Indonesia - Iron or Steel Safeguards: Metallurgic jurisprudence on definition of a "Safeguard Measure"

By Bhargav Mansatta and Jayant Raghu Ram

Introduction

The Agreement on Safeguards (SGA) details the substantive and procedural provisions concerning the imposition of a safeguard measure. However, the conditions under which a safeguard measure can be implemented by a WTO Member are provided in Article XIX:1(a) of the GATT. Article XIX:1(a) permits a WTO Member to implement a safeguard measure if, as a result of unforeseen developments and of the effect of the obligations incurred under the GATT (including tariff concessions), any product is being imported into its territory in such increased quantities and under such conditions as to cause or threaten serious injury to the domestic producers of the product in that territory.

In July 2014, Indonesia had imposed a "safeguard duty" on imports of iron and steel products ("subject goods"). Indonesia had however exempted 120 developing countries from the ambit of the safeguard duty, as required under Article 9.1 of the SGA. [see Endnote 1] It must be noted that Indonesia did not have tariff bindings on the subject goods in its Schedule of Concessions, i.e., there were no ceilings on the rate of duty that Indonesia could apply on imports of these subject goods.

At the WTO, Vietnam and Chinese Taipei [see Endnote 2] contested the consistency of the safeguard investigation and the resulting duty with the SGA and also as being in violation of Article I (MFN obligation) [see Endnote 3] of the GATT. 

Assessment of the Panel

Article XIX:1(a) of the GATT states:

“If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.”

In its analysis, the panel noted that for the measure to constitute a safeguard measure, it had to violate a GATT obligation for the purpose of preventing or remedying injury. However, in the present case, since Indonesia did not have tariff bindings on the subject goods in its schedule of concessions, the specific duty imposed by Indonesia on imports of the subject goods, i.e., the "safeguard measure", did not suspend, withdraw, or modify Indonesia’s obligations under GATT Article II. Thus, the panel concluded that the specific duty was not a safeguard measure.

The panel had examined Indonesia’s argument that since the safeguard duty violated Indonesia’s tariff obligations under its various free trade agreements (FTA), there was a violation of GATT Article XXIV. Article XXIV permits FTAs between WTO Members, which in turn prevent parties to FTAs from raising their bound tariffs under the FTAs. However, the panel rejected this argument holding that there was no such obligation in Article XXIV, and such obligations were instead governed by the applicable FTA.

In the absence of a violation of any GATT obligation, the panel rejected the characterization of the measure as a safeguard measure. The panel exercised judicial economy and desisted from making findings on merits under the SGA.

In support of its contention that the measure was a safeguard measure, Indonesia argued that the measure was imposed after conducting a safeguard investigation under its applicable safeguard framework. Further, Indonesia stated that it had made the necessary notifications under the SGA to the WTO’s Safeguard Committee. However, the panel did not agree that compliance with these procedures would characterise the impugned measure as a safeguard measure.

The panel then held that the measure, i.e., the increase in specific/import duty on imports of the subject goods was a violation of GATT Article I:1, on account of Indonesia’s exemption for developing countries from the applied duty.

Among other things, the panel also clarified that the absence of tariff bindings on a particular good did not mean that a WTO Member could not impose a safeguard measure. It clarified that, in such a circumstance, such a measure would have to be in the nature of a quota or minimum import price, as that would be in violation of the obligation under GATT Article XI to not impose quantitative restrictions on imports. [see Endnote 4]

Concurrence by the Appellate Body

Before the Appellate Body (AB), Indonesia argued that the panel had gone beyond its brief by examining the characterization of the measure even though the parties had not disputed the same. The AB however rejected this argument and held that the panel was not only entitled, but rather, was obliged under DSU Article 11 to determine which covered agreement was applicable.

The AB also upheld the panel’s findings concerning the characterization of the measure and agreed with the panel’s reasonings. [see Endnote 5]

Conclusion

A "safeguard measure" has to be one which violates a GATT obligation, and purpose of the violation should be for preventing or remedying injury to the domestic industry. There is no requirement to conduct a safeguard investigation (for the purpose of imposing a safeguard duty) into imports of a product on which there is no tariff binding. The implication of this decision is that where a country does not have tariff bindings, if the authority imposes a safeguard measure in the form of duties, it should not exempt developing countries. If, however, a country does intend to exempt developing countries, then the safeguard measure should be in the form of a quota or any other quantitative restriction.

[The authors are Joint Partner and Senior Associate, respectively, in International Trade Practice, Lakshmikumaran & Sridharan, New Delhi]