Analysis, statistics, publications, downloads, links, etc

MANAGING THE CHALLENGES OF WTO PARTICIPATION: CASE STUDY 40

Thailand: Conciliating a Dispute on Tuna Exports to the EC

Nilaratna Xuto*

150pxls.gif (76 bytes)
 Disclaimer:
Opinions expressed in the case studies and any errors or omissions therein are the responsibility of their authors and not of the editors of this volume or of the institutions with which they are affiliated. The authors of the case studies wish to disassociate the institutions with which they are associated from opinions expressed in the case studies and from any errors or omission therein.

Case Studies main page
Introduction

   

ON THIS PAGE: 
I. The players
II. Challenges and the outcome
> III. Lessons
 


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 world’s 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 has remained Thailand’s biggest export destination, followed by the European Community (EC) and then Canada.(1) Since Thailand’s 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 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 intervening step 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 EC’s 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, Thailand’s 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 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 EC’s 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    back to top

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 impairing their 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 collectively to 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 Thailand’s 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 where the 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.

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 sector’s own efforts: ‘When we saw that there was not enough legal expertise in the ministry, we, the private sector, 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 isn’t always in place with other industries.’

 
 

II. Challenges and the outcome    back to top

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.

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 EC’s 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 Thailand’s 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 WTO’s 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.

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 tuna imports from Thailand were even less expensive than usual compared with those of its competitors, Thai export performance vis-à-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. 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 mediator’s 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-fledged legal 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 mediator’s 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 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 mediator’s opinion. In between were France and Italy. We realized that France’s 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    back to top

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 Thailand’s 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 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 Chanintr’s opinion, Thailand’s 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 Thailand’s 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 are satisfied with the result. We wanted a win-win situation where trade would be managed as fairly as possible. We didn’t 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. Combining strengths made our case more solid, which led to much greater bargaining power. We could not have done it alone.

 
 

NOTES:
1.- Rabobank International, ‘The Dynamics of the Thai Tuna Industry’, Industrial Note IN 044-222, February 2002, pp. 1-3. back to text
2.- Dispute Settlement Training Module, ch. 6, WTO website, http://www.wto.org. back to text
3.- Dickson Yeboah, ‘Course Material for Intensive Course on Trade Negotiations Skills’, WTO Principles and World Trade Negotiations, January 2004. back to text
4.- Letter from EU Trade Commissioner Pascal Lamy to the Ministers of Commerce of Thailand and the Philippines, 14 Nov. 2001. back to text
5.- Ibid. back to text
6.- Council Regulation (EC) No. 975/2003 of 5 June 2003, opening and providing for the administration of a tariff quota for imports of canned tuna covered by CN codes 1604 14 11, 1604 14 18 and 1604 20 70. Published in the Official Journal of the European Union, 7 June 2003. back to text
7.- With the addition of ten new member countries to the EU on 1 May 2004, the complainants are set to revisit tariff negotiations with the EU, which provides an opportunity to lower further the 12% rate and to discuss forms of compensation, since new member countries are required to employ the EU tariff, which in some cases is a marked increase from their usual rate. back to text
 

150pxls.gif (76 bytes)
* International Institute for Trade and Development, Bangkok.