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Legal Update

WTO Panel Rejects Indonesia’s Import Licensing Scheme for Food Products

27 December 2016
Mayer Brown Legal Update

On December 22, 2016, a dispute settlement panel established by the World Trade Organization (WTO) issued its report in Indonesia – Import Licensing (DS477/DS478), a dispute brought by the United States and New Zealand regarding Indonesia’s imposition of special requirements on imports of certain animal and horticultural food products. The panel agreed with the United States and New Zealand on each claim, leaving Indonesia the task of bringing its import licensing regime into compliance with the WTO agreements. This Legal Update focuses on several key findings of the panel.

First, the panel held that Indonesia’s requirement that import license terms (such as port of entry, type of goods, and quantities) be “fixed” for the duration of a three- or six-month license validity period is inconsistent with Article XI:1 of the General Agreement on Tariffs and Trade 1994 (GATT 1994). Indonesia maintained that the license terms were sufficiently flexible due to the fact that importers themselves selected the terms of their import licenses when they applied. However, the panel agreed with the United States and New Zealand that because importers could not change the terms of their licenses at will during the course of a validity period, such terms constitute a quantitative restriction within the meaning of Article XI:1 of the GATT 1994.

The panel also held that Indonesia’s application windows and validity periods for import licenses created a scenario in which imports were effectively disrupted during several weeks of the year at the end of each validity period. Although the time periods for applying for import licenses and the effective dates of those licenses covered the entire calendar year, the panel agreed with the United States and New Zealand that Indonesia’s requirements created conditions which lead to importers ceasing shipments several times a year in order to ensure compliance with the licensing regime. The panel held that these conditions resulted in a quantitative restriction within the meaning of Article XI:1 of the GATT 1994.

Similarly, the panel held that Indonesia’s 80 percent “realization requirement” for imports violated its obligation under Article XI:1 of the GATT 1994. Under the realization requirement, Indonesia penalized importers that failed to import at least 80 percent of their estimated import volume as indicated in the import license application. The stated purpose of the requirement was to dissuade importers from grossly exaggerating their expected import volumes in order to preserve opportunities during any given validity period. However, the panel agreed with the United States and New Zealand that the realization requirement had a chilling effect on importers, causing them to lower their estimated import volumes on their applications and, in turn, imposing a quantitative restriction on imports.

The panel asked the WTO's Dispute Settlement Body to recommend that Indonesia bring its import licensing regime into compliance with the WTO agreements. It should be noted, however, that Indonesia made several key changes to its import licensing regulations while this dispute was pending that may have rendered some of the panel’s findings moot. For this and other reasons, Indonesia is not expected to appeal the findings of the panel.

Authors

  • Duane W. Layton
    T +1 202 263 3811

Related People

  • Cecil Leong
    Chief Executive Officer, Asia Pacific, Mayer Brown Consulting
    T +65 6327 0254
  • Nikolay Mizulin
    T +32 2 551 5967
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