Strategic litigation at any cost?

I have blogged about the Tobacco Plain packaging case here, here and here. The dispute brings to the fore many aspects of dispute settlement at the WTO itself - like what is national interest, domestic policy space and international economic law, employment issues and trade as well as corporate interests and national positions.

This piece in the Jakarta Globe which gives a background on Indonesia's entry into the dispute  brought another angle to the dispute - strategic preparation in dispute settlement.

"For Indonesia, this is another opportunity for it to develop and enhance its understanding of how, when, and why to use the WTO dispute settlement system to further its own export interests. Indonesia started out by being a rather reluctant user of the system, when it was on the receiving end of complaints brought by several developed countries against its indigenous car program in 1996." 

 Is this another facet of strategic litigation at any cost at the WTO?

And now it is Indonesia

I have blogged about the Plain packaging of Tobacco products dispute here, here and here. 

And now Indonesia joins the battle over Tobacco Plain Packaging.  More details here.

Cloves Cigarettes case - Will the ban be lifted?

A lot has been written about the Cloves Cigarette dispute (DS 406) between the United States and Indonesia which relates to the ban on clove based cigarettes which the WTO found inconsistent with U.S. obligations under the WTO. The Appellate Body ruled against the ban and the U.S. has a "reasonable time" up to July 2013 to comply with the decision. In what manner would the U.S. comply has been a subject matter of intense academic discussion which I have attempted to capture here, here, here and here.

Found this piece titled "Losing Flavor:Indonesia's WTO Complaint against the U.S. Ban on Clove Cigarettes"  in the American University International Law Review, though written prior to the Appellate Body decision, rightly forecasts the decision and offers a four options for the U.S. to follow:

1.It can legislate the ban to apply equally across all flavored-cigarette categories. A blanket ban on all flavored cigarettes would ensure that all flavored cigarettes, regardless of where they were manufactured, would be consistent with the nondiscrimination principles of Article III:4, GATT.

2.It can create other regulatory tools that can potentially realize the policy goal of reducing youth smoking. Such regulations could include any combination of the following policies, as long as the United States implements them consistently across all types of flavored cigarettes: taxation, packaging guidelines, or educational programs.

3. It can treat all flavored cigarettes equally by placing a temporary moratorium on the sale of all flavored cigarettes pending the result of a congressionally mandated scientific study.

4.It  can institute a temporary ban on menthol cigarettes that would “sunset” after the conclusion of the scientific report. After a temporary ban sunsets, Congress can choose to extend or eliminate it entirely.

How would the U.S. comply in this case? Will there be a "political" or "legal" settlement of this dispute? Will negotiations be the way out? Political feasibility, domestic pressure, elections and interpretation of what constitutes "compliance" will determine the course of action. One would have to wait for 2013 for this one to get solved.

Indonesia - Turning protectionist?

(Indonesia - courtesy:worldwidehomestay.com)

I had recently blogged about Bali,Indonesia being the venue for the next Ministerial Conference of the WTO which is held every two years. Indonesia is in the news again in relation to trade news, but this time for all the wrong reasons. Complaints of Indonesia becoming increasingly "protectionist" are being heard from it's trading partners.

So what exactly is the complaint against Indonesia? Trends that Indonesia is increasingly looking inward in its industrial and trade policy are doing the rounds. More detailed analysis is found here and here. Specific import restrictions, export taxes and export bans on minerals are some of the measures causing unease amongst Indonesia's trading partners. Some believe that the restrictions are not excessive an justified.

An undated piece by Daniel W. Christman of the U.S. Chamber of Commerce highlights the dangers in the new policy:

"One recent measure makes it harder for foreign companies to export a range of products from specialty foods to shoes and pharmaceuticals to movies. The trade barriers seem to tilt the playing field unfairly in favor of domestic companies and may violate Indonesia’s obligations under the World Trade Organization. 

Last December, the government issued a decree requiring foreign companies to negotiate new import licenses. This effectively banned the importation of some 500 different products from sneakers and electronics to clothing and beverages. Chinese, Indian, and American companies will be unable to export their products to Indonesia until new licenses can be negotiated. 

Even more worrisome, the Ministry of Health issued a decree banning the importation of foreign medicines unless a foreign producer opens a manufacturing plant in Indonesia within two years. When initially asked to comment on this regulation, the health minister said, “If they (foreign companies) want to go away, go ahead.” 

The Ministry of Culture and Tourism followed suit by banning the sale of foreign films not printed in Indonesia. Among those likely to be harmed by this measure are Indonesian movie theaters that depend on foreign films for their revenue." 

The British Embassy in Jakarta had a few words of caution against the "protectionist" trend here:

" Indonesia’s credentials as an economic success story remain largely unblemished, but the regulatory environment is in fact becoming less friendly to foreign investment. A recently published Global Trade Alert report highlights the fact that in 2011 Indonesia introduced the largest number of potentially trade restrictive measures in South East Asia, and ranks it as among the top ten protectionist nation against three indicators - the number of tariff lines, sectors and trading partners affected. 

This tends to be obscured by the continued strong growth of the economy and by the many individual success stories. Foreign investors continue to beat a path to Jakarta. The report’s findings come however as no surprise to businesses located here.  One investor describes Indonesia as the most protectionist of its markets in South East Asia. Another complains about non-WTO compliant discriminatory excise duties. Banks will soon be required to invest heavily to on-shore their data processing centres.  Across a range of sectors – from petrochemical to pharmaceutical and consumer goods – foreign companies are struggling to make sense of, and to comply with, complex and unclear import licensing regulations. 

What particularly frustrates these companies is the lack of consultation and cross-government co-ordination when such measures are in gestation. As a result, many are ill-thought through and have unintended consequences, both for business and consumers.  Confusion over import licensing has led to a shortage of some medicines. Restrictions on the import of fruit and vegetables (apparently introduced as a consumer safety measure) have triggered price increases."

Whether Indonesia's trading partners will take Indonesia to the WTO DSM is a matter of conjecture at hi stage? Unlike Argentina which is involved in a large number of DSM cases, Indonesia is a relative novice. Do the measures of Indonesia violate the national treatment principles under GATT? Are they in violation of Indonesia's obligations under the Import Licensing Agreement? Are they technical regulations which are unreasonable restrictions on international trade? Thus, while Indonesia would have to prepare for the next Ministerial Conference, it would need to look into a possible WTO challenge to its domestic policy measures. 

Illegal timber logging - Australia's law is shaping up

I had earlier blogged about a proposed Australian legislation dealing with illegal timber logging titled the "Illegal Timber Logging Prohibition Bill 2011" which was passed by the lower house of the Australian parliament a few days back and has reached the Senate. An anonymous comment to this blogpost brought me back to this topic.

Does the Bill treat imported timber less favorably than local timber products? Is it more onerous for imported timber products to establish legality than local like products? Even if the legislation does not de jury discriminate between imported and local products on terms of applying equally to both products, is there a de facto discrimination since there is a greater probability of "illegal" timber coming from certain countries than others? Does the legislation modify the conditions of competition for imported timber products and is thus discriminatory and in violation of the national treatment principle under GATT? What are the contours of the Article XX general exceptions GATT in the present dispute? Do they justify the measure?

A recent study by Duncan Brack on the compatibility of the proposed Australian legislation with WTO law seemed to suggest that Article XX would save the legislation.The longer version of the study is found here.

"It is impossible to know precisely how the proposals in the Australian legislation relate to these WTO rules, as the details of the proposals are not yet finalised. In particular, we do not know exactly which products will fall into the category of “regulated timber products” for the purpose of the due diligence requirements, or many of the details of those requirements themselves - including, importantly, which legality verification, forest certification, or other existing or evolving systems for identifying legality are likely to be regarded as placing their products into low-risk categories. 

However, as long as the basic WTO principle of non-discrimination is respected - as reflected in Article XX(g) and the headnote to Article XX - it seems likely that Article XX(g) of the GATT could provide a justification for trade-restrictive measures aimed at excluding illegal timber from international trade, should a WTO dispute ever be brought. The main arguments against this position, as expressed in one of the submissions to the Senate Committee inquiry, seemed to rest on the assumption that any products that enter trade must be treated in the same way, regardless of their status under national laws (i.e., that legal and illegal timber are “like products”). Taken to its logical conclusion, this would require all countries to have exactly the same laws - which seems likely to be a misreading of the GATT."

Commenting on this article, Lorand Bartels feels that the interpretation of the general exception under Article XX GATT would be the focal point of a challenge and its defense:

"... More promising is the notion that there is a ‘nexus’ between logging and Australia in terms of climate change. In my view, the territorial scope of Art XX GATT should be assessed in terms of the rules on public international law on legislative jurisdiction. It might be argued, along these lines, that Australia has a right to regulate activities abroad (ie logging) in order to mitigate the effects of climate change on its own territory. (From your summary, it does not appear that Australia is also regulating the domestic marketing of such products, which would add a basis for territorial regulation).

But even so, what about the facts? To what extent can this measure be justified in terms of climate change? And what does ‘legality’ have to do with it? Is this connected with climate change? In short, is there really a causal link between the measure and this objective?"

Increasingly, national measures would not be blatantly discriminatory. The intent and the impact of the measures would have to be considered. Do they have a de facto impact on adversely affecting imported products? Are they designed to discriminate between imported and local products? Are the conditions so onerous that it is more likely that imported products, from less developing countries, will be impacted?

While the measure itself would apply to both imported and local products in actuality the impact on the trade on imported goods would be so high that it could amount to a discrimination. Another ground for a challenge, inspite of the defense of Article XX, could be the non-fulfilment of the chapeau requirements. Does it constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade? Would the imports of Indonesian timber be adversely affected by the legislation? Is more illegal timber logged in Indonesia or would it be difficult to comply with the conditions of due diligence that the legislation demands? WIll Indonesian timber become less competitive and more expensive if the conditions mandated are complied with? Will it lose its competitive edge?

One would have to wait for the legislation to be passed and a possible Indonesian challenge at the WTO for some of these questions to be answered. Till then, timber logging would remain an uncontested topic in WTO dispute settlement.

Bali, WTO and Indonesia

(Bali, Indonesia)

Indonesia was in the news with respect to the WTO for entirely two different reasons. Firstly, it agreed to host the 9th Ministerial Conference of the WTO in Bali, Indonesia in December 2013. The 8th Ministerial Conference was in Geneva in December 2011. I have blogged about it here and here.The Ministerial Conference is the highest decision making body of the WTO which meets every 2 years.

 Indonesia, while offering to host the 9th Ministerial Conference stated:

“In the situation where crisis is still hampering the global economy, Indonesia continues to believe that the multilateral trading system has a significant role in fostering a fair global trade, sustaining the world economic growth, eradicating poverty and creating job opportunities. In this regard, the next MC9 will therefore be very important to re-energize the negotiation process and the progress achieved so far, and to strengthen the multilateral trading system. Finally, Indonesia fervently hopes that the exotic ambiance of the land of the gods and goddess, the warm weather and the hospitality of the people of Bali, will rejuvenate and renew the constructive spirit of the Doha Development Agenda negotiation in the WTO.”

A chance to change gears for the Doha round in the serene environs of Bali?

Secondly, Indonesia initiated a dispute with the EU with a request for consultations with respect to importation of fatty alcohols on which EU had imposed anti-dumping duties.

Indonesia has been a rarely reluctant participant in the Dispute Settlement Mechanism of the WTO having been a complainant in only 5, a respondent in 4 cases and a third party only in 4 cases, so far.

As they say in Indonesian, Salamat Datang (Welcome) to Indonesia?