Indonesia – Recourse to Article 22.2 of the DSU in
the
US – Clove Cigarettes Dispute
Request for Consultations by the European Union
The following communication, dated 13 June 2014,
from the delegation of the European Union to the delegation of Indonesia and to
the Chairperson of the Dispute Settlement Body, is circulated in accordance
with Article 4.4 of the DSU.
_______________
My authorities have instructed
me to request consultations with the Government of the Republic of Indonesia
("Indonesia") pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes ("DSU") and Article XXII:1 of the General Agreement on Tariffs and Trade 1994 ("GATT
1994") with particular respect to Indonesia's unilateral recourse to
Article 22.2 of the DSU in the context of the compliance and arbitration panel
proceedings in Case DS406 US – Clove Cigarettes,
and the exclusion of third parties from those proceedings. We consider this to
be inconsistent with Articles 21.5, 22.2, 23.1 and 23.2(a) of the DSU, as well
as Articles 10.1, 10.2 and 10.3 of the DSU. As the Appellate Body has clearly
stated:
… before
obtaining the DSB's authorization to suspend concessions, a Member must
initiate a dispute settlement process in which it challenges the consistency
with the covered agreements of a measure taken by another Member. The Member
initiating the process will only be authorized to suspend concessions when the
measure is found by the panel (and the Appellate Body, if appealed) to be inconsistent
with the covered agreements and the Member taking the measure fails to
implement the panel's (or Appellate Body's) findings within a reasonable period
of time or, if it takes a measure to comply, that measure is found by the panel
(and the Appellate Body) in compliance proceedings not to have brought the
Member concerned into compliance. In other words, the Member will only be able
to suspend concessions pursuant to the DSB's authorization after having had
extensive recourse to, and abided by, the rules and procedures of the DSU,
consistent with the requirements of Article 23.1.[1]
Background
to the dispute
At
its meeting on 24 April 2012 the Dispute Settlement Body (DSB) adopted the
Appellate Body Report on United States – Measures
Affecting the Production and Sale of Clove Cigarettes
(WT/DS406/AB/R) and the Panel report (WT/DS406/R), as modified by the Appellate
Body Report.[2]
Following the recommendations from the Panel and Appellate Body, the DSB
requested the United States to bring its measure, found in the Appellate Body
Report and in the Panel Report as modified by the Appellate Body Report, to be
inconsistent with the TBT Agreement, into conformity with its obligations under
that Agreement.[3]
Pursuant to Article 21.3(b) of the DSU, Indonesia and the United States agreed
that the reasonable period of time for the United States to comply would be 15
months from 24 April 2012, expiring on 24 July 2013.[4]
On
23 July 2013 the United States informed the DSB and all WTO Members that, in
the opinion of the United States, it had complied with the recommendations and
rulings of the DSB following the original proceedings.[5]
On 12 August 2013 Indonesia informed the DSB and all WTO Members that, in
the opinion of Indonesia, the United States had failed to bring the measure
found to be inconsistent with the covered agreements into compliance therewith
or to otherwise comply with the recommendations and rulings within the
reasonable period of time, and that no satisfactory compensation had been
agreed.[6]
Consequently, there is a disagreement between the United States and Indonesia
as to the existence or consistency with a covered agreement of measures taken
to comply with the recommendations and rulings, as provided for in Article 21.5
of the DSU.[7]
Article 21.5 provides that such a compliance dispute shall be decided through
recourse to the procedures set out in the DSU, including, wherever possible,
resort to the original panel.
Notwithstanding
the disagreement with respect to compliance, on 12 August 2013, Indonesia
requested authorisation from the DSB to suspend the application to the United
States of concessions or other obligations under the covered agreements,
pursuant to Article 22.2 of the DSU.[8]
The United States objected to the level of suspension proposed and claimed that
the principles and procedures set forth in Article 22.3 had not been followed.[9]
The DSB agreed that the matter was referred to arbitration, as required by
Article 22.6 of the DSU.[10]
At
the DSB meeting on 23 August 2013 the representative of the European Union made
the following statement:
The representative of the European Union said that the EU noted the
statement made by the United States that it had taken measures to comply with
the DSB's recommendations and rulings. The EU also noted that Indonesia did not
agree that the United States had brought its measures into compliance with the
TBT Agreement. It appeared that "there is a disagreement as to the
existence or consistency with a covered agreement of measures taken to comply
with the recommendations and rulings" of the DSB within the meaning of
Article 21.5 of the DSU. The EU wished to recall that, pursuant to that
provision, "such dispute shall be decided through recourse to these
dispute settlement procedures, including wherever possible recourse to the
original panel". In cases of disagreement about the existence or
consistency with WTO rules of compliance measures, concessions or other
obligations may be suspended under the DSU once there was a multilateral
determination on the alleged compliance action. The EU hoped that the United
States and Indonesia would ensure that the DSU procedures with regard to
compliance and suspension of obligations in this dispute could be conducted
efficiently and in the right sequence. Finally, the EU recalled that it had
participated as a third party in the Panel and appeal proceedings in this
dispute and, therefore, pursuant to Article 10, paragraphs 1, 2 and 3 of the
DSU, it reserved its right to participate as a third party in any subsequent
proceedings, including with respect to any disagreement as to the existence or
consistency with a covered agreement of measures taken to comply with the DSB's
recommendations and rulings.[11]
By
communication dated 2 September 2013 the WTO Members were informed that the
matter referred to the compliance/arbitration panel would be dealt with by the
original panel, pursuant to Article 22.6 of the DSU.[12]
By
communication dated 4 September 2013 the European Union requested that
appropriate provision be made in the Working Procedures and Timetable of the
compliance/arbitration panel proceedings in order to facilitate the exercise by
the European Union of its third party rights in this dispute.
By
communication dated 18 December 2013 the compliance/arbitration panel informed
the European Union of its decision, taking into account the views expressed by
Indonesia, not to accord the European Union third party rights in the
compliance/arbitration panel proceedings.
The
compliance/arbitration panel has not informed WTO Members that the
compliance/arbitration proceeding has been suspended.
At
the DSB meeting on 22 January 2014 the EU made a statement explaining that it
considered that there had been a breach of its third party rights, and that
what had occurred was inconsistent with Articles 22.2, 23.1 and 23.2(a) of the
DSU, which was followed by a discussion.[13]
The European Union subsequently requested the circulation of a communication
explaining its point of view,[14]
which was also discussed at the following regular DSB meeting on 26 February
2014.[15]
The
First Written Submission of the United States of America in the
compliance/arbitration panel proceedings (19 December 2013) devotes the first
39 of its 55 pages to explaining that the United States has fully implemented
the recommendations and rulings of the DSB. Similarly, the US Reponses to the
compliance/arbitration panel questions in advance of the substantive meeting
(11 March 2014), the US Opening Oral Statement (27 March 2014) and the US
Responses to the compliance/arbitration panel questions following the
substantive meeting (10 April 2014)[16]
all demonstrate that compliance proceedings are in progress.
The measures at issue
The
measures at issue are Indonesia's decision to have recourse to Article 22.2 of
the DSU and its request to that effect, as evidenced by WT/DS406/12,
notwithstanding the existence of a disagreement with the United States as to
compliance, together with Indonesia's omission in not initiating and pursuing
compliance proceedings pursuant to Article 21.5 and Indonesia's omission in not
requesting and procuring suspension of the arbitration panel proceedings
pending the outcome of the compliance panel proceedings.
The
measures at issue also include Indonesia's request that the European Union be
unlawfully excluded from the compliance/arbitration panel proceedings, which
was a genuine and substantial cause of that exclusion, as evidenced by the
communication dated 18 December 2013 from the compliance/arbitration panel.
Any
act or omission attributable to a WTO Member may be a measure for the purposes
of WTO dispute settlement.[17]
The measures referred to by the European Union are acts or omissions
attributable to Indonesia.
A
WTO Member bringing a case under the DSU does not have to demonstrate any
special interest over and above the fact of a WTO inconsistency.[18]
The measures at issue are WTO inconsistent for the reasons set out below. In
any event, in this particular case, the European Union was a third party in the
original panel proceedings and a third participant in the original Appellate
Body proceedings. In addition, the European Union is engaged in the production,
trade and regulation of cigarettes, including the types of cigarettes that have
been referenced in this case. Furthermore, the European Union has a systemic
interest in the correct and consistent interpretation and application of the
covered agreements, also and particularly with respect to any suspension of
concessions and possible effects on the European Union, including trade
deflection or diversion effects. We have a close interest in these
compliance/arbitration panel proceedings.
The WTO inconsistency of the measures at issue
Article
21.5 of the DSU[19]
refers to a situation where there is disagreement as to the existence or
consistency with a covered agreement of measures taken to comply with the
recommendations and rulings of the DSB. In these circumstances, this provision
unconditionally provides for the obligation to have recourse to the dispute
settlement procedures of the DSU ("such dispute shall
be decided through recourse to these dispute settlement procedures, including
wherever possible resort to the original panel").
Articles
21.5 and 22[20]
indicate that Article 22 is premised on a situation of non-compliance, which
the Appellate Body has indicated must be based on a multilateral determination
to that effect. In this context, Indonesia's request for authorization from the
DSB to suspend the application to the United States of concessions or other
obligations under the covered agreements, pursuant to Article 22.2 of the DSU,
together with Indonesia's omission in not initiating and pursuing compliance
proceedings pursuant to Article 21.5 and its omission to request and procure
suspension of the arbitration panel proceedings, was premised, by operation of
law, on the proposition that the United States has failed to bring the measure
found to be inconsistent with a covered agreement into compliance therewith or
otherwise comply with the recommendations and rulings within the reasonable
period of time determined pursuant to paragraph 3 of Article 21. However, there
has not yet been any multilateral determination on the question of compliance.
Rather, as recalled above, there is a disagreement between the United States
and Indonesia as to the existence or consistency with a covered agreement of
measures taken to comply with the recommendations and rulings, as provided for
in Article 21.5 of the DSU.
Article
22.6 of the DSU[21]
is premised on the situation described in paragraph 2 occurring. The situation
in paragraph 2 includes a situation in which the Member concerned has failed to
comply, and, in case of disagreement, that there has been a multilateral
determination to that effect. Article 22.7 of the DSU[22]
provides for a determination to be made as to whether the level of the
concessions or other obligations to be suspended is equivalent to the level of
nullification or impairment, whether the proposed suspension is allowed under
the covered agreement, and whether the principles and procedures set forth in
paragraph 3 of Article 22 of the DSU have been followed. In this case, these
tasks are also to be carried out by the original panel. Thus, Articles
22.3-22.8 as a whole are premised on a situation of non-compliance. They all
refer directly or indirectly to the nullification or impairment arising from
non-compliance. If the DSB would, pursuant to Article 22.7 of the DSU, by
negative consensus or automatically, authorise suspension of concessions in
circumstances where compliance has been achieved, it would necessarily act
inconsistently with Article 22.5 of the DSU.[23]
In
this respect, the European Union recalls that the Appellate Body has found that
the question of whether a measure found inconsistent with a covered agreement
has been removed, as provided for in Article 22.8 of the DSU, necessitates a
multilateral determination. Specifically, the Appellate Body has made the
following findings:
Article 21.5 provides for specific procedures for adjudicating a
disagreement as to the consistency with the covered agreements of measures
taken by a Member to implement the DSB's recommendations and rulings. Thus,
panel proceedings under Article 21.5 is the proper procedure for resolving the
disagreement as to whether Directive 2003/74/EC has achieved substantive
compliance and whether, consequently, the resolutive condition in Article 22.8
that requires the termination of the suspension of concessions has been met. …[24]
… Article 21.5 is cast in obligatory language. … [25]
In sum, we consider that recourse to Article 21.5 panel proceedings is
the proper course of action within the procedural structure of the DSU in cases
where, as in this dispute, a Member subject to the suspension of concessions
has taken an implementing measure and a disagreement arises as to whether
"the measure found to be inconsistent with a covered agreement has been
removed" within the meaning of Article 22.8. Therefore, we share the
European Communities' view that Article 21.5 panel proceedings are the
procedures to be followed where there is disagreement as to whether Directive
2003/74/EC has achieved substantive compliance. … [26]
As the Appellate Body has explained, Article 23.1 lays down the
fundamental obligation of WTO Members to have recourse to the rules and
procedures of the DSU when seeking redress of a violation of the covered
agreements. Article 23 restricts WTO Members' conduct in two respects. First,
Article 23.1 establishes the WTO dispute settlement system as the exclusive
forum for the resolution of such disputes and requires adherence to the rules
of the DSU. Secondly, Article 23.2 prohibits certain unilateral action by a WTO
Member. Thus, a Member cannot unilaterally: (i) determine that a violation has
occurred, benefits have been nullified or impaired, or that the attainment of
any objective of the covered agreements has been impeded; (ii) determine the
duration of the reasonable period of time for implementation; or (iii) decide
to suspend concessions and determine the level thereof.[27]
(footnote omitted)
… before obtaining the DSB's authorization to suspend concessions, a
Member must initiate a dispute settlement process in which it challenges the
consistency with the covered agreements of a measure taken by another Member.
The Member initiating the process will only be authorized to suspend concessions
when the measure is found by the panel (and the Appellate Body, if appealed) to
be inconsistent with the covered agreements and the Member taking the measure
fails to implement the panel's (or Appellate Body's) findings within a
reasonable period of time or, if it takes a measure to comply, that measure is
found by the panel (and the Appellate Body) in compliance proceedings not to
have brought the Member concerned into compliance. In other words, the Member
will only be able to suspend concessions pursuant to the DSB's authorization
after having had extensive recourse to, and abided by, the rules and procedures
of the DSU, consistent with the requirements of Article 23.1.[28]
Accordingly,
Indonesia's decision and request pursuant to Article 22.2 of the DSU, together
with its omission in not initiating and pursuing compliance proceedings
pursuant to Article 21.5 and its omission in not requesting and procuring
suspension of the arbitration panel proceedings pending the outcome of the
compliance panel proceedings, are inconsistent with that provision and with
Articles 21.5, 23.1[29]
and 23.2(a)[30]
of the DSU because Indonesia has proceeded unilaterally, in circumstances in
which there is a dispute with respect to compliance, without any multilateral
determination of non-compliance.
In
addition, Indonesia's request that the European Union be unlawfully excluded
from the compliance/arbitration panel proceedings, which was a genuine and
substantial cause of that exclusion, is inconsistent with: Article 10.1 of the
DSU, because it does not ensure that the interests of other Members are fully
taken into account; Article 10.2 of the DSU because the European Union has a
substantial interest in the matter before the compliance/arbitration panel and
has notified that interest to the DSB, but will not have an opportunity to be
heard or to make written submissions; and Article 10.3 because the European
Union has not received and will not receive all the submissions of the parties
to the dispute to the first meeting.
* * * *
For
the reasons stated, Indonesia's measures appear to nullify or impair benefits
accruing to the European Union directly or indirectly under all of the
above-cited agreements and provisions.
The
European Union reserves the right to address additional measures and claims
regarding the above matters in the course of the consultations.
The
European Union looks forward to receiving Indonesia's reply in due course to
this request for consultations. The European Union is ready to consider with
Indonesia mutually convenient dates and modalities for organising the
consultations.
__________
[1] Appellate Body Report, US-Continued Suspension, para. 374.
[2] Action by the Dispute Settlement Body, WT/DS406/9, 1 May 2012.
[3] Panel Report, US – Clove Cigarettes,
para. 8.6; Appellate Body Report, US – Clove Cigarettes,
para. 299.
[4] Agreement under Article 21.3(b) of the DSU, WT/DS406/10, 19 June
2012.
[5] Minutes of the DSB
Meeting of 23 July 2013, WT/DSB/M/334, 2 October 2013, para. 1.45: " …
these actions by the US health authorities brought the United States into
compliance with the DSB's recommendations and rulings in this dispute within
the reasonable period of time for compliance, which expired on 24 July
2013."; Minutes of the DSB Meeting of 23 August 2013, WT/DSB/M/335, 4
October 2013, para. 1.8: " … as the United States had notified the DSB at
the 23 July 2013 meeting, the United States had complied with the
recommendations and rulings in this dispute."
[6] Recourse to Article 22.2 of the DSU by Indonesia, WT/DS406/12, 13
August 2013, page 1: "The United States failed to implement the
recommendations and rulings of the DSB with respect to Section 907(a)(1)(A)
by the end of the reasonable period of time, and no mutually acceptable
arrangement for compensation has been reached. … "; Minutes of the DSB
Meeting of 23 August 2013, WT/DSB/M/335, 4 October 2013, para. 1.3 " … the
US failure to comply with the DSB's rulings and recommendations in the Clove
Cigarette dispute. …".
[7] Article 21.5 of the DSU
provides in relevant part: "Where there is disagreement as to the
existence or consistency with a covered agreement of measures taken to comply
with the recommendations and rulings such dispute shall be decided through
recourse to these dispute settlement procedures, including wherever possible
resort to the original panel."
[8] Recourse to Article 22.2 of the DSU by Indonesia, WT/DS406/12, 13
August 2013.
[9] Recourse to Article 22.6 of the DSU by the United States,
WT/DS406/13, 23 August 2013.
[10] Minutes of the DSB
Meeting of 23 August 2013, WT/DSB/M/335, 4 October 2013, para. 1.13.
[11] Minutes of the DSB
Meeting of 23 August 2013, WT/DSB/M/335, 4 October 2013, para. 1.10.
[12] Recourse to Article 22.6 of the DSU by the United States,
Constitution of the Arbitrator, WT/DS406/14, 2 September 2013.
[13] Minutes of the DSB Meeting of 22 January 2014, WT/DSB/M/341, 25
April 2014, paras. 8.1-8.20.
[14] WT/DS406/15, 14 February 2014.
[15] Minutes of the DSB Meeting of 26 February 2014, WT/DSB/M/342, 16
May 2014, paras. 5.1-5.22.
[17] Appellate Body Report, US-Corrosion-Resistant
Steel Sunset Review, para. 81: "… any act or omission
attributable to a WTO Member can be a measure of that Member for purposes of
dispute settlement proceedings."
[18] Appellate Body Report, EC – Bananas III,
paras. 132-138.
[19] Article 21.5 of the DSU provides as follows: "Where there is
disagreement as to the existence or consistency with a covered agreement of
measures taken to comply with the recommendations and rulings such dispute
shall be decided through recourse to these dispute settlement procedures,
including wherever possible resort to the original panel. The panel shall
circulate its report within 90 days after the date of referral of the matter to
it. When the panel considers that it
cannot provide its report within this time frame, it shall inform the DSB in
writing of the reasons for the delay together with an estimate of the period
within which it will submit its report."
[20] Article 22.2 of the DSU
provides as follows: "If the Member concerned fails to bring the measure
found to be inconsistent with a covered agreement into compliance therewith or
otherwise comply with the recommendations and rulings within the reasonable
period of time determined pursuant to paragraph 3 of Article 21, such Member
shall, if so requested, and no later than the expiry of the reasonable period
of time, enter into negotiations with any party having invoked the dispute
settlement procedures, with a view to developing mutually acceptable
compensation. If no satisfactory
compensation has been agreed within 20 days after the date of expiry of the
reasonable period of time, any party having invoked the dispute settlement
procedures may request authorization from the DSB to suspend the application to
the Member concerned of concessions or other obligations under the covered
agreements."
[21] Article 22.6 of the DSU
provides as follows: "When the situation described in paragraph 2 occurs,
the DSB, upon request, shall grant authorization to suspend concessions or
other obligations within 30 days of the expiry of the reasonable period of time
unless the DSB decides by consensus to reject the request. However, if the Member concerned objects to
the level of suspension proposed, or claims that the principles and procedures
set forth in paragraph 3 have not been followed where a complaining party has requested authorization to suspend concessions
or other obligations pursuant to paragraph 3(b) or (c), the matter shall be
referred to arbitration. Such arbitration shall be carried out by the original
panel, if members are available, or by an arbitrator[21]
appointed by the Director-General and shall be completed within 60 days after
the date of expiry of the reasonable period of time. Concessions or other obligations shall not be
suspended during the course of the arbitration." (footnote omitted)
[22] Article 22.7 of the DSU
provides as follows: "The arbitrator acting pursuant to paragraph 6 shall
not examine the nature of the concessions or other obligations to be suspended
but shall determine whether the level of such suspension is equivalent to the
level of nullification or impairment.
The arbitrator may also determine if the proposed suspension of
concessions or other obligations is allowed under the covered agreement. However, if the matter referred to
arbitration includes a claim that the principles and procedures set forth in
paragraph 3 have not been followed, the arbitrator shall examine that
claim. In the event the arbitrator
determines that those principles and procedures have not been followed, the
complaining party shall apply them consistent with paragraph 3. The parties shall accept the arbitrator's
decision as final and the parties concerned shall not seek a second
arbitration. The DSB shall be informed
promptly of the decision of the arbitrator and shall upon request, grant
authorization to suspend concessions or other obligations where the request is
consistent with the decision of the arbitrator, unless the DSB decides by
consensus to reject the request." (footnote omitted)
[23] Article 22.5 of the DSU
provides as follows: "The DSB shall not authorize suspension of
concessions or other obligations if a covered agreement prohibits such
suspension."
[24] Appellate Body Report, US-Continued Suspension, para. 338.
[25] Appellate Body Report, US-Continued Suspension, para. 340.
[26] Appellate Body Report, US-Continued Suspension, para. 345.
[27] Appellate Body Report, US-Continued Suspension, para. 371.
[28] Appellate Body Report, US-Continued Suspension, para. 374.
[29] Article 23.1 of the DSU provides as follows: "When Members
seek the redress of a violation of obligations or other nullification or
impairment of benefits under the covered agreements or an impediment to the
attainment of any objective of the covered agreements, they shall have recourse
to, and abide by, the rules and procedures of this Understanding."
[30] Article 23.2(a) of the DSU provides as follows: "In such
cases, Members shall:
(a) not make a determination to the effect that a
violation has occurred, that benefits have been nullified or impaired or that
the attainment of any objective of the covered agreements has been impeded,
except through recourse to dispute settlement in accordance with the rules and
procedures of this Understanding, and shall make any such determination
consistent with the findings contained in the panel or Appellate Body report
adopted by the DSB or an arbitration award rendered under this Understanding;"