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Indonesia Threatening Trade Retaliation Against U.S. in Cigarette Dispute

Wednesday, August 28, 2013
Sandler, Travis & Rosenberg Trade Report

Indonesia has asked the World Trade Organization to authorize retaliatory measures in response to what it says is the United States’ failure to comply with a WTO ruling against its ban on certain flavored cigarettes by the July 24 deadline. These measures could include higher tariffs on goods imported from the U.S. (although Indonesia has yet to make public a list of products that may be targeted) and/or a suspension of concessions or other obligations under the WTO Agreement on Technical Barriers to Trade or the Agreement on Import Licensing.

Indonesia has reportedly set the amount of its proposed retaliation at $50.5 million, which it says reflects the annual value of its lost sales of clove cigarettes in the U.S. market. Washington has objected, asserting that it has in fact complied with the WTO’s recommendations and rulings. As a result, the matter has been sent to a WTO arbitrator, who will likely determine in the next month or so the appropriate level of retaliation.

In its request for WTO authorization, Indonesia emphasized the importance of the production and sale of clove cigarettes to its economy and the fact that it can no longer export these items to the U.S. Indonesia also pointed out that clove cigarettes have a long history in that country and are part of its culture. The request warned that “the Indonesian people are following this dispute closely” because they “want to know if the rules-based trading system promised by the WTO is real or a mere illusion.”

The U.S. is already subject to WTO-authorized retaliatory measures by the European Union due to its failure to fully repeal a law allowing the distribution of antidumping and countervailing duty revenues to domestic producers. Other countries are pursuing or considering similar actions, including Canada and Mexico in response to U.S. regulations on the mandatory country of origin labeling of certain agricultural products and Antigua and Barbuda in a case involving the U.S. ban on Internet gambling.

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