Safeguards: An Indonesian trade defense instrument that needs to

Safeguards: An Indonesian trade defense instrument that needs to
be improved

Harry T. Prabawa
Jakarta

As we all know, one of the consequences of free trade is that
competition between domestic and imported products has increased
in the domestic market. The increase in imports may disrupt
domestic industries producing the same or similar products.

Indonesia, as a member of the World Trade Organization,
ratified Article XIX of GATT 1994 (WTO Safeguards Agreement) in
order to protect its domestic markets against an increase in
imports. However, in determining that an increase in imports has
caused or is threatening to cause serious injury to Indonesian
industries, the authorized government body has to evaluate all
relevant factors of an objective and quantifiable nature.

The determination referred to above cannot be made unless the
investigation demonstrates, on the basis of objective evidence,
the existence of a causal link between increased imports of the
product concerned and serious injury or threat thereof. When
factors other than increased imports are causing injury to the
domestic industry at the same time, such injury should not be
attributed to increased imports.

In relation to the above, the Committee on Trade Defense of
Indonesia (KPPI), on Oct. 19, 2004 initiated Indonesia's first
safeguards investigation on ceramic tableware imported from
China, Australia, France, Italy, Japan, Malaysia, Germany, South
Korea, India, Singapore, Thailand, the United Kingdom and the
United States. The investigation was initiated on the basis of a
petition made by several Indonesian ceramic tableware
manufacturers (the petitioner) claiming that they were injured by
the increase of imports of ceramic tableware.

According to the information received by the writer, the KPPI
has completed its investigation and on May 4 recommended to the
minister of trade for further recommendation to the minister of
finance to impose safeguards in the form of a higher import duty
on ceramic tableware imported from the above countries. In
practice, a safeguard measure can be made in the form of import
duties, quotas or a combination of both.

But many violations and improprieties seemed to have occurred
in the investigation, the first of its kind in Indonesia. The
KPPI presumably committed many violations in the investigation.

Before submitting the recommendation to the minister of trade,
the KPPI should have delivered a final fact-finding disclosure
containing the facts about the increase of imports, injury,
causality, exporter verification results, legal considerations
and others, to the interested parties. The KPPI also is supposed
to give the interested parties sufficient time to submit
objections to the disclosure. In clear violation of major
articles of the WTO Safeguards Agreement, the KPPI did neither.

The WTO agreement also requires the KPPI to notify and consult
with the WTO Committee on Safeguards. The KPPI has not done so.

Every trade remedy investigation has a deadline. Presidential
Decree No. 84/2002 concerning Safeguard Measures for Domestic
Industries as a Result of Increases in Imports gives a deadline
of 200 days for the ministers of trade and finance to decide
whether the minister of finance should impose safeguard measures
or not. In the safeguards investigation of ceramic tableware,
this deadline expired on May 5, 2005, making it impossible to
impose any safeguards.

Any imposition of safeguards without fact-finding disclosures,
the interested party's response to the fact-finding disclosure,
notification of and consultation with the WTO Committee on
Safeguards, not to mention the fact that the deadline had expired
anyway, would be a violation of the WTO Safeguards Agreement and
Indonesia's safeguard law and legislation.

Minister of Finance Decree No. 600/PMK.010/2004, dated Dec.
23, 2004, regarding the imposition of a 30 percent import duty on
ceramic tableware, imposed provisional safeguard measures, which
were presumably considered sufficient to protect Indonesia's
national ceramic tableware industry, and so the imposition of
safeguard measures was no longer needed.

A recommendation by the KPPI for the imposition of safeguards
would only cause difficulties for the ministers of trade and
finance. Any such recommendation could lead to a legal action
through the Indonesian Administrative Court or other legal
institutions by the interested parties who have been treated
unfairly in the investigation.

Quite apart from the procedural weaknesses of the
investigation, the legal basis for the investigation is itself
flawed. Presidential Decree No. 84/2002, as the basis for
safeguard measures in Indonesia, was not made in accordance with
Indonesian administration and constitutional law. Safeguard
measures are not mentioned at all in Law No. 10/1995 concerning
customs. This law is the only basis for the imposition of
duties/measures in Indonesia, and must be amended before any
safeguard measures can be imposed.

Further, one of the interested parties questioned the result
of the KPPI's verification visit to the Chinese exporter's
premises in December 2004. Until now, the interested party has
not yet received an adequate explanation of the verification
results. It is the KPPI's responsibility to deliver the
verification results, as well as incorporate them in the final
fact-finding disclosure.

The said interested party has not received any response from
the KPPI regarding its submissions and correspondence. An
interested party has the right to be heard and to receive answers
from the KPPI.

In performing its duties and responsibilities, KPPI the must
be independent and not open to interference by other parties.

Considering that the KPPI recommended imposing safeguard
measures on ceramic exports to Indonesia from many countries,
several interested parties are questioning whether the KPPI has
considered the possibility of trade compensation being requested
by the exporting countries on future Indonesian exports to their
countries.

It is therefore imperative that safeguards in Indonesia be
rearranged in order to ensure fairness for all interested parties
and to maintain the credibility of Indonesia in the eyes of
foreign countries. By sharing the above, hopefully Indonesian
industries can urge the government to overcome these deficiencies
in the present arrangements.

The writer is an Indonesian trade and customs lawyer in
Jakarta. He can be reached at harry@phlaw.co.id.