DISPUTE SETTLEMENT

DS: Indonesia — Safeguard on Certain Iron or Steel Products

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

 

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Key facts

Short title:
Complainant:
Respondent:
Third Parties:
Agreements cited:
(as cited in request for consultations)
Request for Consultations received:
Panel Report circulated: 18 August 2017
Appellate Body Report circulated: 15 August 2018

  

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Latest document

  

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Summary of the dispute to date

The summary below was up-to-date at

Consultations

Complaint by Chinese Taipei. (See DS496)

On 12 February 2015, Chinese Taipei requested consultations with Indonesia regarding a safeguard measure imposed by Indonesia on imports of certain flat-rolled iron or steel products and the investigation and determinations leading thereto.

Chinese Taipei claims that the measures are inconsistent with:

  • Articles I:1, XIX:1(a) and XIX:2 of the GATT 1994; and
     
  • Articles 2.1, 3.1, 4.1(a), 4.1 (b), 4.1(c), 4.2(a), 4.2 (b), 4.2(c), 12.2 and 12.3 of the Agreement on Safeguards

 

Panel and Appellate Body proceedings

On 20 August 2015, Chinese Taipei requested the establishment of a panel. At its meeting on 31 August 2015, the DSB deferred the establishment of a panel.

At its meeting on 28 September 2015, the DSB established a panel. Australia, Chile, China, the European Union, India, Japan, Korea, the Russian Federation, Ukraine, Viet Nam and the United States have reserved their third-party rights. In accordance with Article 9.1 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), the panel established at the meeting of 28 September 2015 in DS490 will also examine the dispute in DS496.

On 1 December 2015, Chinese Taipei and Viet Nam requested the Director-General to compose the panel. On 9 December 2015, the Director-General composed the panel.

On 18 August 2017, the panel report was circulated to Members.

The challenged measures

This dispute concerns the specific duty applied by Indonesia on imports of galvalume, defined as flat-rolled products of iron or non-alloy steel, of a width of 600 mm or more, clad, plated, or coated with aluminium-zinc alloys, containing by weight less than 0.6% of carbon, with a thickness not exceeding 0.7mm, under HS code 7210.61.11.00. The specific duty was imposed following an investigation initiated and conducted under Indonesia's domestic safeguards legislation by Indonesia's competent authority (Komite Pengamanan Perdagangan Indonesia). The specific duty was adopted for a period of three years pursuant to Regulation No. 137.1/PMK.011/2014 of the Minister of Finance of the Republic of Indonesia, which entered into force on 22 July 2014.

Indonesia has no binding tariff obligation with respect to galvalume inscribed into its Schedule of Concessions for the purpose of Article II of the GATT 1994. At the time of the request for consultations, the duty rate applied by Indonesia on imports of galvalume on a most‑favoured‑nation (MFN) basis was 12.5%. This MFN-rate was increased to 20% in May 2015. Indonesia applies duty rates ranging from 0% to 12.5% on imports of galvalume from its trading partners under four separate regional trade agreements (RTAs) – the Association of Southeast Asian Nations (ASEAN)-China Free Trade Agreement (12.5%), the ASEAN-Korea Free Trade Agreement (10%), the ASEAN Trade in Goods Agreement (0%) and the Indonesia-Japan Economic Partnership Agreement (12.5%). The specific duty that is at issue in this proceeding is applied in addition to the existing MFN and preferential duty rates.

Claims against the specific duty as a safeguard measure

The complainants' claims against the specific duty were almost entirely premised on the view that it constitutes a “safeguard measure” within the meaning of Article 1 of the Agreement on Safeguards. The Panel, however, found that the specific duty is not a “safeguard measure” within the meaning of Article 1 of the Agreement on Safeguards on the basis of the reasoning summarized below.

Defining features of a safeguard measure

Drawing on previous panel and Appellate Body reports, the Panel found that one of the defining features of a safeguard measure is the suspension, withdrawal, or modification of a GATT obligation or concessionthat precludes a Member from imposing a measure to the extent necessary to prevent or remedy serious injury, in a situation where all of the conditions for the imposition of a safeguard measure are satisfied. The Panel concluded that the measure at issue in this case, the specific duty, does not suspend, withdraw or modify a relevant GATT obligation or concession for the purpose of remedying or preventing serious injury.

No binding WTO tariff obligation with respect to imports of galvalume

The Panel recalled that Indonesia has no binding tariff obligation with respect to galvalume in its WTO Schedule of Concessions. For the Panel, this meant that, as far as its obligations under Article II of GATT 1994 are concerned, Indonesia was free to impose any amount of duty it deemed appropriate on imports of galvalume, including the specific duty at issue in this dispute. Accordingly, the Panel found that Indonesia's obligations under Article II of the GATT 1994 did not preclude the application of the specific duty on imports of galvalume, implying that the specific duty did not suspend, withdraw, or modify Indonesia's obligations under Article II of the GATT 1994.

Article XXIV of the GATT 1994 does not preclude Indonesia from imposing the specific duties on imports of galvalume

Indonesia argued that tariff obligations it incurred under the ASEAN-Korea (10%) and the ASEAN Trade in Goods (0%) regional trade agreements prevented it from “increase[ing] its tariff” on imports of galvalume. According to Indonesia, the application of these preferential tariffs in accordance with Article XXIV of the GATT 1994 restricted its ability to respond to imports of galvalume by increasing import duties. Thus, Indonesia argued that the imposition of the specific duty on imports of galvalume originating in countries including its RTA partners, effectively suspended its “obligations” under “the GATT exception under Article XXIV of the GATT 1994”.

The Panel rejected Indonesia's submission, finding that Article XXIV does not impose any positive obligation on Indonesia either to enter into FTAs or to provide a certain level of market access to its FTA partners through bound tariffs.

Article I of the GATT 1994 does not preclude Indonesia from imposing the specific duties on imports of galvalume

Indonesia excluded 120 allegedly developing country Members from the application of the specific duty in order to afford S&D treatment in accordance with the requirements of Article 9.1 of the Agreement on Safeguards. The parties argued that Indonesia's discriminatory application of the specific duty for this purpose suspended Indonesia's MFN obligations under Article I:1 because: (i) Indonesia was legally required by Article 9.1 of the Agreement on Safeguards to apply the specific duty in a discriminatory manner that would otherwise be inconsistent with Article I:1 of the GATT 1994; and (ii) Indonesia included six allegedly developed countries in the 120 allegedly developing countries excluded from the application of the specific duty, which meant that the specific duty was applied in a discriminatory manner inconsistent with Article I:1 which could not be justified by Article 9.1.

The Panel found that the obligation in Article 9.1 to afford S&D treatment to qualifying developing country Members operates only when a Member proposes to apply a safeguard measure. Having found that the specific duty was not a safeguard measure, the Panel concluded that Indonesia was under no legal obligation to comply with Article 9.1.

In any case, the Panel went on to explain that, even where a safeguard measure does exist, the discriminatory application of that measure for the purpose of Article 9.1 does not result in a suspension of a Member's MFN obligations under Article I:1 of the GATT for two main reasons. First, the exclusion of qualifying developing country Members from the scope of a safeguard measure is not intended to remedy the serious injury caused by increased imports (which was one of the defining features of a safeguard measure). Second, it follows from the General Interpretative Note to Annex 1A that the discriminatory application of a safeguard measure that is required by Article 9.1, to the extent it is inconsistent with the principle of MFN-treatment, is permissible without having to suspend the operation of Article I:1 of the GATT 1994, because the obligation in Article 9.1 to exclude the qualifying imports of developing country Members from the scope of a safeguard measure prevails as a matter of law over the MFN obligation in Article I:1.

Consequences of the fact that the specific duty was described as a safeguard measure in Indonesia's implementing regulation and imposed following an investigation conducted pursuant to Indonesia's domestic safeguards legislation, with a view to complying with the disciplines of the Agreement on Safeguards (including notification requirements)

The Panel found that although it would normally be expected that a measure adopted to prevent or remedy serious injury at the conclusion of a safeguard investigation would be a “safeguard measure”, this would not be because of the existence of an underlying investigation under the Member's domestic safeguards legislation, or the description of the measure by the imposing Member as a safeguard measure. Rather, it would be because of the expectation that the relevant measure is one of the “measures provided for” in Article XIX:1(a) of the GATT 1994, which, as the Panel had previously explained, is a measure that suspends, withdraws, or modifies a GATT obligation or concession that precludes a Member from imposing a measure to the extent necessary to prevent or remedy serious injury, in a situation where all of the conditions for the imposition of a safeguard measure are satisfied.

The Panel explained that a WTO-consistent safeguard investigation is a necessary prerequisite to the imposition of a WTO-consistent safeguard measure. However, a Member will not know at the beginning of its investigation whether, or the extent to which, it may need to suspend, withdraw, or modify a GATT obligation or concession in order to address the serious injury allegedly caused by increased imports. Although it is to be expected that an importing Member, having established that the conditions to impose a safeguard measure exist, will typically exercise its right to impose a safeguard measure, the Panel noted that an importing Member in the same situation might decide, in the light of the findings made in the underlying investigation and/or other considerations (including public interest), not to suspend, withdraw, or modify a GATT obligation in order to prevent or remedy serious injury.

The Panel referred to Indonesia's own explanation of its decision to impose the specific duty through a process that involved conducting an investigation under its safeguards legislation. The Panel understood Indonesia's explanation to mean that Indonesia decided to proceed in this manner not because Indonesia considered it was legally bound to do so by its international obligations, but rather because of other reasons related to “government policy”. The Panel considered Indonesia's explanation, in the light of its previous findings on the extent to which the specific duty possessed one of the defining features of a safeguard measure, to be clear recognition that the specific duty imposed on imports of galvalume is not a safeguard measure, notwithstanding the fact that it was imposed following an investigation conducted under Indonesia's safeguard legislation with a view to complying with the Agreement on Safeguards, and described as such in the implementing regulation.

Conclusion

In concluding that the specific duty is not a safeguard measure within the meaning of Article 1 of the Agreement on Safeguards, the panel emphasized that, contrary to what had been suggested by Indonesia, its finding does not mean that Members are precluded from applying “safeguard measures” on imports for which their tariffs are “unbound”. The Panel explained that any WTO Member faced with such a situation would be entitled to exercise its rights under the Agreement on Safeguards to prevent or remedy serious injury to its domestic industry, provided that the chosen remedial course of action suspends, withdraws, or modifies a relevant GATT obligation or concession for that purpose. The Panel suggested that a Member whose tariff is “unbound” with respect to a product that is facing competition from imports that are allegedly causing serious injury, may, for example, impose a safeguard measure in the form of an appropriate import quota, thereby suspending its obligations under Article XI of the GATT 1994. However, for the Panel, the mere fact of having conducted such an investigation does not mean that an otherwise permitted action, such as an increase in an unbound tariff, becomes a safeguard measure subject to review under the Agreement on Safeguards.

The claim that the specific duty, as a stand-alone measure, is inconsistent with Article I:1 of the GATT 1994

Indonesia did not dispute the complainants' assertion that the application of the specific duty, as a stand-alone measure, is inconsistent with Article I:1 of the GATT 1994. The Panel found that the exclusion of imports of galvalume originating in the 120 countries listed in Regulation No. 137.1/PMK.011/2014 from the application of the specific duty constitutes an “advantage” in relation to a “customs duty” granted to “like products” that is not “immediately and unconditionally accorded” to imports of galvalume from all WTO Members. Accordingly, the Panel concluded that the application of the specific duty on imports of galvalume originating in all but the 120 countries listed in Regulation No. 137.1/PMK.011/2014 is inconsistent with Indonesia's obligation to afford MFN-treatment under Article I:1 of the GATT 1994.

Overall Conclusions and Recommendations

The Panel concluded as follows:

  1. The specific duty applied by Indonesia on imports of galvalume by means of Regulation No. 137.1/PMK.011/2014 does not constitute a safeguard measure within the meaning of Article 1 of the Agreement on Safeguards; and
  2. the application of the specific duty on imports of galvalume originating in all but the 120 countries listed in Regulation No. 137.1/PMK.011/2014 is inconsistent with Indonesia's obligation to afford MFN-treatment under Article I:1 of the GATT 1994.

In the light of the findings in sub-paragraph b, and consistent with Article 3.8 of the DSU, the Panel found that the specific duty nullified or impaired benefits accruing to Chinese Taipei and Viet Nam under the GATT 1994. The Panel recommended, pursuant to Article 19.1 of the DSU, that Indonesia bring its measure into conformity with its obligations under Article I:1 of the GATT 1994.

On 28 September 2017, Indonesia notified the DSB of its decision to appeal to the Appellate Body certain issues of law and legal interpretations in the panel report. On 3 October 2017, Chinese Taipei notified the DSB of its decision to cross-appeal.

On 27 November 2017, upon expiry of the 60-day period provided for in Article 17.5 of the DSU, the Appellate Body informed the DSB that it would not be able to circulate the Appellate Body report in this appeal by the end of the 60-day period, nor within the 90-day time-frame provided for in Article 17.5 of the DSU. The Appellate Body referred to the substantially enhanced workload it faced in 2017, the existence of several appeals proceeding in parallel, and the increasing overlap in the composition of the Divisions hearing the different appeals owing to the vacancies on the Appellate Body. The Appellate Body also referred to the scheduling issues arising from these circumstances, the number and complexity of the issues raised in this and concurrent appellate proceedings, together with the demands that these concurrent appeals place on the WTO Secretariat's translation services, and the shortage of staff in the Appellate Body Secretariat. The Appellate Body also informed the DSB that the circulation date of the Appellate Body report in this appeal would be communicated to the participants and third participants after the oral hearing. On 6 July 2018, the Appellate Body informed the DSB that its report in this appeal would be circulated on 15 August 2018.

On 15 August 2018, the Appellate Body report was circulated to Members. This Appellate Body Report pertains to the disputes in DS490 and DS496.

On appeal, Indonesia, Chinese Taipei, and Viet Nam all challenged the Panel's finding that the specific duty applied by Indonesia on imports of galvalume is not a safeguard measure subject to the WTO safeguard disciplines. All three participants submitted that, in so finding, the Panel erred in its interpretation and application of Article 1 of the Agreement on Safeguards and Article XIX of the GATT 1994. In addition, Indonesia claimed that the Panel exceeded its terms of reference and failed to carry out an objective assessment of the matter before it.

Referring to Article 11 of the DSU, the Appellate Body considered that the Panel was not only entitled, but indeed required to ascertain, on its own motion, whether the measure at issue was a safeguard subject to the WTO safeguard disciplines. The Appellate Body added that the description of a measure proffered by a party in a WTO dispute is not, in and of itself, dispositive of the legal characterization of that measure for purposes of WTO law.

The Appellate Body further ruled that, in order to qualify as a safeguard: (i) a measure must suspend in whole or in part a GATT obligation or withdraw or modify a tariff concession; and (ii) the suspension, withdrawal, or modification in question must be designed to prevent or remedy serious injury to a Member's domestic industry caused or threatened by an increase in imports of the subject product. Based on its review of the facts and arguments on record, the Appellate Body agreed with the Panel that the measure at issue in this dispute is not subject to the WTO safeguard disciplines.

As a second ground of appeal, Indonesia claimed that the Panel exceeded its terms of reference by finding that Indonesia's specific duty on imports of galvalume, irrespective of its legal characterization as a safeguard, is inconsistent with Indonesia's MFN obligation under Article I:1 of the GATT 1994.

The Appellate Body disagreed, finding instead that the Panel's terms of reference included claims of inconsistency with Article I:1 concerning the measure at issue irrespective of its legal characterization as a safeguard. Therefore, the Appellate Body upheld the Panel's finding that, because it exempts galvalume originating in certain WTO Members from the scope of application of the specific duty while not exempting imports from other sources, the measure at issue is inconsistent with Article I:1 of the GATT 1994.

Finally, the Appellate Body rejected the complainants' claims that Indonesia failed to comply with the requirements of Rules 20 and 21 of the Working Procedures for Appellate Review because Indonesia did not sufficiently identify, in its Notice of Appeal and its appellant's submission, the errors that it alleged the Panel to have committed.

At its meeting on 27 August 2018, the DSB adopted the Appellate Body report and the panel report, as modified by the Appellate Body report.

 

Reasonable period of time

On 11 October 2018, Indonesia informed the DSB that it required a reasonable period of time to comply with the DSB's recommendations and rulings because it was impracticable for Indonesia to do so immediately. In its communication, Indonesia indicated that it was necessary for the parties to reach a mutually agreed reasonable period of time beyond the relevant 45-day period provided for in Article 21.3(b) of the DSU. Indonesia looked forward to discussing the appropriate length of the reasonable period of time with Chinese Taipei and Viet Nam.

On 20 November 2018, Chinese Taipei and Indonesia informed the DSB that Chinese Taipei and Viet Nam, on the one hand, and Indonesia, on the other hand, had agreed that the reasonable period of time to implement the DSB's recommendations and rulings would be seven months. Accordingly, the reasonable period of time was set to expire on 27 March 2019.

 

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