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Reflecting on ASEAN Members’ Disputes at the World Trade Organisation – Part 3: DS496, 2015 by Yvette Foo

General

Reflecting on ASEAN Members’ Disputes
at the World Trade Organisation
Part 3: DS496, 2015

by Yvette Foo

Introduction

DS496, 2015: Indonesia — Safeguard on Certain Iron or Steel Products (DS496) is the third, and as of the date of this blog post, last WTO case between two ASEAN Member States. This was a trade dispute was between Indonesia and Viet Nam on iron or steel products. Concomitantly, Chinese Taipei had a similar dispute against Indonesia and thus it requested to join the consultations on 15 June 2015.[1] Unlike the previous cases covered, DS496 is the first case where the ASEAN Member States managed to resolve the dispute through the WTO’s dispute settlement procedure around four years after the case was first brought to the WTO. This is unlike DS1, where parties resolved the dispute through bilateral negotiations, and DS371, which is ongoing.

Summary of DS496

DS496 was a trade dispute about ‘safeguard measures’ imposed by Indonesia on imported galvalume (a type of iron or steel product) from Viet Nam. Under Regulation No. 137.1/PMK.011/2014, Indonesia imposed specific duties on galvalume imports, with the exception of 120 countries, [2] which led to an increase in import duties [3] and concomitant drop in imports of galvalume from Viet Nam. It is worth mentioning that iron and steel products are major exports for Viet Nam to Indonesia. [4]

Viet Nam argued, inter alia, that these duties were being used as safeguard measures for galvalume, and therefore subject to the requirements under the Agreement on Safeguards. [5] [6] Viet Nam’s position was that the duties did not constitute a legitimate safeguard under the Agreement on Safeguard, [7] and also noted that “Indonesia did not provide an opportunity to hold consultations on relevant matters … and the information relating to these matters was only released after the actual imposition of the measure”. [8]

Viet Nam requested for consultations on 1 June 2015. [9] Consultations took place on 28 July 2015, but the trade dispute was not resolved. [10] As a result, Viet Nam requested for the establishment of a panel on 15 September [11] and a panel was established on 28 September 2015. [12]

The Panel Report

The Panel circulated its report on 18 August 2017 [13] and held, firstly, that Indonesia did not have any binding tariff obligations for galvalume under Article II of the GATT 1994. [14] , [15] Instead, the duties were being applied on top of existing most-favoured-nation/preferential rates that Indonesia was already following under existing trade agreements outside of the WTO. [16] Therefore, the duties fell outside of Article II of the GATT 1994.

Flowing from the finding above, the imposed duties did not constitute a ”suspension, withdrawal, or modification of a GATT obligation or concession that precludes a Member from imposing a measure to the extent necessary to prevent or remedy serious injury” under Article XIX of the GATT 1994 [17] Since Indonesia did not have any obligations for galvalume, the imposition of the duty did not suspend, withdraw, or modify its GATT obligations.

That being said, the Panel held that the import duties were still inconsistent with Indonesia’s obligations under Article I:1 of the GATT 1994—namely to afford most-favoured-nation (MFN) treatment to galvalume from Viet Nam—as the duties were applied on a discriminatory basis. [18] Recalling that the specific duties were being applied to all but 120 countries, this ‘advantage’ meant that Indonesia was not affording MFN treatment all galvalume imports and was being discriminatory. The Panel therefore recommended for Indonesia to withdraw the duties. [19]

On 28 September 2017, Indonesia submitted a notification to appeal the Panel’s findings. [20] Viet Nam submitted its cross-appeal on 3 October 2017. [21] The Appellate Body released its report on
15 June 2018,[22] which was adopted on 27 August 2018. [23] In its report, the Appellate Body upheld the conclusions/recommendations of the Panel Report.

Implementation of the Panel Report

On 11 October 2018, Indonesia informed the DSB that it needed a reasonable period of time to comply with the Panel Report’s rulings. [24] The parties involved agreed to a 7-month period, expiring on 27 March 2019.[25] During the DSB meeting on 30 November 2018, Indonesia expressed its respect for the Appellate Body, the WTO’s rulings, and intent to implement its recommendations.

On 15 April 2019, Indonesia sent a communication to the DSB informing them that they had adopted all of the Panel’s recommendations: [26] on 22 March 2019, Indonesia adopted new regulations for galvalume which removed the “imposition of any additional safeguard duty (in the form of specific duty) on import galvalume”. [27] Thereafter, during the DSB meeting on 26 April 2019, Viet Nam expressed its “appreciation to Indonesia for its efforts in implementing the DSB’s recommendations and rulings in this dispute.” To date, this is the last action recorded for DS496.

The Appellate Body Impasse and An Agreement to Not Appeal

It should be recalled that the WTO Appellate Body suffered an impasse in 2019. This was because the Appellate Body failed the quorum requirement under Article 17.1 of the DSU of having at least
3 members to hear appeals. As discussed in the previous blog post, for DS371, the impasse meant that Thailand’s request to appeal findings by the Compliance Panel could not be effected. In the same way, DS496 was also at the compliance/implementation stage of the dispute when the impasse occurred. However, Indonesia and Viet Nam chose to respond to the impasse in a different way. On 22 March 2019, the two signed an “Understanding between Indonesia and Viet Nam regarding Procedures under Articles 21 and 22 of the DSU” (the Understanding). [28] A representative from Taipei explained that the “non-appeal clause” in the Understanding was drafted specifically to overcome the “uncertainty in the Appellate Body”. [29]

The Understanding comprised a list of expectations set and agreed upon by the two states regarding Indonesia’s implementation of the DSB’s recommendations should there be a dispute. The two ASEAN states agreed, inter alia, to not appeal any findings about Indonesia’s compliance with the Panel’s recommendations if the Appellate Body is composed of fewer than three Members. [30] Instead, parties would turn to negotiations, request authorisation from the WTO to suspend concessions/obligations, or turn to arbitration. [31]

Dispute settlement experts have discussed the possible ramifications for parties to do this. By agreeing to forego one’s right to appeal findings, panel decisions are treated as binding without an appellate mechanism to act as a “check and balance [for] the legal questions and reasoning adopted in panel proceedings.” [32] There is little incentive for the ‘losing’ party to agree to not appeal. [33] Third-party observers to DS496 also commented on the Understanding and expressed their sympathy for Viet Nam, Indonesia, and Taipei. The following statement by the European Union (EU) effectively captures the gist of the third-parties’ fears: [34]

“…[T]he EU found it regrettable that the current crisis had resulted in such agreements being signed. The EU understood that the parties to the dispute had felt compelled to sign such agreement because of the uncertainty of whether, at the relevant point in time, an appeal would be available for the panel reports and the resulting uncertainty as to the status of such panel reports. … The EU also wished to stress that this was but an illustration of a concrete impact that the blockage of Appellate Body appointments by one WTO Member had on pending disputes and on the rights of other WTO Members. It could deprive WTO Members of their procedural right to an appeal before the Appellate Body that they otherwise should enjoy under the DSU.”

Despite these reservations, Indonesia and Viet Nam chose to sign the Understanding instead of pursuing other paths such as bilateral negotiations (like DS1), suspending concessions/obligations and/or facilitated consultations (like DS371), or arbitration. [35] Whether or not there was any particular reason why the two ASEAN nations decided to do so is not explicitly provided for­­—neither Indonesia nor Viet Nam had anything to say about their decision to sign the Understanding during the DSB meetings—but some guesses can be made.

First and foremost, the timing of the Understanding is crucial. The agreed reasonable time period for Indonesia to implement the Panel’s recommendations ended on 27 March 2019. The Understanding was signed on 22 March 2019. The implementation period for the dispute was already nearing its end by the time the two ASEAN states signed the Understanding, and up to that point, neither side had expressed any difficulties/objections to efforts taken to remove the duties. In fact, the Understanding was concluded quite literally on the same day that Indonesia amended its trade policies on galvalume, [36] and it was therefore quite unlikely for the parties to encounter any further issues regarding compliance. [37]

Secondly, it is also possible that the events that transpired in DS371 had an impact on parties in DS496. With their ASEAN neighbours stuck in a protracted dispute due to compliance issues, Indonesia and Viet Nam were likely wary of the possibility of having an equally long dispute. The Understanding may have been signed as one way to ensure their dispute is not similarly locked at the compliance stage.

Impetus for a New Dispute Settlement Mechanism

On one hand, DS496 is the only trade dispute between ASEAN Member States that has been successfully resolved through the WTO dispute settlement mechanism, with full implementation of the WTO’s recommendations. This case is indicative of their respect for the WTO’s legal authority, and an example of the region’s ability to comply with international-law based obligations. On the other hand, it is also evident that the WTO’s impasse has affected yet another trade dispute for the region, albeit less severely than in the case of DS371.

With the impasse continuing well into 2021 and creating an “uncertain future” for the WTO, it may mean that future ASEAN Member States may have reservations with it as a forum for their disputes. [38] There is therefore argument to be made that future trade disputes may turn inwards with ASEAN Member States relying on the 2019 ASEAN Protocol on Enhanced Dispute Settlement Mechanism (2019 EDSM).

The next and last instalment in this series is an overarching assessment of the three WTO cases between ASEAN Member States and the region’s commitment to rely on formal dispute resolution. It will also conclude with a brief overview of ASEAN’s own dispute settlement mechanisms, focusing on the 2019 EDSM.

[1] The dispute between Chinese Taipei and Indonesia is referenced as DS490: Indonesia — Safeguard on Certain Iron or Steel Products. See also World Trade Organisation, ‘Communication from Taipei WT/DS496/2’ (10 June 2015).
[2] World Trade Organisation, ‘Request for Consultations by Viet Nam WT/DS496/1’ (1 June 2015), at [3].
[3] Ibid, at [1].
[4] ‘VN wins steel dispute with Indonesia’, (27 November 2018) Viet Nam News <https://vietnamnews.vn/economy/480812/vn-wins-steel-dispute-with-indonesia.html>, accessed 18 June 2021.
[5] Ibid, at [6].
[6] World Trade Organisation, Agreement on Safeguards, Annex 1A to the Marrakesh Agreement (Covering Multilateral Agreements on Trade in Goods), 1869 UNTS 154, <https://www.wto.org/english/docs_e/legal_e/25-safeg_e.htm>, accessed 8 July 2021.
[7] Supra note 3, at [6].
[8] Ibid, at [6(c)].
[9] Ibid.
[10] World Trade Organisation, ‘Request for the Establishment of a Panel by Viet Nam WT/DS496/3’ (15 September 2015).
[11] Ibid.
[12] World Trade Organisation, ‘Note by the Secretariat WT/DS496/4’.
[13] World Trade Organisation, ‘Final Report of the Panel WT/DS496/R’, (18 August 2017).
[14] Ibid, at [7.18]-[7.23].
[15] See, Article II(1)(a) of the GATT 1994, Schedule of Concessions, which states that “Each contracting party shall accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement.”
[16] Supra note 14, at [2.3].
[17] Ibid, at [2.3], [7.18]-[7.20].
[18] Ibid, at [7.44].
[19] Ibid, at [8.4].
[20] World Trade Organisation, ‘Notification of an Appeal by Indonesia 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/DS496/6’ (28 September 2017).
[21] World Trade Organisation, ‘Notification of An Other Appeal by Viet Nam Under Article 16.4 and Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), and Under Rule 23(1) of the Working Procedures for Appellate Review WT/DS496/6’ (3 October 2017).
[22] World Trade Organisation, ‘Report of the Appellate Body WT/DS496/AB/R’, (15 June 2018).
[23] World Trade Organisation, ‘Action by the Dispute Settlement Body WT/DS496/11’ (28 August 2018).
[24] World Trade Organisation, ‘Communication from Indonesia Concerning Article 21.3(B) of the DSU WT/DS496/12’ (11 October 2018).
[25] World Trade Organisation, ‘Agreement under Article 21.3(B) of the DSU WT/DS496/13’ (20 November 2018).
[26] World Trade Organisation, ‘Communication from Indonesia WT/DS496/15’ (15 April 2019).
[27] Ibid. See the official regulation (in Bahasa Indonesia) here: Jaringan Dokumentasi dan Informasi Hukum, ‘Perubahan atas Peraturan Menteri Keuangan Nomor Pengamanan Terhadap Impor Produk Canai Lantaian dari Besi atau Baja Bukan Paduan 130/PMK.010/2017 tentang Pengenaan Bea Masuk Tindakan <https://jdih.kemenkeu.go.id/fullText/2019/26~PMK.010~2019Per.pdf>, accessed 21 June 2021.
[28] World Trade Organisation, ‘Understanding Between Indonesia and Viet Nam Regarding Procedures Under Articles 21 and 22 of the DSU WT/DS496/14’, (22 March 2019)
[29] World Trade Organisation, ‘Minutes of Meeting WT/DSB/M/428’ (26 April 2019)’, at [4.11].
[30] Ibid, at [7].
[31] Ibid, at [8]-[10].
[32] Aarshi Tirkey & Shiny Pradeep, ‘The WTO Crisis: Exploring Interim Solutions for India’s Trade Disputes’ Observer Research Foundation (September 2020), Occasional Paper No 274, at p 16.
[33] Ibid, at p 15.
[34] Supra note 31, at [4.5].
[35] In the case of DS488: United States — Anti-Dumping Measures on Certain Oil Country Tubular Goods from Korea, where parties also signed an agreement to not appeal findings at the compliance stage, the matter has been referred to arbitration. See World Trade Organisation, ‘Recourse to Article 22.6 of the DSU by the United States WT/DS488/15’ (9 August 2019).
[36] See supra note 27, at [4.2].
[37] Kawase Tsuyoshi, ‘The WTO’s Appellate Body Crisis and Roles to Be Played by Japan’ Research Institute of Economy, Trade & Industry (27 December 2019), <https://www.rieti.go.jp/en/special/policy-update/084.html>, accessed 8 July 2021.
[38] Edmund W Sim, ‘ASEAN Further Enhances Its Dispute Settlement Mechanism’ (2020) 7 Indon J Int’l & Comp L 279, p 291.