Reflecting on ASEAN Members’ Disputes at
the World Trade Organisation
Part 2: DS371, 2008
by Yvette Foo
DS371, 2008: Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines (DS371) is the second dispute between two member states of the Association of Southeast Asian Nations (ASEAN) that was brought before the Dispute Settlement Body (DSB) of the World Trade Organisation (WTO). DS371 is a 13-year-long ongoing dispute that demonstrates the region’s confidence in formal dispute settlement. Given the length of DS371, a short timeline of the dispute is provided below.
Summary of DS371’s Procedural History
Basis of the Dispute; Consultation
On 7 February 2008, the Philippines requested for consultations with the WTO. The Philippines is a major exporter of cigarettes to Thailand. The Philippines raised concerns about Thailand’s tax regimes and customs policies for imported cigarettes. The Philippines wanted to address measures that negatively impacted imported cigarettes. The Philippines claimed that Thailand breached the Customs Valuation Agreement (CVA) and numerous Articles of the General Agreement on Tariffs and Trade (GATT). [1] Thailand contested these claims by arguing, inter alia, that it acted consistently with its obligations.
Two consultations were held on 23 April 2008 and on 9 September 2008. [2] Unfortunately, parties were unable to resolve the trade dispute.
Panel Stage and Report
The matter advanced: on 29 September 2008, the Philippines requested to establish a panel. [3] The panel was established on 17 November 2008, and parties agreed to its composition on 16 February 2009. [4] The Panel Report was released on 15 November 2010, [5] and the DSB’s findings were largely in favour of the Philippines’ claims. [6] Imported cigarettes were found to be treated less favourably compared to local suppliers and Thailand had therefore breached its obligations under both the CVA and GATT.
Appellate Body Report
On 22 February 2011, Thailand issued a Notification of an Appeal [7] under Article 16.4 and Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) [8] to appeal against some of the DSB’s findings. By 17 June of the same year, the Appellate Body issued its Report, [9] which upheld the majority of the panel’s findings. [10] Both the Panel Report and Appellate Body Report were adopted on 15 July 2011.
Compliance, Reasonable Time
Following the appeal, Thailand wrote in to the WTO to request for a reasonable amount of time to consult internally and discuss with the Philippines on how to “implement the recommendations and rulings of the DSB … in a manner that respects its WTO obligations”. [11] The two ASEAN member states decided on a period of 10–15 months for Thailand to implement the recommendations, during which Thailand would submit monthly status reports to the DSB. [12] This reasonable time period would end on 15 October 2012.
On the face of it, the matter in DS371 seemed on track to be resolved after the appeal – Thailand made progress in its implementation efforts and “expect[ed] to complete [implementing the WTO’s recommendations and rulings] within the reasonable periods of time”. [13] However, the bulk of the dispute in DS371 and the reason why this is a live dispute concerns whether Thailand complied with the DSB’s recommendations and rulings. Thailand believes that it fully implemented the recommendations, [14] but the Philippines did not agree—to the extent of being “deeply disappointed”. [15]
Although parties attended numerous bilateral meetings between 2013 and 2016 to discuss Thailand’s implementation of the WTO’s recommendations, the Philippines requested for consultations under Article 21.5 of the DSU on 4 May 2016 [17] and again on 4 July 2017. [18] This escalated to requests for panels on 29 June 2016 [19] and 14 March 2018 respectively. [20] The compliance panels issued its reports on 12 November 2018 and on 12 July 2019, finding that certain measures were still in violation of the GATT and that Thailand did not implement all of the WTO’s recommendations. [21]
On 9 January 2019 [22] and 9 September 2019, [23] Thailand submitted its notifications to appeal findings by the Compliance Panels. Unfortunately, before the case could proceed to the appeal stage, the WTO Appellate Body found itself at an impasse: with zero members acting on the Appellate Body. [24] The WTO dispute settlement system is currently unable to hear any appeals because it fails the quorum requirement under Article 17.1 of the DSU. [25]
Suspension of Concessions/Obligations under Article 22.2 of the DSU [26]
To deal with the impasse, the Philippines asserted its right to suspend concessions to Thailand under Article 22.2 and requesting for authorisation from the WTO to do so. [27] The Philippines’ Tariff Commission conducted a public consultation to consider 37 tariff lines on products imported from Thailand to suspend concessions in retaliation, [28] amounting to around USD594 million annually; an amount that the Tariff Commission believed was commensurate to their nullification/loss of benefits for their cigarette exports due to Thailand’s failure to comply. [29] Thailand challenged the request and argued that parties had to finish ongoing appellate proceedings before resorting to Article 22.2, suggesting instead that parties should address the impasse first. [30] “Absent any adopted compliance report by the Panel or the Appellate Body, the Philippines’ retaliation request would amount to a unilateral determination”. [31]
Facilitator-Assisted Consultations
On 18 December 2020, the Philippines and Thailand sent an “Understanding … to Pursue Facilitator-assisted discussions aimed at progressing and resolving outstanding issues in regard to DS371” to the Chairperson of the DSB. [32] The two countries agreed to re-engage in consultations with the assistance of a Facilitator, whose role was to assist parties in “identifying appropriate ways forward to resolve the outstanding differences between them”, “identify and make recommendations to the parties … which will include both procedural and/or substantive approaches, including a potential comprehensive settlement” on the compliance issue. [33]
On 6 April 2021, Facilitator George Miwa sent a report to the WTO about the six Facilitator-assisted consultations between the two countries that took place since December 2020. [34] He reported that the consultations have been “valuable” in allowing parties to share their respective views and work on the aforementioned resolution as planned. Facilitator Miwa has recommended for consultations to continue until 31 July 2021. [35] No further developments have been made to date.
Going Beyond Bilateral Negotiations
As was the case for DS1, 1995: Malaysia — Prohibition of Imports of Polyethylene and Polypropylene (DS1), the Philippines and Thailand engaged in bilateral negotiations numerous times to address the trade dispute, with mixed results. Initial consultations prior to the panel request on 29 September 2008 were unsuccessful. Thereafter, there was a time period where the two countries shared the intention to resolve their differences by engaging religiously in “bilateral discussions” to “achieve a mutually satisfactory outcome to the dispute”. [36] In 2013, after the first Panel Report and Appellate Body Report were adopted and Thailand’s reasonable time period elapsed on 15 October 2012, bilateral discussions served as stopgaps for the dispute until 2016 as parties did not engage in proceedings until the Philippines requested for a panel. Again, informal discussions seemed to be the friendlier alternative to litigation, especially after having experienced the latter twice in a row in the panel and appeal stages. Thailand, at the very least, continues to believe that bilateral negotiations should be used to resolve DS371.
Unlike DS1 which was resolved before parties established a panel, DS371 show how the disputing ASEAN member states advanced their case after bilateral discussions failed to obtain resolution. Unsuccessful discussions prompted the Philippines to seek such measures. [37]
The Philippines first triggered Article 21.5 of the DSU to request for a compliance panel on 21 July 2016 after years of consultations and discussions with Thailand. The Philippines explained that “its only remaining option was to request the establishment of a compliance panel” after being “exceedingly solicitous of its ASEAN partner over the course of the many years since the expiry of the reasonable period of time” for DS371. [38] The Philippines cited its willingness to engage in good faith discussions by offering Thailand numerous opportunities to provide documents and information concerning the latter’s implementation of the WTO’s recommendations. [39]
The Philippines justified their request to the DSB to suspend trade concessions because the pathway of negotiations and consultations had been exhausted. [40] The Philippines made this request on 12 February 2020. [41] Among its reasons for the request was an explanation that the Philippines had “repeatedly … requested Thailand to engage in good faith efforts to bring its measures into compliance or to find mutually acceptable and prompt solutions,” [42] and therefore had no choice but to request authorisation to suspend concessions.
Philippine Trade Undersecretary Ceferino Rodolfo has maintained that the country was ready to “initiate the process of suspension for concessions” and that it was important to “maintain a credible and realistic threat to trigger a WTO rules compliant suspension of concession [] for [the Philippines] to be able to forge a comprehensive solution for example through a facilitator-led process.” [43] This precautionary step is markedly different to how the Philippines first entered into consultations and bilateral discussions with Thailand. Evidently, the Philippines is still prepared to go beyond bilateral discussions to resolve DS371. [44]
On this point, it should be noted that by 2008, when the Philippines first raised this dispute to the WTO, ASEAN had already developed its own dispute settlement mechanisms. The ASEAN Protocol on Enhanced Dispute Settlement Mechanism came into force on 29 November 2004 (ESDM 2004). Despite this, the Philippines chose to bring its case to the WTO DSB instead. While official reasons for this decision are unknown, one possible explanation is that the Philippines saw potential with the WTO’s system, whereas “the ASEAN dispute resolution process would yield a very different outcome” because of its consensus-based ideology. [45] “[S]truggles” were likely to arise between getting a consensus between the Philippines and Thailand’s representatives at Senior Economic Officials Meetings (SEOM); one example is the need for the SEOM to reach a consensus to establish a panel and release its recommendations. [46] In the same way that bilateral discussions depend on mutual agreement, a consensus-based system would delay the path to adjudication – something that the WTO would be able to implement faster. Rather than avoiding dispute settlement entirely, it is more likely that ASEAN lacked faith in its own untested mechanism and preferred the WTO’s. [47]
Commitment to the WTO’s Dispute Settlement Mechanism
The Philippines and Thailand continue to observe the WTO rules and system. Both countries have repeatedly expressed their commitment to the WTO. On its to request to suspend concessions, to abide by the DSU, the Philippines formally sought and continues to wait for the WTO’s approval instead of acting unilaterally. Trade Undersecretary Rodolfo stated that the Philippines wished to exercise its rights, “and in the process, demonstrate that the WTO works.” [48] Similarly, Thailand strove to ensure that it acted in a WTO-consistent manner. [49] It “was strongly supportive of the existence of a binding system of dispute settlement in the multilateral trading system, on which Thailand had successfully relied in the past to vindicate its rights and obligations under WTO law.” [50] This level of commitment to the process, despite many years of debate, is indicative of ASEAN’s reliance on the WTO’s dispute settlement process as its primary way to resolve intraregional trade disputes.
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The next instalment in this series will focus on DS496, 2015: Indonesia — Safeguard on Certain Iron or Steel Products (DS496), a dispute between Viet Nam and Indonesia. Unlike the cases discussed so far, DS496 progressed to the implementation stage and has been resolved, with full implementation of the DSB recommendations and rulings. With this case, ASEAN can say that it has been able to resolve an intraregional trade dispute using the WTO dispute settlement mechanism.
[1] See generally, World Trade Organisation, ‘Request for Consultations by the Philippines WT/DS371/1; G/L/847; G/VSAL/D/11’ (12 February 2008).
[2] World Trade Organisation, ‘Request for the Establishment of a Panel by the Philippines WT/DS371/3’ (6 October 2008), at [1].
[3] Ibid, at [3]-[30].
[4] World Trade Organisation, ‘Constitution of the Panel Established at the Request of the Philippines WT/DS371/4’, (17 February 2009).
[5] World Trade Organisation, ‘Final Report of the Panel WT/DS371/R’, (15 November 2010).
[6] In summary, the Panel Report stated that Thailand did not justify its inconsistent valuation decisions and breached the CVA, while its tax regimes towards imported cigarettes were excessive and in breach of the GATT. Other administrative delays and failures were also identified as breaching the GATT. See all of the panel’s findings and recommendations at World Trade Organisation, ‘Report of the Panel WT/DS371/R’, (15 November 2010), p 391–394.
[7] World Trade Organisation, ‘Notification of an Appeal by Thailand under Article 16.4 and Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) and under Rule 20(1) of the Working Procedures for Appellate Review WT/DS371/8’, (23 February 2011).
[8] Article 16.4 provides that the panel report will be adopted within 60 days of its circulation unless a party to the dispute formally notifies the DSB of its intention to appeal, following which the panel report will only be considered after the appeal. Article 17 sets out the appeal procedure, including how Persons serving on the Appellate Body are appointed.
[9] World Trade Organisation, ‘WT/DS371/AB/R
[10] World Trade Organisation, ‘Report of the Appellate Body WT/DS371/AB/R’, (17 June 2011), at p 84–85.
[11] World Trade Organisation, ‘Communication from Thailand WT/DS371/12’, (15 August 2011).
[12] World Trade Organisation, ‘Agreement under Article 21.3(b) of the DSU WT/DS371/14,’ (27 September 2011). See paragraphs 8.3(b) and (c) of the Panel Report, supra note 5 at p 391.
[13] For example, Thailand established an independent review process through the Customs Regulation on Administration Regarding the Customs Guarantees, and also drafted and reviewed a Royal Decree issued under the Revenue Code that would address the VAT issue for imported cigarettes. See World Trade Organisation, ‘Status Report by Thailand Addendum WT/DS371/15/Add.2,’ (15 June 2012); see also World Trade Organisation, ‘Status Report by Thailand WT/DS371/15,’ (13 April 2012).
[14] See World Trade Organisation, ‘Status Report Regarding Implementation of the DSB Recommendations and Rulings in the Dispute WT/DS371/15/Add.24,’ (13 May 2014). This was also Thailand’s positions in the corresponding DSB meeting held on 17 December 2012, World Trade Organisation, ‘Minutes of Meeting WT/DSB/M/327’.
[15] World Trade Organisation, ‘Minutes of Meeting WT/DSB/M/334’ (2 October 2013), at [E.1.35].
[16] Article 21.5 covers the dispute settlement process where there is “disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings”.
[17] World Trade Organisation, ‘Recourse to Article 21.5 of the DSU by the Philippines – Request for Consultations WT/DS371/17’, (12 May 2016).
[18] World Trade Organisation, ‘Second Recourse to Article 21.5 of the DSU by the Philippines – Request for Consultations WT/DS371/21,’ (6 July 2017).
[19] World Trade Organisation, ‘Recourse to Article 21.5 of the DSU by the Philippines – Request for the Establishment of a Panel WT/DS371/18,’ (6 July 2016).
[20] World Trade Organisation, ‘Second Recourse to Article 21.5 of the DSU by the Philippines – Request for the Establishment of a Panel WT/DS371/22’, (16 March 2018).
[21] See World Trade Organisation, ‘Recourse to article 21.5 of the DSU by the Philippines – Report of the Panel WT/DS371/RW’, (12 November 2018), ‘Second recourse to article 21.5 of the DSU by the Philippines – Report of the Panel WT/DS371/RW2,’ (12 July 2019).
[22] World Trade Organisation, ‘Recourse to Article 21.5 of the DSU by the Philippines – Notification of an Appeal by Thailand under Articles 16.4 and 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), and Rule 20 of the Working Procedures for Appellate Review WT/DS371/27,’ (14 January 2019).
[23] World Trade Organisation, ‘Second Recourse to Article 21.5 of the DSU by the Philippines – Notification of an Appeal by Thailand under Articles 16.4 and 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), and Rule 20 of the Working Procedures for Appellate Review WT/DS371/30,’ (11 September 2019).
[24] World Trade Organisation, ‘Appellate Body Members’, <https://www.wto.org/english/tratop_e/dispu_e/ab_members_descrp_e.htm> accessed 29 April 2021 at “Members of the Appellate Body and their respective terms of office”; see also General Council, ‘DG Azevêdo to launch intensive consultations on resolving Appellate Body impasse’ (9 December 2019), <https://www.wto.org/english/news_e/news19_e/gc_09dec19_e.htm> accessed 29 April 2021.
[25] Article 17.1: “The Appellate Body shall hear appeals from panel cases. It shall be composed of seven persons, three of whom shall serve on any one case.” …
[26] Under Article 22, compensation and suspension of concessions are available to WTO members as a temporary measure in the event that the recommendations and rulings are not implemented within a reasonable period of time.
[27] World Trade Organisation, ‘Recourse to Article 22.2 of the DSU by the Philippines WT/DS371/32,’ (14 February 2020).
[28] Bernie Cahiles-Magkilat, ‘PH lists 37 Thai exports that may lose tariff concessions’ Manila Bulletin (14 January 2021) https://mb.com.ph/2021/01/14/ph-lists-37-thai-exports-that-may-lose-tariff-concessions/ accessed 3 May 2021.
[29] Ibid.
[30] World Trade Organisation, ‘Communication from Thailand WT/DS371/33,’ (27 February 2020).
[31] World Trade Organisation, ‘Communication from Thailand WT/DS371/36’, (11 March 2020)
[32] World Trade Organisation, ‘Communication from the Chairperson of the DSB Concerning the “Understanding between the Philippines and Thailand to Pursue Facilitator-Assisted Discussions Aimed at Progressing and Resolving Outstanding Issues in regard to DS371” WT/DS371/44’, (21 December 2020).
[33] Ibid, at [2].
[34] World Trade Organisation, ‘Report of the Facilitator Pursuant to Paragraph 5 of the “Understanding between the Philippines and Thailand to Pursue Facilitator-Assisted Discussions Aimed at Progressing and Resolving Outstanding Issues in regard to DS371” WT/DS371/45’, (6 April 2021).
[35] Ibid.
[36] See for example, World Trade Organisation, ‘Status Report by Thailand Addendum WT/DS371/15/Add.3’, (13 July 2012), at p 2.
[37] Thailand maintains that “bilateral discussions should remain bilateral”, see World Trade Organisation, ‘Minutes of Meeting WT/DSB/M/441,’ (14 May 2020), at [10.8].
[38] World Trade Organisation, ‘Minutes of Meeting WT/DSB/M/383’, (11 October 2016), at [7.2].
[39] Ibid.
[40] Bernie Cahiles-Magkilat, ‘PH renews WTO bid to retaliate against Thailand’, (22 August 2020) The Manila Bulletin, < https://mb.com.ph/2020/08/22/ph-renews-wto-bid-to-retaliate-against-thailand/#:~:text=The%20Philippines%20has%20once%20again,motor%20vehicles%20exported%20to%20Manila> accessed 3 May 2021.
[41] World Trade Organisation, ‘Recourse to Article 22.2 of the DSU by the Philippines WT/DS371/32,’ (12 February 2020).
[42] Ibid, at [15].
[43] Anna Leah E Gonzales, ‘PH monitoring cigarette dispute settlement with Thailand’ (30 March 2021) The Manila Times < https://www.manilatimes.net/2021/03/30/business/business-top/ph-monitoring-cigarette-dispute-settlement-with-thailand/857183/#:~:text=The%20WTO%20in%20July%202019,on%20valuation%20for%20cigarette%20shipments> accessed 3 May 2021.
[44] See also the Philippines’ suggestions to rely on arbitration as provided by under Article 22.6 to expedite DS371 in light of the impasse: supra note 37, at [10.3].
[45] Kelly Gerard, ‘ASEAN as a “Rules-based Community”: Business as Usual’, Asian Studies Review 42:2 201, at p 217-219, 221.
[46] Ibid, at 221.
[47] Walter Woon, The ASEAN Charter: A Commentary (NUS Press 2015), at p 180.
[48] Supra note 31.
[49] World Trade Organisation, ‘Minutes of Meeting WT/DSB/M/337’, (13 January 2014).
[50] Supra note 32, at [7.3].