WTO Disputes Roundup: US-India Poultry Case Advances to Arbitration

28 July 2016

The past fortnight has seen various developments in the area of WTO dispute settlement, including the establishment of “compliance panels” in cases involving the US and China, as well as the Philippines and Thailand. Separately, a US-India dispute on poultry products has now advanced to arbitration.

US-India poultry spat continues

At a special meeting of the WTO’s Dispute Settlement Body (DSB) last Tuesday, the US requested the right to suspend concessions against India, alleging that the latter failed to comply with the WTO adjudicators’ findings in last June in a case (DS430) involving a ban on imported poultry.

For its part, India reportedly argued that it has brought its measures into compliance, along with questioning both the legal basis of the US’ request and the level of retaliation requested. The issue has now been referred to arbitration.

Last year, the WTO’s Appellate Body ruled that the import ban was in violation of global trade rules, finding it discriminatory and overly trade-restrictive. The prohibition had been enacted due to alleged concerns over the spread of avian influenza (AI), an infectious virus known commonly as bird/avian flu. (See Bridges Weekly, 11 June 2015)

This past June, India announced that it has circulated a draft notification for comments by WTO members, taking into account the World Organization for Animal Health (OIE) guidelines on Avian Influenza. A final notification was circulated this month.

According to India, the new notification brings the country into compliance with WTO rules, allowing other countries to export poultry and poultry products from countries, zones, or compartments free from bird flu. It claims this is consistent with OIE standards, and provides related procedures and guidelines for the imports.

Disagreeing with the compliance claims, the US has requested the right to suspend concessions worth US$450 million for this year, an amount which would be updated annually.

Under WTO dispute settlement rules, the arbitration task will fall to the original dispute panel, unless those members are not available, in which case the WTO Director-General will appoint someone to serve in the role.

Compliance panel to review Thailand-Philippines cigarettes dispute

At the regular DSB meeting last Thursday, a panel was established to hear if Thailand has done enough to comply with the DSB rulings and recommendations in the dispute over its fiscal and customs measures affecting cigarettes from the Philippines (DS371). 

This request, dated 29 June, follows consultations held earlier that month, which failed to reach a mutually agreed outcome. (See Bridges Weekly, 12 May 2016)

During the original proceedings, a dispute panel and the WTO’s Appellate Body faulted Thai Customs for its valuation decisions with respect to tobacco transactions on both substantive and procedural grounds, along with certain valuation methods, saying those violated provisions of the global trade body’s Customs Valuation Agreement (CVA).

These matters relate especially to tobacco giant Philip Morris, which is a major player in the Philippines cigarette market, as well as in the Thai market.

WTO adjudicators found that Thailand’s Value Added Tax (VAT) regime violated the national treatment requirements under the General Agreement on Tariffs and Trade 1994 (GATT), and deemed that Thailand violated various due process obligations under the GATT in relation to the customs and fiscal measures.

In its compliance panel request, Manila takes issue with a subsequent 2012 ruling issued by a Thai administrative tribunal within the Ministry of Finance, and related revised notices of assessment. In the original case, the tribunal was found to have caused delays in resolving appeals of customs valuation decisions taken by Thai Customs, violating the “due process” requirements under the WTO rules.

The Philippines is also taking issue with criminal charges that the Thai Department for Special Investigations filed this past January against Philip Morris’ Thai branch along with some employees, which charged that the tobacco company used allegedly “false” prices in declaring the transaction values for cigarette imports. 

Manila is calling these charges “a measure taken to comply” that actually violates CVA rules governing customs valuation, as well as GATT provisions on national treatment and due process.

The compliance panel request also cites issues with two Thai regulations for determining the VAT tax base for cigarette sales. Under Thai competition law, its domestic monopoly tobacco manufacturer is allowed to fix the retail price, which is part of the formula for calculating the VAT base, while importers cannot have up-to-date market price information as they are not allowed to fix the retail price. According to Manila, this constituted discriminatory treatment.

Manila also said these two instruments had imposed “an unreasonable notification requirement on importers with which they cannot comply.”

In addition, according to the Philippines, Thailand has failed to repay Philip Morris’ Thai branch the excess excise and health taxes in cases where the administrative panel did accept the declared transaction values, or lowered the accessed customs values in those appeal cases. Manila also cited Thailand’s failure to publish related procedural rules for conducting the refund, contrary to GATT provisions.

According to a June 2012 agreement by the two countries, Thailand shall not object to the establishment of a compliance panel upon a first request from the Philippines, with parties now due to cooperate with this panel to circulate a report within 90 days.

Compliance panel request in US-China CVD dispute

The DSB also agreed last Thursday to establish a panel to review the US’ compliance with an earlier ruling in the dispute concerning US countervailing duty (CVD) measures – sometimes known as anti-subsidy measures – on certain products from China (DS437).

The initial proceedings in this case date back to 2012, when China challenged 17 countervailing duty (CVD) investigations carried out by the US Department of Commerce (USDOC), which involved products such as wind turbines, solar panels, and steel sinks that had a combined export value of U$7.2 billion.  

The original panel in its July 2014 report faulted among other issues, the US Commerce Department’s determination and its method of treating China’s state-owned enterprises as “public bodies,” as well as its findings on the specificity of the alleged subsidies and the existence of a financial contribution. The panel however did not support some other claims raised by China. (See Bridges Weekly, 17 July 2014)

The Appellate Body in December 2014 reversed various panel findings that were not initially in China’s favour, but was not able to complete the analysis on several issues raised in the appeal. The US was later given until April 2016 to comply with the DSB’s rulings and recommendations.

In April 2016, the US reported its administrative actions with respect to 15 separate CVD investigations, including issuing new final determinations on some investigations, cancelling one CVD order, and withdrawing one investigation approach that the DSB deemed illegal.

China filed its consultations request one month later to initiate a compliance review process. In early June, Washington said it had finished taking the necessary steps to implement the DSB’s recommendations.

In the panel establishment request heard by the DSB last Thursday, China cited the US’ delay in completing the implementation process, and complained about measures in the original proceedings along with certain steps taken toward compliance.

China said those measures concern “the continued and ongoing application by the [US Department of Commerce] of unlawful standards and methodologies for determining financial contribution, specificity, and benefit in respect of the alleged provision of inputs and land-use rights for less than adequate remuneration.”

At the DSB meeting, the US maintained that its compliance has been sufficient and that the measures cited in China’s request are in line with WTO rules, but did not object to the establishment of a panel.

WTO member group endorses new mechanism

Meanwhile, Canada has put forward a mechanism aimed at strengthening the WTO’s dispute settlement processes, which has now been endorsed by 17 members, some of whom have already circulated documents through this new initiative.

By endorsing the statement, members commit to a series of information-sharing measures throughout the dispute settlement process, along with signing onto steps that will help streamline and make more transparent such proceedings. They will also support steps that encourage amicus curiae briefs and third party participation.

The statement specifies that the mechanism operates without prejudice to members’ views relating to the ongoing efforts to improve or clarify the WTO’s current dispute settlement rules, and to the interpretation of any provision of any other WTO agreement.

Separately, the process to fill the two vacant seats in the Appellate Body is now set to continue, with recommendations potentially expected by November. Earlier this year, the US has blocked the re-appointment of one Appellate Body member, Seung Wha Chang, in a move that was heavily criticised by several other WTO members as potentially affecting the impartiality of that body. (See Bridges Weekly, 25 May 2016)

ICTSD reporting.

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