The World Trade Organization’s (WTO) highest court for trade disputes, the Appellate Body, rejected claims against Indonesia regarding duties on iron and steel. The complainants in the case, Taipei and Vietnam, insisted that these duties represented safeguard measures under the WTO agreement. However, the Appellate Body deemed this was not the case.
About the Appellate Body
Established in 1995 via Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), the Appellate Body is a standing council consisting of seven members. Responsible for hearing disputes brought forward by WTO members, the Appellate Body upholds, modifies, or reverses the legal findings and conclusions of an appointed panel. Once adopted by the Dispute Settlement Body (DSB), the reports of the Appellate Body must be accepted by both parties involved in the dispute. It is headquartered in Geneva, Switzerland.
The Triggering Incident
In 2014, Indonesia levied a specific duty on galvalume, a flat-rolled variant of iron or steel, following an investigation under the nation’s safeguards legislation. These three-year duties were contested by Chinese Taipei and Viet Nam who insisted they constituted safeguard measures as defined in the WTO Agreement on Safeguards. They claimed this violated Indonesia’s Most Favored Nation obligation per WTO regulations.
Most Favoured Nation (MFN) Principle
Embedded in WTO’s General Agreement on Tariffs and Trade (GATT), the MFN principle mandates each WTO member to treat all other WTO members as ‘most-favoured’ trading partners. If any member enhances benefits for any trading partner, they must extend the same treatment to all WTO members, thereby ensuring non-discrimination.
Indonesia agreed its action could be seen as a safeguard measure under the Safeguards Agreement, but insisted the duty was consistent with the MFN agreement.
Nature of Safeguard Measures
Under WTO rules, member countries can impose safeguard measures to check sudden and unexpected import surges causing “serious injury” to their domestic industry. If the conditions outlined in the WTO’s agreement on safeguards are breached by these measures, aggrieved members can challenge them.
Reactions from Other Countries
Third parties such as India, China, the EU, Japan, Korea, Australia, Russia, the US, and Ukraine participated in the dispute. All countries, with the exception of the US, argued the Appellate Body’s reasoning was flawed and served to benefit the US’ stance that Section 232 duties on steel and aluminium were justified.
Understanding United States Section 232 Duties
The United States imposed a 25% duty on steel imports and 10% on aluminium imports for an unspecified duration under Section 232, which addresses national security provisions declared under Article 21 of GATT 1994. The US claimed this move was supported by a national security law permitting such measures during war and other emergencies. However, several nations believed they had the right to impose retaliatory measures, claiming that the US’ punitive duties were effectively a “disguised safeguard” measure.
