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> Introduction
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> I. The players
> II. Challenges and the outcome
> III. Lessons
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Tuna is arguably one of the most well-known and abundant of fish, found in
large quantities at supermarkets and convenience stores around the world.
It is such a popular sight in its canned form that one may have even
dissociated it from its origins as a fish, until reminded of the amusing
slogan-cum-brand, ‘chicken of the sea’. As such, it is safe to say
that tuna enjoys as much popularity among consumers as the humble and
ubiquitous chicken.
On the production side, easy accessibility and
popularity translates into big business, thriving markets and fierce
competition. For producers of canned tuna, the fish is their livelihood,
an important source of income and an industry of serious economic
significance, contributing as it does to the national balance of
payments, the employment rate and, subsequently, a productive and
healthy social climate.
This is especially true in the case of
Thailand, the world’s third-largest producer of canned tuna and the
largest exporter, accounting for 31% of the global volume of exports. As
of 2000, the United States has remained Thailand’s biggest export
destination, followed by the European Community (EC) and then Canada.(1)
Since Thailand’s tuna industry is export-oriented, with almost all its
production intended for overseas markets, foreign import restrictions
and regulations wield considerable impact on its growth and overall
dynamism. This is where Thailand encountered difficulties with one of
its major trading partners — the EC.
Despite its impressive world ranking,
producers of canned tuna in Thailand were convinced that their industry
was capable of considerably better performance given more equitable
access to the EC market. This inequity existed primarily in the form of
a preferential tariff granted by the EC to canned tuna producers from
the African, Caribbean and Pacific states (ACP countries), a status
consolidated in the Cotonou Agreement (ACP Agreement) of 3 February 2000
between the EC and the ACP countries. While ACP countries were enjoying
zero tariffs on tuna imports, other countries such as Thailand were
continuing to face an inhibiting tariff of 24%, which was proving
detrimental to the legitimate economic interests of Thailand as a major
producer of canned tuna. Furthermore, zero import tariffs for ACP
countries encouraged investors increasingly to view the ACP countries as
a favourable investment destination, in contrast to Thailand,
undermining the cost and other comparative advantages that Thailand has
to offer.
This case study illustrates the manner in
which Thailand raised the issue and challenged the EC tariff within the
framework of the Dispute Settlement Understanding (DSU) provided for in
the WTO Agreement. There are three major stages to the DSU: consultation
between the concerned parties, adjudication by Panels and, if necessary,
the Appellate Body, and implementation of the ruling. However, it is not
always necessary for every case to follow this trajectory and to be
taken to Panels. In fact, the preferred path is for members to settle
the dispute between themselves, through consultations.(2)
To this end, the DSU provides good offices,
conciliation and mediation which may be requested by members if
consultations fail to produce an acceptable solution. These options
serve as an intervening step in which an independent third party is
engaged to help members resolve the dispute at hand, thereby avoiding
Panel proceedings which can be the most costly and time-consuming stage
of the DSU procedures.
The events concerning this case study span
approximately three and a half years, dating back to the conclusion of
the ACP Agreement in 2000, followed by the WTO consultation and
mediation process and concluding with the EC’s new Council Regulation
of 5 June 2003. As the first case in WTO history to be settled through
mediation, it sets a valuable example for fellow member countries,
demonstrating that disputes may be resolved within the WTO without
resorting to formal litigation.
Although this is a recent case, it is worth
noting that the EC-ACP relationship dates back almost forty years to
1963. During this time a number of agreements were produced through
which the EC granted ACP countries trade benefits on a number of
products, including canned tuna. Thus, for this particular product, ACP
countries had been enjoying free access to the EC market for almost
thirty years prior to the ACP Agreement of 2000. By the mid-1990s,
Thailand’s tuna industry was increasingly feeling the negative impact
of this preferential trading arrangement, as reflected in revenue,
investment and opportunity losses.
With the formal establishment of the WTO in
1995 and the entry into force of the GATT 1994 rules came a more
favourable climate in which to address such preferential or
discriminatory trading relationships in the international arena. One of
the basic principles of the WTO legal framework is the MFN (most-favoured
nation) principle, which states that ‘all WTO Members are bound to
grant to each other treatment as favourable as they give to any other
Member in the application and administration of import and export duties
and charges. A tariff concession made to one Member must therefore be
extended immediately and unconditionally to all other Members.’(3) Thus,
with regard to the EC’s preferential tariff rates, the legal impetus
and the framework within which Thailand could challenge the
discriminatory tariff were in place. It would be up to the concerned
parties of Thailand to take up the cause, and to gather the information,
personnel and determination necessary to see it through to a
satisfactory conclusion.
I. The players back to top
The countries concerned here are Thailand and
the Philippines on the one hand and the European Community on the other.
The Philippines, as a fellow ASEAN and WTO member facing similar
difficulties, joined with Thailand in this landmark attempt to prove
that preferential tariffs had long been impairing their economic
interests, and to seek appropriate redress or compensation from the EC.
For the purposes of this case study, however, the focus will remain on
Thailand and its actions, although the term ‘complainants’ will be
used to refer collectively to Thailand and the Philippines when
necessary.
Throughout this process, close collaboration
and co-ordination was a vital element between private-sector players —
that is representatives of the complainants’ tuna industries — and
their respective governments. In Thailand’s case, it was the Ministry
of Commerce specifically that provided a strong link between the tuna
industry and the Thai permanent mission to the WTO in Geneva, where the
mediation took place. At the WTO proceedings, the role of negotiator was
assumed by the Thai ambassador to the WTO, who thereby served as the
official voice of Thailand.
The Thai tuna industry was represented by
Chanintr Chalisarapong, in his capacity as chairman of the Thai Tuna
Packers’ Group/Thai Food Processors’ Association. Chanintr acted as
a focal point in consolidating industry data and information, as well
co-ordinating efforts and co-operation from the private sector side.
Since the matter involved issues of international law and practice,
lawyers were also hired. Although this was a WTO case, the complainants
were challenging the EC, whose headquarters is located in Brussels.
Therefore the Thai side chose to engage a law firm based in Brussels,
which is where the first round of consultations was also held. Finally,
although this case was treated as strictly confidential, no such dispute
can exist entirely in a vacuum; therefore, external forces in the form
of political pressures from some EC governments had their impact as
well.
From the start, the role of each of the major
players was well delineated, with each playing to their natural
strengths. The major task for the private sector was to provide industry
data, information and support in every form possible to the Ministry of
Commerce. The Ministry of Commerce, on the other hand, examined the
legal and related aspects associated with the negotiation process, as
well as providing an official link to Geneva and the WTO proceedings.
The Brussels law firm provided in-depth legal counsel and professional
backing in writing official submissions, although it did not participate
in the actual mediation.
Constructive co-operation between the public
and private sectors was a key element for a number of reasons. First, a
strong, mutually supportive partnership created a sense of solidarity in
a shared pursuit. Second, the government alone would not have been able
to allocate the funding necessary for an endeavour of this nature.
Therefore, where financial resources were needed, the private sector
pooled its funds. Third, the sharing of industry data and information
— from sources such as the Customs Bureau, and FAO and EC statistics
— enabled the team to build a much stronger case than would otherwise have
been possible, which allowed them to maintain consistency and confidence
in their positions and arguments throughout the lengthy process. In sum,
a vital component of success was the readiness of the affected industry
to contribute to its own defence, in terms of funding and manpower.
Of their working relationship with the Thai
government Chanintr remarked, ‘We launched into the process of seeking
redress, confident in our just cause, equipped with the factual tools
and reassured by the full support of the government and its willingness
to take the lead in negotiations and in lobbying efforts at all levels.’
This willingness on the part of the government was matched by the
private sector’s own efforts: ‘When we saw that there was not enough
legal expertise in the ministry, we, the private sector, gathered the
funding needed to hire a law firm in Brussels. While representatives of
the government engaged actively in the negotiations, we continuously
provided factual evidence and helped to formulate appropriate ways to
respond to the rebuttals and counter-arguments throughout the
consultation and mediation processes. This kind of Cupertino isn’t
always in place with other industries.’
II. Challenges and
the outcome back to top
The initial challenge faced by Thailand was,
indeed, how to persuade the EC to enter into discussions on the matter.
On 2 March 2000 the EC requested a waiver of its MFN obligations with
regard to the ACP Agreement. In the eighteen months following the
request until the adoption of this waiver, Thailand had on numerous
occasions expressed its concerns relating to the implementation of the
ACP Agreement and the negative effects that it would have on their
canned tuna exports. They received no response.
At the Doha Ministerial Conference, however, a
give-and-take situation presented itself. The EC-ACP Agreement could not
be extended without the consensus of all WTO members in approving the
adoption of the requested waiver. Realizing that Thailand would not
concede, the EC agreed to hold consultations with Thailand and the
Philippines (the complainants) to examine their differences. In the end,
Thailand agreed to concede on the waiver, on condition that their case
be taken up in an appropriate forum, with the aim of resolving the
conflict of interest.
Thus on 14 November 2001, the day the waiver
was adopted, EU Trade Commissioner Pascal Lamy addressed a letter to
Manuel A. Roxas, the Philippines Secretary of Trade and Industry, and
Adisai Bodharamik, the Thai Minister of Commerce, to express the EC’s
willingness to enter into full consultations with the Philippines and
Thailand. The letter stated that the aim of the consultations would be
to ‘examine the extent to which the legitimate interests of the
Philippines and Thailand are being unduly impaired as a result of the
implementation of the preferential tariff treatment for canned tuna
originating in ACP countries’.(4) The complainants were not satisfied
with the promise of consultations; they had wanted full arbitration. At
Thailand’s insistence, therefore, the letter also included the option
of taking the matter beyond consultations. Since the EC insisted on
avoiding arbitration, the parties compromised and decided that, should
consultations fail to deliver an acceptable resolution, ‘the Community
would be open to recourse to the mediation procedure as provided under
Art. 5 of the WTO’s DSU’.(5) In this manner, the dispute process was
initiated.
Shortly afterwards three rounds of
consultations were held, the first in Brussels (6-7 December 2001), the
second in Manila (29-30 January 2002) and the third in Bangkok (4-5
April 2002). The Ministry of Commerce did not enlist the direct
participation of the private sector until the second and third rounds,
when the latter contributed to the discussions and negotiations.
Although government officials are usually entrusted to do the talking
during consultations, in this case Chanintr and other private-sector
representatives were given the opportunity to provide factual support
and to tell their story. Throughout these consultations, complainants
demonstrated preparedness and commitment in responding to the numerous
rebuttals and arguments springing back and forth between the parties.
Nevertheless, as anticipated, a satisfactory solution was not to be had
at this stage.
On 4 September 2002 the parties jointly
submitted a formal letter to the Director-General of the WTO, requesting
mediation. Agreed-upon working procedures were attached to the letter,
committing both parties to issue a written submission to the WTO
Mediator on 21 October 2002. The written submission would provide a
comprehensive picture of the dispute, as well as explain in detail the
arguments and positions maintained.
A period of intensive collaboration followed,
during which the written submission was drafted. Thailand, the
Philippines, their respective governments and the Brussels lawyers held
in-depth brainstorming sessions and communicated constantly by e-mail.
By the end of that same month, their joint submission was virtually
completed. At a meeting with the mediator on 5 November 2002, the WTO
ambassadors of each party delivered oral statements in which they
presented their main arguments and requests. The mediator alternately
called on each party, giving both sides ample opportunities to rebut
arguments and to direct questions at one another.
Having alleged economic injury, the major
challenge for the complainants was to confirm the merits of their
claims, and to convince the mediator that the preferential tariff had
substantially negative effects on their tuna industries. The
complainants consolidated and analyzed data and worked out a sound
methodology by which to make an accurate, quantitative estimate of these
adverse economic effects. In doing so, they noted that the EC market —
already the largest single market in the world for canned tuna — was
continuing to grow and that, while the ACP countries’ market share
experienced substantial growth in keeping with the expansion of the EC
market, the volume imported from Thailand decreased by 46% between 1994
and 2000, according to Chanintr.
The complainants were able to show that this
decrease was not due to lack of competitiveness on their part, as
exports to other markets in North America, Australia and the Middle East
either remained stable or experienced positive growth; if they had
lacked competitiveness, they would have experienced similar losses in
other markets to which they were exporting. Furthermore, imports from
‘non-preferred’ countries other than the complainants showed similar
downward trends. Even with the advent of the Asian financial crisis in
1997, which drove the Thai currency down to such levels that canned tuna
imports from Thailand were even less expensive than usual compared with
those of its competitors, Thai export performance vis-à-vis the EC did
not improve.
The complainants concluded that the 24% import
tariff so distorted the conditions of competition between the
complainants and their ACP counterparts that the complainants’
products were essentially displaced from the EC market. In such
circumstances it would be almost impossible for the complainants to
reach their full export potential, and the growth of their canned tuna
industries was evidently threatened. According to them, the fact that
they managed to maintain a notable EC market presence despite the 24%
handicap, while ACP countries were enjoying free access, was in itself a
direct testament to the competitiveness and productivity of their
industries.
Another challenge related to WTO members’
rights and obligations and the difficulty in striking a balance between
what one might characterize as a ‘legal’ versus a ‘political’
spin on the situation. Legally speaking, Thailand had a solid right to
pursue dispute resolution. Politically speaking, however, one must
recall that in the WTO there are certain forms of ‘positive’
discrimination which are acceptable; that is, discrimination in favour
of the poorest countries. In the light of this, Thailand argued that,
while the preferential tariff was perhaps justifiable in the 1970s as a
means of support for least developed countries (LDCs), greatly improved
investment and economic situations in the ACP countries by the 1990s no
longer warranted it. Thailand did not refute the rationale behind ‘positive’
discrimination, but maintained that favourable treatment should not be
extended to any developing member to the detriment of another developing
member.
Once all the arguments and rebuttals had been
presented, it was time for the mediator to formulate an advisory opinion
as to how the matter should be resolved. This required the mediator to
make a thorough examination of the logic and reasoning behind claims
made by both parties, for which they consulted with economists. On 20
December 2002, the mediator came out with an advisory opinion that the
EC open up a new quota of 25, 000 tonnes at a tariff rate of 12%, to be
allocated to four beneficiaries: Thailand (for 52% or 13, 000 tonnes),
Philippines (36% or 9, 000 tonnes), Indonesia (11% or 2, 750 tonnes) and
other third countries (1% or 250 tonnes).
The mediator’s opinion indicated that the
merits of the complainants’ case had been acknowledged and accepted.
The complainants were satisfied by this outcome, but the work was not
yet over. The WTO mediation advisory opinion, after all, is not a legal,
binding decision. Therefore the EC had every right to reject the
advisory opinion and to maintain what had become the status quo as far
as imports from the complainants were concerned. Of course, the EC had
to take into account that doing so might prompt the complainants to take
the case to Panel, which would have turned the matter into a
fully-fledged legal battle.
Nonetheless, the complainants’ actions in
this next phase following the advisory opinion would prove every bit as
decisive as the mediation itself. Chanintr characterized this phase as a
period of ‘quiet lobbying’ — no small task, as the EC consisted of
fifteen separate governments, each of which had to be convinced to
support the mediator’s opinion.
Discreet lobbying required tact and diplomacy.
Here again, the close link between the private sector and the government
proved indispensable. said Chanintr offered the following comment.
Through close collaboration our cause was raised
everywhere, be it Doha, Brussels or Geneva. Thai ambassadors and
officials maintained a constant dialogue, formally or informally, with
their EC counterparts everywhere. Of the fifteen EC members at the time,
northern Europe supported our cause, as they had no tuna industry of
their own to protect. Spain and Portugal, on the other hand, were
extremely opposed to the mediator’s opinion. In between were France
and Italy. We realized that France’s opinion carried so much weight
among EC constituents that it could have turned the majority vote within
the EC either way. Fortunately, our Prime Minister paid an official
visit to France at the time and he raised the issue with President
Jacques Chirac. He also held discussions with the French Prime Minister
and some of his Cabinet members. France ended up supporting our case —
this was the real turning point. We knew then that our case had achieved
success in concrete terms.
These concrete terms were set out in the EU
Council Regulation No. 975/2003 of 5 June 2003, in which the tariff-rate
quota suggested by the mediator was officially adopted. The Regulation
specifies that the ‘tariff quota shall be opened annually for an
initial period of five years. Its volume for the first two years shall
be fixed as follows: 25,000 tonnes from 1 July 2003 to 30 June 2004,
and 25, 750 tonnes from 1 July 2004, to 30 June 2005.’(6) The regulation
also allowed for a revision in the second year after the tariff quota is
opened, so that the volume of the quota could be adapted to the market
needs of the EC, if necessary. The regulation entered into force
following its publication in the Official Journal of the European
Union, and is ‘binding in its entirety and directly applicable in
all [EU] Member States’.(7)
III. Lessons
back to top
This case is a good example of how developing
country members were able to use their WTO rights to secure more
equitable treatment from a developed country trading partner. Once the
positive resolution had been reached, EU Trade Commissioner Pascal Lamy
travelled to Bangkok to inform Thailand’s Minister of Commerce, Adisai
Bhodharamik, an indication of continued good relations between the two
trading partners. Indeed, Chanintr emphasized that, although the tariff
situation was of great importance to its canned tuna industry and
national interests, Thailand made a conscious effort to maintain good
relations with the EC throughout the proceedings. He said that ‘in
resorting to the dispute settlement process, we did not seek to
confront, but opted for friendly persuasion and understanding. After
all, the EC is one of our major trading partners, and a very important
consumer not only of Thai tuna but in other sectors as well. We intended
to avoid at all costs doing anything that would jeopardize our
long-standing and good relationship with the EU.’
On a broader level, it is well accepted that
taking action can itself be a sticking point for developing countries
wary of investing the time, energy and financial resources in a
consultation and mediation process which may not even produce any
binding outcomes, let alone taking the matter to Panel proceedings. This
is often the case for other sectors within Thailand as well. Chanintr
nonetheless encourages countries to pursue action if it feels that it
has a strong case. An adverse outcome to a dispute is not always a
complete loss. The country will at least have made itself heard, which
can have positive effects on negotiations in other fora. On the other
hand, if the country wins, then the economic returns on the invested
time, money and energy will surely come back to it many times over. In
Chanintr’s opinion, Thailand’s main objective was to show the
international community that an unfair practice was being directed at
the complainants and that they were serious about challenging it.
Regarding obstacles, Chanintr sees them as
inevitable and should therefore inspire action rather than inertia.
Instead of simply dwelling on them, efforts should be made to overcome
obstacles because they are and always will be an inherent part of
disputes and negotiations. Above all, this means that economic players
must collect data and maintain consistent industry information. Without
solid factual evidence, any attempts to make a legal impression would be
seriously undermined from the start, as every claim and argument put
forth could be challenged or rejected by the opposing side. Certainly,
the EC initially rejected just about every argument made by the
complainants, but Chanintr reassured Thailand’s ambassador to the WTO
that the private sector would not back down, and that they would
continue to support the government. Another major obstacle is the issue
of unity within a given industry or sector, which is often lacking,
resulting in poor co-ordination and teamwork. Therefore, efforts must be
made to achieve the level of commitment and the momentum necessary to
support the industry throughout the dispute settlement process.
This case sets a precedent for other member
countries, demonstrating that even without full court proceedings, a
binding result could ultimately be achieved. Though some observers may
comment that a 12% tariff is still too high, for Chanintr and his team,
‘Compromise was the best outcome, and we are satisfied with the
result. We wanted a win-win situation where trade would be managed as
fairly as possible. We didn’t want to take advantage of our opponent,
or to simply turn the tables on them.’
The overriding lesson to take away from this
case is that co-operation between a well-represented tuna industry and
the Thai government made it possible for the team to overcome obstacles
that so often prove to be insurmountable stumbling blocks for other
industries or sectors. The public-private sector collaboration utilized
in this case sets a positive example for negotiations in other fora.
Chanintr emphasized that
Government and the private sector working hand in
hand can be the best weapon to defend our national interests. The
government cannot negotiate effectively without good information and
support from the private sector. The two sectors must work together and
determine very clearly how much time and resources they have to spend
and, if they win, how much the industry will benefit as a whole.
Combining strengths made our case more solid, which led to much greater
bargaining power. We could not have done it alone.
NOTES:
1.- Rabobank International, ‘The Dynamics of
the Thai Tuna Industry’, Industrial Note IN 044-222, February 2002,
pp. 1-3. back to text
2.- Dispute Settlement Training Module, ch. 6,
WTO website, http://www.wto.org. back to text
3.- Dickson Yeboah, ‘Course Material for
Intensive Course on Trade Negotiations Skills’, WTO Principles and
World Trade Negotiations, January 2004. back to text
4.- Letter from EU Trade Commissioner Pascal
Lamy to the Ministers of Commerce of Thailand and the Philippines, 14
Nov. 2001. back to text
5.- Ibid. back to text
6.- Council Regulation (EC) No. 975/2003 of 5
June 2003, opening and providing for the administration of a tariff
quota for imports of canned tuna covered by CN codes 1604 14 11, 1604 14
18 and 1604 20 70. Published in the Official Journal of the European
Union, 7 June 2003. back to text
7.- With the addition of ten new member
countries to the EU on 1 May 2004, the complainants are set to revisit
tariff negotiations with the EU, which provides an opportunity to lower
further the 12% rate and to discuss forms of compensation, since new
member countries are required to employ the EU tariff, which in some
cases is a marked increase from their usual rate. back to text
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* International Institute for Trade and Development, Bangkok.
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