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.