RESTRICTED  
  
WT/DSB/M/335  
 
4 October 2013  
(13-5342)  Page: 1/4  
Dispute Settlement Body 
23 August 2013    
 
MINUTES OF MEETING 
HELD IN THE CENTRE WILLIAM RAPPARD 
ON 23 AUGUST 2013 
Chairman: Mr. Jonathan Fried (Canada) 
 
1  UNITED STATES – MEASURES AFFECTING THE PRODUCTION AND SALE OF CLOVE CIGARETTES 
A.  Recourse to Article 22.2 of the DSU by Indonesia (WT/DS406/12) 
1.1.  The Chairman said that the present meetin g had been requested by Indonesia in order to 
seek authorization from the DSB to suspend the application to the United States of tariff 
concessions and related obligations, in light of the alleged failure by the United States to comply 
with the DSB's recommendations, regarding the dispute: "United States – Measures Affecting the 
Production and Sale of Clove Cigarettes" (DS406). He recalled that, under Article 22.2 of the DSU, a Member must take action within 30 days from the date of expiry of the reasonable period of time 
for implementation. He noted that in this dispute, the reasonable period of time for 
implementation had expired on 24 July 2013. It was his understanding that before requesting this 
special DSB meeting, Indonesia and the United States had held discussions aiming at reaching a procedural agreement under Article 22.2 and Arti cle 21.5 of the DSU, a so-called "sequencing 
agreement" in this dispute. Notwithstanding thos e discussions, Indonesia had decided to exercise 
its rights under Article 22.2 of the DSU by filing a request for authorization to retaliate, as well as a request for a special meeting to deal with this matter. As Members were aware, Article 22.6 of 
the DSU, which governed retaliation and arbitration, specified that "when the situation described in 
[Article 22.2] occurs, the DSB, upon request, sh all grant authorization to suspend concessions or 
other obligations within 30 days of the expiry of the reasonable period of time unless the DSB 
decides by consensus to reject the request". However, Article 22.6 of the DSU also provided that if 
the Member concerned objected to the level of suspension proposed, the matter shall be referred to arbitration. In that regard, he noted that the United States had filed its objection to Indonesia's request. The US communication, contained in document WT/DS406/13, was circulated to Members 
on 22 August 2013. It was his understanding that the parties to the dispute would each explain 
their positions on this matter for the record.  
1.2.  The Chairman drew attention to the communication from Indonesia contained in document 
WT/DS406/12, and invited the representative of Indonesia to speak. 1.3.  The representative of Indonesia said that  his country thanked the Chairman for convening 
this meeting to consider Indonesia's request for authorization to impose countermeasures, as a 
result of the US failure to comply with the DSB's rulings and recommendations in the Clove 
Cigarette dispute. Indonesia had brought this case in 2010 based on its strong view that the US ban on flavoured cigarettes under Section 907(a )(1)(A) of the Federal Food, Drug and Cosmetic 
Act was inconsistent with the US WTO obligations because it banned all flavoured cigarettes, 
including clove cigarettes from Indonesia, bu t excluded menthol cigarettes, which were 
predominantly produced in the United States. The Panel established by the DSB had found that Section 907(a)(1)(A) of the Federal Food, Drug and Cosmetic Act was inconsistent with the US 
obligations under Articles 2.1, 2.9.2, and 2.12 of the TBT Agreement. The United States had 
appealed the Panel's findings with respect to  Articles 2.1 and 2.12, and on 4 April 2012 the WT/DSB/M/335 
 
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  Appellate Body had affirmed the Panel's findings, although on other grounds. On 24 April 2012 the 
DSB had adopted the Appellate Body Report and the Panel Report, as modified by the Appellate Body Report. In particular, the DSB had recommended that the United States bring its measure into conformity with its obligations under the TBT Agreement. The reasonable period of time 
agreed by the United States and Indonesia for the United States to come into compliance with its 
obligations had expired on 24 July 2013. On 23 July 2013, the United States had announced a series of measures that it claimed brought it into compliance with the findings of the Appellate 
Body in this dispute. However, those measures did not address the less favourable conditions of 
competition imposed on clove cigarettes in the United States under Section 907(a)(1)(A). Moreover, no measures at all had been announced to bring the United States into compliance with 
its obligations under Articles 2.9.2 and 2.12 of the TBT Agreement. Indonesia was disappointed 
that the United States had not taken steps to comply with the DSB's rulings and 
recommendations.  
1.4.  On 12 August 2013, Indonesia and the United  States had met in Washington to explore the 
possibility of negotiating compensation. Those negotiations had not been immediately successful, 
but Indonesia remained willing to continue those discussions in good faith. In light of the time-
table set forth in the DSU, Indonesia had to exerci se its right to seek authorization from the DSB 
to impose countermeasures in an amount equivalent to the nullification and impairment to 
Indonesia accruing from the failure of the United States to comply with the DSB's rulings and recommendations in this dispute. Indonesia was requesting authorization in the amount of US$50.5 million. This amount was based on the valu e of Indonesia's clove cigarette exports to the 
United States in the three year period before the ban on clove cigarettes was imposed, adjusted 
for inflation, and utilizing a multiplier of three to account for the impact of those lost exports throughout the Indonesian economy. In making this request, Indonesia had complied with the 
principles of Article 22.3 of the DSU and accordingly would suspend concessions and other 
obligations through one or more of the following: (i) suspension of tariff concessions and other related obligations under the GATT 1994 on a list of US products to be established in due course; 
(ii) suspension of concessions and other obligati ons under the TBT Agreement, and (iii) suspension 
of concessions and other obligations under the Agreement on Import Licensing. 
1.5.  Regarding the legal basis, Article 22 of the DS U, in particular paragraph 2, provided that "[i]f 
the Member concerned fails to bring the measure found to be inconsistent with a covered 
agreement into compliance therewith or otherwise comply with the recommendations and rulings 
within the [RPT] … such Member shall, if so re quested, and no later than the expiry of the 
reasonable period of time, enter into negotiations … with a view to developing mutually acceptable 
compensation." Article 22.6 of the DSU provided th at when the situation described in Article 22.2 
occurred, "the DSB, upon request, shall grant authorization to suspend concessions or other 
obligations within 30 days of the expiry of the [RPT] unless the DSB decides by consensus to reject 
the request." Indonesia believed it was entitled to recourse under Article 22 of the DSU in light of 
the fact that the United States had not announced any measures to comply with the Panel's and Appellate Body's findings on Articles 2.9.2 an d 2.12 of the TBT Agreement. Furthermore, the 
measures announced by the United States, the pu blication of a Federal Register notice seeking 
comments on how menthol cigarettes might be regulated in the future and publicizing information 
on health risks of youth smoking and menthol cigarettes, were facially insufficient to be considered measures taken to comply with the rulings and recommendations in this case with respect to 
Article 2.1 of the TBT Agreement. In fact, many of  the measures (for example, publicizing health 
risks of youth smoking) had not even been at issu e in the dispute. Indonesia had agreed from the 
outset that smoking was bad for youth.  
1.6.  In this situation, there was no need to refer the case to a compliance proceeding under 
Article 21.5 of the DSU. In fact, for two of th e issues (Articles 2.9.2 and 2.12 of the TBT 
Agreement) there was no measure for a panel to consider. Indonesia was a developing country and the production and sale of clove cigarettes wa s important to its economy. Clove cigarettes had 
a long history in Indonesia and were part of its culture. When the United States banned the sale of 
certain flavoured cigarettes, the burden of that measure fell almost entirely on Indonesia. As a result of the contested measure, Indonesia's expo rts of clove cigarettes to the United States had 
fallen to zero. The Indonesian people were following this dispute closely. Indonesia had told the 
United States earlier that month that retaliation was the last resort and was the least desirable outcome. Indonesia had implored the United States to find a solution to the clove cigarette 
dispute, but if none was found, Indonesia would be prepared to seek the authorization from the 
DSB to impose countermeasures pursuant to Article 22 of the DSU.  WT/DSB/M/335 
 
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  1.7.  The Chairman drew attention to the communication from the United States contained in 
document WT/DS406/13, and invited the representative of the United States to speak. 
1.8.  The representative of the United States sa id that as the Chairman had noted, on 22 August 
2013, the United States had submitted an objectio n to Indonesia's request for authorization to 
suspend the application to the United States of concessions or other obligations. Therefore, by 
operation of Article 22.6 of the DSU, this matter ha d already been referred to arbitration. In this 
circumstance, there was no need for a DSB meeting as there was no action the DSB may take with 
respect to Indonesia's request. However, in light of the fact that the present meeting had not been 
cancelled, the United States had no objection to the DSB agreeing that the matter had been referred to arbitration. Turning briefly to the US ob jection, the United States had both objected to 
the proposed level of the suspension of conce ssions and had claimed that the principles and 
procedures in Article 22.3 of the DSU had not been followed. The United States would further note 
two types of substantial concerns with Indonesia's request for authorization. First, as the United States had notified the DSB at the 23 July 2013 meeting, the United States had complied 
with the recommendations and rulings in this dispute. In these circumstances, the United States 
did not see a basis for Indonesia to request authorization to suspend concessions – at any level. Second, the United States was concerned by the erratic behaviour of Indonesia in relation to 
whether to sequence proceedings under Article 21. 5 and Article 22 of the DSU. Indeed, Indonesia 
had initially proposed a sequencing agreement to the United States, with which the United States had agreed in principle. Subsequently, however,  Indonesia had stated that it was no longer 
interested in entering into a sequencing agreement and proceeded to file its request for 
authorization to suspend concessions. There appeared  to be no question that the parties disagreed 
whether the United States had brought its measure into conformity with the DSB's recommendations and rulings. The issue was wh ether there would be agreement between the 
parties on the procedures to be followed to resolve that disagreement. It would appear that 
Indonesia was of the view that sequencing was not required under the DSU and that issues of 
compliance may be resolved as part of the Article 22 arbitration. WTO Members and reports 
adopted by the DSB appeared to have reached di sparate views on this issue. Regardless, the 
United States considered that the parties had agreed in principle to procedures to govern any questions relating to compliance. The United States would, therefore, expect Indonesia to revert to its original proposal to first obtain a DSB ruling on the issue of compliance before engaging in and 
completing an Article 22.6 arbitration. Even at this juncture, it was open to the parties to enter 
into an agreement to suspend the Article 22.6 arbi tration during the pendency of an Article 21.5 
compliance proceeding.  
1.9.  As the United States had reported to the DSB, US authorities had conferred with interested 
parties and had worked to implement the recommendations and rulings of the DSB in a manner that was appropriate from the perspective of public health. The United States recalled that in this 
dispute the DSB had found that the challenged US measure reflected the overwhelming view of the 
scientific community that banning clove and other flavoured cigarettes benefited the public health 
by reducing the likelihood that the youth would enter into a lifetime of cigarette addiction. At the same time, the DSB also had found that the US measure provided less favourable treatment to 
clove cigarettes imported from Indonesia than to menthol cigarettes that were made in the 
United States. To come into compliance with  the DSB's recommendations and rulings, the 
United States had taken and was taking a number of actions in relation to menthol cigarettes. 
First, the US Food and Drug Administration was publishing an Advanced Notice of Proposed Rule 
Making concerning menthol cigarettes. The Notice  would initiate a process to receive public 
comment on potential regulatory options that the Food and Drug Administration might consider 
and seek additional information. The Notice wo uld be published in the US Federal Register. 
Second, the US Food and Drug Administration was releasing its Preliminary Scientific Evaluation on the Possible Public Health Effects of Menthol Versus Non-menthol Cigarettes. The Preliminary Scientific Evaluation addressed the association between menthol cigarettes and various outcomes, 
including initiation, addiction, and cessation. The Preliminary Evaluation included a finding that the 
presence of menthol in cigarettes negatively affe cted cessation and attempts of smokers to quit 
smoking. The Preliminary Evaluation would be av ailable for public comment. Third, the US Food 
and Drug Administration was announcing the development of a youth education campaign that 
was designed to prevent and reduce demand for tobacco products and menthol cigarettes. Fourth, the US Department of Health and Human Services  was sharing information through the US online 
hub for tobacco information and cessation tools, called BeTobaccoFree.gov, which had initially 
been launched in November 2012. This online hub provided information on the health risks posed by menthol cigarettes to raise awareness of those risks. Fifth, the National Cancer Institute was WT/DSB/M/335 
 
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  educating the public on the health risks posed by  menthol cigarettes through its website designed 
to help persons quit smoking, which was SmokeFr ee.gov. The health risks posed by using tobacco 
were well-documented, and the public health challenges posed by menthol cigarettes in particular were significant. In the United States, approximately 30% of adult smokers and 40% of all youth 
smokers reported smoking menthol cigarettes. Ra ising awareness and educating about the health 
risks of tobacco could be an important means to disco urage its use. In light of the significant public 
health challenges posed by menthol cigarettes, th ese actions by US health authorities brought the 
United States into compliance with the DSB's recommendations and rulings in this dispute within 
the reasonable period of time for compliance, which expired on 24 July 2013. The United States 
looked forward to continuing to confer with Indonesia regarding these compliance actions. 
1.10.  The representative of the European Union said that the EU noted the statement made by 
the United States that it had taken measures to comply with the DSB's recommendations and 
rulings. The EU also noted that Indonesia did no t agree that the United States had brought its 
measures into compliance with the TBT Agreement. It appeared that "there is a disagreement as 
to the existence or consistency with a covered agreement of measures taken to comply with the 
recommendations and rulings" of the DSB within th e meaning of Article 21.5 of the DSU. The EU 
wished to recall that, pursuant to that provision, "such dispute shall be decided through recourse 
to these dispute settlement procedures, including wherever possible recourse to the original 
panel". In cases of disagreement about the existe nce or consistency with WTO rules of compliance 
measures, concessions or other obligations may be suspended under the DSU once there was a multilateral determination on the alleged compliance action. The EU hoped that the United States 
and Indonesia would ensure that the DSU procedures  with regard to compliance and suspension of 
obligations in this dispute could be conducted efficiently and in the right sequence. Finally, the EU recalled that it had participated as a third party in the Panel and appeal proceedings in this dispute 
and, therefore, pursuant to Article 10, paragraphs 1, 2 and 3 of the DSU, it reserved its right to 
participate as a third party in any subsequent proceedings, including with respect to any disagreement as to the existence or consistency with a covered agreement of measures taken to 
comply with the DSB's recommendations and rulings. 
1.11.  The representative of Japan said that, at the present meeting, his country did not wish to 
raise factual matters in this dispute, but only to express its disappointment with regard to 
unresolved sequencing issues between the United States and Indonesia. Japan believed that the 
parties should pursue their efforts in order to resolve this matter and to enable the WTO dispute 
settlement system to avoid implementation pr oblems that it had previously faced.   
1.12.  The Chairman said that a number of issu es had been raised but the present meeting was 
not a legal seminar on some of the finer points of WTO law or the DSU provisions. In taking all the 
comments into account, the reality was that it was agreed that the matter raised by the United States in its communication of 22 August 2013, is referred to arbitration, as required by 
Article 22.6 of the DSU. The DSB could, on another occasion, further reflect on the participation of 
third parties in Article 22 arbitrations, as mentio ned by the EU. He noted that the DSB had heard 
differing views on whether the matter "has been", "i s", "will be", "shall be" referred to arbitration. 
The matter was being referred to arbitration, which was a factual matter, as required by 
Article 22.6 of the DSU.  
1.13.  The DSB took note of the statements, and it was agreed that the matter raised by the 
United States in document WT/DS406/13 is referred to arbitration, as required by Article 22.6 of 
the DSU. 
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