
* Tensions bode poorly for wider Mercosur-EU free-trade talks
BRUSSELS, Oct 17 (Reuters) - Argentina is preparing to take the European Union to the World Trade Organisation to challenge punitive duties on its biodiesel exports, two people familiar with the matter said on Thursday.
Argentina and the EU are embroiled in a row over the fuel, made mostly from soybean oil, and Brussels accuses Buenos Aires of using unfair subsidies to sell biodiesel at below cost in Europe, imposing temporary levies on the imports in May.
Next week, the European Union plans to extend its duties for five years, the maximum under EU law. Argentina will file a complaint to the WTO when it does, Roberto Bruni, a consultant representing the Argentinian biofuel body CARBIO, told Reuters.
A second person close to the talks confirmed Argentina's intentions.
Reuters also saw parts of Argentina's draft complaint to the WTO that challenges imposing the long-term duties, which effectively block Argentina from the European market.
Argentina is the world's biggest supplier of biodiesel and the European Union had been the biggest buyer of Argentine biodiesel until last year, when sales began to tumble over the dumping accusations.
"The Commission interpretation of the basic anti-dumping regulation is totally arbitrary and flies in the face of well-settled WTO practice," the draft complaint reads. "The Commission is abusing the letter, scope and spirit of the EU anti-dumping instrument," the document adds.
Ties are already strained. In May, Argentina launched a WTO challenge against EU rules for importing biodiesel, while the European Union went to the Geneva-based global body in December to try to strike down Argentine import restrictions that Brussels says are illegal.
The disputes bode poorly for efforts to revive the wider free-trade talks between the European Union and the Mercosur bloc that includes Brazil and Argentina.
Europe and Mercosur agreed in January to lay out by the end of the year on how far they are willing to go in opening up their economies in areas ranging from services to agriculture.
In one positive sign for Argentina, the European Union has dropped its investigation into the accusations that Buenos Aires illegally subsidises its biodiesel industry. But that does not change the fact that anti-dumping duties are in place.
Argentina's foreign ministry said this week it felt "unease" about the EU's anti-dumping investigation and duties.
(Additional reporting by Philip Blenkinsop; Editing by Angus MacSwan)