Australia vs. Philippines

8/19/2019 Australia vs. Philippines

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Australia on the other hand is too a producer and consumer of pineapples. According

to Growcom, the Pineapple Growers Advancement Group and Horticulture Australia

Limited, as of 2010, some of the pineapple industry’s strengths are good communication and

cohesion within the industry, levy income available to fund critical industry-level projects,

resilient and responsive growers and there is existing skills and experience in pineapple breeding that could be better resourced to breed superior varieties. Weaknesses on the other

hand include: future viability of processing industry in Australia, lack of coordination in fresh

market supply and there is minimal understanding of consumer needs. Opportunities that can

be capitalized are the international examples of capacity to grow per capita consumption, the

potential for increased infrastructure sharing within regions while threats include the

exposure to cost increase, labor shortages and skill deficiencies, environmental impacts and

regulations and climate change and variability (Growcom, 2010).

As of today, countries currently able to import fresh pineapples include the Philippines, Sri Lanka, the Solomon Islands and Thailand with Malaysia pursuing market

access.

2016 marks the 70 years of Australia and the Philippines bilateral relations. Together,

the Australia’s trade relationship with the Philippines is supported by the ASEAN Australia

New Zealand Free Trade Agreement (AANZFTA) and the East Asia Summit (EST). But

looking into the World Trade Organization’s dispute section on its website, the Philippines

has had two complaints against Australia. Case number DS270 which is about certain

measures affecting the importation of fresh fruits and vegetables and also DS271, certain measures affecting the importation of fresh pineapples which the paper will further discuss

and tackle.

III. How WTO settles disputes

Why and How Governments Intervene in International Trade

Governments intervene in international trade due to political, economic, and cultural

motives. Political motives include job protection, national security, and international trade

conflicts such as unfair trading practices done by other countries and gaining influence in other nations. Economic motives include protection of infant industries (i.e., emerging

industries) and promotion of strategic trade policies (i.e., government intervention to boost

trade by taking advantage of economies of scale, etc.). Lastly, the cultural motive is primarily

protection of national identity.

There are different methods that governments use to intervene in international trade,

either to promote or restrict it. The methods are listed below:


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Promote Restrict

Subsidies

Export financing

Foreign Trade ZonesSpecial Government Agencies

Tariffs – export, transit, and import tariffs

Import and export quotas

EmbargosLocal content requirements

Administrative delays

Currency controls

WTO and Free Trade

The World Trade Organization (WTO) was created during the Uruguay Round of

GATT (General Agreement on Tariffs and Trade) negotiations. GATT had been created to

promote free trade by reducing barriers to trade, but it proved insufficient. WTO thus

included trade services, intellectual property rights, and trade barriers, especially for

agricultural products. Its three goals include (1) helping free flow of trade, (2) negotiating

opening of markets, and (3) settling trade disputes among members.

How WTO Settles Disputes

WTO operates under a principle of nondiscrimination called normal trade relations.

This means that WTO is required to treat all member countries equally. The WTO follows a

procedure of settling disputes that follows a rules-based system to ensure efficiency. Trade

disputes take approximately one year without appeals to complete, and one year and three

months with an appeal. The procedure is as follows:

1. Consultation (~60 days): countries discuss the issue in hopes of resolving it

themselves. The WTO director-general may mediate or help these discussions.

2. Panel Set Up, Panelists Appointed (~45 days for setup): the panel helps the

Dispute Settlement Body make rulings and recommendations, and have to follow

cited agreements.

3. Panel Discussions, Final Report given to parties (~6 months): the panel

discussions include hearings, rebuttals, experts to review technical matters, draft

reports submitted for comments and review, and a final report that then becomes a

ruling.

4. Final Panel Report given to WTO members (~3 weeks)

5. Dispute Settlement Body adopts report if there is no appeal (~60 days)

6. Appeals report (~60-90 days)

7. Dispute Settlement Body adopts appeals report (~30 days)

Total: ~1 year without appeal, ~1 year and 3 months with appeal

Once the case has been decided, the countries must adopt this ruling. The guilty party

must correct its fault and give compensation if it continues breaking agreements, with the


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final goal to get each country to comply with the ruling. The Dispute Settlement Body may

be asked to intervene if either of the countries continues to ignore the rulings. They also

monitor how the rulings are implemented.

IV. Discussion of Case and Interview

A trade dispute arose between Australia and the Philippines when the former banned

the latter from the exportation of fresh pineapples into the Australian market. The Philippines

filed a complaint and on October 18, 2002, requested consultations with Australia on certain

measures affecting the exportation of pineapples. This included the Plant Biosecurity Policy

Memorandum requiring that fresh pineapple fruits from the Philippines, among other

requirements, be de-crowned and subjected to pre-shipment methyl bromide fumigation as

conditions for importation into Australia.

The Philippines considered these measures as being inconsistent with the obligations

of Australia under the GATT 1994 and the SPS Agreement or the Sanitary and Phytosanitary

Measures which provides the basic rules for ensuring a transparent and fair health laws and

regulations. However, the WTO noted that the SPS Agreement can be effective in

protectionism due to its being technical and deceptive.

In 2005, after three successful trial shipments of pineapples, Filipino exporters could

now begin commercial-scale shipments into Australia. Biosecurity Australia allowed these

trial shipments to be fumigated using its methyl bromide treatment which rids the pineapples of insects and pests and at the same time, prolongs the fruit’s shelf life. Biosecurity Australia

also agreed to waive the de-crowning requirement of the pineapples.

In order to gain further insight into the nature and dynamics of trade relations as well

as trade disputes, an interview was conducted with Mr. Leodegario C. Alabarca Jr. of the

Bureau of International Trade Relations. As a Senior Trade and Industry Development

Specialist (STIDS) of the WTO Desk, and a WTO Desk Officer, the scope of his work

includes handling issues relating to the WTO. Each officer is assigned to a particular subject

matter under the WTO agreements with Mr. Alabarca dealing, in particular, with assignments on agriculture and intellectual property, among others.

Every country participating in trade relationships have responsibilities to fulfill their

obligations and to follow the regulations of the WTO. The Most-Favoured Nation (MFN)

treatment of the WTO states that under the organization’s agreements, countries cannot

normally discriminate between their trading partners. When engaging in the buying and

selling of commodities, tariffs are required by the local government of the company as a

means of regulating trade policies. Tariffs are taxes imposed on imported goods and services

used to restrict trade and provide additional revenue for governments and domestic producers at the expense of consumers and foreign producers ( Investopedia.com). In the Philippines,


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tariffs are ad valorem or calculated on the basis of a commodity’s value and not its quantity,

size, or any other factor ( BusinessDictionary.com). For instance, if Mercedes were to import

its cars into the Philippines wherein cars are designated to pay a 40% tariff, a vehicle valued

at P1.5M will have to pay customs a total amount of P600,000 as its tariff.

Tariff rates in the country, says Mr. Alabarca, are more or less permanent and cannot

be adjusted so easily. Decisions involve a number of preliminary discussions, public

hearings, as well as the participation of different relevant agencies coming together to discuss

the respective amounts. Additionally, tariff rates are not consistent throughout and is

dependent on the classification of product being exported, or imported, by a country. It would

also depend on the sensitivity of the good involved in the trade. By way of illustration, the

tariff rate for fresh pineapples, dried pineapples, and canned pineapples would not necessarily

be identical despite being made up of the same agricultural produce. On the other hand, there

are products which are exempted from WTO provisions such as rice in order to protect the interest of local rice farmers. However, the reality that local farmer cannot meet the country’s

rice demand leads to an increase in prices, resulting in the need for the government to import

rice in order to stabilize prices.

The Philippine government is the primary entity that creates and enters trade policy

rules, as well as negotiates the tariff rates of different products with the government of other

countries. Private companies engaging in international trade negotiate the terms of the

transaction, including specific prices and the total volume of the commodities involved, but

must report and approach the government when negotiating for tariff rates. In the case of Philippine export of bananas to Japan, Mr. Alabarca cites that the private sector which, in this

case, is the Department of Agriculture, requested for tariff negotiation. According to Mr.

Alabarca, tariff negotiation is not immediately processed following its request. Preliminary

research and study are conducted in order to determine the stake and position of the product

in the parties (countries) involved, before proceeding with the necessary steps addressing

such disputes.

It is the observance of the regulations which allows for successful trade relations. The

most common reason behind trade disputes, Mr. Alabarca states, is the non-compliance of such rules by the parties (countries) involved. Mr. Alabarca cites the dispute between the

Philippines and Thailand over the former’s export of cigarettes into their country (DS371).

As previously mentioned, all negotiations unrelated to the matter of tariff rates and

deliberation are conducted between the respective entities of the private sector.

In the case of the cigarette dispute between the Philippines and Thailand, Philip

Morris Philippines, being the company involved in the actual trade, felt the repercussion of

the tariff rates and reported accordingly to the government. According to Philip Morris

Philippines, Thailand used a valuation system in violation of the customs valuation agreement provided by the WTO. The government, in turn, conducted a Complete Staff Work


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(CSW) which involves interagency meetings and further research into the different relevant

aspects of the case (ex. economic, agricultural, legal) before proceeding further. All reports of

trade disputes are assessed by the government accordingly —in other words, the body is not

required to respond and take action for every complaint brought before it after its

reassessment of the situation.

Resolving trade disputes are done either through bilateral, regional, or multilateral

negotiations. If all these engagements fail, countries may avail of the dispute settlement

mechanism available in these fora where trade disputes are resolved with governments as

parties. Should the government prove to be unsuccessful in terms of negotiations, it has the

option to move forward and bring the matter forth to the WTO Dispute Settlement. In doing

so, it has two options with regards to legal counsel. In the case of the cigarette dispute

between the Philippines and Thailand, Philip Morris Philippines hire international trade

lawyers to represent the company and who served as the government’s legal advisor throughout the duration of the hearings and settlements. On the other hand, the government

may also seek aid from the Advisory Centre on WTO Law (ACWL), a non-governmental

organization whose members are governments of different countries, most of whom are

developing nations with the Philippines being one of its original members. The ACWL is

able to provide lawyers for parties (countries) involved in a trade dispute, provided that only

one party may avail of such services. In the case of the pineapple dispute between the

Philippines and Australia, the country made us of ACWL lawyers.

Upon the WTO Dispute Settlement hearing, the parties (countries) involved are not required to make any monetary settlements whatsoever. Once a decision has been made in a

trade dispute, it is incumbent upon the concerned government to change the measure in

question or in issue by adjusting in accordance to WTO standards for such measures.

Nonetheless, there have been cases, Mr. Alabarca adds, wherein the implicated party

continues to implement measures in violation of WTO regulations. On such occasions,

injured parties may utilize trade retaliation as a means of enticing compliance. In the case of

the pineapple dispute between the Philippines and Australia, Mr. Alabarca says the Philippine

government may advise the Australian government that should it not allow for the entry of

the country’s local fruit into their market, it will increase the tariff of other Australian goods entering the Philippine market.

VI. Conclusion and Suggestions / Current Situation

To understand the stakes of trade conflicts between two countries likes Australia and

the Philippines, it is crucial to keep in mind that each country intends to defend its own

interests. Reasons found are national security, job protection or national identity.

Australia intends to protect its own agriculture but faces cheaper price from imported

pineapple because of the AANZFTA, which exempts pineapple from trade tariffs. That’s why Australia asked WTO for the decrowned and methyl fumigated pineapples coming from the


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Philippines : a way to prevent importation for 3 years. Even if one conflict has been solved

and the Philippines can export their pineapples again to Australia, Australia, will sooner or

later find a new way to protect its interests, through content requirements as size or quality.

Nevertheless, there are other ways to avoid trade barriers : for example, to support its exportations, Philippines could choose to devalue the peso, if there are enough supportive

industries, which would make their exports cheaper for importer countries, so more

competitive. Agriculture is still 10% of GDP and Philippines is a big exporter of agricultural

goods : they should bet on their comparative advantage.

Government could at the same time invest more in agriculture to increase

productivity, better infrastructures to encourage small producers, in a time where more and

more farmers leave the countryside to go to the city. Fruits quality would also need to be

supported as it can be a risk for the industry. Actually, many small producers don’t use

pesticide and fertilizers because too expensive for their daily expenses, so they produce organic fruits without putting them under label : this niche market of organic fruits should be

exploited and encouraged by the government. This is a way to strongly compete with

Australian organic and non-organic pineapple.

Global exports of fresh and processed fruits are still increasing, so PhP should take

this opportunity to improve its industry and grow, at the expense of other big producers like

Thailand, and become more important on all its markets.

To conclude, even under a Free Trade Arguement, it is possible to use protectionist

measures, like Australia did in 2002 with local content requirements, complaining to WTO.. Nevertheless, such processes are very long to be solved even if WTO finally allowed Filipino

exports pineapples to Australia again. There are some other strategic ways to solve and/or

avoid conflicts.


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Sources (MLA)

Alabarca, Leodegario C., Jr. Telephone interview. 16 Mar. 2016.

“Principles of the Trading System.”

WTO.

N.p., n.d. Web. 15 Mar 2016.

“Tariff Definition.”

Investopedia. N.p., 24 Nov. 2003. Web. 15 Mar. 2016.

Wild, John J., and Kenneth L. Wild. International Business: The Challenges of

Globalization

. 6 th ed. Essex: Pearson Education Limited, 2012. Print.

World Trade Organization. “Understanding the WTO: Settling Disputes.”

What is the WTO? WTO, 2016. Web. 13 Mar. 2016.

World Trade Organization. “Australia - Certain Measures Affecting the Importation of Fresh

Pineapple.” Dispute Settlement

. WTO, 2016. Web. 15 Mar. 2016.
http://www.investopedia.com/terms/t/tariff.asp?layout=orighttps://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm

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Australia vs. Philippines