is my Trade Tripper column in the Friday-Saturday issue of BusinessWorld:
As readers of this column will know, the
Philippines got a well-deserved win in 2011 at the WTO in the dispute
Thailand -- Customs and Fiscal Measures on Cigarettes from the
Philippines (docketed as DS371). That case had to do with Thai taxes
imposed on imported cigarettes, with Philippine total exports of our
cigarettes significantly declining for the two years prior to the filing
of the complaint. Clearly, the outcome of the case was quite important
considering that the livelihood of thousands of Filipino farmers was at
stake.
The WTO panel, in its report last Nov. 15, 2010 (a copy of the 426 page report can be viewed at https://docs.wto.org/dol2fe/Pages/FE_Search/DDFDocuments/107523/Q/WT/DS/371R.pdf),
found that the Thais acted inconsistently with the provisions of
Articles 1.1, 1.2, 1.2 (a), 7.1, 7.3, 10, and 16 of the Customs
Valuation Agreement; and Articles III.2 and III.4, as well as X.1, X.3
(a), and X.3 (b) of the GATT.
Thailand, predictably, appealed to the Appellate Body, with Thailand
complaining about the panel’s findings under Article III:2, Article
III:4, and Article X:3 (b) of the GATT 1994. The AB, however, in its
Report dated June 17, 2011, essentially upheld all of the panel’s key
findings and, thus, handed an overwhelming victory for the Philippines. A
copy of the AB report can be found in http://www.wto.org/english/tratop_e/dispu_e/371abr_e.pdf.
The win was a highly welcome contrast to the country’s bizarre loss in
Philippines -- Taxes on Distilled Spirits (docketed as DS396 and DS403).
At that time, I wrote that the Thai cigarettes case should “quiet local
critics of the WTO: say what they will, it cannot be denied that
without the WTO’s highly efficient dispute settlement system, the
country would not have been able to protect its interests as well as it
did.”
That was then. The Thais, unfortunately, have managed to exploit an
inherent and significant structural weakness in the WTO dispute
settlement system and that is with regard to enforcing compliance with
the panel (or AB) rulings. In our case, as reported by BusinessWorld
on July 29, 2013 (Lack of Thai action scored), “The Philippines is
disappointed with Thailand’s apparent procrastination over the
implementation of a World Trade Organization (WTO) cigarette tax ruling.
‘While Thailand has made strides in implementing a number of measures,
full compliance that adheres to WTO rules is yet to be realized,’ a
Trade department statement yesterday quoted Assistant Secretary Ceferino
S. Rodolfo as saying. ‘[B]ilateral engagements hoped to achieve this
and it is, therefore, a disappointment for the Philippines that the
information committed during the bilateral meetings has yet to be
completely provided,’ Mr. Rodolfo added.”
The Thais, in turn, were reported to have declared that “Thailand will
continue to discuss any technical issues arising out of these
discussions with the Philippines and, as appropriate, with private
stakeholders.” In short: dribble.
Compliance has always been the problem area for an otherwise impeccable
dispute settlement system. Interestingly, the two biggest users of the
WTO dispute system, the EU and the US, have been quite disengenous in
that regard. The EU (see A Conflict of Institutions? The EU and GATT/WTO
Dispute Adjudication; Christina L. Davis, 12 March 2007) has the Hormones
case, while the US (see EU Fact Sheet) has the Foreign Sales Corp. case
as a prime example. This issue of Thai’s non-compliance is expected.
In any event, as my University of Asia and the Pacific colleague George Manzano said in the BusinessWorld article, “the options available to the Philippines included requesting compensation, arbitration or retaliation.”
However, even that demands more intricate calculation: as Asim Imdad Ali
points out (see Non-Compliance and Ultimate Remedies Under the WTO
Dispute Settlement System, Journal of Public and International Affairs,
2003), “if a member does not comply, final enforcement remains
problematic. The WTO authorizes countermeasures to be taken by
individual states. These retaliatory provisions, however, fail on many
counts: on effectiveness; on defeating the foundational principles of
the WTO, such as free trade; by causing ‘double-injury’ to those who win
the case; on being ‘the epitome of mercantilism’; and lastly, on
favoring a power-based system and undermining the rule-based system of
adjudication. Arguably, the WTO has the best dispute settlement system
of any international organization. Nevertheless, the WTO does not have
the best compliance system.”
Unfortunately, the seeming prevailing view within the WTO itself does
not encourage censure of those delaying compliance: “The current design
of the WTO’s dispute settlement mechanism, by operating temporarily as a
system of ‘breach and pay,’ fulfills a crucial role as a systemic
safety valve for rare scenarios where WTO members find it impossible to
comply with the DSB’s recommendations and rulings within the ‘reasonable
period of time’ as determined according to Article 21.3 of the DSU.”
(Toleration of Temporary Non-Compliance: The Systemic Safety Valve of
WTO Dispute Settlement Revisited, Claus Zimmerman, Trade, Law and
Development, 2011).
So we’ll really have to do some deep and fast thinking if we are to truly protect our national interest.
