12:28 PM Oct 24, 1996

WTO PANEL RULING ON DESICCATED COCONUT

Geneva 22 Oct (TWN) -- A WTO Dispute Settlement panel on a complaint by the Philippines against Brazil's levy of countervailing duties on imports of desiccated coconut has ruled against the Philippines on preliminary legal grounds of applicable law, without going into the substantive questions raised in the dispute.

The panel said that the substantive questions raised in the dispute were a matter of major concern and merited serious consideration, but that the preliminary issue of applicable law (GATT 1947 and the Tokyo Round Codes or GATT 1994 and Agreement on Agriculture) was "dispositive" of the dispute before it.

The Philippines has 60 days (from 14 October) to notify and appeal against the ruling to the WTO's Standing Appellate Body. If there is no appeal, the ruling would be automatically adopted by the DSB.

The dispute arose out of investigation initiated by the Brazilian Government on 21 June 1994, on a request by Brazilian domestic industry on 17 January 1994, to investigate allegedly subsidized imports of desiccated coconut and coconut milk from the Philippines, Cote d'Ivoire, Malaysia, Indonesia and Sri Lanka. On 23 March 1995, Brazil imposed provisional duties. On 18 August 1995, countervailing duty of 121.5 percent were imposed on imports of desiccated coconut from the Philippines.

Brazil investigated eight Philippine programs said to be conferring subsidies on coconut. It considered that it was unable, based on information provided by the Philippines, to determine the amount of subsidy by each of the programs, but on the basis of its own calculations -- based on price of subsidized desiccated coconut, price actually paid for the coconut fruit and a constructed unsubsidized price, concluded the desiccated coconut had benefited from subsidy.

While the Philippines took its stand on the basis of the provisions of GATT 1994 and WTO Agreement on Agriculture, Brazil said the only obligations applicable to the dispute were those arising from the Tokyo Round's Subsidies code -- whose violations could not be adjudged by the WTO's Dispute Settlement panel. Brazil also contended that the Philippines had failed to demonstrate and meet the requirements for exemption of its subsidy programs under the Agriculture Agreement.

The panel held that the WTO Agreement on Subsidies and Countervailing Measures (SCM) did not constitute applicable law. Art. 32.3 of SCM provides that the agreement shall apply only to investigations initiated pursuant to applications which have been made on or after entry into force of the WTO agreement, and the panel held the 'investigation' to include both procedural and substantive aspects of the investigation.

In this light, the panel also held that it could not hold, as Philippines contended, that Art. VI of the GATT 1994 would still apply independently of the SCM agreement. Hence, Art VI of GATT 1994 would not be the 'applicable law' for the dispute.

In this view, the panel also decided that the provisions of the Agreement on Agriculture would not apply. Article 13 of the Agriculture Agreement or the socalled peace clause or due restraint clause provides that during the implementation period, it is the provisions of the Agriculture Agreement on domestic support that would apply and not the SCM provisions.

The panel also concluded that the complaint of the Philippines over Brazil's "refusal to consult", in terms of Art. XXIII:1 of GATT 1994, on the Philippine complaint, was not within the terms of reference of the panel and thus not one it could rule on.

The panel however added: "The substantive questions raised by the Parties to this dispute are a matter of major concern and would merit serious consideration. However, because the issue of applicable law was dispositive in this dispute, the panel did not reach any conclusion with respect to those substantive questions.