Monday, April 23, 2012

US compliance in Clove cigarettes case - what next?

The reactions to the Clove Cigarettes case in the U.S amongst various stakeholders has been predictable. Surprisingly the USTR website did not have any official reaction on the Clove decision (unless I have missed it). This is in contrast to its normally active announcements on WTO decisions and their impact on US interests.

"Sweet Surrender" screamed a blog which identifies itself with consumer interests in the US. Lori Wallach of the Public Citizens Global Trade Watch writing in the Huffington Post averred:

"This outrageous WTO ruling should be a wake up call. Increasingly "trade" agreements are being used to undo important domestic consumer, environmental and health policies. Instead, the Obama administration has intensified its efforts to expand these very rules in a massive Trans-Pacific Partnership (TPP) "free trade" agreement.

The WTO's ruling against banning the sale of flavored cigarettes isn't the only example of its attack on consumer protection and health laws. The U.S. has filed WTO appeals on two other U.S. consumer laws -- U.S. country-of-origin meat labels and the U.S. dolphin-safe tuna label -- both were slammed by lower WTO tribunals in the past six months. Yup, in short order we could see the WTO hating on Flipper, feeding us mystery meat and getting our kids addicted to smoking."
I have discussed the issue here. One of the issues is what next? How would the U.S. comply with the order? There are strong suggestions from not complying with the order to ignoring the WTO ruling. The Eyes on Trade Blog has summarised the Dispute Settlement mechanism process well and it could take months before the U.S will need to amend any law.

A saner voice is found in Benn McGrady with this brilliant summarisation of the Cloves dispute in a briefing paper. The paper analyses the decision and rationale threadbare and concludes:
"As it stands, the United States has a few options. One option is to conform with WTO law by removing the restrictions on sale of clove cigarettes, or extending the existing restrictions to menthol cigarettes. In theory, non-conformity is another option. However, if the United States refuses to comply the Dispute Settlement Body would authorize retaliatory action by Indonesia. More broadly, non-conformity would raise systemic issues of United States trade policy within the WTO system"
How would the US react to the AB decision? Would the US take an extreme step of not complying with the WTO decision and invite retaliation? Would not non-compliance signify the weakening of the rule based multilateral system? Is it not an issue of credibility? The rule based system gives countries of varied economic and political clout an equal stake in the trading system. Does not non-compliance question this assumption and take us back to the political realities of trade? Since US Indonesia trade relations is heavily favoured towards the US, would the reaction of the US in terms of compliance have been different if the respondent had been the European Union? Overall the issue of compliance has serious consequences for the efficacy and rationale of a dispute settlement system based on rules rather than power relations.