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Strategy Maneuvering in the WTO Appeal Opinion

Strategy Maneuvering in the WTO Appeal

On mid-February 2017, the Indonesian Government has finally filed an appeal to the Dispute Settlement Body (DSB) of the World Trade Organization (WTO) for its infamous horticultural and animal products importation licensing regime case, as circulated to the WTO members on 22nd December 2016. Eighteen Indonesian measures were declared inconsistent with WTO laws, risking more than four national regulations to abide the Panel Report. Now, Indonesia is in position to counter back as they are now in stage of appeal against the complainants, namely the United States (US) and New Zealand.

The complainants claimed that those measures regulated in the Ministry of Agriculture Regulation Number 86/2013 and 139/2014, as well as Ministry of Trade Regulation Number 16/2013 and 46/2013, consist of quantitative import restrictions prohibited by Article XI:1 of General Agreement on Tariff and Trade (GATT) regarding general elimination of quantitative restrictions, and Article 4.2 of the Agreement on Agriculture regarding elimination of measures that should have been converted into ordinary customs duties. Moreover, the complainants also alleged that the measures violated the national treatment obligation under Article III:4 of the GATT and the requirements for non-automatic import licensing under Article 3.2 of the Import Licensing Agreement.

Indonesia exercised certain general exceptions under Article XX of the GATT as its defense from all violation allegations pointed out by the complainants. Indonesia further stated that the regime and actions taken by the country were to protect Halal as a public moral, human life or health by ensuring food safety/food security, as well as necessary to secure compliance with customs legislation. In addition, Indonesia also engaged Article XI:2(c)(ii) of the GATT to preserve the measures done by the country, which exempts the introduction of import restrictions that are designed to remove temporary surpluses of like domestic products.

Unfortunately, since Indonesia had not demonstrated that its measures were justified under those provisions, the Panel refused Indonesia’s defense in the report. The Panel indicated that all of the measures were prohibitions on importation or restrictions having a limiting effect on importation and thus inconsistent with Article XI:1 of the GATT. Furthermore, the Panel in its Panel Report recommend that “the DSB request Indonesia to bring its measures into conformity with its obligations”, hence Indonesia has to adjust its import regime.

There are various reasons for a party to file an appeal, which may include to justify that they did not breach any agreement, or they did breach, but need more time to keep implementing their inconsistent measures. Whatever the reasons are, parties have to be sure that this action would be fruitful to all. With this appeal, Indonesia has more time to keep its regulations in force because the Panel Report is not to be considered for adoption until the appeal is completed. Indonesia might be able to defense several measures out of eighteen, but again, as the appeal will be limited to legal issues and legal interpretations, there are a lot of matters to be mulled over with careful and tactful considerations by Indonesia. 

Winning the appeal seems like a little over the top for Indonesia right now, since Indonesia had difficulties in justifying their measures in the Panel Report. And of course, Indonesia should first acknowledge that yes, they received full rejection in the Panel Report due to their lack of arguments and demonstrations. Next, they should identify the weaknesses of their arguments and demonstrations, and strengthen their capacity in both the WTO laws and Indonesian regulations. This time, the Government must deeply consider its defense the right ways and seek the best opinions from experts to justify its legal issues and legal interpretations. Are the regulations really and fully inconsistent? Or, there might be certain things that are consistent, but hidden and not demonstrated well enough. Either way, no matter how right a party is, without excellent arguments and demonstrations, nobody would see it well. Once they understand the root of their weakness, it is easier to prepare and strengthen Indonesia’s position. For example, if Indonesia could prove that certain regulation did not breach any WTO laws, Article XX (d) of the GATT allows a party to adopt measures that are “necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement …”

The edging question now is, what if Indonesia wins, or loses, in the appeal? And what would be the impact of the Appellate Body’s decision later? Should Indonesia win in the appeal, such importation measures might still be allowed to be carried out although the complainants might still face export difficulties. Additionally, we should bear in mind that the WTO is not in favor of import restrictions, since the Organization was established with main function “to ensure that trade flows as smoothly, predictably and freely as possible.” One of the eighteen measures consists of the requirement where the importation depends upon Indonesia's determination of the sufficiency of domestic supply to satisfy domestic demand. This measure clearly hampers the predictability of the trade flows, which cause uncertainty and confusion to the exporting countries.

On the other hand, should Indonesia lose in the WTO appeal and the Appellate Body determined that the importation measures were inconsistent, the Appellate Body would recommend Indonesia to bring such measures into conformity within a reasonable period of time. Additionally, the Appellate Body may also suggest ways for Indonesia to implement the recommendations. If after such recommendations are given under the Appellate Body Report and Indonesia still has not brought the importation measures into conformity, then all parties must enter into negotiations to develop a mutually acceptable compensation. If no mutually compensation has been met, then Indonesia might face suspension on their concessions or other obligations, which will be considered by the US and New Zealand.

With such burden in mind, should Indonesia wishes to not adopt the Appellate Body Report, they must as well be prepared to offer certain things or ways to the complainants as compensation. One of the best options for Indonesia is to use the same stratagem as the US had used in its previous Clove Cigarettes case (2012). Indonesia won the appeal, but then through American negotiations, a deal was settled between the two countries, waving the Appellate Body’s decision. But in the current case, Indonesia must pay extra attention as their negotiating counterparts will be two nations, hence they have to consider and accommodate all offers and interests with care. 

The Government have to show the world that Indonesia is not trade unfriendly, yet still manage to preserving national jurisdiction and sovereignty. And while preparing the best move for this appeal, the welfare of Indonesian people must not be put in jeopardy. They must resharpen the strategy in trade dispute, as the fate of Indonesian import regime on horticultural and animal product is now in their complete submission.

 

 

International Trade, Trade Law, WTO, Trade Dispute

Written by Jessica Callista and Bhirawa J. Arifi
Members of Trade Practice Group, Bahar & Partners Law Firm