Indonesia wins tobacco dispute with US

The Jakarta Post, by Linda Yulisman, Jakarta, Sat, 04/07/2012

Indonesia, the world’s largest producer of clove cigarettes, has won a tobacco dispute with the United States after the World Trade Organization (WTO) ruled in its favor, saying that the US ban on clove cigarettes was discriminatory as the country still allowed sales of similarly flavored cigarettes.

clove cigarettes

The Trade Ministry’s international trade cooperation head, Iman Pambagyo, welcomed the ruling, saying that Indonesia’s winning the case would be important not only for Indonesia, but also other countries in terms of respecting the institution’s ruling. The government would continue in its commitment to international agreements under the WTO, especially regarding the technical barriers to trade (TBT) agreement, he said.

“All countries must respect it [the agreement]. With this ruling, we expect other countries will not follow the US’ move,” he said in a statement on Thursday.

The WTO’s appellate body ruled on Wednesday that the US had been discriminatory in its ban on sales of clove cigarettes as it continued to allow sales of “like-products”, particularly menthol-flavored cigarettes. The US government has expressed its disappointment over the outcome of the dispute.

“The ban on cigarettes with flavors is part of landmark US legislation to combat the public health crisis caused by tobacco products,” Nkenge Harmon, spokeswoman for the US Trade Representative’s Office, said as quoted by Reuters. The office was examining its options in complying with the ruling, she added.

US compliance through barring sales of menthol cigarettes will affect its local cigarette makers, including Lorillard Inc, the Philip Morris USA unit of Altria Group, RJ Reynolds Tobacco Co. of Reynolds American Inc., and Liggett Vector Brands LLC.

It can also comply with the WTO ruling by creating new trade concessions with Indonesia, as it has already done in a few other disputes where the US Congress was unwilling to change the law.

However, if the US maintains its ban, Indonesia can impose retaliatory duties on US exports to an amount similar to the value it has lost due to the ban.

The tobacco dispute began when the US Food and Drug Administration banned cigarettes containing fruit, confectionery or clove flavors through a new law — the US Family Smoking Prevention Tobacco Control Act of 2009 — slated to curb smoking among youths with the argument that flavored cigarettes were especially attractive to children.

The ban affected local clove cigarette producers, which supplied around 99 percent of clove cigarettes sold in the US, with annual exports estimated at US$200 million.

Indonesian authorities considered the ban discriminatory as the US still allowed sales of menthol cigarettes, widely produced by its domestic cigarette makers and consumed by more than 19 million Americans. It then filed a formal petition to the world trade governing body on April 7, 2010, arguing that the ban was not only discriminatory but also incapable of preventing young people from smoking.

The WTO’s dispute settlement body ruled on Sept. 2, 2011, saying that Indonesia’s claim about the discriminatory nature of the law was true and that, therefore, the US had breached international trade rules, especially the TBT agreement, by favoring locally made menthol cigarettes. However, it did find resonance in the ban in trying to prevent youngsters from smoking.

Indonesian exports of tobacco and tobacco substitutes were valued at $591 million last year, up 25.8 percent from a year earlier.

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