DISPUTE SETTLEMENT: DISPUTE DS406

United States — Measures Affecting the Production and Sale of Clove Cigarettes


This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.

  

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Current status  back to top

 

Key facts  back to top

Short title:
Complainant:
Respondent:
Third Parties:
Agreements cited:
(as cited in request for consultations)
Request for Consultations received:
Panel Report circulated: 2 September 2011
Appellate Body Report circulated: 4 April 2012

  

Summary of the dispute to date  back to top

The summary below was up-to-date at
See also: One-page summary of key findings of this dispute

Consultations

Complaint by Indonesia. 

On 7 April 2010, Indonesia requested consultations with the United States with respect to a provision of the Family Smoking Prevention Tobacco Control Act of 2009 that bans clove cigarettes.   Indonesia alleged that Section 907, which was signed into law on 22 June 2009, prohibits, among other things, the production or sale in the United States of cigarettes containing certain additives, including clove, but would continue to permit the production and sale of other cigarettes, including cigarettes containing menthol.   Indonesia alleged that Section 907 is inconsistent, inter alia, with Article III:4 of the GATT 1994, Article 2 of the TBT  Agreement, and various provisions of the SPS  Agreement.

On 9 June 2010, Indonesia requested the establishment of a panel.  At its meeting on 22 June 2010, the DSB deferred the establishment of a panel.

 

Panel and Appellate Body proceedings

At its meeting on 20 July 2010, the DSB established a panel. Brazil, the European Union, Guatemala, Norway and Turkey reserved their third-party rights.  Subsequently, Colombia, the Dominican Republic and Mexico reserved their third-party rights. On 9 September 2010, the parties agreed on the composition of the panel. On 8 March 2011, the Chairman of the panel informed the DSB that the timetable adopted by the panel after consultations with the parties to the dispute envisages that the final report was to be issued to the parties by the end of June 2011 and that the panel expected to conclude its work within that timeframe.

On 2 September 2011, the panel report was circulated to Members.

Summary of key findings

This dispute concerns Section 907(a)(1)(A) of the Federal Food, Drug and Cosmetic Act (“FFDCA”), which was added to the FFDCA by Section 101(b) of the Family Smoking Prevention and Tobacco Control Act.  This measure bans the production and sale of clove cigarettes, as well as most other flavoured cigarettes, in the United States.  However, the measure excludes menthol-flavoured cigarettes from the ban.  Indonesia is the world's main producer of clove cigarettes, and the vast majority of clove cigarettes consumed in the United States prior to the ban were imported from Indonesia.

Indonesia's main claims were that the ban on clove cigarettes is discriminatory, and that it is also unnecessary.  Indonesia further claimed that the United States acted inconsistently with a number of procedural and/or other requirements under the TBT Agreement in the context of preparing and implementing Section 907(a)(1)(A).  Indonesia did not argue its claims under the SPS Agreement.

The first step in the Panel's analysis was to determine whether the challenged measure falls within the scope of the TBT Agreement.  The Panel found that it does, on the basis that Section 907(a)(1)(A) is a “technical regulation” within the meaning of Annex 1.1 of the TBT Agreement.  The Panel then examined Indonesia's claims under Articles 2.1, 2.2, 2.5, 2.8, 2.9, 2.10, 2.12, and 12.3 of the TBT Agreement. 

In one of its key findings, the Panel found that the ban is inconsistent with the national treatment obligation in Article 2.1 of the TBT Agreement because it accords clove cigarettes less favourable treatment than that accorded to menthol-flavoured cigarettes.  The Panel found that clove and menthol-flavoured cigarettes are “like products” within the meaning of Article 2.1 of the TBT Agreement, based in part on its factual findings that both types of cigarettes are flavoured and appeal to youth. Having found a violation of Article 2.1 of the TBT Agreement, the Panel declined to rule on Indonesia's claim under Article III:4 of the GATT 1994, or on the United States' defence under Article XX(b) of the GATT 1994 (invoked only in respect of the claim under Article III:4 of the GATT 1994).

However, the Panel rejected Indonesia's second main claim, which was that the ban is unnecessary.  In this regard, the Panel found that Indonesia had failed to demonstrate that the ban is more trade-restrictive than necessary to fulfil a legitimate objective (in this case, reducing youth smoking) within the meaning of Article 2.2 of the TBT Agreement.  The Panel's conclusion was based, in part, on its finding that there is extensive scientific evidence supporting the conclusion that banning clove and other flavoured cigarettes could contribute to reducing youth smoking.

As regards Indonesia's other claims under the TBT Agreement, the Panel found that the United States acted inconsistently with Article 2.9.2 (obligation to notify WTO Members of technical regulations) and Article 2.12 (obligation to allow reasonable interval between publication and entry into force of technical regulations).  However, the Panel found that Indonesia failed to demonstrate that the United States acted inconsistently with Article 2.5 (obligation to provide an explanation of draft technical regulation), Article 2.8 (obligation to specify a technical regulation in terms of performance), Article 2.9.3 (obligation to provide particulars or copies of the proposed technical regulation) or Article 12.3 (obligation to take account of the special development, financial and trade needs of a developing country Member), and declined to rule on Indonesia's claim under Article 2.10 (obligation to notify in cases of urgency).

On 15 September 2011, Indonesia and the United States requested the DSB to adopt a draft decision extending the 60-day time period stipulated in Article 16.4 of the DSU, to 20 January 2012. At its meeting on 27 September 2011, the DSB agreed that, upon a request by Indonesia or the United States, the DSB, shall no later than 20 January 2012, adopt the panel report, unless the DSB decides by consensus not to do so or Indonesia or the United States notifies the DSB of its decision to appeal pursuant to Article 16.4 of the DSU.

On 5 January 2012, the United States notified the DSB of its decision to appeal to the Appellate Body certain issues of law covered in the panel report and certain legal interpretations developed by the panel. On 29 February 2012, the Chair of the Appellate Body informed the DSB that the Appellate Body would not be able to circulate its report within 60 days due to the time required for completion and translation of the report.  The Appellate Body estimated that the report would be circulated no later than 4 April 2012.

On 4 April 2012, the Appellate Body report was circulated to Members.

Summary of key findings

Section 907(a)(1)(A) of the United States Federal Food, Drug, and Cosmetic Act (“FFDCA”) prohibits the production and sale in the United States of cigarettes with characterizing flavours (such as clove, strawberry, grape, orange, cinnamon, pineapple, vanilla, coconut, liquorice, cocoa, chocolate, cherry, or coffee), but does not prohibit regular or menthol cigarettes.

The Panel in this dispute found Section 907(a)(1)(A) to be inconsistent with the national treatment obligation of Article 2.1 of the TBT Agreement because it prohibits imported clove cigarettes from Indonesia, but does not prohibit “like” domestic menthol cigarettes.  The Panel also found that by allowing an interval of less than six months between the publication and the entry into force of Section 907(a)(1)(A), the United States acted inconsistently with Article 12.2 of the TBT Agreement.  On appeal the United States claimed that the Panel erred in finding that clove and menthol cigarettes are like products and in finding that Section 907(a)(1)(A) accords less favourable treatment to imported clove cigarettes than that accorded to like domestic products within the meaning of Article 2.1 of the TBT Agreement.  The United States also claimed that the Panel erred in finding that the United States acted inconsistently with Article 2.12 of the TBT Agreement.

The Appellate Body ultimately upheld the Panel's findings that Section 907(a)(1)(A) is inconsistent with Article 2.1 of the TBT Agreement and that the United States acted inconsistently with Article 2.12 of the TBT Agreement.  The Appellate Body, however, disagreed with the Panel's interpretation of “like products” and “treatment no less favourable” in Article 2.1 of the TBT Agreement.

The Appellate Body disagreed with the Panel that “like products” in Article 2.1 of the TBT Agreement should be interpreted based on the regulatory purpose of the technical regulation at issue.  The Appellate Body considered that the determination of whether products are “like” within the meaning of Article 2.1 of the TBT Agreement is a determination about the competitive relationship between the products, based on an analysis of the traditional “likeness” criteria, namely, physical characteristics, end-uses, consumer tastes and habits, and tariff classification.  The Appellate Body considered that the regulatory concerns underlying a measure, such as the health risks associated with a product, may be relevant to the determination of “likeness” to the extent they have an impact on the competitive relationship between the products.  Based on this interpretation of the concept of “like products”, the Appellate Body agreed with the Panel that clove cigarettes and menthol cigarettes are “like products” within the meaning of Article 2.1 of the TBT Agreement.

The Appellate Body interpreted the obligation to accord “treatment no less favourable” in Article 2.1 of the TBT Agreement as not prohibiting detrimental impact on imports that stems exclusively from a legitimate regulatory distinction.  In determining whether a measure's detrimental impact on imports constitutes less favourable treatment a panel must carefully scrutinize the particular circumstances of the case, that is, the design, architecture, revealing structure, operation, and application of the technical regulation at issue, and, in particular, whether that technical regulation is even handed.  Based on this interpretation of “treatment no less favourable”, the Appellate Body found that the design, architecture, revealing structure, operation, and application of Section 907(a)(1)(A) strongly suggest that the detrimental impact on competitive opportunities for clove cigarettes reflects discrimination against the group of like products imported from Indonesia.

Finally the Appellate Body upheld the Panel's finding that by allowing only three months between the publication and the entry into force of Section 907(a)(1)(A), the United States acted inconsistently with Article 2.12 of the TBT Agreement, which, when interpreted in the context of paragraph 5.2 of the Doha Ministerial Decision on Implementation-Related Issues and Concerns, requires a minimum of six months between the publication and the entry into force of a technical regulation.  In reaching this conclusion, the Appellate Body agreed with the Panel that paragraph 5.2 of the Doha Ministerial Decision constitutes a “subsequent agreement between the parties” within the meaning of Article 31(3)(a) of the Vienna Convention on the Law of Treaties.

At its meeting on 24 April 2012, the DSB adopted the Appellate Body report and the panel report, as modified by the Appellate Body report.

 

Reasonable period of time

At the DSB meeting on 24 May 2012, the United States informed the DSB of its intention to implement the DSB recommendations and rulings in a manner that protects public health and respects its WTO obligations but that it would need a reasonable period of time to do so. On 14 June 2012, Indonesia and the United States informed the DSB that the reasonable period of time for the United States to implement the DSB recommendations and rulings shall be 15 months.  Accordingly, the reasonable period of time expired on 24 July 2013.

 

Proceedings under Article 22 of the DSU (remedies)

On 12 August 2013, Indonesia requested the authorization of the DSB to suspend concessions or other obligations pursuant to Article 22.2 of the DSU. On 22 August 2013, the United States objected to the level of suspension of concessions or other obligations and referred the matter to arbitration pursuant to Article 22.6 of the DSU. At the DSB meeting on 23 August 2013, it was agreed that the matter is referred to arbitration as required by Article 22.6 of the DSU.  On 23 June 2014, Indonesia and the United States requested the Arbitrator to suspend the circulation of the Arbitrator's award in accordance to certain conditions. On 24 June 2014, the Arbitrator informed the DSB that it had granted the parties' joint request to suspend the circulation of its decision in accordance with the parties' conditions.

 

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