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TWN Info Service on WTO and Trade Issues (Oct17/18)
23 October 2017
Third World Network


Indonesian measures on chicken from Brazil held WTO-illegal
Published in SUNS #8556 dated 19 October 2017


Geneva, 18 Oct (Kanaga Raja) - A dispute panel at the World Trade Organisation (WTO) has largely ruled that measures imposed by Indonesia on imports of certain chicken meat and chicken products from Brazil are inconsistent with Indonesia's obligations under the WTO.

In a ruling issued on 17 October, the Panel concluded, to the extent that the measures at issue are inconsistent with certain provisions of the GATT 1994 and the SPS (Sanitary and Phytosanitary Measures) Agreement, they have nullified or impaired benefits accruing to Brazil under those agreements.

The Panel, with the exception of the measure referred to in para 8.1.d (vi) of the Panel report, recommended that Indonesia bring its measures into conformity with its obligations under Articles III:4 and XI:1 of the GATT 1994 and Article 8 and Annex C(1)(a) of the SPS Agreement.

(Para 8.1.d (vi) refers to the Panel's finding that the application windows and the validity periods, as a single measure, have ceased to exist, and the Panel thus refrained from making a recommendation in respect of this measure.)

One Panellist on the three-member panel voiced a separate opinion on the approach taken by the Panel in its analysis of one of the issues in the dispute (see below).

BACKGROUND

On 15 October 2015, Brazil had requested the establishment of a panel in this dispute and at its meeting on 3 December 2015, the Dispute Settlement Body (DSB) agreed to establish the panel.

On 22 February 2016, Brazil requested the Director-General to determine the composition of the panel, and on 3 March 2016, the Director-General accordingly composed the Panel.

The Panel decided to accept late requests from both Oman and Qatar to participate as third parties to the dispute. Both requests had been filed over three months after the panel had been established.

According to the Panel, on 28 April 2016 and 23 May 2016, Oman and Qatar respectively requested to join as third parties. On 25 May 2016, the Panel consulted with the parties.

Neither Member provided an explanation for the timing of its request, according to the Panel report.

Brazil took the view that neither request should be accepted, while Indonesia had no objections to the requests.

On 3 June 2016, the Panel informed Oman, Qatar, and the parties of its decision to accept the requests. On 6 June 2016, the Panel informed the other third parties of its decision to accept the requests.

In its ruling on this issue, the Panel underlined that accepting these requests recognizes the limited experience of the requesting Members but should not be taken as encouragement to other Members to disregard the long- standing norm of indicating third-party interest at the DSB meeting where the panel is established or within 10 days thereafter.

According to the Panel report, Brazil made claims against two categories of measures: (i) an alleged general prohibition on the importation of chicken meat and chicken products; and (ii) specific restrictions and prohibitions on the importation of chicken meat and chicken products.

In its panel request, Brazil described the alleged general prohibition as follows:

Indonesia imposes several prohibitions or restrictions on the importation of chicken meat and chicken products which, combined, have the effect of a general prohibition on the importation of these products, as follows:

a. Indonesia does not allow the importation of animal and animal products not listed in the appendices of the relevant regulations. With regard to chicken, the list only contemplates HS codes referred to as whole chicken, fresh or chilled and frozen. The HS codes for chicken meat cut into pieces are not described in any of the "positive lists" which contain the products that can be imported into Indonesia's territory;

b. Domestic food production (including "staple food", which encompasses chicken meat and chicken products) and national food reserve are prioritized over food import, which is only authorized as an exception, when domestic food supply in Indonesia is not considered "sufficient" by the government;

c. Imports of essential and strategic goods may be prohibited and/or restricted and prices may be controlled by the Indonesian government. Thus, import and export operations may be postponed by the Minister of Trade during a force majeure event. As chicken meat and chicken products fit into the categories of essential and strategic goods, even if they were allowed to enter into Indonesia, their effective importation would be subject to the discretion of the Minister of Trade;

d. The Indonesian government limits the importation of chicken meat and chicken products to certain intended uses. The importation of chicken meat and chicken products shall only be allowed to meet the needs of "hotel, restaurant, catering, manufacturing, other special needs, and modern market";

e. Indonesia has unduly refused to examine and approve the Health Certificates for poultry products (including chicken meat and chicken products) proposed by Brazil since 2009;

f. Indonesia imposes prohibitions and/or restrictions to importation through its Import Licensing Regime. In order to import chicken meat and chicken products, importers must obtain import licenses after several approval and overlapping authorization stages, covered by different regulations and authorities; and

g. Indonesia establishes an import prohibition through different regulations regarding halal slaughtering and labelling requirements for imported chicken meat and chicken products.

In addition to the alleged general prohibition on the importation of chicken meat and chicken products, Brazil also challenged a number of individual measures. Four of those individual measures, albeit described in slightly different terms in their own section of the panel request, correspond to items (a), (d), (e), and (f) of the previous section.

They pertain respectively to (i) the non-inclusion of certain chicken products in the list of products that may be imported; (ii) the limitation of imports of chicken meat and chicken products to certain intended uses; (iii) Indonesia's alleged undue delay in the approval of health certificates for chicken products; and (iv) Indonesia's import licensing regime.

In addition, Brazil challenged two more individual measures:

a. Surveillance and implementation of halal slaughtering and labelling requirements for imported chicken meat and chicken products established by different Indonesian regulations, which are much stricter than the surveillance and the implementation of halal requirements applied to the domestic production in Indonesia; and

b. Restrictions on the transportation of imported products by requiring direct transportation from the country of origin to the entry points in Indonesia.

The Panel noted that during the proceedings, certain legal instruments underlying a number of the measures at issue were either revoked or revoked and replaced.

The Panel highlighted the two legal instruments that are central to this dispute, as identified by Brazil in its panel request, and the corresponding legal instruments that revoked and replaced them:

* Panel request ("first set of legal instruments"): MoA 139/2014 of 23 December 2014 and MoT 46/2013 of 30 August 2013;

* First written submission ("second set of legal instruments"): MoA 58/2015 of 25 November 2015 and MoT 05/2016 of 28 January 2016;

* Second written submission ("third set of legal instruments"): MoA 34/2016 of 15 July 2016 and MoT 59/2016 of 15 August 2016.

The Panel noted that the two main legal instruments underlying these measures changed twice over the course of the proceedings.

The second set was adopted shortly after the establishment of the Panel and before the first submission was due.

The third set was adopted after the end of the period foreseen for answers to questions by the Panel following the first meeting of the Panel with the parties.

Based on the changes enacted through the third set of legal instruments, Indonesia takes the view that three of the challenged measures that existed under the first set of legal instruments have expired. Brazil contests the expiry claimed by Indonesia and presents arguments in support of its claims in respect of relevant provisions in the third set of legal instruments.

On this issue, the Panel said subject to the Panel having jurisdiction, it will start with a review of the measures as enacted by the second set of legal instruments.

"We will make findings on these measures before addressing the issue, where relevant, of whether they have expired as argued by Indonesia. ... Where Indonesia has so argued, we will examine the issue of expiry."

The Panel said: "In addition to reviewing the measures as enacted through the second set of legal instruments, we will, jurisdiction permitting, review Brazil's claims with respect to the measures as enacted through the third set of legal instruments, where Brazil has made arguments to this effect and where we have found that the measure has not expired."

(One Panellist voiced a different view over this approach and issued a separate opinion. See below.)

ARTICLE XX(B) and (D) OF GATT 1994

Amongst other claims, the Panel also addressed Indonesia's defence under Article XX(b) and (d) of the GATT 1994, essentially arguing that the intended use requirement serves to ensure that frozen chicken is not sold in markets without proper refrigeration facilities. Brazil rejects the defence submitting that Indonesia has not met its evidentiary burden.

According to the Panel report, Indonesia argues that the intended use requirement serves to prevent a risk to human health in terms of food safety which, it argues, arises from improper thawing and re-freezing of previously frozen chicken.

Brazil considers that there is no meaningful connection between the measure and its purported objective and that the measure is not necessary.

Indonesia's argument generally is that freezing and thawing increases microbial growth and facilitates product deterioration. While Indonesia's argument initially emphasized the issue of re-freezing thawed chicken, its subsequent submissions focus on the issue of improper thawing, and in particular thawing in tropical temperatures as these are the temperatures found in Indonesia's outdoor traditional markets.

Following its analysis, the Panel considered that Indonesia has demonstrated the existence of a risk arising from thawing frozen chicken at tropical temperatures. It further considered that while Brazil has submitted a scientific publication demonstrating that there is no such risk, that publication, at best, represents a divergent view.

The existence of a divergent view would not prevent Indonesia from relying on the above view which, as the evidence shows, happens to be the currently prevailing view in science, the Panel said.

The Panel, therefore, found that Indonesia has established that there is a risk to human health arising from thawing meat at tropical temperatures.

On this basis, it found that there is a relationship between the intended use requirement and the objective of protecting human health.

On whether the intended use requirement is necessary to protect human health, the Panel however found that the intended use requirement is not provisionally justified under Article XX(b).

The Panel also addressed Indonesia's claim under Article XX(d). Indonesia submits that the intended use requirement secures compliance with relevant provisions in Indonesian law which require that imported food must be safe. In addition, Indonesia refers to consumer protection pointing to the risk of consumers mistaking thawed chicken for fresh chicken when buying chicken in the traditional market.

On whether the intended use requirement is necessary to secure compliance with such laws and regulations, the Panel found that the intended use requirement is not provisionally justified under Article XX(d).

In conclusion, it found that the intended use requirement is inconsistent with Article XI of the GATT 1994 and is not justified under Article XX of the GATT 1994.

The Panel also addressed Brazil's claims that Indonesia has caused an undue delay with respect to the approval of a veterinary certificate for the importation of poultry from Brazil into Indonesia.

The Panel said throughout these proceedings Indonesia has confirmed that the reason for not proceeding with the review of both country of origin and business unit approval is that the relevant information on halal requirements was still outstanding.

Brazil, for its part, at the second meeting with the Panel, confirmed that to date, it has not submitted any halal information to Indonesia.

The Panel examined (1) whether Indonesia's refusal to examine and approve the veterinary health certificate for poultry products proposed by Brazil is subject to Annex C(1) of the SPS Agreement; (2) whether it amounts to a delay; and (3) whether such delay is undue.

Indonesia indicates that the procedure has not moved forward because of Brazil's failure to submit the relevant halal assurance questionnaire. In addition, both parties agree that halal slaughtering requirements are not SPS related.

"The legal question we are confronted with is whether a Member may delay the completion of an SPS approval procedure because of outstanding non-SPS related information that it requires the applicant to submit. If the answer is in the affirmative, then Indonesia would be correct in arguing that the delay is attributable to Brazil and is therefore justified. If the answer is in the negative, Brazil would be correct in arguing that Indonesia is unjustifiably holding back the relevant SPS approval procedure," said the Panel.

The Panel subsequently concluded that a Member may not delay the completion of an SPS approval procedure because non-SPS related information, which the Member requires the applicant to submit, is outstanding from an application. Accordingly, it found that the delay is not justified and, is therefore undue.

The Panel noted that given the scope of Brazil's claim, this finding applies to the approval procedure relevant to obtain the veterinary health certificate, which is part of the country of origin approval procedure.

This procedure is bundled with the business unit approval procedure, which has an SPS component as well as the halal component at issue, it said.

"We emphasize that our finding does not concern or affect Indonesia's right to impose halal requirements as a pre-marketing condition for the importation of chicken. We also note that Brazil has not contested this right. We recognize that a Member has the right to impose halal requirements in a manner consistent with its WTO obligations."

On the basis of the foregoing, the Panel found that Indonesia has caused an undue delay in the approval of the veterinary health certificate inconsistent with Article 8 and Annex C (1)(a) of the SPS Agreement.

SEPARATE OPINION OF ONE PANELLIST

In a separate opinion, one Panellist said : "I am unable to agree with the analysis and findings concerning these measures as set out in paragraphs 7.77 to 7.94 above and 7.103 to 7.452 above and the conclusions and recommendations set out in paragraphs 8.1(b); 8.1(c); and 8.1(d) iii to viii."

In the current dispute, the Panellist noted, three of the measures challenged were amended twice after the request for the establishment of the panel.

The measures concern (i) a limitation on importation of chicken cuts; (ii) a limitation on the destination allowed for imports of chicken meat; and (iii) the period for application and period of validity of import recommendations and import approvals.

The two amendments were introduced through subsequent replacements of the entire regulations of the Minister of Agriculture (MoA) and of the Minister of Trade (MoT) that contain the legal framework applicable to imports of carcass, meat and processed products into Indonesia.

Pursuant to these changes, it was the Panellist's view that the Panel should start its analysis by addressing three questions: (1) What are the amended measures? (2) What is the Panel's jurisdiction over the amended measures? and (3) How does the Panel address an allegation by the respondent regarding "expiry of the original measures"?

Thereafter, to the extent that the Panel determines that it has jurisdiction over the measure(s) as amended it should examine the amended measures in light of the claims made by the complainant.

To establish whether the Panel has jurisdiction over the amended measures, the Panel must review the content of the measures as described in the panel request vis-a-vis the content of the amended measures challenged by Brazil. The factual circumstances of the case provide additional elements that complement the analysis, in particular the overall structure of the legal framework, the fact that the amendments were adopted by a replacement of the entire MoA and MoT regulations with changes limited to the three measures covered by the dispute, and the timing of the changes which coincide with the Panel's proceedings, said the Panellist.

In some conclusions following an explanation of the Panellist's reasoning, it was the Panellist's view, that the sequence of determining the content of the amended measure challenged, followed by a determination of jurisdiction over the measure is key to a clear and comprehensive examination by the panel.

An approach where the jurisdiction over an amended measure is only asserted after the panel determines that the measure (original) has not expired because the amended measure contains a similar restriction creates the risk that the panel focuses its examination on an issue that may no longer be the problem. Upon the amendment, the source of impairment is the measure as amended rather than the original measure. At that stage and to the extent that the complainant develops claims against the amended measure, the panel needs to examine the modified measure as defined by the complainant.

"This is important because it is possible that the amended measure resolves some problems while creating other problems. So long as the amended measure is covered by the panel's jurisdiction and the claim is covered by the legal basis identified in the panel request, the measure to be examined is the measure as amended."

In summary, it was the Panellist's view that in the present case pursuant to the amendment of the measures and the allegation by Brazil that the amended measures are in breach of the provisions of the covered agreements indicated in the panel request, the Panel is required to determine whether it has jurisdiction over the amended measures (as defined by the complainant) and thereafter make findings and recommendations concerning the measures as amended.

Altering this sequence with an examination of whether the "old measure" has expired because the "new measure removes the old problem" risks focusing the Panel's examination on a measure that is no longer the source of the alleged impairment.

In addition, it risks changing the examination of the amended measure into an examination that does not consider the amended measure in its integrity and as identified by the complainant, said the Panellist.

OVERALL CONCLUSIONS AND RECOMMENDATIONS

a. In respect of Indonesia's request for a preliminary ruling:

i. the Panel finds that the alleged general prohibition/overarching measure is properly within the terms of reference of the Panel, and in particular, that (a) Brazil's panel request provides a brief summary of the complaint sufficient to present the problem clearly, (b) the measure described in Brazil's first written submission is not altered to the point of falling outside the terms of reference of the Panel, and (c) the alleged general prohibition is properly identified in Brazil's panel request;

ii. the Panel finds that the panel request does not contain a challenge to the import licensing regime "as a whole", and such measure is therefore not within the terms of reference of the Panel;

iii. the Panel finds that Brazil's claims with regard to other prepared or preserved chicken meat are identified in Brazil's panel request and are therefore within the terms of reference of the Panel;

iv. the Panel takes note of Brazil's statement that it is not making any claims under Article 1 of the Agreement on Import Licensing Procedures and therefore sees no need to rule that Brazil is precluded from making such claims.

b. In respect of the positive list requirement:

i. the Panel finds that the positive list requirement as enacted through MoA 58/2015 and MoT 05/2016 is inconsistent with Article XI of the GATT 1994;

ii. the Panel finds that the positive list requirement as enacted through MoA 58/2015 and MoT 05/2016 is not justified under Article XX(d) of the GATT 1994;

iii. the Panel considers that having found that the positive list requirement as enacted through MoA 58/2015 and MoT 05/2016 is inconsistent with Article XI of the GATT 1994 and is not justified under the general exception in Article XX(d) of the GATT 1994, it is not necessary to address Brazil's claim under Article 4.2 of the Agreement on Agriculture in order to secure a positive solution to this dispute;

iv. the Panel finds that the positive list requirement has not ceased to exist by virtue of the relevant provisions in MoA 34/2016 and MoT 59/2016;

v. the Panel finds that since the positive list requirement, as enacted through MoA 34/2016 and MoT 59/2016, continues to apply in the same manner as enacted through MoA 58/2015 and MoT 05/2016, the Panel's findings on Article XI and XX(d) of the GATT 1994, in respect of the measure as enacted through MoA 58/2015 and MoT 05/2016, also apply to this measure as enacted through MoA 34/2016 and MoT 59/2016.

c. In respect of the intended use requirement:

i. in respect of the intended use requirement as enacted through the relevant provisions in MoA 58/2015, the Panel finds that:

(1) Article III:4 of the GATT 1994 is not applicable because of the absence of an equivalent domestic measure;

(2) the intended use requirement is inconsistent with Article XI of the GATT 1994;

(3) the intended use requirement is not justified under Article XX(b) or Article XX(d) of the GATT 1994;

(4) having found that the intended use requirement is inconsistent with Article XI of the GATT 1994, it is not necessary to address Brazil's claim under Article 4.2 of the Agreement on Agriculture in order to secure a positive solution to this dispute;

ii. the intended use requirement has not ceased to exist by virtue of the amendments made to through the relevant provisions in MoA 34/2016;

iii. in respect of the intended use requirement as enacted through the relevant provisions in MoA 34/2016, the Panel finds that:

(1) Article III:4 of the GATT 1994 is applicable, because there is an equivalent measure applied to like domestic products;

(2) the intended use requirement with respect to its cold storage requirement is not inconsistent with Article III:4 of the GATT 1994;

(3) the intended use requirement with respect to its enforcement provisions is inconsistent with Article III:4 of the GATT 1994;

(4) the intended use requirement with respect to its enforcement provisions is not justified under the general exceptions in Article XX(b) or Article XX(d) of the GATT 1994.

(5) having found that the intended use requirement with respect to its enforcement provisions is inconsistent with Article III:4 of the GATT 1994, it is not necessary to address Brazil's claim under Article XI:1 of the GATT 1994 and Article 4.2 of the Agreement on Agriculture in order to secure a positive solution to this dispute.

d. In respect of Indonesia's import licensing procedures:

i. the Panel finds that the positive list requirement is in the nature of an import licensing rule and is therefore not subject to the Import Licensing Agreement;

ii. the Panel finds that the intended use requirement is in the nature of an import licensing rule and is therefore not subject to the Import Licensing Agreement;

iii. the Panel finds that the application windows, the validity periods and the fixed licence terms, as enacted through MoA 58/2015 and MoT 05/2016, are inconsistent with Article XI:1 of the GATT 1994;

iv. the Panel finds that the application windows, the validity periods and the fixed licence terms, as enacted through MoA 58/2015 and MoT 05/2016, are not justified under Article XX(d) of the GATT 1994;

v. the Panel considers that having found that the application windows, the validity periods and the fixed licence terms, as enacted through MoA 58/2015 and MoT 05/2016, are inconsistent with Article XI of the GATT 1994, it is not necessary to address Brazil's claim under Article 4.2 of the Agreement on Agriculture and Article 3.2 of the Import Licensing Agreement in order to secure a positive solution to this dispute;

vi. the Panel finds that the application windows and the validity periods, as a single measure, have ceased to exist; the Panel thus refrains from making a recommendation in respect of this measure;

vii. regarding the new validity period, as enacted through MoA 34/2016, the Panel finds that Brazil failed to demonstrate that this measure is inconsistent with Article XI:1 of the GATT 1994, Article 4.2 of the Agreement on Agriculture and Article 3.2 of the Import Licensing Agreement;

viii. the Panel finds that because of the almost identical language in the relevant provisions governing the fixed licence terms, the Panel's findings on Article XI and XX(d) of the GATT 1994, in respect of this measure as enacted through MoA 58/2015 and MoT 05/2016, also apply to this measure as enacted through MoA 34/2016 and MoT 59/2016;

ix. the Panel finds that Brazil failed to make a prima facie case that the following aspects of Indonesia's import licensing regime are WTO-inconsistent: (1) MoT's power to determine the amount of imported goods in the MoA Import Recommendation, as enacted through MoA 58/2015; and (2) the denial of import licences to secure price stabilization.

e. In respect of the undue delay in the approval of the veterinary health certificate:

i. the Panel finds that Indonesia has caused an undue delay in the approval of the veterinary health certificate inconsistent with Article 8 and Annex C (1)(a) of the SPS Agreement.

f. In respect of the halal labelling requirements:

i. the Panel finds that Brazil failed to demonstrate that Indonesia's implementation of its halal labelling requirements is inconsistent with Indonesia's obligations under Article III:4 of the GATT 1994.

g. In respect of the transportation requirement:

i. the Panel finds that Brazil failed to demonstrate that the direct transportation requirement, as enacted through Article 19(a) of MoA 34/2016, is inconsistent with Article XI:1 of the GATT 1994 and Article 4.2 of the Agreement on Agriculture.

h. In respect of the general prohibition:

i. the Panel finds that Brazil failed to make a prima facie case, because it did not demonstrate the existence of the alleged unwritten measure.

 


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