Manila might resort to filing an arbitration case at the World Trade Organization (WTO) that would allow the multilateral trading body to determine the retaliation amount the Philippines can impose against Thailand for noncompliance with the ruling on their cigarette dispute.
At the Dispute Settlement Body (DSB) meeting last Thursday, the Philippines warned Thailand it will exhaust all means to get the WTO’s approval for its request for retaliation. The country is seeking compensation from its trading partner for its failure to implement the decision on their cigarette dispute issued in 2011.
In a bid to break the stalemate with Thailand at the WTO, the Philippines is studying the option of filing for arbitration, a Geneva trade official told the BusinessMirror.
Under Article 25 of the Dispute Settlement Understanding (DSU), arbitration within the WTO is permitted as an alternative mechanism of dispute settlement. Resorting to this option requires the mutual agreement of the parties, which shall agree on the procedures to be followed.
“The Philippines noted that the chair, in [its] consultations with the two parties, suggested other means to resolve the dispute, and the Philippines said it was open to this option, including the possibility of arbitration under Article 25 of the DSU,” the Geneva trade official said.
The Philippines threatened that the matter will revert to the hands of the DSB if Thailand fails to accept this suggestion. However, Thailand made no response to the proposal that they settle for arbitration, as it insisted on waiting for the WTO to decide on its pending appeal.
Bangkok also argued that it is illegal for Manila to file for retaliation under WTO rules, claiming the deadline for making such a request is 30 days after the adoption of the ruling on the case, which was in June 2012.
Should the two Southeast Asian nations choose to go the arbitration path, they will just be the second to do so in the 25-year history of the WTO. The first and only case so far was when the European Union and the United States in 2001 sought an arbitrator to fix the retaliation amount the EU could impose on the US for noncompliance with their music licensing dispute.
The DSB meeting last Thursday ended virtually in favor of Thailand, as the item on the request for retaliation was suspended with no clear way forward.
‘Creative solutions’
Lawyer Anthony A. Abad told the BusinessMirror the Philippines should find “creative” solutions, including the filing for arbitration, in forcing Thailand to comply with the ruling on their cigarette dispute. Still, he advised the government to maintain its adherence to multilateral trading rules and shun the temptation of unilaterally imposing trade measures.
Abad, who represented the Philippine camp at the cigarette dispute proceedings, said the best the government can do for now is review the country’s imports from Thailand and determine the items that can be slapped with restrictions once the WTO authorizes the retaliation.
He added the Philippines should keep the pressure on the WTO to resolve the impasse on the Appellate Body. The Appellate Body, the supreme court of international trade, is operating with just one sitting judge of the seven available seats.
The chamber, which has the capacity to decide on any trade dispute once and for all, can only hear cases with a quorum of three judges, and the US has been preventing the nomination of any new member due to its frustrations with the WTO.
In February the Philippines filed a petition at the WTO to suspend concessions and obligations to Thailand covering $594 million worth of trade annually. The request was made in retaliation to Bangkok’s failure to comply with the decision on their cigarette dispute that Manila won in 2011 but has yet to be implemented.
In 2008 the Philippines initiated dispute settlement proceedings against Thailand over wrongful values assigned to its cigarette exports.
In 2011 the WTO issued a decision in favor of the Philippines, to which Thailand appealed and lost the following year. In spite of losing both the proceedings and the appeal, Thailand made no changes to its fiscal and customs measures on Philippine cigarette products as ordered by the WTO in its ruling.
At first, Manila deferred its option to exercise its retaliation rights and instead sought the WTO to investigate Bangkok for its noncompliance.
Last year the WTO’s compliance panels ruled that Thailand was indeed violating the ruling, and any appeal to this finding thereafter would be resolved in 90 days. After exhausting all means and after Thailand refused to cooperate, the Philippines was compelled to go the hard way and seek retaliation against its Southeast Asian neighbor.