A WTO Panel has dismissed claims against Indonesia under the WTO Agreement on Safeguards on the grounds that the challenged duty was not actually a "safeguard measure". All disputing parties had agreed that the specific duty on iron or steel was a safeguard measure, but the Panel rejected this consensus position.
The Panel upheld a "stand-alone" challenge against the duty under the Most-Favoured-Nation (MFN) obligation of Article I of the General Agreement on Tariffs and Trade (GATT) 1994.
Significance of Decision:
This decision reinforces the important principle that WTO Panels are not bound by the positions or arguments of the disputing parties, but must make their own, independent assessment of the issues.
The current dispute is somewhat unusual in that the Panel rejected the concurring views of the complaining parties (Chinese Taipei and Viet Nam) and the defending party (Indonesia) on a critical threshold issue of whether the measure was a safeguard. Indonesia had conducted an investigation under its safeguards legislation, and had notified the resulting duty to the WTO Committee on Safeguards. All disputing parties agreed that the Safeguards Agreement applied, although they differed on whether Indonesia's duty was consistent with that Agreement.
The Panel took a different approach. It noted that Indonesia had no binding tariff obligations under GATT Article II with respect to the products subject to the duty. It stated that the Safeguards Agreement and GATT 1994 define "safeguard measures" in part as those which "suspend a GATT obligation" or "withdraw or modify a GATT concession". The Panel found that as Indonesia was "free to impose any amount of duty it deems appropriate" on these unbound products, the specific duty at issue in this case "did not suspend, withdraw, or modify Indonesia's obligations under Article II of the GATT 1994". The Panel concluded that "[i]n the absence of an obligation preventing a Member's remedial action, there would be obviously no need for that Member to be released from a WTO commitment". Therefore, the Safeguards Agreement did not apply, and the Panel dismissed all claims under that Agreement.
WTO panels and the Appellate Body often accept agreed positions advanced by the disputing parties, and proceed on that basis. However, the current Panel was well within its rights to choose not to do so. Indeed, given the Panel's obligation under Article 11 of the Dispute Settlement Understanding to make an "objective assessment" of the matter before it, including "the applicability of and conformity with the relevant covered agreements", it was required to make its own independent assessment on the applicability of the Safeguards Agreement, despite the "concurring positions" of the disputing parties on this issue.
The Panel's decision in this case hinged primarily on the form of the measure imposed by Indonesia. Indonesia elected to impose a specific duty on products that were unbound in Indonesia's tariff schedule, leading the Panel to conclude that there were no GATT obligations to suspend. The result could have been different if the purported safeguard measure were an import quota rather than a duty, in which case the GATT Article XI rules on quantitative restrictions would apply regardless of whether the product was subject to a tariff binding. Under such a scenario, the Safeguards Agreement would apply. The Panel raised this issue briefly, noting only that "such a measure would have to be based on a WTO-consistent investigation and conclusions".
Both sides may seek to appeal this ruling.
Background: Safeguards investigation leads to a specific duty
In 2014, Indonesia imposed a specific duty on galvalume, a type of flat-rolled iron or steel. The duty was imposed following an investigation under Indonesia's safeguards legislation. This three-year duty was also notified by Indonesia to the WTO Committee on Safeguards. Indonesia applied the duty on imports of galvalume from all sources, although developing countries were exempt.
Importantly, as noted above, Indonesia has no tariff binding obligations with respect to galvalume.
Disputing parties agree that the duty is a safeguard measure
The complaining parties in this dispute, Chinese Taipei and Viet Nam, argued that the specific duty was a safeguard within the meaning of the WTO Safeguards Agreement, and violated that Agreement. In the alternative, they argued that if the duty were not a safeguards measure, it was in any event inconsistent with Indonesia's MFN obligation under GATT Article I.
Indonesia agreed that its measure was a safeguard within the meaning of the Safeguards Agreement, but argued that the duty was consistent with that Agreement.
"Fundamental question" for Panel: whether the duty was a safeguard measure
The Panel began by noting that a "fundamental question" in this dispute was whether the specific duty applied by Indonesia on imports of galvalume was a "safeguard measure" within the meaning of Article 1 of the Safeguards Agreement. The Panel stated that "[a]lthough both sides maintain, albeit for somewhat different reasons, that the challenged measure is a safeguard measure within the scope of the Agreement on Safeguards, their arguments have led us to conclude, in discharging our duty to undertake 'an objective assessment of the matter', that we must examine this issue for ourselves, rather than simply proceeding on the basis of the parties' concurring positions". Having done so, the Panel concluded that "the specific duty at issue in this dispute is not a 'safeguard measure' within the meaning of Article 1 of the Agreement on Safeguards". [original emphasis; all italicized quotes below are also original emphasis.]
Definition of a "safeguards measure"
Article 1 of the Safeguards Agreement states in part that "safeguard measures" are "those measures provided for in Article XIX of GATT 1994". The Panel found that "the 'measures provided for' in Article XIX:1(a) are measures that suspend a GATT obligation and/or withdraw or modify a GATT concession, in situations where… a product 'is being imported' into a Member's territory in 'such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers of like or directly competitive products'."
In the view of the Panel, "not any measure suspending, withdrawing or modifying a GATT obligation or concession will fall within the scope of Article XIX:1(a)". Instead, "it is only measures suspending, withdrawing, or modifying a GATT obligation or concession that a Member finds it must be temporarily released from in order to pursue a course of action necessary to prevent or remedy serious injury" that will constitute "safeguard measures". It added that "[i]n the absence of an obligation preventing a Member's remedial action, there would be obviously no need for that Member to be released from a WTO commitment and, therefore, nothing to "re-adjust temporarily'."
It followed, in the Panel's view, that "one of the defining features of the 'measures provided for' in Article XIX:1(a) (i.e. safeguard measures) is the 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, in a situation where all of the conditions for the imposition of a safeguard measure are satisfied".
No Indonesian tariff commitments for the product at issue
The Panel recalled that "Indonesia has no binding tariff obligation with respect to galvalume in its WTO Schedule of Concessions", which meant that "Indonesia is free to impose any amount of duty it deems appropriate on imports of galvalume", including the specific duty at issue in this dispute. It added 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".
Indonesia also argued in part that the imposition of the specific duty on imports of galvalume originating in its Regional Trade Agreement (RTA) partners (Korea, ASEAN) meant that the GATT obligation being suspended was the exception for RTAs under GATT Article XXIV. The Panel rejected this argument, finding that "Article XXIV of the GATT 1994 does not impose an obligation on Indonesia to apply a particular duty rate on imports of galvalume from its RTA partners" since Article XXIV is "a permissive provision, allowing Members to depart from their obligations under the GATT to establish a customs union and/or free trade area…" It concluded that "[t]here is, therefore, no basis for Indonesia's assertion that Article XXIV of the GATT 1994 precluded its authorities from raising tariffs on imports of galvalume and that the specific duty, thereby, 'suspended' 'the GATT exception under Article XXIV' for the purpose of Article XIX:1(a)".
Developing country exemption does not suspend MFN obligation for non-safeguard measures
Article 9.1 of the Safeguards Agreement provides in part that "[s]afeguard measures shall not be applied against a product originating in a developing country Member" as long as such imports remain below certain specified de minimis levels. Indonesia asserted that the specific duty suspended its MFN obligation under GATT Article I in order to comply with the special and differential treatment requirements of Article 9.1.
The Panel rejected this argument. It stated that "by its express terms, Article 9.1 is legally premised on an importing Member's intention to apply a safeguard measure". It added that "the fundamental prerequisite for the application of Article 9.1 does not exist, and there is, therefore, no basis for Indonesia's assertion that it was legally required to apply the specific duty in the manner required by Article 9.1". It added that "[i]n any case, even where a Member is proposing to apply a safeguard measure, it does not, in our view, follow from the fact that Article 9.1 imposes an obligation to apply a safeguard measure in a discriminatory manner in favour of qualifying imports from developing country Members, that the very same safeguard measure, because of that discrimination, suspends the obligation in Article I:1 to provide MFN-treatment for the purpose of Article XIX:1(a)".
The Panel offered two reasons for this conclusion. First, it stated "the discrimination that is called for by Article 9.1 (which would otherwise be inconsistent with Article I:1 of the GATT 1994) is not intended to prevent or remedy serious injury". Rather, "that discrimination is intended to leave producers from qualifying developing country Members with essentially the same access to the importing country market as existed prior to the imposition of a safeguard measure".
Second, it noted that that the General Interpretative Note to Annex 1A of the WTO Agreement states that in the event of a conflict between a provision of the GATT 1994 and a provision of another covered agreement, the provision of the covered agreement prevails to the extent of the conflict. In the Panel's view, "the effect of this rule is 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". It added that "the question of suspension simply does not arise in this context, 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".
The Panel acknowledged that its conclusions on this issue were different from the ruling of the 2012 panel in Dominican Republic – Safeguard Measures, which found that "the discriminatory application of a safeguard measure in accordance with Article 9.1 of the Agreement on Safeguards resulted in the suspension of the importing Member's MFN obligations under Article I:1 of the GATT 1994". The current panel stated that it "respectfully disagree[d]" with that earlier ruling and affirmed that "the discriminatory application of a safeguard measure for the purpose of affording S&D pursuant to Article 9.1 does not result in a suspension of a Member's obligations under Article I:1, within the meaning of Article XIX:1(a) of the GATT 1994".
Safeguards investigation not determinative
The Panel next considered the fact that Indonesia's specific duty was imposed at the conclusion of a safeguards investigation, and was notified to the WTO Safeguards Committee. It found that "the fact that a Member initiated and conducted an investigation under its domestic safeguards legislation does not necessarily mean that the measures imposed on the investigated product at the end of that process are 'safeguard measures' within the meaning of Article XIX of the GATT 1994 and the Agreement on Safeguards". It stressed that "while a WTO-consistent investigation is a necessary prerequisite for the application of a WTO-consistent safeguard measure, the fact that an importing Member may have conducted an investigation in accordance with the Agreement on Safeguards does not mean that any measures adopted as a result of the conclusions in that investigation suspend, modify, or withdraw any GATT obligation or concession and, therefore, constitute 'safeguard measures' within the meaning of Article 1 of the Agreement on Safeguards".
The Panel stressed at the conclusion of its analysis that "our finding that the specific duty is not a 'safeguard measure' does not mean that Members are precluded from applying 'safeguard measures' on imports for which their tariffs are 'unbound'." Rather, "[a]ny 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".
"Stand alone" MFN challenge – Indonesia violated GATT Article I
The Panel then considered the claim that the exemption of 120 developing countries from the application of the specific duty violated Indonesia's MFN obligations under GATT Article I. The Panel noted that "[a]lthough the complainants pursue this claim primarily as part of their complaint against the specific duty as a safeguard measure, they also make the same claim on the basis of the same arguments against the specific duty as a stand-alone measure".
Indonesia did not contest the claim against the duty as a stand-alone measure. It noted that the exemption for developing countries was premised on the view that "the specific duty is a measure which, by definition, would be inconsistent with Article I:1 of the GATT, were it not considered to be a safeguard measure within the meaning of Article 1 of the Agreement on Safeguards". The Panel recalled that "[w]e have previously concluded that the specific duty does not constitute a safeguard measure".
GATT Article I provides in part that "any advantage, favour, privilege or immunity" granted by a Member in relation to "customs duties and charges" on the importation of "any product originating in … any other country shall be accorded immediately and unconditionally" to the like product originating in all Members. The Panel agreed with the complainants both that the specific duty was a "customs duty" and that the exclusion of imports of galvalume from the 120 developing countries "constitutes an 'advantage' granted to 'like products' that is not 'immediately and unconditionally accorded' to imports of galvalume from all WTO Members". The Panel therefore concluded that "the application of the specific duty on imports of galvalume originating in all but the 120 countries… is inconsistent with Indonesia's obligation to afford MFN treatment under Article I:1 of the GATT 1994".
Claims under Safeguards Agreement dismissed
In the final section of its report, the Panel considered the claims of the complainants under the Safeguards Agreement and GATT Article XIX. It stated that "[h]aving concluded that the specific duty is not a safeguard measure within the meaning of Article 1 of the Agreement on Safeguards, it is evident to us that there is no legal basis for the complainants' claims under the Agreement on Safeguards" and GATT Article XIX, and that "we dismiss the entirety of those claims". Given what the Panel called "the unique circumstances of this case", it "decided to proceed to address the complainants' claims, but only to the extent of identifying facts relevant to an evaluation of the allegations…, the conduct of its investigation, and Indonesia's decision to impose the specific duty". Although it examined those issues, the Panel expressly declined to "consider the legal merits of the complainants' claims" under these provisions.
The Report of the WTO Panel in Indonesia – Safeguard on Certain Iron or Steel Products, (WT/DS490/R, WT/DS496/R) was circulated on 18 August 2017.
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2017 White & Case LLP