Thailand : Conciliating a dispute

8/13/2019 Thailand : Conciliating a dispute

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STUDIU DE CAZ:

Thailand: Conciliating a Dispute on Tuna Exports to the EC

http://www.wto.org/english/res_e/booksp_e/casestudies_e/case40_e.htm

Tuna is arguably one of the most well-known and abundant of fish, found in large quantities at

supermarkets and convenience stores around the world. It is such a popular sight in its canned form that

one may have even dissociated it from its origins as a fish, until reminded of the amusing slogan-cum-

brand, chicken of the sea. As such, it is safe to say that tuna enjoys as much popularity among

consumers as the humble and ubiquitous chicken.

On the production side, easy accessibility and popularity translates into big business, thriving markets

and fierce competition. For producers of canned tuna, the fish is their livelihood, an important source of

income and an industry of serious economic significance, contributing as it does to the national balance

of payments, the employment rate and, subsequently, a productive and healthy social climate.

This is especially true in the case of Thailand, the worlds third-largest producer of canned tuna and the

largest exporter, accounting for 31% of the global volume of exports. As of 2000, the United States hasremained Thailands biggest export destination, followed bythe European Community (EC) and then

Canada.(1) Since Thailands tuna industry is export-oriented, with almost all its production intended for

overseas markets, foreign import restrictions and regulations wield considerable impact on its growth

and overall dynamism. This is where Thailand encountered difficulties with one of its major trading

partners the EC.

Despite its impressive world ranking, producers of canned tuna in Thailand were convinced that their

industry was capable of considerably better performance given more equitable access to the EC market.

This inequity existed primarily in the form of a preferential tariff granted by the EC to canned tuna

producers from the African, Caribbean and Pacific states (ACP countries), a status consolidated in the

Cotonou Agreement (ACP Agreement) of 3 February 2000 between the EC and the ACP countries. While

ACP countries were enjoying zero tariffs on tuna imports, other countries such as Thailand were

continuing to face an inhibiting tariff of 24%, which was proving detrimental to the legitimate economic

interests of Thailand as a major producer of canned tuna. Furthermore, zero import tariffs for ACP

countries encouraged investors increasingly to view the ACP countries as a favourable investment


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destination, in contrast to Thailand, undermining the cost and other comparative advantages that

Thailand has to offer.

This case study illustrates the manner in which Thailand raised the issue and challenged the EC tariff

within the framework of the Dispute Settlement Understanding (DSU) provided for in the WTO

Agreement. There are three major stages to the DSU: consultation between the concerned parties,

adjudication by Panels and, if necessary, the Appellate Body, and implementation of the ruling.

However, it is not always necessary for every case to follow this trajectory and to be taken to Panels. In

fact, the preferred path is for members to settle the dispute between themselves, through

consultations.(2)

To this end, the DSU provides good offices, conciliation and mediation which may be requested by

members if consultations fail to produce an acceptable solution. These options serve as an interveningstep in which an independent third party is engaged to help members resolve the dispute at hand,

thereby avoiding Panel proceedings which can be the most costly and time-consuming stage of the DSU

procedures.

The events concerning this case study span approximately three and a half years, dating back to the

conclusion of the ACP Agreement in 2000, followed by the WTO consultation and mediation process and

concluding with the ECs new Council Regulation of 5 June 2003. As the first case in WTO history to be

settled through mediation, it sets a valuable example for fellow member countries, demonstrating that

disputes may be resolved within the WTO without resorting to formal litigation.

Although this is a recent case, it is worth noting that the EC-ACP relationship dates back almost forty

years to 1963. During this time a number of agreements were produced through which the EC granted

ACP countries trade benefits on a number of products, including canned tuna. Thus, for this particular

product, ACP countries had been enjoying free access to the EC market for almost thirty years prior to

the ACP Agreement of 2000. By the mid-1990s, Thailands tuna industry was increasingly feeling the

negative impact of this preferential trading arrangement, as reflected in revenue, investment and

opportunity losses.

With the formal establishment of the WTO in 1995 and the entry into force of the GATT 1994 rules came

a more favourable climate in which to address such preferential or discriminatory trading relationships

in the international arena. One of the basic principles of the WTO legal framework is the MFN (most-

favoured nation) principle, which states that all WTO Members are bound to grant to each other


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treatment as favourable as they give to any other Member in the application and administration of

import and export duties and charges. A tariff concession made to one Member must therefore be

extended immediately and unconditionally to all other Members.(3) Thus, with regard to the ECs

preferential tariff rates, the legal impetus and the framework within which Thailand could challenge the

discriminatory tariff were in place. It would be up to the concerned parties of Thailand to take up the

cause, and to gather the information, personnel and determination necessary to see it through to a

satisfactory conclusion.

I. The players

The countries concerned here are Thailand and the Philippines on the one hand and the European

Community on the other. The Philippines, as a fellow ASEAN and WTO member facing similar difficulties,

joined with Thailand in this landmark attempt to prove that preferential tariffs had long been impairingtheir economic interests, and to seek appropriate redress or compensation from the EC. For the

purposes of this case study, however, the focus will remain on Thailand and its actions, although the

term complainants will be used to refer collectivelyto Thailand and the Philippines when necessary.

Throughout this process, close collaboration and co-ordination was a vital element between private-

sector players that is representatives of the complainants tuna industries and their respective

governments. In Thailands case, it was the Ministry of Commerce specifically that provided a strong link

between the tuna industry and the Thai permanent mission to the WTO in Geneva, where the mediation

took place. At the WTO proceedings, the role of negotiator was assumed by the Thai ambassador to the

WTO, who thereby served as the official voice of Thailand.

The Thai tuna industry was represented by Chanintr Chalisarapong, in his capacity as chairman of the

Thai Tuna Packers Group/Thai Food Processors Association. Chanintr acted as a focal point in

consolidating industry data and information, as well co-ordinating efforts and co-operation from the

private sector side. Since the matter involved issues of international law and practice, lawyers were also

hired. Although this was a WTO case, the complainants were challenging the EC, whose headquarters is

located in Brussels. Therefore the Thai side chose to engage a law firm based in Brussels, which is wherethe first round of consultations was also held. Finally, although this case was treated as strictly

confidential, no such dispute can exist entirely in a vacuum; therefore, external forces in the form of

political pressures from some EC governments had their impact as well.


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From the start, the role of each of the major players was well delineated, with each playing to their

natural strengths. The major task for the private sector was to provide industry data, information and

support in every form possible to the Ministry of Commerce. The Ministry of Commerce, on the other

hand, examined the legal and related aspects associated with the negotiation process, as well as

providing an official link to Geneva and the WTO proceedings. The Brussels law firm provided in-depth

legal counsel and professional backing in writing official submissions, although it did not participate in

the actual mediation.

Constructive co-operation between the public and private sectors was a key element for a number of

reasons. First, a strong, mutually supportive partnership created a sense of solidarity in a shared pursuit.

Second, the government alone would not have been able to allocate the funding necessary for an

endeavour of this nature. Therefore, where financial resources were needed, the private sector pooled

its funds. Third, the sharing of industry data and information from sources such as the Customs

Bureau, and FAO and EC statistics enabled the team to build a much stronger case than would

otherwise have been possible, which allowed them to maintain consistency and confidence in their

positions and arguments throughout the lengthy process. In sum, a vital component of success was the

readiness of the affected industry to contribute to its own defence, in terms of funding and manpower.

Of their working relationship with the Thai government Chanintr remarked, We launched into the

process of seeking redress, confident in our just cause, equipped with the factual tools and reassured by

the full support of the government and its willingness to take the lead in negotiations and in lobbying

efforts at all levels. This willingness on the part of the government was matched by the private sectors

own efforts: When we saw that there was not enough legal expertise in the ministry, we, the privatesector, gathered the funding needed to hire a law firm in Brussels. While representatives of the

government engaged actively in the negotiations, we continuously provided factual evidence and helped

to formulate appropriate ways to respond to the rebuttals and counter-arguments throughout the

consultation and mediation processes. This kind of Cupertino isnt always in place with other industries.

II. Challenges and the outcome

The initial challenge faced by Thailand was, indeed, how to persuade the EC to enter into discussions on

the matter. On 2 March 2000 the EC requested a waiver of its MFN obligations with regard to the ACP

Agreement. In the eighteen months following the request until the adoption of this waiver, Thailand had

on numerous occasions expressed its concerns relating to the implementation of the ACP Agreement

and the negative effects that it would have on their canned tuna exports. They received no response.


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At the Doha Ministerial Conference, however, a give-and-take situation presented itself. The EC-ACP

Agreement could not be extended without the consensus of all WTO members in approving the

adoption of the requested waiver. Realizing that Thailand would not concede, the EC agreed to hold

consultations with Thailand and the Philippines (the complainants) to examine their differences. In the

end, Thailand agreed to concede on the waiver, on condition that their case be taken up in an

appropriate forum, with the aim of resolving the conflict of interest.

Thus on 14 November 2001, the day the waiver was adopted, EU Trade Commissioner Pascal Lamy

addressed a letter to Manuel A. Roxas, the Philippines Secretary of Trade and Industry, and Adisai

Bodharamik, the Thai Minister of Commerce, to express the ECs willingness to enter into full

consultations with the Philippines and Thailand. The letter stated that the aim of the consultations

would be to examine the extent to which the legitimate interests of the Philippines and Thailand are

being unduly impaired as a result of the implementation of the preferential tariff treatment for canned

tuna originating in ACP countries.(4) The complainants were not satisfied with the promise of

consultations; they had wanted full arbitration. At Thailands insistence, therefore, the letter also

included the option of taking the matter beyond consultations. Since the EC insisted on avoiding

arbitration, the parties compromised and decided that, should consultations fail to deliver an acceptable

resolution, the Community would be open to recourse to the mediation procedure as provided under

Art. 5 of the WTOs DSU.(5) In this manner, the dispute process was initiated.

Shortly afterwards three rounds of consultations were held, the first in Brussels (6-7 December 2001),

the second in Manila (29-30 January 2002) and the third in Bangkok (4-5 April 2002). The Ministry of

Commerce did not enlist the direct participation of the private sector until the second and third rounds,when the latter contributed to the discussions and negotiations. Although government officials are

usually entrusted to do the talking during consultations, in this case Chanintr and other private-sector

representatives were given the opportunity to provide factual support and to tell their story.

Throughout these consultations, complainants demonstrated preparedness and commitment in

responding to the numerous rebuttals and arguments springing back and forth between the parties.

Nevertheless, as anticipated, a satisfactory solution was not to be had at this stage.

On 4 September 2002 the parties jointly submitted a formal letter to the Director-General of the WTO,

requesting mediation. Agreed-upon working procedures were attached to the letter, committing both

parties to issue a written submission to the WTO Mediator on 21 October 2002. The written submission

would provide a comprehensive picture of the dispute, as well as explain in detail the arguments and

positions maintained.


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A period of intensive collaboration followed, during which the written submission was drafted. Thailand,

the Philippines, their respective governments and the Brussels lawyers held in-depth brainstorming

sessions and communicated constantly by e-mail. By the end of that same month, their joint submission

was virtually completed. At a meeting with the mediator on 5 November 2002, the WTO ambassadors of

each party delivered oral statements in which they presented their main arguments and requests. The

mediator alternately called on each party, giving both sides ample opportunities to rebut arguments and

to direct questions at one another.

Having alleged economic injury, the major challenge for the complainants was to confirm the merits of

their claims, and to convince the mediator that the preferential tariff had substantially negative effects

on their tuna industries. The complainants consolidated and analyzed data and worked out a sound

methodology by which to make an accurate, quantitative estimate of these adverse economic effects. In

doing so, they noted that the EC market already the largest single market in the world for canned

tuna was continuing to grow and that, while the ACP countries market share experienced substantial

growth in keeping with the expansion of the EC market, the volume imported from Thailand decreased

by 46% between 1994 and 2000, according to Chanintr.

The complainants were able to show that this decrease was not due to lack of competitiveness on their

part, as exports to other markets in North America, Australia and the Middle East either remained stable

or experienced positive growth; if they had lacked competitiveness, they would have experienced

similar losses in other markets to which they were exporting. Furthermore, imports from non-preferred

countries other than the complainants showed similar downward trends. Even with the advent of the

Asian financial crisis in 1997, which drove the Thai currency down to such levels that canned tunaimports from Thailand were even less expensive than usual compared with those of its competitors, Thai

export performance vis--vis the EC did not improve.

The complainants concluded that the 24% import tariff so distorted the conditions of competition

between the complainants and their ACP counterparts that the complainants products were essentially

displaced from the EC market. In such circumstances it would be almost impossible for the complainants

to reach their full export potential, and the growth of their canned tuna industries was evidently

threatened. According to them, the fact that they managed to maintain a notable EC market presence

despite the 24% handicap, while ACP countries were enjoying free access, was in itself a direct

testament to the competitiveness and productivity of their industries.

Another challenge related to WTO members rights and obligations and the difficulty in striking a

balance between what one might characterize as a legal versus a political spin on the situation.


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Legally speaking, Thailand had a solid right to pursue dispute resolution. Politically speaking, however,

one must recall that in the WTO there are certain forms of positive discrimination which are

acceptable; that is, discrimination in favour of the poorest countries. In the light of this, Thailand argued

that, while the preferential tariff was perhaps justifiable in the 1970s as a means of support for least

developed countries (LDCs), greatly improved investment and economic situations in the ACP countries

by the 1990s no longer warranted it. Thailand did not refute the rationale behind positive

discrimination, but maintained that favourable treatment should not be extended to any developing

member to the detriment of another developing member.

Once all the arguments and rebuttals had been presented, it was time for the mediator to formulate an

advisory opinion as to how the matter should be resolved. This required the mediator to make a

thorough examination of the logic and reasoning behind claims made by both parties, for which they

consulted with economists. On 20 December 2002, the mediator came out with an advisory opinion that

the EC open up a new quota of 25, 000 tonnes at a tariff rate of 12%, to be allocated to four

beneficiaries: Thailand (for 52% or 13, 000 tonnes), Philippines (36% or 9, 000 tonnes), Indonesia (11%

or 2, 750 tonnes) and other third countries (1% or 250 tonnes).

The mediators opinion indicated that the merits of the complainants case had been acknowledged and

accepted. The complainants were satisfied by this outcome, but the work was not yet over. The WTO

mediation advisory opinion, after all, is not a legal, binding decision. Therefore the EC had every right to

reject the advisory opinion and to maintain what had become the status quo as far as imports from the

complainants were concerned. Of course, the EC had to take into account that doing so might prompt

the complainants to take the case to Panel, which would have turned the matter into a fully-fledgedlegal battle.

Nonetheless, the complainants actions in this next phase following the advisory opinion would prove

every bit as decisive as the mediation itself. Chanintr characterized this phase as a period of quiet

lobbying no small task, as the EC consisted of fifteen separate governments, each of which had to be

convinced to support the mediators opinion.

Discreet lobbying required tact and diplomacy. Here again, the close link between the private sector and

the government proved indispensable. said Chanintr offered the following comment.

Through close collaboration our cause was raised everywhere, be it Doha, Brussels or Geneva. Thai

ambassadors and officials maintained a constant dialogue, formally or informally, with their EC


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counterparts everywhere. Of the fifteen EC members at the time, northern Europe supported our cause,

as they had no tuna industry of their own to protect. Spain and Portugal, on the other hand, were

extremely opposed to the mediators opinion. In between were France and Italy. We realized that

Frances opinion carried so much weight among EC constituents that it could have turned the majority

vote within the EC either way. Fortunately, our Prime Minister paid an official visit to France at the time

and he raised the issue with President Jacques Chirac. He also held discussions with the French Prime

Minister and some of his Cabinet members. France ended up supporting our case this was the real

turning point. We knew then that our case had achieved success in concrete terms.

These concrete terms were set out in the EU Council Regulation No. 975/2003 of 5 June 2003, in which

the tariff-rate quota suggested by the mediator was officially adopted. The Regulation specifies that the

tariff quota shall be opened annually for an initial period of five years. Its volume for the first two years

shall be fixed as follows: 25,000 tonnes from 1 July 2003 to 30 June 2004, and 25, 750 tonnes from 1 July

2004, to 30 June 2005.(6) The regulation also allowed for a revision in the second year after the tariff

quota is opened, so that the volume of the quota could be adapted to the market needs of the EC, if

necessary. The regulation entered into force following its publication in the Official Journal of the

European Union, and is binding in its entirety and directly applicable in all *EU+ Member States.(7)

III. Lessons

This case is a good example of how developing country members were able to use their WTO rights to

secure more equitable treatment from a developed country trading partner. Once the positive

resolution had been reached, EU Trade Commissioner Pascal Lamy travelled to Bangkok to inform

Thailands Minister of Commerce, Adisai Bhodharamik, an indication of continued good relations

between the two trading partners. Indeed, Chanintr emphasized that, although the tariff situation was

of great importance to its canned tuna industry and national interests, Thailand made a conscious effort

to maintain good relations with the EC throughout the proceedings. He said that in resorting to the

dispute settlement process, we did not seek to confront, but opted for friendly persuasion and

understanding. After all, the EC is one of our major trading partners, and a very important consumer not

only of Thai tuna but in other sectors as well. We intended to avoid at all costs doing anything that

would jeopardize our long-standing and good relationship with the EU.

On a broader level, it is well accepted that taking action can itself be a sticking point for developing

countries wary of investing the time, energy and financial resources in a consultation and mediation

process which may not even produce any binding outcomes, let alone taking the matter to Panel

proceedings. This is often the case for other sectors within Thailand as well. Chanintr nonetheless


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encourages countries to pursue action if it feels that it has a strong case. An adverse outcome to a

dispute is not always a complete loss. The country will at least have made itself heard, which can have

positive effects on negotiations in other fora. On the other hand, if the country wins, then the economic

returns on the invested time, money and energy will surely come back to it many times over. In

Chanintrs opinion, Thailands main objective was to show the international community that an unfair

practice was being directed at the complainants and that they were serious about challenging it.

Regarding obstacles, Chanintr sees them as inevitable and should therefore inspire action rather than

inertia. Instead of simply dwelling on them, efforts should be made to overcome obstacles because they

are and always will be an inherent part of disputes and negotiations. Above all, this means that

economic players must collect data and maintain consistent industry information. Without solid factual

evidence, any attempts to make a legal impression would be seriously undermined from the start, as

every claim and argument put forth could be challenged or rejected by the opposing side. Certainly, the

EC initially rejected just about every argument made by the complainants, but Chanintr reassured

Thailands ambassador to the WTO that the private sector would not back down, and that they would

continue to support the government. Another major obstacle is the issue of unity within a given industry

or sector, which is often lacking, resulting in poor co-ordination and teamwork. Therefore, efforts must

be made to achieve the level of commitment and the momentum necessary to support the industry

throughout the dispute settlement process.

This case sets a precedent for other member countries, demonstrating that even without full court

proceedings, a binding result could ultimately be achieved. Though some observers may comment that a

12% tariff is still too high, for Chanintr and his team, Compromise was the best outcome, and we aresatisfied with the result. We wanted a win-win situation where trade would be managed as fairly as

possible. We didnt want to take advantage of our opponent, or to simply turn the tables on them.

The overriding lesson to take away from this case is that co-operation between a well-represented tuna

industry and the Thai government made it possible for the team to overcome obstacles that so often

prove to be insurmountable stumbling blocks for other industries or sectors. The public-private sector

collaboration utilized in this case sets a positive example for negotiations in other fora. Chanintr

emphasized that

Government and the private sector working hand in hand can be the best weapon to defend our

national interests. The government cannot negotiate effectively without good information and support

from the private sector. The two sectors must work together and determine very clearly how much time

and resources they have to spend and, if they win, how much the industry will benefit as a whole.


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Combining strengths made our case more solid, which led to much greater bargaining power. We could

not have done it alone.

Documents

Thailand : Conciliating a dispute