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THE IMPLEMENTATION OF WTO DISPUTE
SETTLEMENT BODY IN THE TRADE DISPUTE
SETTLEMENT
IN THE CASE OF KOREA—ANTI-DUMPING DUTIES
ON IMPORTS OF CERTAIN PAPER FROM
INDONESIA (2002-2010)
By
JENNY STELLA NADYA
016201400083
A Thesis presented to the
Faculty of Humanities President University in partial fulfillment
of the requirements for Bachelor Degree in International
Relations Major in Diplomacy Studies
2018
ii
THESIS ADVISER
RECOMMENDATION LETTER
This thesis entitled “The Implementation of WTO Dispute
Settlement Body in the Trade Dispute Settlement in the Case of
Korea-Anti Dumping Duties on Imports of Certain Paper from Indonesia (2002-2010)” prepared and submitted by Jenny Stella Nadya
in partial fulfillment of the requirements for the degree of Bachelor
Degree in International Relations in the Faculty of International
Relations, Communication and Law has been reviewed and found to
have satisfied the requirements for a thesis fit to be examined. I
therefore recommend this thesis for Oral Defense.
Cikarang, Indonesia, 28 March 2018
Witri Elvianti, S.IP., MA. Thesis Advisor
iii
DECLARATION OF ORIGINALITY
I declare that this thesis, entitled “The Implementation of WTO
Dispute Settlement Body in the Trade Dispute Settlement in the
Case of Korea-Anti Dumping Duties on Imports of Certain Paper
from Indonesia (2002-2010)” is, to the best of my knowledge and
belief, an original piece of work that has not been submitted, either in
whole or in part, to another university to obtain a degree.
Cikarang, 29 March 2018
Jenny Stella Nadya
iv
PANEL OF EXAMINER
APPROVAL SHEET
The Panel of Examiners declare that the thesis entitled “The
Implementation of WTO Dispute Settlement Body in the Trade
Dispute Settlement in the Case of Korea—Anti-Dumping Duties on
Imports of Certain Paper from Indonesia (2002-2010)” that was
submitted by Jenny Stella Nadya majoring in International Relations
from the Faculty of Humanities was assessed and approved to have
passed the Oral Examinations on April 20, 2018.
Riski M. Baskoro, S.Sos., MA.
Chair – Panel of Examiner
Bustanul Arifin, BA.IR., MA.
Examiner
Witri Elvianti, S.IP., MA.
Thesis Adviser
v
ABSTRACT
World Trade Organization (WTO) is an international organization that
regulates international trade between countries in the world. One of the functions
of the WTO is the settlement of inter-state trade disputes through a Dispute
Resolution Mechanism which consists of several stages, including consultations,
panels, appeals and the implementation after the recommendation or the decision
of the Dispute Settlement Body (DSB). DSB is the body who responsible in forming
the Panel, approving the Panel Report and overseeing the entire process of the
dispute settlement. Indonesia as a WTO member country has exercised its right by
reporting South Korea to the WTO as in the case of Korea-Anti Dumping duties on
imports of certain paper from Indonesia within the year of 2002-2010. Indonesia as
an exporter country feels aggrieved over the anti-dumping duties imposed by South
Korea as an importing country. The anti-dumping dispute settlement process cannot
be separated from the dispute settlement mechanism in the WTO. However, South
Korea as an importing country did not revoke the anti-dumping duties. This is made
Indonesia filed a second claim recourse to Article 21.5 of the DSU. Based on the
claims, it raises a question on how does the WTO Dispute Settlement Body
implement its trade dispute settlement mechanism in the case of anti-dumping
duties on imports of certain paper from Indonesia as an exporting country. The
research is using qualitative research method and literature study as the collected
data technique. Data obtained from books, journals, documents, as well as print and
electronic media. The objective of this research is to identify the results of the
settlement of anti-dumping trade dispute by the DSB of the WTO. Based on the
research, the researcher conclude the DSB has implemented the WTO dispute
settlement procedure and the theory of Liberalism in International Relations has
worked to analyze the case of Korea—Anti-Dumping Duties on imports of certain
paper from Indonesia within the year 2002-2010.
Keywords: World Trade Organization, Dispute Settlement Body, Dispute
Settlement Mechanism, Dumping, Indonesia, South Korea
vi
ABSTRAK
Organisasi Perdagangan Dunia (WTO) adalah organisasi internasional yang
mengatur perdagangan internasional antar negara di dunia. Salah satu fungsi WTO
adalah penyelesaian sengketa perdagangan antar negara melalui Mekanisme
Penyelesaian Sengketa yang terdiri dari beberapa tahap, termasuk konsultasi, panel,
banding dan pelaksanaannya setelah rekomendasi atau keputusan Badan
Penyelesaian Sengketa (DSB). DSB adalah badan yang bertanggung jawab dalam
membentuk Panel, menyetujui Laporan Panel dan mengawasi seluruh proses
penyelesaian sengketa. Indonesia sebagai negara anggota WTO telah melaksanakan
haknya dengan melaporkan Korea Selatan ke WTO dalam kasus tugas Korea-Anti
Dumping pada impor kertas tertentu dari Indonesia pada tahun 2002-2010.
Indonesia sebagai negara pengekspor merasa dirugikan atas bea masuk anti-
dumping yang dikenakan oleh Korea Selatan sebagai negara pengimpor. Proses
penyelesaian sengketa anti-dumping ini tidak dapat dipisahkan dari mekanisme
penyelesaian sengketa di WTO. Namun, Korea Selatan sebagai negara pengimpor
tidak mencabut bea masuk anti-dumping. Hal ini membuat Indonesia mengajukan
klaim kedua untuk merujuk pada Pasal 21.5 dari DSU. Berdasarkan klaim tersebut,
muncul pertanyaan tentang bagaimana Lembaga Penyelesaian Sengketa WTO
menerapkan mekanisme penyelesaian sengketa perdagangannya dalam kasus bea
masuk anti-dumping pada impor kertas tertentu dari Indonesia sebagai negara
pengekspor. Penelitian ini menggunakan metode kualitatif dan studi pustaka
sebagai teknik pengumpulan data. Data diperoleh dari buku, jurnal, dokumen,
media cetak dan elektronik. Tujuan dari penelitian ini adalah untuk
mengidentifikasi hasil penyelesaian sengketa perdagangan anti-dumping oleh DSB
WTO. Berdasarkan penelitian, peneliti menyimpulkan bahwa DSB telah
melaksanakan prosedur penyelesaian sengketa di WTO dan penggunaan teori
Liberalisme dalam Hubungan Internasional berhasil untuk menganalisis kasus
Korea—Bea Masuk Anti-Dumping pada impor kertas tertentu dari Indonesia pada
tahun 2002-2010.
Kata Kunci: World Trade Organization, Badan Penyelesaian Sengketa,
Mekanisme Penyelesaian Sengketa, Dumping, Indonesia, Korea Selatan
vii
ACKNOWLEDGEMENT
First and foremost, I would like to thank the God Almighty for giving me
the strength, knowledge, ability and opportunity to undertake this thesis research
and to complete it right on the time. Without His blessings, this thesis research
would not have been possible to be completed. Moreover, I am lucky surrounded
by people who always support me no matter what happened. Therefore, through
this page I would like to express my gratitude to all of them.
I would like to dedicate this work to my parents, whose love and guidance
are with me in whatever I pursue. They are the ultimate role models throughout my
life. Thank you for always be there whenever I needed through ups and downs. I
thank my parents for the continuous support throughout my life. They have truly
been the best support system I could have asked for. Thank you for the endless
support and the unconditional love. Without them, I would not have been where I
am today and what I am today.
Furthermore, I would like to thank my one and only amazing thesis adviser,
Mrs. Witri Elvianti, S.IP., M.A. for her kind advice, patience, motivation and
thoughtful insight. Her guidance has helped me in all the time of research and
writing of this thesis. Thank you for the guidance and all the revises to make this
thesis research remains on the right track. Besides my thesis advisor, I would like
to express my deepest appreciation to all Lecturers at President University who
have given us the best lectures and education to all students at President University.
In particular to Mr. Teuku Rezasyah Ph.D, Mr. Prof. Anak Agung Banyu Perwita
and Mr. Hendra Manurung, S.IP, MA. who have worked hard to improve the quality
of IR study programme become better every year. In addition, I also would like to
send my warm regards to the Rector of President University, Dr. Jony Oktavian
Haryanto, SE, M.M, M.A, all International Relations lecturers and students,
students from another majors, as well as all the staffs who have helped me out
during my study at the President University.
Next, I would like to send special thanks to all IR family Batch 2014, seniors
and juniors for the beautiful memories that we have spent together during the
viii
University life. I believe every each of us would be doing great in the future. I’m
glad being able to get a chance to know every each of you. I believe we all will
achieve success in the future. Thank you and see you on top!
Lastly, I would like to express my gratitude to my previous internship place
at the Directorate of Europe I Ministry of Foreign Affairs of the Republic of
Indonesia, especially to the Director of Europe I for his kind referrals, knowledge,
opportunity, and many things that I couldn’t be mentioned in here. I realized that
this acknowledgement page wouldn’t be enough to reward all people kindness, yet
I will always pray to God to give them all good things in life.
May the Almighty God richly bless all of you.
Cikarang, March 2018
Jenny Stella Nadya
ix
LIST OF TABLES AND DIAGRAMS
1. Table 2.1 The Development of Indonesian Export in 2010-2013
2. Table 2.2 The Development of Indonesian Import in 2010-2013
3. Table 2.3 Korea—Anti-Dumping Duties on Imports of Certain
Paper from Indonesia
4. Table 3.1 GATT Multilateral Trade Negotiations 1947-1994
5. Diagram 3.2 The Structure of the WTO
6. Diagram 3.3 Dispute Settlement Procedures of the WTO
7. Table 4.1 Korea Certain Paper Case (KCP) and Korea Certain
Paper Recourse Case (KCPR)
Page Number
38
40
54
65
98-100
74
90
x
List of Abbreviation
1. ACWL : Advisory Centre on WTO Law
2. ADA : Anti-Dumping Agreement or known as Agreement on
Implementation of Article VI of the General Agreement
on Tariffs
and Trade 1994
3. ADD : Anti-Dumping Duties
4. APEC : Asia-Pacific Economic Cooperation
5. ASEAN : Association of Southeast Asian Nations
6. DESA : Department of Economic and Social Affairs of the United
Nations Secretariat
7. DSB : Dispute Settlement Body
8. DSU : Dispute Settlement Understanding
9. DPAD : Development Policy and Analysis Division
10. GATS : General Agreement on Trade in Services
11. GATT : General Agreement on Tariffs and Trade
12. GDP : Gross Domestic Product
13. GNI : Gross National Income
14. IMF : International Monetary Fund
15. JTF-EC : Joint Task Force on Economic Cooperation
16. LPD : Landing Platform Dock
17. ITO : International Trade Organization
18. KTC : Korean Trade Commission
19. LOI : Letter Of Intent
20. MFN : Most Favoured Nation
21. MP3EI : Master Plan Project for the Acceleration and Expansion of
Indonesia's Economic Development
22. MTAs : Multilateral Trade Agreements
23. MOU : Memorandum Of Understanding
xi
24. PRC : People's Republic of China
25. SMG : Sinar Mas Group
26. SSV : Strategic Sealift Vessel
27. UN : United Nations
28. PPC : Plain Paper Copier
29. UN ECOSOC : UN Economic and Social Council
30. TPRM : Trade Policy Review Mechanism
31. WF : Uncoated Wood-Free Printing Paper
32. WLTFM : Working Level Task Force Meeting
33. WTO : World Trade Organization
xii
TABLE OF CONTENTS
COVER.....................................................................................................................i
THESIS ADVISER RECOMMENDATION LETTER..........................................ii
DECLARATION OF ORIGINALITY...................................................................iii
PANEL OF EXAMINER.......................................................................................iv
ABSTRACT............................................................................................................v
ABSTRAK..............................................................................................................vi
ACKNOWLEDGEMENT.....................................................................................vii
LIST OF TABLES AND
DIAGRAMS...........................................................................................................ix
LIST OF
ABBREVIATIONS.................................................................................................x
TABLE OF CONTENTS.......................................................................................xii
CHAPTER I INTRODUCTION
I.1 Background of Study.....................................................................................1
I.2 Problem Identification....................................................................................5
I.3 Statement of Problem.....................................................................................8
I.4 Objective of the Research..............................................................................8
I.5 Significance of Study.....................................................................................9
I.6 Theoretical Framework..................................................................................9
I.7 Research Methodology................................................................................16
I.7.1 Research Method...............................................................................17
I.7.2 Research Time and Place...................................................................17
I.7.3 Research Framework.........................................................................19
I.7.4 Research Instruments.........................................................................19
I.8 Literature Review.........................................................................................20
I.9 Scope and Limitation of the Study...............................................................30
I.10 Definition of Terms....................................................................................30
I.11 Thesis Structure..........................................................................................32
xiii
CHAPTER II SOUTH KOREAN DUMPING ALLEGATION ON
IMPORTS OF CERTAIN PAPER FROM INDONESIA
II.1 General Overview on Foreign Trade of Indonesia and South
Korea.................................................................................................................35
II.1.1 General Overview on Foreign Trade Indonesia...............................36
II.1.2 General Overview on South Korean Foreign Trade.........................40
II.2 Bilateral Relations between Indonesia and South
Korea.................................................................................................................42
II.2.1 Bilateral Cooperation between Indonesia and South Korea in
Politics........................................................................................................42
II.2.2 Bilateral Cooperation between Indonesia and South Korea in
Economics..................................................................................................45
II.3 Government Policy on Paper
Industry..............................................................................................................46
II.3.1 Indonesian Government Policy on Paper Industry...........................46
II.3.2 South Korean Government Policy on Paper Industry......................48
II.4 South Korean Dumping Allegations on Imports of Certain Paper from
Indonesia...........................................................................................................48
II.4.1 Background of the Trade Dispute....................................................48
II.5 The Arguments between Indonesia and South Korea Related to the
Dispute...............................................................................................................51
II.6 Dispute Settlement between Indonesia and South
Korea.................................................................................................................57
II.6.1 The Dispute Barriers........................................................................59
CHAPTER III WORLD TRADE ORGANIZATION AND ITS DISPUTE
SETTLEMENT MECHANISM
III.1 The World Trade
Organization......................................................................................................60
III.1.1 The History of the
WTO...........................................................................................................60
xiv
III.1.2 Objectives, Functions and Benefits of
WTO...........................................................................................................63
III.1.3 Vision and Mission of the
WTO...........................................................................................................64
III.1.4 The Structure and the Decision Making Process in the
WTO...........................................................................................................66
III.1.5 Code of Conduct
WTO...........................................................................................................69
III.2 WTO Multilateral Trading
System.............................................................................................................71
III.2.1 WTO
Agreements.................................................................................................72
III.3 Indonesia and South Korea Membership in the
WTO...............................................................................................................74
III.3.1 Indonesia and South Korea at
DSB............................................................................................................74
III.4 The Dispute Settlement Mechanism of the
WTO..................................................................................................................75
III.4.1 The Settlement of Trade Dispute in the
WTO...........................................................................................................76
III.4.2 WTO Dispute Settlement Bodies....................................................77
II.4.3 The WTO Dispute Settlement Procedures.......................................79
CHAPTER IV THE MECHANISM OF THE DISPUTE SETTLEMENT OF
DUMPING ALLEGATION ON IMPORTS OF CERTAIN PAPER FROM
INDONESIA
IV.1 The Dispute Settlement Process................................................................86
IV.1.1 Phase I: The Dispute Settlement Process in 2002-2005.................86
IV.1.2 Phase II: The Dispute Settlement Process in 2006-2010................88
IV.2 Dispute Settlement Results.......................................................................94
IV.3 Recommendation of the Panel DSB..........................................................99
IV.3.1 Compensation...............................................................................100
xv
IV.3.2 Retaliation.....................................................................................101
IV. 4 The Binding Power of the Recommendation of Panel DSB..................101
IV.4.1 The Implementation of the DSB’s Recommendation...................102
CHAPTER V
CONCLUSION...................................................................................................106
BIBLIOGRAPHY..............................................................................................110
APPENDIX.........................................................................................................119
1
CHAPTER I
INTRODUCTION
I.1 Background of Study
International trade in the era globalization like nowadays has grown rapidly
where countries in the world has increasingly integrated market power without any
territorial boundary barriers. In the current era of globalization, international
relations cannot deny the inter-state interaction that contains many interests that
every actor wants to achieve. The diverse interaction cannot close the possibility of
conflict among countries until the establishment of international cooperation. It is
none other than aiming to achieve the national interests of their respective countries
for the progress of the country. One of the international interactions that appears
nowadays is free trade. Through free trade, every country in this world could
produce its own superior commodity that allows them to reach their prosperity1.
This is the underlying intention of developing countries to do a lot of international
cooperation in the field of trade. Besides, free trade encourages countries all over
the world to open its domestic product market opportunity to go to international
markets on a competitive basis. This allows business actors to compete to gain
market access and dominate the market and be the champion. (Syahyu, 2014)
In international trade, there is an open and free market that is always colored
by high competition. The result of this competition leads to fraud and injustice, both
in the form of price and non-price. In the form of price, for instance, there is price
discrimination called dumping. Dumping is a form of non-tariff barriers. Generally,
the practice of dumping in international market is done to gain huge profits and
dominating the broad market for exported products. This is an unfair conduct and
will harm many parties outside the two parties who transact, one of them is the
competitor from the other countries. The effect of dumping in the most pervasive
international trade is the destination country that is vulnerable to large losses where
similar local products will not be able to compete in terms of prices with imported
1 Young, M., & Thomson Gale (Firm). (2009). Free trade (p. 28). Detroit: Greenhaven Press.
2
products that are the result of dumping.2 The practice of dumping is considered to
be a detrimental trade practice for importers and is prohibited in the international
market as it may extinguish the same products industries in the destination country.
Therefore, it takes an instrument that can protect the domestic industry from
dumping practices called Anti-dumping. It is governed by the Anti-Dumping
Agreement or Agreement on the Implementation of Article IV of GATT 1994 as a
counterattack given by the importing country to goods from exporting country
conducted dumping in the form of imposition of import duties in the anticipation of
dumping practices.
General Agreement on Tariff and Trade (GATT) is a system, a forum, and
an international institution in the field of trade.3 The system was established in 1947
and began operation in 1948.4 After the Uruguay Round negotiations of 1986-1994
were completed, the GATT member states agreed to form a new body as known
now as the World Trade Organization (WTO). The WTO is the substitute
international organization of GATT that governs the world trade. The presence of
the WTO as an international organization that regulates and facilitates the cross-
border trade issues makes its role wider than GATT. Furthermore, the WTO also
serves as a dispute settlement forum and facilitates conciliation mechanisms to deal
with the trade disputes. There is a formal mechanism in the WTO to resolve the
trade disputes namely the Dispute Settlement Mechanism (DSM). The DSM of the
WTO is governed by the Dispute Settlement Understanding (DSU) that applicable
to all WTO member States under the WTO Agreement.
The implementation of the trade dispute settlement process in the WTO is
the responsibility of the DSB. The DSB performs the obligation of the General
Council in the matter of dispute settlement.5 The DSB is the organ of the WTO
authorized to establish the Panel, approve the Panel’s and Appellate Body’s final
report, oversee the implementation of decisions and recommendations, as well as
2 Bagchi, J. K. (n.d.). Dumping and Anti-Dumping Measures: Policy and Practice (p. 10). New
Delhi: Research and Information System for the Non-aligned and Other Developing Countries. 3 Kartadjoemena, H. S. (2002). GATT dan WTO Sistem, Forum, dan Lembaga Internasional di
Bidang Perdagangan (p. 76). Jakarta: UI-Press. 4 Ibid. 5 Article IV paragraph (3) of the WTO Agreement.
3
ratifying the retaliation if a disputing member country does not comply with the
Panel’s decision or recommendation.6 Since WTO was first introduced in 1994,
both developed and developing countries have used the WTO dispute settlement
system to resolve various types of trade disputes.7 Parties that have used the dispute
settlement system of the WTO are Indonesia and South Korea. Indonesia and South
Korea were involved in an anti-dumping dispute alleged by South Korea against
Indonesian certain paper products.
The case began when the South Korean paper industry filed an anti-
dumping petition against imports of certain paper products from Indonesia to the
Korean Trade Commission (KTC) on September 30, 2002. At that point, South
Korea imposed Anti-Dumping Duties on imports of certain paper products from
Indonesia in 2003 as a form of protection towards South Korean domestic market.
There were numbers of companies were charged with temporary anti-dumping
duties with amount for PT Pabrik Kertas Tjiwi Kimia Tbk accounted to 51.61%,
PT Pindo Deli 11.56%, PT Indah Kiat 0.52%, April Fine and others by 2.80%.8
However, on 7 November 2003 KTC lowered its anti-dumping duties on imports
of certain paper from Indonesia under the terms of PT Pabrik Kertas Tjiwi Kimia
Tbk, PT Pindo Deli and PT Indah Kiat respectively decreased by 8.22%, for April
Fine and others 2.80%.9 Margin dumping imposed by the KTC to Indonesian
domestic companies accounted 49.90%. 10 Due to this dumping allegation, the
export of the product suffered a loss. Indonesia's wood-free copy paper to South
Korea in 2002 totaled US$ 102 million down to US$ 67 million in 2003.11
Indonesia reported this case to the DSB of the WTO and went to several
settlement process, including consultation process. However, the consultation
6 Article 2:1 of the DSU. 7 Direktorat Perdagangan, Perindustrian, Investasi dan HKI. (2011). Sistem Penyelesaian Sengketa
WTO. Jakarta: Direktorat Jenderal Multilateral Kementerian Luar Negeri. 8 World Trade Organization. (2005) Korea—Anti-Dumping Duties on Imports of Certain Paper
from Indonesia, Op.cit., p.6. 9 Ibid. 10 Kementerian Perdagangan Republik Indonesia. (2010). Profil Kasus Tuduhan Dumping Review
Korea Selatan Terhadap Produk PPC (Plain Paper Copier/Business Information Paper), WF
(Uncoated Wood-free Printing paper) and Uncoated Wood-Free Paper in a Form of Roll, Sheet or
Other) Asal Indonesia. Jakarta: Direktorat Jenderal Kerjasama Perdagangan Internasional. 11 World Trade Organization. (2005) Korea—Anti-Dumping Duties on Imports of Certain Paper
from Indonesia, Op.cit., p.6.
4
process did not work and made Indonesia requested for the establishment of the
Panel. After going through several phases of settlement, finally the Panel of the
DSB WTO issued a Panel Report on trade disputes between Indonesia and South
Korea in 2005. The Panel of the DSB granted and approved the Indonesian claims
after studied the legal arguments given by the Indonesia, the South Korea, and the
third parties consisting of Canada, China, Japan, the European Union, the United
States and Chinese Taipei. The Panel of the DSB considered South Korea has
violated the terms of the Agreement in the imposition of anti-dumping duties on
imports of certain paper products from Indonesia.12 However, South Korea has not
revoked the anti-dumping duties on imports of certain paper products from
Indonesia. Until 2006, Indonesia consulted for the second time with South Korea
to sort this issue out and reach an agreement. But again, it was not reach any
agreement. Until in 2007 Indonesia requested to re-form the Panel and there was a
second Panel hearing. This phase is called as the second phase of the dispute
settlement. At the second Panel hearing, the DSB Panel of the WTO won
Indonesian claims against South Korea regarding the imposition of anti-dumping
duties imposed by the KTC. Yet, South Korea did not implement the decision of
the DSB of the WTO for the second time. In short, attempts were made to find a
mutually agreed solution on this issue until in 2010 Korea has stopped the
imposition of Anti-Dumping Duties on imports of certain paper products from
Indonesia. One of the reason is because the domestic industry of Korea is no longer
experiencing injury or loss.
Based on the chronological sequence of dumping allegation on imports of
certain paper products from Indonesia, the case took place quite long period of time,
which was 7 years starting from the imposition of anti-dumping duties in 2003 until
the termination of such dumping duties stopped in 2010. Therefore, the researcher
would like to explore the mechanism of dispute settlement in the DSB of the WTO
in the case of anti-dumping duties on imports of certain paper from Indonesia. In
addition, the researcher decided to take the time framework for this research is eight
12 Ibid.
5
years started from the petition conducted by the KTC in 2002 until the termination
of the anti-dumping duties in 2010 that is relevant to the goal of this research.
I.2 Problem Identification
Liberalization and free trade have been initiated by developed countries
after World War II in 1947. One of the driving factors of the emergence of this idea
is the factor of globalization. Globalization makes the development of
transportation and technology growing fast. Consequently, global relations become
integrated through the network. Eventually, it leads into interdependence each other.
Developed countries pioneered by neo-liberal groups and major capitalist countries
in Europe adhere to the notion of liberal internationalism. Therefore, after World
War II in 1947, the General Agreement on Tariff and Trade (GATT) was
established. At first, there was only 23 member states joined the GATT. During its
development, GATT membership increased to 117 countries in 1993. GATT
member countries pledged to abide with the principles of reducing trade barriers.
However, after the Uruguay Round negotiations ended, the World Trade
Organization was born.13
The emergence of the WTO is essentially to strengthen the GATT. This
makes the principle between WTO and GATT are quite similar, particularly in
terms of national treatment, most favored nation, transparency and mutual benefits.
The procedures and mechanisms in the WTO make GATT rules and principles are
easier to be implemented. WTO member countries should obey the existing trade
agreements in accordance with the rule of law in international trade. The form of
arrangement may be the harmonization of national trade rules in the country and
should not violate the principles in international trade. All the WTO member states
must adhere some basic principles, such as trade without discrimination, protection
through tariffs, a stable basis for trade and national treatment. 14 It is included
13 World Trade Organization. (n.d.). WTO | What is the WTO? - Who we are. Retrieved from
https://www.wto.org/english/thewto_e/whatis_e/who_we_are_e.htm 14 World Trade Organization. (n.d.). WTO | Understanding the WTO - A unique contribution.
Retrieved from http://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm
6
dumping provisions set forth in Annex IA.15 Dumping can be interpreted as a trade
practice by an exporter by selling commodities on the international market at a price
less than a fair value or lower than the price of the item in the home country to be
sold to another country. In general, dumping practice is considered unfair because
it can damage the domestic market and harm the competitor producers in the
importing country. Regarding the dumping case, this study will discuss the trade
dispute between South Korea and Indonesia in the case of anti-dumping aimed by
South Korea towards Indonesia.
In fact, bilateral relations between the two countries since the opening of
diplomatic relations in 1966 has increased in various fields. In the context of
bilateral relations, Indonesia-South Korea is in a complementary position with each
other. By having such relationship reflects the commitment of both countries to
further strengthen people-to-people friendship relations between two countries. In
one hand, South Korea needs Indonesia to supply natural resources such as minerals,
oil and natural gas. On the other hand, Indonesia needs technology, investment and
capital from South Korea. Based on the relations and factors that are owned by both
countries, it made both countries agree to do a trade. Trade is conducted in many
sector of industries, including paper industry. Indonesia has abundant natural
resources and natural forests that are large enough to produce paper. As a tropical
country, forests are Indonesia's main force in producing paper abroad. It is
supported by the fertile soil conditions that make the level of availability of paper
raw materials in Indonesia more secure than other countries. Low labor costs also
make the paper price in Indonesia relatively cheap to be marketed abroad. Those
are the factors that make importing countries fear with its domestic producers
cannot compete and lose. Those are the main fears that importer country felt and
decided to protect its domestic products.
South Korea implements anti-dumping duties against certain paper from
Indonesia as a form of protection in protecting its domestic paper business.
According to South Korea, Indonesia has done dumping paper products that will
threaten Korean domestic producers. However, Indonesia does not feel doing so
15 Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994.
7
and reported this issue to the Dispute Settlement Body of the WTO. Indonesia as
the complainant party feels aggrieved over the application of trade regulation
applied by the Korean Trade Commission (KTC) on imports of certain paper
products from Indonesia. Therefore, Indonesia sued South Korea to resolve the
dispute. The dispute settlement system of the WTO plays an important
implementation in clarifying and enforcing the obligations of members in the WTO.
The WTO member states have agreed that if any member states violate the trade
regulations, the member states will get a multilateral system of settlement rather
than taking unilateral action. It is showing that all member states should obey the
procedures agreed and respect to the decisions that have been taken.16 Although a
lot of procedures of the WTO are similar to the litigation, the disputing member
states are still expected to negotiate and resolve its own issues before the Panel is
formed.
The case began when the South Korean paper industry petitioned an anti-
dumping against Indonesian imports of certain paper products to the KTC.
Furthermore, the petition was immediately followed up by the KTC by conducting
an investigation and resulted a decision to apply the anti-dumping duties on imports
of certain paper products from Indonesia in November 2003.17 Accordingly, the
government of Indonesia followed up this incident by seeking a process of
negotiation with South Korean government in June 2004. The consultation process
between the government of Indonesia and the South Korean government took place
on 7 July 2004. Yet it was failed to result an agreement.18 Until 16 August 2004,
Indonesia requested to set up a Panel.19 The Panel was established on 25 October
2004 to conduct research, investigation and assessment of the dispute until the
Panel issued its valid report.
After passing the stages of the dispute settlement, the DSB of the WTO
formally released the Panel Report on 28 October 2005 and won Indonesia as well
16 Direktorat Perdagangan, Perindustrian, Investasi dan HKI. (2011). Sistem Penyelesaian
Sengketa WTO. Op.cit, p.49. 17 World Trade Organization. (2005) Korea—Anti-Dumping Duties on Imports of Certain Paper
from Indonesia (WT/DS312/R), Report of the Panel. 18 Ibid. 19 Ibid.
8
as requested South Korea to adjust its anti-dumping duties policy in accordance
with the Anti-Dumping Agreement (ADA).20 However, up to a year later South
Korea did not implement the Panel decision recommendation. After a second
consultation phase conducted, Indonesia requested the Panel to be re-formed by the
DSB of the WTO. On 24-25 April 2007, the second Panel hearing recourse to
Article 21.5 DSU was conducted. Even though not all the claims were won, but the
DSB of the WTO won most of Indonesia's claims against South Korea. However,
South Korea still does not implement the recommendations of the Panel DSB of the
WTO, until in 2010 Korea has stopped its anti-dumping duties. Therefore, the
research is aimed to analyze the implementation of WTO Dispute Settlement Body
in the Trade Dispute Settlement against the South Korean Dumping Allegation in
the Case of Korea-Anti Dumping Duties on Imports of Certain Paper from
Indonesia within the year of 2002-2010.
I.3 Statement of Problem
As mentioned above, the research is design to analyze the implementation
of WTO Dispute Settlement Body in the Trade Dispute Settlement against the South
Korean Dumping Allegation in the Case of Korea-Anti Dumping Duties on Imports
of Certain Paper from Indonesia within the year of 2002-2010. This research has
taken eight year lengths of the trade dispute caused by Anti-Dumping Moreover,
the researcher acknowledges that there will be outcomes from the analysis. Thus
the researcher proposes a research question as follow:
1. How does WTO Dispute Settlement Body implement its trade
dispute settlement mechanism in the case of anti-dumping duties on
imports of certain paper from Indonesia involving KTC and
Indonesian government within the year 2002-2010?
I.4 Objective of the Research
Based on the statement above, the objective of this research are:
20 Ibid.
9
1. To describe and elaborate the implementation of the Dispute Settlement
Body of the WTO in the settlement of anti-dumping dispute.
2. To explore the knowledge of the mechanisms in international trade
dispute settlement system in WTO.
3. To identify the results of the settlement of anti-dumping trade dispute.
I.5 Significance of Study
The significant study of this research is:
1. To discuss in depth about the works of the DSB of the WTO in handling
the trade dispute settlement on imports of certain paper from Indonesia
towards South Korea.
2. Hopefully through this research could be useful in shaping the way of
thinking systematically in observing a problem.
3. This research is expected to be fruitful in providing information related
to anti-dumping issues in international trade.
I.6 Theoretical Framework
The research uses several theories that support the idea of this research.
Theory helps in building interpretations of complex issues and provides ways to
think critically, logically and integrative.21 Theoretical framework is the source and
foundation for analyzing the issues to be studied. Based on the background of the
study on the previous section, the free trade that occurs today adds to the complexity
of human life in the international community. Interdependence within one another
is unavoidable and does not allow a state to close itself from the broader world.22
In International Relations there is an interaction between actors, in this case the
state, along with the attitudes and motivations behind all movement. The conditions
that are formed and particular events that occurred as well as the relations that is
influenced among them are a system that occurs in international relations.
21 Burchill, S. (2001). Theories of International Relations (2nd ed., p.19). Basingtoke: Palgrave
Macmillan. 22 Banyu Perwita, A. A., & Yani, Y. M. (2006). Pengantar Ilmu Hubungan Internasional (p. 3).
Bandung: PT Remaja Rosdakarya.
10
This research is related with issues in International Relations as a science.
It is due to the existence of an international organization called the World Trade
Organization as a part of international relations as non-State Actor which related
with international trade. Besides that, this research involved two countries which
are Indonesia and South Korea as the disputing countries. Moreover, these two
disputing countries are known as the State Actors. This research showed that a non-
State actor can form a norm that govern the pattern of the country in reaching its
national interests. Moreover, in this research shows that the premise of liberalism
is proved especially in the field of international trade in which the actor is not only
a State but also non-State actor which involved in international relations and
cooperation is important to be achieved through negotiations or dialogue rather than
war. This is obviously against the premise of realism which assumes the
international system is an anarchic condition that is only see a State as an actor in
international relations as well as the unitary and rational in which the state will
always pursue its national interests in the framework of survival and will always
seek for power.23
Paul R. Viotti and Mark V. Kauppi see the starting point in international
relations is how countries or actors in international relations interact in a global
context in the international system. 24 One of the theories in the science of
international relations that will be used in the research is the theory of Liberalism
in International Relations. In the theory of Liberalism, the actor in international
relations is not only the state, but also the non-state actor namely individuals in
order to run an international relationship among nations to reach the national
interest of the country. Liberalism values individual freedom and progress.
Individuals can be communities that would form a group or organization that
mutually beneficial to each other. Such individual groups can achieve each goals
by unifying the common interests. Moreover, the theory of liberalism believes that
international relations can be cooperative rather than conflictual.25 The Liberals see
23 Bhaskar, R. (2015). A realist theory of science (p. 15). London: Routledge. 24 Viotti, P. R., & Kauppi, M. V. (2011). International relations theory (5th ed., p. 9). Pearson
Education. 25 Frank, C. R., Kim, K. S., & Westphal, L. E. (1975). Foreign Trade Regimes and Economic
Development: South Korea. National Bureau of Economic Research (NBER).
11
optimism in a cooperation, which is not only the situation of mutual benefit to be
gained, but also can bring the condition of interdependence and can minimize war.26
According to the Liberalist, conflict and war cannot be avoided but by using mind
and rationality can produce a form of mutual cooperation.27 In addition, Liberalism
has a positive outlook on human nature and is convinced that if there is a good
cooperation among people then the world peace will be achieved.28 Liberalists also
believe in human mind and rational principles that exist within each individual can
be used in international affairs. Other than that, liberalism believes that there is no
difference between high politic and low politic. According to Liberalists, all issues
concerning the livelihood of many people are important to be resolved at the
international level.
Moreover, in the theory of liberalism, a country not only using hard power
but also soft power that can be done through the fields of economy, culture and
dialogue. In liberalism, it prioritizes peace through more fruitful cooperation and
avoiding war as free trade exists to foster mutual cooperation and mutual benefit as
the embodiment that to achieve a peace does not have to go through war (Burchill,
2001). In addition to the necessary cooperation in interacting in international
relations, there is also a need for diplomacy process to achieve the national interest
of a country. Diplomacy is important to be done in order to keep in touch with other
countries in the world harmoniously. It can be also as a channel of communication
between a party and others to prevent a dispute that triggered a war. Diplomacy has
various definitions and understanding but there is a basic understanding that is
always associated with this term. Diplomacy is the official communication
undertaken by a country with another party to achieve certain goals. The common
goal is to reach the national interests of the country. Diplomacy is part of
international relations conducted through negotiations instead of doing harsh
actions that based on the strength. In other words, diplomacy requires human skills
26 Jackson, R. H., & Sørensen, G. (2015). Introduction to international relations: Theories and
approaches (5th ed., p. 177). Oxford: Oxford University Press. 27 Kelly, P. (2005). Liberalism (p. 5). Cambridge: Polity. 28 Burchill, S., Linklater, A., Devetak, R., Donelly, J., Paterson, M., Reus-Smit, C., & True, J.
(2005). Liberalism. In Theories of International Relations (3rd ed., p. 58). Retrieved from
http://lib.jnu.ac.in/sites/default/files/RefrenceFile/Theories-of-IR.pdf
12
and judgments in order to maintain communication, dialogue, and apply persuasion.
Diplomacy can be done in various dimensions, such as politics, culture, and of
course also economics. One type of diplomacy is economic diplomacy.
Economic diplomacy can be interpreted as communication between two or
more countries aimed to achieve the national economic goals of the country
concerned. According to Rana, economic diplomacy is the process whereby
countries maximize its national profits in all areas of activity including trade,
investment and other forms of economically beneficial exchanges, where they
enjoy the comparative advantage; it has bilateral, regional and multilateral
dimensions which is each of them are important.29 Rana explained that diplomacy
is a negotiation process undertaken by a state in dealing with state and international
organizations that can be used to achieve its national economic interests, including
investment, trade and other economic interactions.30 Such diplomacy can involve
in the Ministry of Foreign Affairs and Ministry of Trade, as long as both are the
representatives of the diplomatic and trade ministries, also the non-state actors in
the levels of bilateral, regional and multilateral and eventually be able to achieve
the goal of national economies. Economic diplomacy not only allows for a
diplomatic agenda in market integration, but also changes in diplomacy structures
that facilitate a country to play a greater role in negotiation, promotion, advocacy
and policy implementation. 31 As a whole, economic diplomacy is part of the
diplomacy done by state actors used to achieve the goals and economic interests of
a country abroad, in addition to certainly to secure the domestic economy in the
international system.
Economic diplomacy can also be interpreted as formulation and advancing
policies related to production, movement or exchange of goods, services, labor and
investment in other countries. 32 Economic diplomacy connects closely with
political, public and other segments of diplomatic work. Specifically, economic
29 Rana, K. S. (2007). Economic Diplomacy: The Experience of Developing States (p. 201). Bayne. 30 Kishan S. Rana, 'Economic Diplomacy: The Experience Of Developing States', The New
Economic Diplomacy: Decision- Making and Negotiation in International Economic Relations,
Ashgate Publishing, Hampshire, 2007, p. 201. 31 Lee, Donna, & Hocking, B. (2010). Economic Diplomacy. The International Studies
Encyclopedia, 2, p.20. 32 Berridge, G. (2016). Diplomacy: Theory and Practice (p. 81). London: Palgrave Macmillan.
13
diplomacy is a form of diplomacy which is use of economic tools of the state to
achieve its national interest and economic diplomacy includes all the economic
activities, but not limited to export, import, investment, lending, aid, free trade
agreements, etc. 33 Roy argued that the economy is an integral part of diplomacy as
the economy can influence the other policies as a national goal.34 In summary, a
country cannot achieve its economic interests optimally if it does not make any
political efforts through economic diplomacy with other countries or international
organizations. According to Roy, the implementation of diplomacy can be done in
the form of economic diplomacy in negotiations in the WTO that allows a country
to fight for its interests and resolve any disputes that occur in order to improve the
economy and trade.35
It is related with the dispute case between Indonesia and South Korea with
Indonesian economic diplomacy, which could be seen that the WTO forum that
used by Indonesia was used to fight for its national economic interests maximally.
It can also be seen from the actors that involved in the dispute settlement in this
case as from the South Korean side consists of KTC, Ministry of Strategy and
Finance, Trade Attaché Seoul, Deputy Minister for Tax and Customs, Minister of
Finance and Economy, and Ministry of Knowledge and Economy.36 Meanwhile,
actors that involved in the dispute settlement in this case from Indonesian side
consists of the Director General of International Trade Cooperation of the Ministry
of Trade, Indonesian embassy to the WTO, the Minister of Trade, and Sinar Mas
Group. 37 These actors have helped the WTO to settle the problem out and has
proven that in order to fight for the interest of the state, especially in the field of
economy, it needs economic diplomacy in resolving the dispute. In addition, the
Government of Indonesia also uses bilateral negotiation channels through the
33 Moons, S., Bergeijk, V., & Peter, A. G. (2009). New Frontiers for Economic Diplomacy.
In Economic Diplomacy and Economic Security (pp. 37-54). Retrieved from
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1436584 34 Roy, S. L. (1991). Diplomasi. Jakarta: Rajawali Pers. 35 Ibid. 36 Kementerian Perdagangan Republik Indonesia. (2010). Profil Kasus Tuduhan Dumping Review
Korea Selatan Terhadap Produk PPC (Plain Paper Copier/Business Information Paper), WF
(Uncoated Wood-free Printing paper) and Uncoated Wood-Free Paper in a Form of Roll, Sheet or
Other) Asal Indonesia. Op.cit. 37 Ibid.
14
Ministry of Trade of the Republic of Indonesia with South Korea and the Indonesian
paper companies. Diplomacy and economic negotiations were undertaken by
Indonesia by advocating and other processes to demonstrate Indonesia's position
and emphasizing South Korea to comply with the DSB WTO's final decision which
has been decided through the Report of the Panel of the DSB since 2005.The next
theory is the other theory that acknowledges cooperation as a way to advance a
country's economy. It is Liberal Institutionalism theory.
Liberal Institutionalism theory is a theory that see international institutions
able to encourage and promote cooperation among countries. Liberal
Institutionalism theory sees State is no longer the main actor in the international
system, but also non-state actor. Non-state actors consist of Inter-governmental
Organizations (IGOs), Non-governmental organizations (NGOs), Multinational
Corporations (MNCs) and individual. According to the Liberal Institutionalism
theory, the diversity of actors in international relations plays an important role in
integration and cooperation. The Liberal Institutionalism sees the presence of
international organization capable of becoming a set of rules governing state action.
The World Trade Organization is one of international organization that has created
a climate of cooperation in the field of trade among nations. Liberal Institutionalism
believe that in order to create peace in international affairs, States must cooperate
together and create an integrated community to promote economic growth and
address regional and international security issues.38 Cooperation is conducted to be
more focused on the economic field. It can be seen from the establishment of the
WTO as a world base institution that regulates inter-state trade. Regarding the case
of this research, the WTO becomes a forum to help the settlement disputes settled
in the Dispute Settlement Body.
As what have been stated previously, International Organizations have an
important role for a country in achieving its national interests. According to Prof.
Banyu Perwita and Mochamad Yani in his book titled "Introduction to International
38 Devitt, R. (2011, September 1). Liberal Institutionalism: An Alternative IR Theory or Just
Maintaining the Status Quo?. Retrieved from http://www.e-ir.info/2011/09/01/liberal-
institutionalism-an-alternative-ir-theory-or-just-maintaining-the-status-quo/
15
Relations" defined the International Organization as:
“A formal and sustainable structure established on an agreement
between members (government and non-government) of two or more
sovereign states with the aim of pursuing the mutual interests of its
members. Furthermore, the effort to define an international
organization should take a look at the objectives to be achieved, the
existing institutions, a process of estimating the rules made by the
government on the relationship between a state and the state
actors.”39
According to Leroy Bennet, International Organization is an organization
or association established by its members consisting of nations or non-
governmental bodies based on an agreement to achieve a goal.40 The international
organization includes three elements, such as state involvement in a pattern of
cooperation, regular meetings and staff working as international civil servants. As
one of international organizations, the WTO dealing and focusing on international
trade issues which is important for this research to be discussed. The WTO regulates
all regulations concerning international trade flows and aims to reduce the role of
government in restrictions on international trade policy.
International trade can be defined as inter-or cross-border trade that
includes exports and imports, which fall into two categories: goods trade and trade
in services.41 It is also can be defined as trades conducted by parties from different
countries are broadly implemented in the form of export and import transactions
based on the classical theory in the early stages of development, as introduced by
Adam Smith, David Ricardo, and John Stuart Mill. (Rinaldy, 2006: 275)
International trade is a part of economic activity in a country. For some countries,
especially Indonesia, International trade has become an important aspect especially
exports should be maximized since it drives the national economy.42 According to
39 Banyu Perwita, A. A., & Yani, Y. M. (2006). Op.Cit., p. 92. 40 Bennett, A. L. (1984). International organizations: Principles and issues. Englewood Cliffs N.J:
Prentice-Hall. 41 Tambunan, T. (2001). Transformasi ekonomi Indonesia: Teori & penemuan empiris. Jakarta:
Salemba Empat. 42 Boediono. (2001). Indonesia Menghadapi Ekonomi Global (p. 65). Yogyakarta: BPFE.
16
classical economists, international trade is contributed to economic growth because
international trade can boost productivity, expand markets, and and market the
excess of domestic production.
However, international trade relations do not always run smoothly since
some parties involved usually made problems that turn into a disputes in
international trade. This is similar to the case between Indonesia and South Korea
involving in a trade dispute over dumping allegations resulting the imposition of
anti-dumping duties on imports of certain paper from Indonesia. The allegation was
denied by Indonesia by filing an objection to the Dispute Settlement Body of the
WTO to resolve the case.
I.7 Research Methodology
In the making process of this thesis, it is necessary to have research
methodology. Research methodology is a way to systematically solve the research
problem. It can also be understood how research is done scientifically. 43 This
research will be using the Qualitative Research which is using the descriptive
analytic approach concerned with understanding the meanings of certain observed
phenomena or actions. It examines and analyzes observations for the purpose of
discovering underlying patterns of relationship in a manner that does not involve
mathematical models. Qualitative research also provides explanation of reasons and
associations between social variables. The data in this type of analysis is not in the
form of numbers.44
In addition, the researcher of this research is using the perspective of
Liberalism in International Relations where actors in international relations is not
only State, but also non-state actor. The researcher wants to prove in order to control
the State in dealing with other countries, the State needs cooperation with other
countries that can be achieved through economic and dialogue, not by war. Other
than that, the researcher would like to prove that the theory of Liberalism in
international relations can be used successfully to analyze the research question in
43 C. R. Kothari (1990). Research Methodology: Methods and Techniques. New age: New Delhi. 44 Silverman, D. (2017). Doing Qualitative Research (5th ed.). London: London Thousand Oaks,
California SAGE Publications Ltd.
17
this research. Moreover, the researcher uses qualitative research method to be
applied in the research because it is the most suitable method to identify and analyze
the implementation of WTO Dispute Settlement Body as in the case of Korea-Anti
Dumping duties on imports of certain paper from Indonesia within the year 2002-
2010.
I.7.1 Research Method
This research is designed by using the descriptive analytical method which
part of qualitative research. Descriptive analytical method is explained as a method
that uses to describe facts and circumstances based on theories and concepts
(Silalahi 199:100) Moreover, this research uses library and internet research to
analyze collected data that include legal documents such as agreements and panel
report, official websites, and etc. Therefore, this method helps the researcher to
accomplish this research.
I.7.2 Research Time and Place
The researcher started in the first week of October 2017 up to March 2018.
It started by collecting necessary data and reliable information from various sources
related to the issue that will be discussed in this thesis. Besides collecting data from
the internet, the researcher conducted literature study during the process of thesis
writing. Moreover, the venue of this research has taken place in various areas such
as government institution (Ali Alatas Library at the Ministry of Foreign Affairs of
the Republic of Indonesia), and and many other libraries. Here is the detail
information of the research venue:
1. Ali Alatas Library
Adress: Jl. Taman Pejambon No.6 Jakarta Pusat, 10110 Indonesia
2. Adam Kurniawan Library
Address: Jl. Ki Hajar Dewantara, Jababeka Education Park, Cikarang, West
Java 17550, Indonesia
3. Freedom Institute Public Library
Address: Jl. HR. Rasuna Said Kav. B-1 Kuningan South Jakarta
4. Indonesian National Library
Address: Jl. Medan Merdeka Selatan No.11 Central Jakarta 10110
18
5. University of Indonesia Central Library
Adress: Jl. Pondok Cina, Beji, Depok City, West Java 16424
In addition, the authors collected some of information derived from the
internet. The author considered internet as an important media to enlarge, enrich
knowledge and insight. Some publications, including Panel reports, news from
reliable sources, journals, books, and others can be accessed online which the
researcher realized it will surely ease during the writing process of this thesis
research.
I.7.3 Research Framework
19
I.7.4 Research Instruments
The collected data in this research is divided into two categories, such as
Primary Data and Secondary Data.
Primary Data
The Primary data including as:
Official Document from the Panel Report of the WTO.
World Trade
Organization
South Korea Anti-
Dumping Allegation
against Indonesia
The WTO
Dispute
Settlement Body
Dispute
Settlement
Mechanism
The Dumping
Allegation by South
Korea on certain
paper from
Indonesia can be
resolved in the DSB
20
Some Agreements related to the topic of this research, such as WTO
Agreements; Agreement Establishing the World Trade Organization,
Agreement on Implementation of Article VI of the General Agreement on
Tariffs and Trade 1994, Understanding on Rules and Procedures Governing
the Settlement of Disputes.
Secondary Data
In addition to support this research, secondary data is needed. Therefore, the
secondary data in this research including literatures, books, journals, news, and etc.
Data Collection Method
There are several methods that used by the writer to obtain the data collection, there
are:
Observation Method is a data collection method in which the writer
observed some collected data and found the title of this research during her
internship period on May-November 2017 at the Directorate General of
American and European Affairs, Directorate of Europe I, Ministry of
Foreign Affairs of Republic of Indonesia. Ever since the researcher started
the internship period, the on-site supervisor at work gave the researcher
chance to do a research on the issue on this thesis.
Internet method is a data collection method with the internet usages. Most
of the data such as journals and updated news about related topic are
collected using the internet. The official documents from the related
organization can be found in the internet in which can be found on the
official website.
I.8 Literature Review
This chapter will consist seven literatures that is being reviewed by the
researcher in order to give a deep understanding toward the topic taken. A literature
review is important for a research because it gives a picture on how the research
has conducted from the previous research that has been made. Literature review
could become the basic understanding for the researcher to gain more knowledge
and build a comprehensive discussion toward the topic that is being researched. In
21
this research, the researcher will review several books and journals related to the
discussion on this thesis. It is expected to open up and to enlarge the understanding
regarding the topic and the whole discussion that the researcher will focus on. There
are several literatures that used in this thesis, as follow:
GATT and WTO: System, Forum and International Institutions in the Field
of Trade (GATT dan WTO: Sistem, Forum dan Lembaga Internasional di
Bidang Perdagangan) written by H. S. Kartadjoemena. Published by UI-
Press in 1996.
Dispute Settlement in the World Trade Organization: Practice and
Procedure written by David Palmeter and Petros C. Mavroidis. Second
Edition. Published by Cambridge University Press in 2004.
The Substance of the GATT/WTO and The Dispute Settlement Mechanism:
System, Institutional, Implementation Procedures, and Developing Country
Interests
(Substansi Perjanjian GATT/WTO dan Mekanisme Penyelesaian Sengketa:
Sistem, Kelembagaan, Prosedur Implementasi, dan Kepentingan Negara
Berkembang) written by H. S. Kartadjoemena. Published by UI-Press in
2000.
Positions, Challenges and Prospects for Indonesia in the WTO Dispute
Settlement System (Posisi, Tantangan dan Prospek bagi Indonesia dalam
Sistem Penyelesaian Sengketa WTO) written by Dyan F. D. Sitanggang.
Vol.3/No.1. 92.
The Inter-State Dispute Settlement Mechanism (Mekanisme Penyelesaian
Sengketa Dumping Antar Negara) written by Muhajir La Djanudin.
Vol.I/No.2/April-Jun/2013.
The Analysis of the WTO Dispute Settlement System: A Formal Juridical
Review
(Analisis tentang Sistem Penyelesaian Sengketa WTO: Suatu Tinjauan
Yuridis Formal) written by Maslihati Nur Hidayati published by Lex
Jurnalica. Vol. 11/No.2/2014.
22
Dispute Settlement Body-WTO in the Settlement of International Trade
Disputes
(Dispute Settlement Body-WTO dalam penyelesaian Sengketa Perdagangan
Internasional) written by Ade Maman Suherman. Published by Journal of
Law and Development Year 42 No.1 January-March 2012 (Jurnal Hukum
dan Pembangunan Tahun Ke-42 No.1 Januari-Maret 2012).
I.8.1 Book Review
1) GATT and WTO: System, Forum and International Institutions in the Field
of Trade (GATT dan WTO: Sistem, Forum dan Lembaga Internasional di
Bidang Perdagangan) written by H. S. Kartadjoemena. Published by UI-
Press in 1996.45
In order to gain a good understanding of GATT and WTO as an international
organization in the field of trade, the researcher reviewed a book written by H.S.
Kartadjoemena entitled, "GATT and WTO: System, Forum and International
Institutions in the Field of Trade". The book was published by the UI-Press in
1996. This book has explained the WTO's substitution that replaced GATT as
an international organization in the field of trade as the result of the end of
Uruguay Round negotiations in 1994. It also explained a rule in the WTO dispute
settlement field established in April 1994 known as the Understanding on Rules
of Procedures Governing the Settlement of Disputes (DSU). This book explains
that the DSU is in Annex 2 (Appendix 2) of the 1994 Agreement Establishing
the World Trade Organization which is an integral part of the WTO Agreement.
Furthermore, the author has mentioned in case there is any dispute or
violation towards related obligations or rights, the WTO is ready as a system to
provide a formal forum to resolve the dispute. Kartadjoemena points out the
dispute settlement system in the WTO is one of the key elements in the WTO. It
can be seen from the second part of the book discussing the WTO as a dispute
settlement forum. In this section we can see a scheme describing the system and
45 Kartadjoemena, H. S. (2002). GATT dan WTO Sistem, Forum, dan Lembaga Internasional di
Bidang Perdagangan. Jakarta: UI-Press.
23
procedures for dispute settlement of WTO which is sourced from WTO
Secretariat. This book describes the dispute settlement scheme of the WTO
starting from the consultation phase requested by a member country. If there is
no decision yet within the 60 days, the member country may request to be formed
a Panel by the DSB of the WTO.
The author explained after the Panel established, the Panel will handle
issues with disputing parties and third parties. Furthermore, the Panel submits
its Report to the DSB. DSB will monitors the implementation of the Panel
Decision and Appellate Body. The last stage if there is no settlement, the dispute
can be solved through the implementation of compensation or retaliation in
which both depend on the state party who sued. Moreover, this book discussed
about several bodies in the WTO dispute settlement mechanism, including
Dispute Settlement Body, Panel and Appellate Body. The author puts the WTO
structure in which the highest position is held by the Ministerial Conference in
charge of the Trade Policy Review Body, General Council and Dispute
Settlement Body. The author outlines three types of General Council of the WTO:
The Council for Trade in Goods, The Council for Trade in Services, and The
Council for Trade-Related Aspects of Intellectual Property Rights.
2) Dispute Settlement in the World Trade Organization: Practice and
Procedure written by David Palmeter and Petros C. Mavroidis. Second
Edition. Published by Cambridge University Press in 2004.46
A book entitled "Dispute Settlement in the World Trade Organization:
Practice and Procedure" by David Palmeter and Petros C. Mavroidis published
by Cambridge University Press in 2004 discussing the settlement of the WTO
dispute and the applicable provisions in accordance with the WTO jurisprudence.
This book is comprehensive in its Annex including the Agreement text and other
relevant terms of the WTO Agreement on the dispute settlement.
46 Palmeter, D., & Mavroidis, P. C. (2004). Dispute Settlement in the World Trade Organization:
Practice and Procedure (2nd ed.). UK: Cambridge University Press.
24
In the first chapter of this book, there are explanations of the differences
between GATT and WTO in the WTO Agreements who serves as the substance
of the organization. There is a significant difference that can be seen in the
Annex that is related to this research, which is on Annex IA Agreement number
7, which is the Agreement on Implementation of Article VI of the General
Agreement on Tariffs and Trade 1994 or known as Antidumping Agreement
(ADA). This book also explained about the DSB of the WTO. DSB was
established after the Uruguay Round ended to deal with the disputes arise under
any of the WTO agreements, it should be subject to the provisions of the DSU.
The author also explains that the DSU sets out the basic institutional and
jurisdictional scope of the WTO dispute settlement.
In the chapter IV of this book, there is an explanation of good offices,
conciliation, mediation, request for the establishment of a panel and a terms of
reference and third parties. This chapter also describes the WTO Dispute
Settlement Flow Chart which contains the dispute settlement phase in the WTO
and its time description. It explained that on the first step of dispute settlement
is consultation where members may request panel if no solution found within 60
days. Moreover, this book explained about the dispute settlement process in the
WTO DSB from forming the Panel to the determination of compensation or
retaliation if the defendant party did not implement the DSB WTO's decision.
The author attempted to give an overview of the dispute settlement period at the
DSB of the WTO which turned out to be time consuming even though the Panel's
recommendations have been adopted by the DSB of the WTO.
3) The Substance of the GATT/WTO and The Dispute Settlement Mechanism:
System, Institutional, Implementation Procedures, and Developing Country
Interests
(Substansi Perjanjian GATT/WTO dan Mekanisme Penyelesaian Sengketa:
Sistem, Kelembagaan, Prosedur Implementasi, dan Kepentingan Negara
25
Berkembang) written by H. S. Kartadjoemena. Published by UI-Press in
2000.47
This book describes the dispute settlement mechanism that has evolved in
the WTO system since GATT was established in 1947. The author of the book
seeks to present the complete substance material of the WTO dispute settlement
system which contains a detailed explanation of the procedure. This book also
explains the rules and principles set forth in the WTO Agreement where the
WTO Agreement is a contract for WTO member countries. In this book the
author discusses the technical aspects relating to the rules of the game applicable
in the WTO system and dispute settlement mechanisms when disputes arise
between member states.
In the chapter 3 of this book discusses the WTO General Agreement as the
basis of the GATT system which includes the anti-dumping agreement. In this
book it can be seen that although GATT has changed its name into WTO, yet
the GATT agreement agreed in 1947 is still relevant for the WTO as the
successor institution of GATT. This book also explains the basic principles
adopted in the WTO.
Moreover, in the chapter 10 of this book explains the dispute settlement
system by describing step by step in order to make readers understand. The
author attempted to give an understanding in resolving the dispute in the WTO
by explaining the processes through which the disputing party passes. In addition,
this book also explains that DSB can receive Panel reports automatically if there
is a consensus that rejects it.
I.8.2 Journal Review
1) Positions, Challenges and Prospects for Indonesia in the WTO Dispute
Settlement System (Posisi, Tantangan dan Prospek bagi Indonesia dalam
47 Kartadjoemena, H. S. (2000). Substansi Perjanjian GATT/WTO dan Mekanisme Penyelesaian
Sengketa: Sistem, Kelembagaan, Prosedur Implementasi, dan Kepentingan Negara Berkembang.
Jakarta: UI-Press.
26
Sistem Penyelesaian Sengketa WTO) written by Dyan F. D. Sitanggang.
Vol.3/No.1. 92.48
In this journal, there is a discussion regarding the implementation of dispute
settlement within the framework of WTO. It is involving Indonesia as its
member country, either as a complainant or a respondent. The journal discusses
some of the WTO dispute cases involving Indonesia, including the case of
certain paper where Indonesia was a complainant representing local companies
against the Korea Trade Commission (KTC). In addition, there is also a
description of the positions, challenges and prospects for Indonesia in every
cases that Indonesia has ever faced in the WTO. In the general overview, this
journal explains the systematics of dispute settlement through the DSB of the
WTO. It explained about the procedures and steps that need to be taken in
resolving a trade dispute in the WTO.
Furthermore, the author of the book reviewed the Korea-Certain Paper
involving Indonesia and South Korea in the WTO dispute settlement system in
which Indonesia is the main complainant. In this section, it can be seen that
South Korea accused Indonesia conducting a dumping action and resulted
Indonesian local companies had to pay an anti-dumping duties. This journal also
explained about the Panel's Report issued in 2005 stated that the KTC acted
inconsistently with the articles of the WTO Agreement, such as Article 6.8 ADA
and paragraph 7 of Annex II. The journal explains that the case was won by
Indonesia and the Panel recommends South Korea to revise its rules and re-
calculate its anti-dumping duties imposed on imports of certain paper products
from Indonesia.
Moreover, the author argues the Korea-Certain Paper case involving
Indonesia and South Korea is a 'government-to-government' matter as
Indonesian government facilitated Indonesian local companies to reach their
interests. The journal further explains that South Korea delayed the Panel's
recommendation nearly three years before finally implemented. The journal also
48 Sitanggang, D. F. (n.d.). Posisi, Tantangan dan Prospek bagi Indonesia dalam Sistem
Penyelesaian Sengketa WTO, 3(1). Retrieved from
journal.unpar.ac.id/index.php/veritas/article/download/2526/2216
27
explains that the case was dismissed in 2010 as KTC has terminated the
imposition of anti-dumping duties on uncoated writing and printing paper
products from Indonesia.
2) The Inter-State Dispute Settlement Mechanism (Mekanisme Penyelesaian
Sengketa Dumping Antar Negara) written by Muhajir La Djanudin.
Vol.I/No.2/April-Jun/2013.49
The practice of dumping between countries has stimulated Muhajir La
Djanudin to include WTO Dispute Settlement Mechanism in his paper work
published in Lex Administratum in 2013. In the beginning of this journal talks
about dumping as classified as a fraudulent act in international trade. The
discussion in the journal is in accordance with the discussion of this research. In
this journal, there are few discussions on dumping arrangements in international
trade and dispute settlement mechanism between countries. Apart from that, in
the arrangement of the dumping dispute settlement between countries is quite
taking time due to many phases of dispute settlement that must be pass.
Furthermore, the journal has discussed about the efforts of Indonesia as a
member of WTO to use DSB to resolve anti-dumping dispute either as a
complainant, defendant, or as a third party. The author has also mentioned about
the support of several institutions that play an active role in advocating and
supervising Indonesian products in the international market.
In the suggestion part, the author mentioned several points, including the
need for a rule to reinforce the Panel's decision thus the defeated country in DSB
can implement the Panel's decision immediately.
3) The Analysis of the WTO Dispute Settlement System: A Formal Juridical
Review
49 Djanudin, M. L. (2013). Mekanisme Penyelesaian Sengketa Dumping Antar Negara. Retrieved
from https://ejournal.unsrat.ac.id/index.php/administratum/article/download/3022/2567
28
(Analisis tentang Sistem Penyelesaian Sengketa WTO: Suatu Tinjauan
Yuridis Formal) written by Maslihati Nur Hidayati published by Lex
Jurnalica. Vol. 11/No.2/2014.50
In supporting this research, the journal from Lex Jurnalica entitled "The
Analysis of the WTO Dispute Settlement System: A Formal Juridical Review"
by Maslihati Nur Hidayanti has revealed some interesting points on the specific
arrangements on the WTO Dispute Settlement system. As the introduction of
this journal the author mentioned about the role of the WTO as a legal dispute
settlement forum for its member states. Moreover, the author started to
questioning the special and differential treatment of developing countries in the
WTO settlement system and the arrangements that the WTO dispute settlement
system should have. Apart from that, specific provisions for developing
countries in relation to the consultation process and the panels are listed in this
journal.
Continued, in the discussion part of this journal the author analyzes the
specific provisions in the implementation of the decision of the Dispute
Settlement Body. The author also explains the differences between the GATT
and WTO dispute settlement systems in which the WTO dispute resolution
system is summarized as a whole in Dispute Settlement Understanding (DSU).
In detail, this journal explained the provisions that the WTO should have such
as the shorter time for each phase of the dispute settlement system, the need for
effective implementation of DSB decisions, the need for special arrangements
on the retaliation mechanism within the DSU and the need for special
arrangements in enhancing the function and role of DSB at every stage of the
dispute resolution process, especially in the implementation of DSB
recommendations.
In the conclusion part of this journal, the author suggests that WTO as an
international trade organization needs to review the time period spent in each
50 Hidayati, M. N. (2014). Analisis Tentang Sistem Penyelesaian Sengketa WTO: Suatu Tinjauan
Yuridis Formal, 11(2). Retrieved from
http://ejurnal.esaunggul.ac.id/index.php/Lex/article/view/983/911
29
WTO dispute resolution phases. This time period review conducted in order to
create an increasingly effective system in international trade dispute settlement.
4) Dispute Settlement Body-WTO in the Settlement of International Trade
Disputes
(Dispute Settlement Body - WTO dalam penyelesaian Sengketa
Perdagangan Internasional) written by Ade Maman Suherman. Published
by Journal of Law and Development Year 42 No.1 January-March 2012.51
This journal discusses about the settlement of international trade disputes in
the WTO conducted by the Dispute Settlement Body. The author of this journal
focuses on the prevailing procedure of dispute settlement mechanisms through
the DSB of the WTO. The author also describes the involvement of developed
and developing countries in the international trade dispute settlement and the
role of DSB WTO in a dispute settlement.
Researcher found this paper is quite interesting to be discussed because it
describes mandate obtained by the DSB from its member states to resolve a
dispute, as well as the stages in the dispute settlement in the DSB WTO.
Moreover, this paper explains the case of Korean-Certain Paper between
Indonesia and South Korea, which is the case study of this research. It is stated
in this paper that the DSB has adopted Panel reports through the Korean-Certain
Paper Panel Report. The writer points out that Korea has several other cases as
a defendant country that violates the WTO provisions. Suherman attempted to
give an understanding on the case of Korean-Certain Paper by creating a table
of Indonesian trade dispute versus Korea complete with its stages and agenda.
Moreover, Suherman stated in the suggestion part that DSB should pay more
attention to developing countries and require the existence of a simple and quick
dispute settlement mechanism in solving cases. He added that it is necessary to
conduct a socialization towards the decision of DSB WTO so that all business
51 Suherman, A. M. (2012). DISPUTE SETTLEMENT BODY-WTO DALAM PENYELESAIAN
SENGKETA PERDAGANGAN INTERNASIONAL, 42(1). Retrieved from
http://jhp.ui.ac.id/index.php/home/article/view/141/79
30
actors, both SOEs (State-Owned Enterprise), private and other industries, know
and comply with the decision of the DSB Panel of WTO.
I.9 Scope and Limitation of the Study
The research will significantly focus on the implementation of WTO
Dispute Settlement Body in the trade dispute settlement in the case of Korea-Anti
Dumping Duties on imports of certain paper from Indonesia within the year 2002-
2010. The main objects for the research is concerned on the implementation of
Dispute Settlement Body of WTO in resolving such trade disputes against South
Korea.
I.10 Definition of Terms
Dumping is an unfair trade practice for importing countries where it could
endanger the domestic industry of the importing country due to the large number of
goods being sold at a cheaper price compare to domestic goods.52 It is causing a
tough process to domestic goods to be able compete with. Dumping can be defined
as price discrimination actions by producers in marketing products between
domestic and foreign markets. Dumping is a pricing practice whereby firms charge
lower prices on exported goods than the same items sold in the domestic market.53
Such dumping practices including fraudulent acts in international trade can damage
market mechanisms. It is due to the products that being sold in export markets are
much cheaper than the products sold in domestic country. Dumping is an exporting
act that sells goods to another country at a lower price than the normal price of the
same goods in the domestic market.54
Diplomacy is an art of negotiating practice of a country among
representatives of groups or countries to achieve its each national interests.
Conceptually, diplomacy can be understood as a technique of enforcing power to
52 Seyoum, B. (2009). Export-import theory, practices, and procedures (2nd ed., p. 447). New
York: Routledge. 53 Rinaldy, E. (2006). Kamus perdagangan internasional. Jakarta: Indonesia Legal Center
Publishing for Law and Justice Reform. 54 Article 2.1 Agreement on Implementation of Article VI of GATT 1994.
31
achieve overseas interests. 55 Diplomacy can also be defined as an activity to
execute a country's foreign policy in relation to other countries. According to
Berridge, Diplomacy is the conduct of international relations by negotiation rather
than by force, propaganda, or recourse of law, and by other peaceful means such as
gathering information or engendering goodwill which are either directly or
indirectly designed to promote negotiation.56 Diplomacy serves to win the hearts of
men, change opposing views and attitudes, until each party is willing to accept the
common decision. Diplomacy directs countries and nations to uphold mutual
respect, coexist peacefully, create a solid world with cooperation and complete it
with justice.
National Interest is an interaction by the state to meet the country needs
that need to be achieved by using power as a form of its embodiment. According to
Hans J Morgenthau, national interest is the state's ability to protect and preserve the
physical, political, and cultural identity of other nations.57 Morgenthau argued the
national interest is the same as the state's pursuit of power, where power is anything
that can develop and nurture control of a country against another country.58
Protectionism is a type of policy that limits the unfair competition from
foreign industries. 59 Protectionism is a country's attempt to protect their trades.
Protection may be implemented in numerous ways such as by enacting tariffs,
quotas, regulatory barriers, subsidies and exchange controls. Tariffs on imports of
taxes imposed on goods entering the country from abroad are the most common
form of protection for domestic producers.
Recommendations are the conclusions that should be incurred when there
is a discovery of inconsistency with the WTO Agreement thus the inconsistent state
should adjusts its action to the WTO Agreement.60
55 Plano, Jack C. Political Science Dictionary, Op.Cit.,p.201. 56 Berridge, G. (2016). Diplomacy: Theory and Practice. London: Palgrave Macmillan. 57 Morgenthau, H. J., & Thompson, K. W. (2014). Politics among nations: The struggle for power
and peace. New Delhi: Kalyani Publishers. 58 Ibid. 59 Amadeo, K. (2010, June 24). Why Protectionism Feels So Good, But Is So Wrong. Retrieved
from https://www.thebalance.com/what-is-trade-protectionism-3305896 60 Article 19:1 of the DSU.
32
Retaliation is an act to retaliate in the field of inter-state trade within the
framework of WTO conducted by a country as a result of the failure to reach an
agreement in the process of dispute settlement. In other words, retaliation is the last
attempt that can be made in a dispute resolution if the effort to fulfill the concession
can not be reached within the specified time frame. In practice in the WTO,
retaliation is rarely done where only a few countries dare to do so.61
Tariff is a charge imposed on goods transported from a political power to
another territory. This duty is especially on goods imported from one political
territory to another, or the rate of tax imposed on the goods.62
Comparative advantage is a situation when a country is able to produce
goods or services at a lower cost than any other country. 63 A country with a
comparative advantage makes trade worth doing.
Negotiation is a way of dispute settlement conducted by the disputing
parties which can be done in a way through diplomatic channels.64 Negotiation is
an attempt to find a solution towards a problem. In the way of negotiation, related
parties try to combine the different positions into a mutually agreed results.
I.11 Thesis Structure
I.11.1 Chapter I
Chapter I consists of background of study, problem identification, statement of
the problem, objective of the research, significance of the study, theoretical
framework, research methodology, research method, research time and place,
research framework, literature review, scope and limitation of the study, definition
of terms, and thesis structure. The purpose of this chapter is aimed to give a glance
towards the main discussion on the research. This chapter also provide the details
61 Hardjanti, D. K. (2013). Retaliasi World Trade Organization (WTO) Sebagai Bentuk
Perlindungan Hukum dalam Ranah Perdagangan Internasional (Master's thesis, Gadjah Mada
University, Yogyakarta, Indonesia). Retrieved from
http://etd.repository.ugm.ac.id/index.php?mod=penelitian_detail&sub=PenelitianDetail&act=view
&typ=html&buku_id=63615 62 Rinaldy, E. (2006). Kamus perdagangan internasional. Jakarta: Indonesia Legal Center
Publishing for Law and Justice Reform. 63 Amadeo, K. (2006, October 11). What Really Makes One Country Better Than Another?.
Retrieved from https://www.thebalance.com/comparative-advantage-3305915 64 Suwardi, S. S. (2006). Penyelesaian Sengketa Internasional (p. 7). Jakarta: UI-Press.
33
explanation on how the research is conducted and how the methodology is related
to the topic that is being investigated. The researcher desires by reading this chapter,
the readers could find out what topic is being discuss and why it should be discussed
for further details. This chapter will help the reader to have a slightly understanding
on the topic taken.
I.11.2 Chapter II
This chapter covers South Korea's dumping allegations against Indonesian
paper products consisting of general overview of foreign trade between Indonesia
and South Korea, bilateral relations between Indonesia and South Korea in politics
and economics, Indonesian and South Korean government policies on paper
industry, disputed background, Indonesian and South Korean arguments over
disputes, dispute settlement between Indonesia and South Korea and the dispute
barriers.
I.11.3 Chapter III
In the Chapter III, the researcher will discuss the WTO and its dispute
settlement mechanism comprising the WTO's history, objectives, functions and
benefits of WTO, the vision and mission of the WTO, the structure of the WTO and
the decision making process, the code of conduct, the multilateral trading system
of the WTO, WTO Agreements, Indonesia and South Korea membership in the
WTO, Indonesia and South Korea at the DSB, the dispute settlement mechanisms
of the WTO and the settlement of trade dispute in the WTO. This chapter also
explores the DSB of the WTO and the dispute settlement procedures at the WTO.
I.11.4 Chapter IV
Chapter IV will explain the dispute settlement mechanism of South Korean
dumping allegations on imports of certain paper products from Indonesia, dispute
settlement process between Indonesia and South Korea from 2002-2010, dispute
settlement results, recommendations of the Panel DSB, binding power of
34
recommendation of the panel DSB and the implementation of the recommendation
of Panel DSB.
I.11.5. Chapter V
Chapter V will contain the conclusions of the research that can answer the
research problem with the theoretical framework as one of the foundations. This
chapter is the conclusion of the whole thesis. This chapter will wrap up all-
important part of this thesis and provides recommendation at the end of this chapter.
The researcher hopes through this research could give a better understanding about
the case, which is the implementation of WTO Dispute Settlement Body in the case
of Korea—Anti-Dumping Duties on imports of certain paper from Indonesia.
Hopefully this research could be future suggestion for the better development.
35
CHAPTER II
SOUTH KOREAN DUMPING ALLEGATIONS
ON IMPORTS OF CERTAIN PAPER FROM
INDONESIA
II.1 General Overview on Foreign Trade of Indonesia and South
Korea
Foreign trade or international trade is a trade conducted by a country with
another country on the basis of mutual agreement to achieve the national interest of
each country. International trade is one of the main factors to increase GDP. 65
Foreign trade activities consist of export and import activities. According to the
Directorate General of Customs and Excises of the Ministry of Finance of the
Republic of Indonesia, exports are activities of issuing goods or commodities out
of customs area in accordance with Customs Law.66 Meanwhile, imports are the
reverse process which is entering goods or commodities from other countries into
customs areas.67 The customs area is a territory which consists of land, water, and
airspace above it, as well as certain places in the Exclusive Economic Zone and
Continental Shelf in which the Customs Law applies.68
Foreign trade is an important aspect in the economy of every country in the
world. With foreign trade, economic relations will be closely intertwined when the
two countries cooperate, especially in the field of export of imports. It also applies
to foreign trade between Indonesia and South Korea. Foreign trade of Indonesia and
South Korea are in complementary position. South Korea needs Indonesia as a
supplier of resources to produce goods and the market share of Indonesia is quite
65 Riedel, J. (1983). Trade as the engine of growth in developing countries: A reappraisal.
Retrieved from
http://documents.worldbank.org/curated/en/543471468766193053/pdf/multi0page.pdf 66 Official Website Direktorat Jenderal Bea dan Cukai. (n.d.). Retrieved from
http://www.beacukai.go.id/index.html?page=faq/ekspor.html 67 Ibid. 68 Hutabarat, R. (1996). Transaksi ekspor impor (p. 6). Jakarta: Penerbit Erlangga.
36
large. Meanwhile, Indonesia needs advance technology and capital investment
products from South Korea.
II.1.1 General Overview on Foreign Trade Indonesia
Foreign Trade Indonesia has changed since the 1980s, where in the past
Indonesian export was focused on oil. However, Indonesian export began to be
dominated by non-oil and gas commodities in 1987.69 It was happened due to the
decreasing oil and gas prices which reached the lowest point in the 1980s. 70
Therefore, the Indonesian government issued a series of policies and deregulation
towards export sector, including export tax exemption for various commodities.
Thus, it was allowing the producers to increase the amount of non-oil exports. The
policy and deregulation in the export sector has an impact on the development of
non-oil and gas export commodities. Hence, the dominant commodity for
Indonesian export development is still on non-oil and gas commodities until 2015.71
The following table is Indonesian export growth in 2010-2013:
Table 2.1
The Development of Indonesian Export in 2010-2013
Commodities 2010 2011 2012 Quarter I-
2012
Quarter I-
2013
Export Value
(Million USD)
157.779,1 203.496,6 190.031,8 48.517,0 45.394,5
Oil and Gas 28.039,6 41.477,0 36.977,2 9.984,2 8.121,0
Crude Oil 10.402,9 13.828,7 12.293,4 3.338,6 2.399,0
Gas 13.669,4 22.871,5 20.520,5 5.451,4 4.657,2
Non Oil and Gas 129.739,5 162.019,6 153.054,6 38.532,8 37.273,5
69 Badan Pusat Statistik. (2015, September 17). Retrieved from
https://www.bps.go.id/dynamictable/2015/09/17/897/nilai-ekspor-migas-dan-non-migas-
indonesia-juta-us-1975-2015.html 70Sejarah Bank Indonesia: Perbankan Periode 1983-1997. (n.d.). Retrieved from
http://www.bi.go.id/id/tentang-bi/museum/sejarah-
bi/bi/Documents/25d8c7b0fbbe4d27bf24497e5a0f3dfaSejarahPerbankanPeriode19831997.pdf 71 Badan Pusat Statistik. (2015, September 17). Retrieved from
https://www.bps.go.id/dynamictable/2015/09/17/897/nilai-ekspor-migas-dan-non-migas-
indonesia-juta-us-1975-2015.html
37
Agriculture 5.001,9 5.165,8 5.569,2 1.243,8 1.227,7
Industry 98.015,1 112.188,7 116.136,7 29.121,9 28.263,0
Mining 26.722,5 34.665,1 31.348,7 8.163,1 7.782,8
Export Growth
(%)
35,4% 29,0% -6,6% 6,9% -6,4%
Source: Central Bureau of Statistics72
According to the data from Central Bureau of Statistics in 2011 there has
been a shift in Indonesia's export commodity, both export destination country and
types of export commodities. The dominating exports were oil and gas but currently
it has switched into the non-oil and gas. It is about 80% of Indonesia's exports are
non-oil and gas. For the destination countries also changed which in the early 2000s
about 60% of Indonesia's export destination countries dominated by developed
countries such as America and European countries.73 But now is about 70% move
to developing countries, including Asia which now is becoming the center of world
economic growth.74 There are 9 export destinations of Indonesia which were ranked
according to their current export values, such as China, Japan, USA, India,
Singapore, Malaysia, South Korea, Thailand, and Taiwan.75
Nevertheless, export performance shows a remarkable boost for Indonesia,
as in 2010, exports stood at US$ 157.7 billion, far surpassing exports in 2009 of
US$ 116.5 billion.76 It means there is an increase of more than 35% which could be
said a quite high increment. However, the growth surge in 2010 was inseparable
from the relatively low exports in 2009 because in the year there was a global
financial crisis. But the 2010 export increase is not only due to the decline in the
export performance in 2009, as in the previous year, in 2008, Indonesia's exports
72 Kementerian Perencanaan Pembangunan Nasional/Bappenas. (n.d.). Perkembangan Ekspor.
In Laporan Triwulan I Deputi Ekonomi Bappenas (p. 43). Retrieved from
https://www.bappenas.go.id/files/5313/8078/7636/Laporan_Triwulan_I_Tahun_2013_Deputi_Eko
nomi_Bappenas.pdf 73 Ibid. 74 Ibid. 75 Komoditi Utama Ekspor Indonesia dan Komoditi Alternatif. (n.d.). Retrieved from
eksporimpor.co/news-update/komoditi-utama-ekspor-Indonesia-dan-komoditi-alternatif.html 76 Suheri, Rakhmawan, S., Nofrida, F., Eschachasthi, R., & Nurlina, L. (n.d.). Analisa Komoditi
Ekspor 2004-2010 Sektor Pertanian, Industri dan Pertambangan. Jakarta: Badan Pusat Statistik.
38
increased sharply accounted US$ 137 billion.77 The increase also occurred in 2011
which recorded US$ 203.5 billion, a considerable increase from the previous year.
Nonetheless, Indonesia also experienced an export decline in 2012 of US$ 190
billion. Based on the details of Indonesian export growth above, it can be seen that
foreign trade is one of the economic strengths behind the current Indonesian
economy. According to Boediono, there are 15 Indonesian natural resources are
exported abroad such as palm oil, rubber, cocoa, coffee, tea, pepper, nutmeg,
tobacco, fish, shrimp, coal, steel and tin.78
Here is the table of the development of Indonesian imports in 2010-2013:
Table 2.2
The Development of Indonesian Import in 2010-2013
Commodities 2010 2011 2012 Quarter
I-2012
Quarter
I-2013
Import Value 135.663,3 177.435,6 191.691,0 45.747,1 45.462,0
Consumer
Goods
9.991,6 13.392,9 13.408,6 3381,8 2834,8
Raw material 98.755,1 130.934,3 140.127,6 33196,5 34909,3
Oil and Gas 27.412,7 40.701,5 42.564,3 10.520,9 11.313,3
Gas 863,2 1.412,5 3.081,6 711,8 884,1
Non Oil and
Gas
108.250,6 136.734,1 149.126,7 35.226,2 34.148,7
Import
Growth
40,1% 30,8% 8,0% 17,9% -0,6%
Gas 76,5% 63,6% 118,2% 101,2% 24,2%
Non Oil and
Gas
39,0% 26,3% 9,1% 15,9% -3,1%
Source: Central Bureau of Statistics79
77 Ibid. 78 Boediono. (2001). Indonesia Menghadapi Ekonomi Global (p. 65). Yogyakarta: BPFE. 79 Kementerian Perencanaan Pembangunan Nasional/Bappenas. (n.d.). Perkembangan Impor.
In Laporan Triwulan I Deputi Ekonomi Bappenas (p. 47). Retrieved from
39
Meanwhile, in terms of imports, Indonesia is concerned more on non-oil
and gas groups, especially electronic goods such as televisions, radios, refrigerators,
mobile phones and others. In addition, it also imports automotive goods such as
cars, motorcycles, ships, and others. During the period of 2008-2011, Indonesia
imported a lot of non-oil and gas from the People's Republic of China which is one
of the most important trading partners for Indonesia.80 In the first quarter of 2013,
Indonesia's imports decreased compared to the same quarter in 2012, at -0.6%. The
import decline in the first quarter of 2013 was contributed by imports of consumer
goods and capital goods with decreases respectively of -16.2% and -15.8%. Based
on its sector, oil and gas imports grew by 7.5 percent contributed by gas growth of
24.2%, while non-oil and gas imports experienced negative growth of -3.1%.81
One of the industries that have an important role in Indonesia's foreign trade
is Pulp and Paper Industry. The importance of Pulp and paper industry can not be
separated from the conditions it has. Since now on, Indonesia's pulp and paper
industry has a comparative advantage compared to other countries. More excellence
relies on abundant sources of raw materials at relatively cheap prices and labor with
relatively low wage labor.82 In order to be able to support the development of paper
industry in Indonesia, it is also needed trade cooperation within local producers thus
it can compete in international market. The public's need for paper makes the pulp
and paper industry grow rapidly. At this time, the required paper is not only limited
to paper and print only, but has penetrated the style, shape and usage according to
the needs of people such as industrial paper, tissue paper, and so on.
https://www.bappenas.go.id/files/5313/8078/7636/Laporan_Triwulan_I_Tahun_2013_Deputi_Eko
nomi_Bappenas.pdf 80 Saputri, R. N. (n.d.). Perkembangan Impor Indonesia. Retrieved from
http://www.academia.edu/4979252/PERKEMBANGAN_IMPOR_INDONESIA 81 Kementerian Perencanaan Pembangunan Nasional/Bappenas. (n.d.). Perkembangan Impor.
In Laporan Triwulan I Deputi Ekonomi Bappenas (p. 47). Retrieved from
https://www.bappenas.go.id/files/5313/8078/7636/Laporan_Triwulan_I_Tahun_2013_Deputi_Eko
nomi_Bappenas.pdf 82 Bambang. (2010, November 23). Indonesia Berpotensi Tiga Besar Industri Pulp
Dunia. Antaranews.com [Jakarta]. Retrieved from
https://www.antaranews.com/berita/234618/indonesia-berpotensi-tiga-besar-industri-pulp-dunia
40
Geographically, Indonesia is located on the equator which is beneficial for
pulp and paper producers. Therefore, Indonesia has the potential to become the top
three of pulp and paper industry in the world.83 According to Muhammad Mansyur
as the Chairman of the Indonesian Pulp and Paper Association, Indonesia is ranked
11th in the world for the paper industry and the world's ninth for the pulp industry.84
He also stated that Indonesia has pulp capacity of eight million tons per year.85 It is
due to the tropical conditions and the geographical position of Indonesia that lies
on the equator. It caused Indonesia have a lot of lush forest which grow three times
faster than in a cold country.
II.1.2 The General Overview on South Korean Foreign Trade
For nearly three decades, South Korea has transformed from one of the
world's poorest countries with its GDP per capita was only $87 in 196286 become a
rich, technologically advanced, mature democracy with an exciting record of
innovation, economic reform and sound leadership.87 However, South Korea can
not be said as developed country yet, as the data attached by the Development
Policy and Analysis Division (DPAD) of the Department of Economic and Social
Affairs of the United Nations Secretariat (UN/DESA) in World Economic Situation
and Prospects 2014, South Korea or Republic of Korea categorized as developing
economies di East Asia.88
Meanwhile, based on the economy by GNI per capita in 2012 South Korea
is categorized as High-Income country.89 Even, the GDP per capita of South Korea
83 Ibid. 84 Ibid. 85 Ibid. 86 Kleiner, J. (2001). Economic Ideas Leading to the 21st Century. In Korea, a century of change
(p. 284). River Edge, NJ: World Scientific. 87 Noland, M. (2015, September 15). Six Markets to Watch: South Korea. Retrieved from
https://www.foreignaffairs.com/articles/south-korea/2013-12-06/six-markets-watch-south-korea 88 United Nations Development Policy and Analysis Division of the Department of Economic and
Social Affairs of the United Nations Secretariat. (2014). Country classification (p. 146). Retrieved
from
http://www.un.org/en/development/desa/policy/wesp/wesp_current/2014wesp_country_classificati
on.pdf 89 Ibid.
41
has reached US$11.000 in 1997.90 The development of South Korean foreign trade
described by the "Miracle of the Han River" which symbolizes the rapid economic
progress of South Korea started from 1960s to the 1990s.91 The "Miracle of the Han
River" is a phrase represented the period when South Korea embarked on the
transformation from one of the world's poorest nations into high income country as
it is today.92 The economic growth of South Korea began in 1964 with an increasing
GNP of 9% until in 1971, South Korea's export commodity reached $1.132 million
and manufacturing exports accounted for 86% of total export commodities. 93
However, South Korea's economy fell during the Asian crisis in 1997, which led
South Korea to become an IMF patient and was monitored by IMF until 2000. Yet
after the crisis, South Korea managed to increase its GDP by 10.9%.94
Ever since awakened from the nightmare, South Korea experienced rapid
economic growth. The growth is mostly in the industrialization sector. Another
driving factors are the rise of technology, urbanization, modernization and
globalization. The economic progress of South Korea can be seen from the total
trade in January-November 2014 of US$1.005,1 billion.95 The total trade comprises
South Korea's exports to the World from January to November 2014 of US $ 523.3
billion.96 The economic progress of South Korean can be an inspiration to other
Asian countries to expand its trade and industry. In the foreign trade, South Korea
focuses more on the relations with other Asian countries. It can be seen from the
exports, the amount of South Korean exports to China is bigger than to the United
States.
90 Kleiner, J. (2001). Economic Ideas Leading to the 21st Century. In Korea, a century of change.
Op.cit., p.285. 91 Parnini, S. N. (2011). The Role of Government in Economic Development: A Comparative
Study between Bangladesh and South Korea. Journal of Public Administration and
Governance, 1. 92 Kiprop, J. (2018, February 6). What Was "Miracle On The Han River?". Retrieved from
https://www.worldatlas.com/articles/what-was-miracle-on-the-han-river.html 93 Frank, C. R., Kim, K. S., & Westphal, L. E. (1975). Foreign Trade Regimes and Economic
Development: South Korea. National Bureau of Economic Research (NBER). 94 Tentang Korea Selatan. (n.d.). Retrieved from http://www.kbriseoul.kr/ 95 Kementerian Perdagangan Republik Indonesia. (2014). PERKEMBANGAN PERDAGANGAN
INDONESIA – KOREA SELATAN PERIODE : JANUARI – NOVEMBER 2014. Retrieved from
http://www.kemendag.go.id/files/pdf/2015/02/06/report-1423206898.pdf 96 Ibid.
42
In the early 1950s to 1960s South Korea concentrated only on the modest
manufacturing industry, whose strategy mimics an existing model on the market
but at a more affordable price.97 The next year, which was 1970, South Korea began
to build heavy industry, one of which was the machine industry.98 In the late 1980s,
Korea was the 9th largest steelmaker in the world with an advanced rapidly in the
mastery production technology for home electronics and semi-conductor
industries.99 Furthermore, in 1999 Korea began to concern with market demand for
wood, paper pulp and paperboard which has helped boost economic growth.100
South Korea's import market for paper products is focused on purchasing on raw
materials that will be used to produce paper products. This is due to the limited
natural resources owned by the South Korea.
II.2 Bilateral Relations between Indonesia and South Korea
II.2.1 Bilateral Cooperation between Indonesia and South Korea in
Politics
South Korea has diplomatic relations with more than 188 countries.101 South
Korea has also joined the United Nations since 1991.102 In addition, South Korea
has become ASEAN's strategic partner as a member of ASEAN+3 and is active in
other world economic forums such as G-20, APEC, and East Asia Summit. One of
the countries that become partners of South Korea is Indonesia. Diplomatic
relations between Indonesia and South Korea opened in 1973, while consular
relations opened 7 years earlier in 1966.103 During the time, there has been much
97 Yoon, Y. S., & Masoed, M. (2003). Politik Ekonomi Masyarakat Korea. In Sejarah
Berkembangnya Ekonomi Korea (p. 137). Yogyakarta: Gadjah Mada University Press. 98 Ibid., p.141. 99 Rosanti, E. (n.d.). KOREA MODERN Perkembangan Ekonomi Korea Selatan dari tahun
1960 hingga tahun 2010. Retrieved from https://www.academia.edu/23559418/KOREA_MODERN_Perkembangan_Ekonomi_Korea_
Selatan_dari_tahun_1960_hingga_tahun_2010 100 Yoon, Y. S., & Masoed, M., Op.cit.,p.142. 101 Diplomatic Relations and Treaties. (n.d.). Retrieved from
http://nationalatlas.ngii.go.kr/pages/page_631.php 102 United Nations. (n.d.). Member States | United Nations. Retrieved from http://www.un.org/en/member-states/#gotoR 103 Kedutaan Besar Republik Indonesia di Seoul. (n.d.). Hubungan Bilateral. Retrieved from https://www.kemlu.go.id/seoul/id/Pages/HUBUNGAN-BILATERAL.aspx
43
activity committed between two countries, not only diplomatic relations, but also
through cooperation in the flow of mutual benefit. One of the cooperation that was
done in 2006 was the signing of "Joint Declaration on Strategic Partnership to
Promote Friendship and Cooperation between Republic of Indonesia and the
Republic of Korea".104 In line with such strategic partnership, if the two countries
establish good cooperative relations, it will generate benefits for both countries.
One of them is South Korea can continue to innovate in technological and industrial
progress, human resources, and quality management. While Indonesia is a country
with abundant natural resources, large and strategic domestic market, political
stability, and low wages of labor.105
In addition, the bilateral relationship between Indonesia and South Korea is
strengthened with a condition of the two countries shared the same political system
of democracy so it was not a big deal to conduct such a cooperative relation. The
diplomatic stages between Indonesia and South Korea began from 1949 which was
the recognition of Indonesian independence, continued in 1966 where the relations
between Indonesia and South Korea intertwined in the consular level. In 1973 the
diplomatic relations at the level of ambassador began to be established. Based on
these stages, it can be seen that the two countries continue to work to improve the
relations and cooperation whether in bilateral, multilateral, or regional. The
closeness of bilateral relations and cooperation between the two countries can also
be seen through the intensity of the State visits. On 18-19 November 2005, there
was visit by President Susilo Bambang Yudhoyono to attend the APEC Economic
Leaders Meeting in Busan, Republic of Korea. Moreover, there was a State visit of
Indonesian President Susilo Bambang Yudhoyono to Seoul on 23-25 July 2007.106
Furthermore, there was a visit of Vice President of RI to attend South Korean
President Lee Myung-bak on 23-26 February 2008. In addition, there was the visit
of President Susilo Bambang Yudhoyono in attending the ASEAN-ROK
104 Ibid. 105 Investments, I. (2018, March 23). Ekonomi Indonesia - Pasar Berkembang Asia | Indonesia
Investments. Retrieved from https://www.indonesia-
investments.com/id/budaya/ekonomi/item177? 106 KBRI Seoul - Korea Selatan. (n.d.). Retrieved from
https://www.kemlu.go.id/seoul/lc/Pages/Korea-Selatan.aspx
44
Commemorative Summit in Jeju Islands, South Korea on June 1-2, 2009. 107
Conversely, there are several visits of President of South Korea to Indonesia such
as President Roh Moo-hyun's visit to Indonesia on 3-5 December 2006 and the visit
of South Korean President Lee Myung-bak to Indonesia on 6-8 March 2009.108
Another bilateral political cooperation is when the leaders of both countries,
both Indonesia and South Korea signed the Agreement on the Establishment of a
joint Committee on e-Government and bureaucratic reform.109 In addition, the
cooperation between Indonesia and South Korea on the increasing threat of action
across the State has affected the security and defense policies of each country by
placing it as a common security issue. For Indonesia, the threat of cross-border
security has been very detrimental to national interest so it became a priority to be
addressed, including in a cooperation with a number of friendly countries, one of
them is South Korea. The visit of South Korean President Lee Myung Bak resulted
in a number of cooperation in the form of Memorandum Of Understanding (MOU)
in the field of education, research, technology, forestry, and thereafter Letter Of
Intent (LOI) in the field of defense. Indonesia and South Korea have agreed on a
number of cooperation in various sectors such as the eradication of corruption,
terrorism and transnational crime as well as defense.
Indonesia in realizing its defense independence requested the transfer of
technology as it encourages the development of defense cooperation between
Indonesia and South Korea continuously. It was due to the limitation of Indonesia
to buy but now can make two warships type Strategic Sealift Vessel (SSV) which
is the result of technology transferred in the making of shipwreck type Landing
Platform Dock (LPD). 110 Furthermore, the exchange of intelligence and
cooperation information are needed in the fight against terrorism also build a mutual
agreement between Indonesia and South Korea. This agreement is important to
tackle the problem of terrorism.
107 Ibid. 108 Ibid. 109 Ibid. 110 Zul. (2015, January 23). Menangkan Pesanan Kapal Perang dari Filipina, RI Kalahkan Sang
'Guru'. Detikfinance [Jakarta]. Retrieved from
https://finance.detik.com/industri/2812019/menangkan-pesanan-kapal-perang-dari-filipina-ri-
kalahkan-sang-guru
45
II.2.2 Bilateral Cooperation between Indonesia and South Korea in
Economics
The bilateral cooperation between Indonesia and South Korea in the economic
field can be seen from the Joint Declaration on Strategic Partnership between RI
and South Korea to promote Friendship and Cooperation in the 21st Century
conducted by the leaders of both countries in Jakarta on December 4, 2006.111 The
Joint Declaration includes three pillars of cooperation, namely political and security
cooperation, economic cooperation, trade and investment, and socio-cultural
cooperation.112 Furthermore, Joint Task Force on Economic Cooperation (JTF-EC)
was established in 2007 to realize the pillar of economic cooperation, trade and
investment. The Indonesia-Korea JTF-EC is revitalized into a Working Level Task
Force Meeting (WLTFM) which meets twice a year to accommodate significant
developments in the economic cooperation of both countries. Besides that, there is
an establishment of the first Indonesia-South Korea Business and Energy Forum in
2007. It was held in Seoul to bring together business actors and policy makers in
the energy sector. The second meeting was held in Jakarta on October 15, 2008.
Based on these economic cooperation activities, it can be seen the commitment of
both countries to improve productive economic relationships and beneficial to both
countries.
Bilateral economic relationship between Indonesia and South Korea was further
tightened when the Coordinating Minister for the Economy Hatta Rajasa became
President Susilo Bambang Yudhoyono's special envoy during a visit to Seoul in
February 2011. On the occasion, the two countries discussed the development of
cooperation projects between Indonesian and South Korean companies, among
others the construction of Posco steel plant with Krakatau Steel.113 Apart from that,
during the event of ASEAN Summit and the East Asia Summit, Indonesia and
South Korea were discussed about South Korean participation in the bridge project
111 KBRI Seoul - HUBUNGAN BILATERAL. (n.d.). Retrieved from
https://www.kemlu.go.id/seoul/id/Pages/HUBUNGAN-BILATERAL.aspx 112 Ibid. 113 Secara Simultan, Hubungan Ekonomi Korea-Indonesia Semakin Erat. (2011, October
26). Detiknews [Seoul]. Retrieved from https://news.detik.com/advertorial-news-
block/1752694/secara-simultan-hubungan-ekonomi-korea-indonesia-semakin-erat
46
of South Sunda.114 South Korea also intends to develop Multiple Industries Cluster
in Kalimantan in the food manufacturing sector, minerals and ports. The
cooperation that led to South Korea's investment is in the Master Plan Project for
the Acceleration and Expansion of Indonesia's Economic Development (MP3EI)
continues to be matured by both parties through a series of technical negotiations.
One of them is the signing of nine Memorandum Of Understanding (MOU)
between the two countries in the continued Joint Task Force in Bali on May 18,
2011 which was attended by South Korean Economic Science Minister Choi Jung
Kyung.115
In 2010, the total trade between the two countries in January-May accounted to
US $9.31 billion. In 2011 the total trade in the same period of US $12.31 billion
increased by 32.26% when compared to 2010. In investment field, the interest of
South Korean investors in Indonesia is quite high as in 2015 in the period of January
to September it ranked fourth largest investor in Indonesia.116
II.3 Government Policy on Paper Industry
II.3.1 Indonesian Government Policy on Paper Industry
In order to increase the role of the pulp and paper industry to meet domestic
and export needs, the Indonesian government has adopted the following policies:
a. Investment Policy
The privileges granted are contained in the 23 May 1995 in Deregulation
Package which, among other things, is not prohibited to open new expansion
projects or investment projects for companies considered capable of managing
forest products for pulp and paper industries through the program of Industrial
114 Ade. (2011, May 19). Punya Pengalaman, Korsel Siap Bantu RI Bangun Jembatan Selat
Sunda. Detikfinance [Nusa Dua]. Retrieved from http://finance.detik.com/ekonomi-
bisnis/1642096/punya-pengalaman-korsel-siap-bantu-ri-bangun-jembatan-selat-sunda?f9911023= 115 Ibid. 116 Kementerian Luar Negeri Republik Indonesia. (n.d.). KBRI Seoul - Indonesia- Korea Selatan
Selenggarakan Joint Commission Meeting ke 2 untuk Lebih Perkokoh Kerjasama Bilateral.
Retrieved from https://www.kemlu.go.id/seoul/id/berita-agenda/berita-
perwakilan/Pages/Indonesia--Korea-Selatan-Selenggarakan-Joint-Commission-Meeting-ke-2-
untuk-Lebih-Perkokoh-Kerjasama-Bilateral.aspx
47
Plantation.117 The investment opportunity is open for both domestic and foreign
investors. With this policy, the interest of domestic and overseas investors to invest
is increasing, including for business expansion. Based on the Deregulation Package
on 23 May1995, the government has completed industrial agreements covering the
types of licenses and the ease of obtaining business licenses and industrial
expansion.118 In that provision, industries that carry out production processes that
is not endanger the environment and do not use excessive natural resources will be
given a business license without any principal agreement. This is applied especially
for pulp, Indonesian government requires investors to pay attention to the
preservation of raw material supply and environmental awareness, by making non-
hazardous production processes and incorporating industrial timber plantation
programs.
Furthermore, Indonesian government also provides convenience through
incentives for restructuring companies. 119 Companies that make additional
investments for restructuring are allowed to obtain permits, if they provide at least
30 percent of the amount of equipment and machinery investments listed in the
filing of an industrial business license. Other conveniences provided are import
duty waivers and other additional import duties.
b. Product Standardization
At the end of 1995 the government set new policies in the industrial sector with
the aim of improving cost efficiency and competitiveness of domestic industrial
products. According to the Deregulation Package on May 23, 1995, the government
imposes import duty on all commodities including pulp and paper imports.
Especially for paper, although this industry is the oldest industry in Indonesia, but
the standardization of paper product and its process officially issued in 1980s. Since
the presence of the Deregulation Package, the standardization of the products and
117 Badan Perencanaan Pembangunan Nasional. (n.d.). Laporan Tentang Implementasi
Pembangunan di Repelita VI (p. 44). Retrieved from www.bappenas.go.id/files/.../bab-01-1997-
cek__20090203100511__1782__0.doc 118 Ibid. 119 Paket Deregulasi Kebijaksanaan Pemerintah 23 Mei 1995 (PP1400646). (1995). Jakarta: Cipta
Jaya.
48
processes was refined and the provisions related to the quality test and process were
summarized in the Indonesian national standard.
II.3.2 South Korean Government Policy on Paper Industry
Today, South Korean become one of economic forces in the world because
of its market-oriented economic system. The South Korean government is
protecting its domestic industry by establishing the Law No.3320 on December 31,
1980.120 This law has been amended several times on January 13, 1990 until the last
amendment made on 26 August 2002.121 The Law was originally composed of 62
articles, has already been amended 21 times. It is named as The Regulation of
Monopolies and Fair Trade Act. It serves to encourage creative enterprising
activities, protect consumers, and promote balanced national economic
development by preventing abuse of positions that dominate the market by
corporations and excessive concentration of economic power by regulating undue
collaborative acts and unfair trade practices, and by promoting fair and free
competition.122
II.4 South Korean Dumping Allegation on Imports of Certain
Paper from Indonesia
II.4.1 Background of the Trade Dispute
The dispute between Indonesia and South Korea began with an anti-dumping
petition filed by several South Korean paper companies against Indonesian paper
products to the Korean Trade Commission (KTC) on 30 September 2002. Some
companies charged with anti-dumping duties were PT. Indah Kiat Pulp & Paper
Tbk, PT. Indo Deli Pulp & Mills, PT. Pabrik Kertas Tjiwi Kimia Tbk and April
Fine Paper Trading Pte Ltd. On 14 November 2002, KTC as the government
authority responsible for the conduct of anti-dumping investigations in South Korea
in response to an application submitted by five Korean paper producers as the
120 Ministry of Government Legislation. (n.d.). Monopoly Regulation and Fair Trade Act
(Republic of Korea).
http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN011494.pdf. 121 Ibid. 122 Ibid.
49
applicants or domestic industry.123 Products subjected to investigation included two
types of information paper and uncoated wood-free paper such as PPC or plain
paper copier or business information paper used on copies in business and home
offices, and WF which is uncoated wood-free printing paper used for printing from
printing presses, as well as for production of stationery items.124
On 9 May 2003, KTC stated that paper exporting companies from Indonesia
has conducted dumping practice and decided to impose temporary anti-dumping
duties with amount for PT Pabrik Kertas Tjiwi Kimia Tbk accounted to 51.61%,
PT Pindo Deli 11.56%, PT Indah Kiat 0.52%, April Fine and others by 2.80%.125
However, on 7 November 2003 KTC lowered its anti-dumping duties on imports
of certain paper from Indonesia under the terms of PT Pabrik Kertas Tjiwi Kimia
Tbk, PT Pindo Deli and PT Indah Kiat respectively decreased by 8.22%, for April
Fine and others 2.80%.126 Due to this dumping allegation, the export of the product
suffered a loss. Indonesia's wood-free copy paper to South Korea in 2002 totaled
US$ 102 million down to US$ 67 million in 2003.127
Indonesia has objected to the allegations. Therefore, Indonesia brought the
case of dumping allegations into the realm of the WTO. On 4 June 2004 Indonesia
filed the case to DSB of the WTO to be resolved in accordance with Article 4 of
the DSU. On 16 August 2004 Indonesia submitted an application to the DSB to
form the Panel in accordance with Articles 4.7 and 6 of the DSU, Article XXIII:2
of GATT and Articles 17.4 and 17.5 of the ADA.128 On 28 October 2005, the DSB
WTO submitted the Panel Report to all members and stated that South Korean anti-
dumping measures were inconsistent and had violated the Anti-Dumping
Agreement. 129 Thus, the DSB requested South Korea to adjust its policy in
123 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Panel report, factual background, paragraph 4.4, page 4. 124 Ibid. 125 World Trade Organization. (2005) Korea—Anti-Dumping Duties on Imports of Certain Paper
from Indonesia, Op.cit., p.6. 126 Ibid., p.2. 127 Ibid. 128 Ibid. 129 Ibid.
50
accordance with the WTO Agreement. 130 At the time, both disputing parties
reached an agreement that South Korea should implement DSB recommendations
and set timelines for the implementation of the DSB's recommendations with a
reasonable period of time.131 However, it was very elusive at that time that South
Korea has not complied with the DSB decision. Although it has been declared it
was wrong to enact the Anti-dumping duties on imports of certain paper from
Indonesia, South Korea has not stopped the anti-dumping duties. The DSB WTO
declared South Korea has made procedural errors in the anti-dumping investigation
on imports of certain paper from Indonesia in 2003.
On 15 November 2006, Indonesia and South Korea went for another
consultation, but did not gain any agreements. Up to 5 February 2007 Panels were
re-formed with the same Panel composition. On 22 June 2007, the Panel chairman
stated that the Panel re-won the Indonesian claims against South Korea. The WTO
issued a Panel report on the implementation of Article 21.5 of the DSU or Korea—
Anti-Dumping Duties on Imports of Certain Paper from Indonesia Recourse to
Article 21.5 of the DSU by Indonesia on 28 September 2007.132 In the report stated
that South Korea has acted inconsistently with Article 6.8 of the Agreement and
paragraph 7 of Annex II, and Article 6.2 of the Agreement.133 Nonetheless, South
Korea stopped the imposition of anti-dumping duties on imports of certain paper
from Indonesia in 2010.
Here is the table regarding the imposition of anti-dumping duties on imports
of certain paper from Indonesia:
130 World Trade Organization. (2005) Korea—Anti-Dumping Duties on Imports of Certain Paper
from Indonesia, Report of the Panel, p.151. 131 Ibid. 132 World Trade Organization. (2007) Korea—Anti-Dumping Duties on Imports of Certain Paper
from Indonesia, Recourse to Article 21.5 of the DSU by Indonesia, Report of the Panel. 133 World Trade Organization. (2007) Korea—Anti-Dumping Duties on Imports of Certain Paper
from Indonesia, Recourse to Article 21.5 of the DSU by Indonesia, Report of the Panel, p. 94.
51
Table 2.3
Dispute DS312: Korea—Anti-Dumping Duties on Imports of
Certain Paper from Indonesia134
Complainant: Indonesia
Respondent: South Korea or Republic of Korea
Third Parties: Canada, China, European
Communities, Japan, USA, Chinese
Taipei
Agreements cited:
(as cited in request for consultations)
Anti-Dumping (Article VI of GATT
1994), Article 1, 2.1, 2.2, 2.4, 2.6, 3.1,
3.2, 3.4, 3.5, 3.7, 4.1, 5.2, 5.3, 5.4, 5.7,
5.8, 6.1, 6.2, 6.4, 6.5, 6.7, 6.8, 6.9, 6.10,
9.3, 12.1.1, 12.2, Annex I, Annex II
GATT 1994: Article VI:1, VI:2 (a),
VI:2 (b), VI:6
Request for Consultations received: 4 June 2004
Panel Report circulated: 28 October 2005
Article 21.5 Panel Report circulated: 28 September 2007
II.5 The Arguments between Indonesia and South Korea Related
to the Dispute
The trade between Indonesia and South Korea in paper industry has been
colored with anti-dumping duties applied by South Korea on imports of certain
paper products from Indonesia. At that moment, South Korea set the anti-dumping
duties as a form of protection to the domestic market. Indonesia as the accused party
does not feel conducted dumping practice and proposed the trade dispute to the
WTO to be resolved. Since both countries are WTO members so that would be
easier to resolve such dispute using the DSB of the WTO.
134 World Trade Organization. (n.d.). WTO | dispute settlement - the disputes - DS312. Retrieved
from https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds312_e.htm
52
On 4 June 2004, Indonesia requested to consult with South Korea as an initial
phase of dispute settlement in the WTO. It is in accordance with Article 4 of the
General Agreement on Tariffs and Regulations on the Rules and Procedures of
Governing the Settlement of Dispute (DSU), Article XXII: 1 Trade 1994 / GATT
1994, and Article 17 of the Agreement on the Implementation of Article VI of the
General Agreement on Tariffs and Trade 1994 on the Anti Dumping Agreement.
Each individual representative both from Indonesia and South Korea conducted a
consultation with a level of representative as the same level of Director of the
Directorate of Trade Security or the Director General of International Trade
Cooperation of the Ministry of Trade of the Republic of Indonesia. Matters that was
discussed by each party in the consultation are:
Indonesia 135 : Indonesia claims the assumption that KTC does not provide
Indonesia (especially respondents who are subsidiaries of the Sinar Mas Group of
Indonesia) a fair opportunity to defend their interests. In this case, Indonesia stated
that anti-dumping duties imposed by South Korea on imports of certain paper from
Indonesia are inconsistent with Article VI of GATT, Article 1 The Agreement, and
the other provisions of The Agreement concerning Anti-Dumping. According to
the Article 6.8, the investigating authority is permitted to directly view the facts
only if: (a) the related party significantly impede the investigation; or (b) the related
party does not provide the necessary information (or deny access to necessary
information) within the specified period of time. Meanwhile, in fact, PT. Indah Kiat
and PT. Pindo Deli cooperated to response South Korean questionnaire completely.
There was no difference founded in the data during the verification. Both parties
submit a questionnaire report in accordance with the deadline set by the KTC itself,
and indicate their willingness to provide further information if necessary. Thus,
Indonesian exporters did not significantly impede KTC investigations.
According to the Article 6 requiring the investigating authority to give an
opportunity to the exporter to provide further explanation of the matters in question
135 World Trade Organization. (2005) Korea—Anti-Dumping Duties on Imports of Certain Paper
from Indonesia (WT/DS312/R). Report of the Panel. Op.cit. pp.20-21.
53
within the prescribed time period. KTC refused to give the opportunity to PT. Indah
Kiat and PT. Pindo Deli to explain and correct any 'mistakes' regarding imposition
of Anti-dumping duties imposed by South Korea. KTC also fails to comply with
the requirements of paragraph 7 of Annex II by not applying 'special precautions'
in the use of secondary information to determine the normal values for Indah Kiat
and Pindo Deli. In determining the normal value for Tjiwi Kimia, the KTC relies
solely on data provided by the domestic paper producers without examining
information from other sources relating to this trade dispute case.
Korea Selatan136: KTC denies all Indonesian statements as mentioned above.
Before verifying the questionnaire submitted by Indonesia to South Korea, KTC
consulted with the appointed representatives of Sinar Mas Group respondents
regarding the location of raw materials required for verification, and then sent a
detailed verification work plan for Indonesia. Not long after verification, KTC held
a meeting, where KTC provided a written report to all parties (including
representatives of Sinar Mas Group) on the preliminary calculation of the proposed
BMAD imposition, and an oral description of the problems encountered in the
verification.
As the initial determination, KTC requested the domestic producers of paper
provide the latest information on material losses suffered according to normal
values. Before issuing the final determination, the KTC holds a hearing on issues
of loss suffered and a separate meeting on the matter of margin dumping
calculations. At the meeting on injury, the KTC provides a copy of the "Interim
Report" written to all parties including the Sinar Mas Group designated
representatives. Representatives of the Sinar Mas Group did not attend the injury
counting meeting, thus the KTC faxed a provisional written report of the proposed
account to Sinar Mas Group. Following a hearing on injury and the provision of
marginal dumping, Sinar Mas Group was given an opportunity to comment on the
136 World Trade Organization. (2005) Korea—Anti-Dumping Duties on Imports of Certain Paper
from Indonesia (WT/DS312/R). Report of the Panel. Op.cit. pp. 26-27.
54
material that has been given. In fact, Sinar Mas Group did not submit any comments
after receiving the provisional written report given to them.
The procedures undertaken by the KTC in determining the Anti-dumping
duties have actually provided all the information required by each party, as well as
providing an opportunity for each party to respond to the information it has
collected. Indonesia which has compiled complaints about errors in the KTC
procedure does not use the opportunity that had been given. In relation to that fact,
Indonesia's allegation that Sinar Mas Group was treated unfairly, is incorrect. The
accused companies are given more than enough opportunities to defend their
interests. It was not KTC's fault that the Sinar Mas Group decided otherwise, to
hinder the investigation and withhold the necessary information. On 7 July 2004,
the bilateral consultation held to discuss the major issue which has not reach any
solution to solve the trade dispute occurred between Indonesia and South Korea.
Therefore, on 16 August 2004 Indonesia requested the DSB to form the Panel as
stated in the Article 4.7 and 6 of the DSU; Article XXIII:2 of the GATT; and Article
17.4 and 17.5 of the ADA. Here are several arguments by Indonesia and South
Korea on the first Panel hearing:137
Indonesia: Indonesia asked the Panel to check on the amount of Anti-Dumping
Duties (ADD) because according to Indonesia, Korea has acted inconsistently with
the rules related to the provisions of the ADA. The enactment of the ADD should
not be carried out opportunistically to facilitate the application of protectionist
measures. In the written submission to the Panel, Indonesia has explained in detail
how the KTC actions was not accordance with the provisions of the ADA.
Indonesia claimed has conducted the detailed evaluation of the investigation facts
contained in the ADA thus the Panel would conclude that Indonesia is correct in
showing the KTC investigation which violated the Article VI of GATT and the
provision of ADA contained in the written submission of Indonesia.138
137 World Trade Organization. (2005) Korea—Anti-Dumping Duties on Imports of Certain Paper
from Indonesia (WT/DS312/R). Report of the Panel. Op.cit. p.16. 138Ibid., p.21.
55
South Korea139: As a target of unfair dumping practice, South Korea recognizes
the importance of the WTO dispute settlement process. However, South Korea
cannot accept the claims from Indonesia. The arguments of Indonesia are incapable
to see the role played by Indonesian exporters in creating the situation where it is
unfavorable to South Korea. In addition, Indonesia claimed on losses have not
submitted to the KTC. It makes the South Korea will continue to show the KTC's
decision is in line with the ADA requirements. According to Indonesia, Indonesia
requested to the KTC to set margin dumping separately as in accordance with the
provisions of Article 6.10 of the ADA. However, on the other side, South Korea
believes such Article does not include any terms of 'company' as it is stated a
government regulation will determine the individual dumping margin for each
exporters or producers of the product under investigation. In the view of South
Korea, one of the companies under SMG did not participate in the investigation at
all, where there was two companies refused to grant the permission to South Korean
investigators to access the necessary data for verification. Thus, South Korea has
no choice besides taking the basis of existing facts. Although SMG is less
cooperative, KTC still conducts investigations and determines the required
discipline boundaries according to the ADA. South Korea assessed that
uncooperative parties are obligated to bear the consequences of the actions.
Since have not found an agreement to resolve the dispute yet, the second
Panel hearing was held on 30 March 2005. The development of the problems of
each parties in the second session is as follows:
Indonesia140: According to Indonesia, South Korea continues to assume that the
investigating authority has the right to have a zero tolerance policy as a result of the
inability of exporters to provide information requested for investigation. This is
contrary to the Articles 6.8 and Annex II which govern the steps to be taken by the
investigating authority before rejecting the information submitted. The
investigating authority needs not to be too rigid by simply following the prescribed
139 Ibid., pp.27-29. 140 Ibid., pp.41-45.
56
deadline without considering whether it will be possible to receive the information
delivered after the deadline. The investigating authority shall take into account the
difficulties that may be faced by the exporter in providing the necessary information
in accordance with Article 6.8. Meanwhile, the KTC did not make the effort.
Indonesia has explained the losses based on unlike products are inconsistent with
the Articles 2.6 and 3 of the ADA.
Thus, there is an obligation to the investigating authority to ensure that the
determination of the loss should be based on the same product. In this second panel
hearing, South Korea does not deny this obligation. In addition, South Korea has
implicitly recognized that there must be internal consistency for the product being
disputed. The fact that the ADA does not clearly define the product being disputed
does not subsequently exempt the investigating authority and its obligations on the
provision of 'similar goods' in accordance with the Article 2.6 and Article 3 as the
guidance on the determination of losses.
South Korea141: According to South Korea, there are conceptual matters from
Indonesian arguments. For instance, a number of Indonesian argument began with
the assumption that SMG was truthful and stated the KTC was the one who made
the mistake of not accepting the conclusions from the data provided. In fact, the
ADA does not require an investigative authority beginning with the assumption of
truthfulness by the respondent. When SMG refuses to provide the necessary data,
the KTC justifies its conclusion that South Korea has the right to doubt the accuracy
of the information provided, so that the information can not be used.
Moreover, South Korea stated that the Indonesian argument is based on
factual errors. It is contrary to Indonesia's assumption where KTC does not solely
request information from Tjiwi Kimia, instead of sending a questionnaire to each
SMG factories to request a complete information on all sales of related parties. PT.
Indah Kiat and PT. Pindo Deli have been specifically notified that all parties
concerned must provide sales and pricing data specified for companies relating to
the disputed item.
141 Ibid., p.46.
57
II.6 Dispute Settlement between Indonesia and South Korea
The dispute settlement between Indonesia and South Korea begins from the
consultation phase. Indonesia requested consultation with South Korea to the
Chairman of DSB on the grounds of anti-dumping duties issued by the KTC on the
import of Indonesia's business information paper and uncoated wood-free printing
paper and some aspects related to the investigation led to the anti-dumping
duties. 142 Indonesia and South Korea held consultations in Geneva, but the
consultation found no results and failed to resolve the dispute. Therefore, Indonesia
has submitted a request for a Panel to resolve the dispute.143 DSB formed the Panel
at the request of Indonesia. 144 Furthermore, Indonesia requested the Director
General of WTO to determine the composition of the Panel. 145 The Director
General of the WTO determines the composition of the Panel consisting of three
panelists.146 In the case of Korea-Certain paper, Canada, China, the European
Union, Japan and the United States become third parties.147
The Panel notifies the DSB that they can not resolve the dispute within six
months.148 In the report, Panel concludes South Korea has taken inconsistent action
with the Anti-Dumping Agreement. Therefore, the Panel recommends that South
Korea shall adjust its policy under the WTO Agreement. 149 The report was
approved by the DSB in 2005. 150 The time agreement in implementing DSB
142 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Request for Consultations by Indonesia, WT/DS312/I, G/L/681, G/ADP/D54/1. 143 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Request for the Establishment of a Panel by Indonesia, WT/DS312/2, Para. 3. 144 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Constitution of the Panel Established at the Request of Indonesia, Note by the
Secretariat, WT/DS312/3, Para.1. 145 Ibid.,para.3. 146 Ibid., para.4. 147 Ibid.,para.5. 148 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Communication from the Chairman of the Panel, WT/DS312/4, para.4 and 5. 149 World Trade Organization. (2005) Korea—Anti-Dumping Duties on Imports of Certain Paper
from Indonesia, Report of the Panel, WT/DS312/R, p.151. 150 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Panel Report Action by the Dispute Settlement Body, WT/DS312/5, para.1.
58
recommendations for both countries is eight months.151 However, Indonesia is not
satisfied with the implementation of South Korea and asked for the implementation
of the rights under Article 21 and Article 22 DSU. 152 Indonesia requested for
consultations with South Korea under Article 21:5 DSU related with the
consistency implementation of South Korea's obligations under ADA. Consultation
has been done and failed to resolve the dispute.153 Furthermore, Indonesia requested
the DSB to re-form a Panel.154 The DSB formed the Panel as the same Panel in the
case of Korea-Certain Paper.155 Hereinafter, the third parties in the case referred to
as Korea-Certain Paper Recourse are China, the European Union, Japan, Chinese
Taipei, and the United States.156
On June 22, 2007, although not all claims granted, the Panel chairman stated
that the Panel won the Indonesia for the second time against South Korea. In the
Panel Report of the Korean Certain Paper Recourse case, the Panel ruled that South
Korea has been inconsistent and has mentioned that they do not need to make any
new recommendations because the previous DSB's recommendation and rulings in
2005 are still running.157 The report has been approved by the DSB on September
28, 2007.158
151 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Agreement under Article 21.3 (b) of the DSU, WT/DS312/6, Para.1. 152 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia. Understanding between Korea and Indonesia Regarding Procedures under Articles 21
and 22 of the DSU WT/DS312/7, para.3. 153 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Recourse to Article 21.5 of the DSU by Indonesia, Request for the Establishment of a
Panel, WT/DS312/9, para.3. 154 Ibid., para. 4 155 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Recourse to Article 21.5 of the DSU by Indonesia, Report of the Panel,
WT/DS312/RW, p.1 para.1.1 156 Ibid., para.1.3 157 Ibid., p.94, para.7.4. 158 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Panel Report pursuant to Article 21.5 of the DSU, Action by the Dispute Settlement
Body, WT/DS312/12, Para.1
59
II.6.1 The Dispute Barriers
If a country has violated the WTO rules by stipulating a rule inconsistent
with the WTO, then the country must immediately adjust the mistake by aligning
with the WTO rules. If the country still violates the WTO rules, it must pay
compensation or be subjected to "retaliation". Usually compensation and retaliation
are applied in the form of concessions or market access. The WTO Agreement on
dispute resolution has stipulated that "prompt action in respect of DSB
recommendations or decisions is essential to ensure that the decision of the trade
settlement is effective and beneficial to all WTO members.159
The disputed country must follow the recommendations mentioned in the
Panel Report or appellate body report. In principle, sanctions are applied to the same
field as the disputed area. If such sanctions are unenforceable or ineffective,
sanctions may be applied in other sectors, under the same agreement. Furthermore,
if it has not yet been implemented or has not been effective, and if the circumstances
are serious enough, action may be taken under other WTO agreements.160 The
intent is to minimize the opportunity for such action to be propagated into fields
that have nothing to do with the field, as well as to ensure that the action is effective.
This is where the disputed barriers between Indonesia and South Korea
occur where South Korea does not comply with the Panel's decision report although
Korea has violated anti-dumping investigation procedures and wrongly applied the
anti-dumping duties to PT Pabrik Kertas Tjiwi Kimia Tbk as much 51.61%, PT
Pindo Deli 11.56%, PT Indah Kiat 0.52%, April Fine and others by 2.80% on May
2003. Although there are two proceedings held with the same recommendations
issued, the KTC still did not revoke the anti-dumping duties. Nevertheless,
Indonesia also remains does not implement the retaliation measures against South
Korean export products. South Korea has stopped the anti-dumping duties on
imports of certain paper from Indonesia in 2010.
159 Ibid. 160 Ibid.
60
CHAPTER III
WORLD TRADE ORGANIZATION AND
ITS DISPUTE SETTLEMENT MECHANISM
III.1 The World Trade Organization
III.1.1 The History of the WTO
The history of the establishment of the WTO through a long stages of
negotiations started from a conference on economic issues in Bretton Woods,
Hampshire, USA in 1944. It produced the Bretton Woods system consisting of three
pillars of the International Monetary Fund (IMF), International Bank for
Reconstruction and Development or known as World Bank, and International Trade
Organization (ITO). 161 IMF serves to maintain monetary stability; The World Bank
serves to carry out the post-World War II recovery and development; and The ITO
serves to develop and integrate international trade.
Since the establishment of the United Nations (UN), multilateral trade talks
were held within the framework of the UN Economic and Social Council (UN
ECOSOC). Therefore, the Economic and Social Council of the United Nations
negotiated the ITO, which included in the field of multilateral trade, and adopted
the resolution of the establishment of ITO in 1946. 162 The negotiations on the
establishment of the ITO and the international trading system began in London in
1946 and continued in New York in 1947. The talks held in London and New York
led to the Geneva meeting in 1947.
The Geneva meeting has three objectives: (i) preparing the ITO Charter; (ii)
preparing a tariff reduction schedule; and (iii) preparing a multilateral agreement
containing general principles of trade called General Agreement on Tariffs and
Trade which became GATT 1947.163 The ratification process of the ITO Charter
did not run smoothly and in the end the ITO Charter could not be implemented. The
161 Den Bossche, P. V. (2013). The law and policy of the World Trade Organization: Text, cases,
and materials (p. 79). Cambridge: Cambridge University Press. 162 Matsushita, M., Schoenbaum, T. J., & Mavroidis, P. C. (2013). The law and policy of the World
Trade Organization: Text, cases, and materials (pp. 1-2). 163 Ibid.,p.2.
61
main cause is that the United States does not ratify the Charter. Since the ITO
Charter was not implemented, ITO does not stand as an international organization.
The GATT 1947 that was about to be implemented within the framework of the
ITO continues operated as a multilateral agreement governing international trade
and the countries around world to solve the trade problems through a series of
multilateral negotiations known as the Multilateral Trade Negotiations.
Table 3.1
GATT Multilateral Trade Negotiations 1947-1994164
Year Round Name Issues Discussed Number of
States Parties
1947 Geneva Round Tariff 23
1949 Annecy Round Tariff 33
1950-1951 Torquay Round Tariff 34
1955-1956 Geneva Round Tariff 22
1960-1961 Dillon Round Tariff 45
1964-1967 Kennedy Round Tariff and Anti-Dumping
policy.
48
1973-1979 Tokyo Round Tariff and non-tariff
policy
99
1986-1994 Uruguay Round Tariff, non-tariff policy,
services, intellectual
property, dispute
settlement, textiles,
agriculture, WTO
establishment, etc.
123
As it can be seen on the table 3.1 that the GATT is aimed more at things related
to the trade of goods. Whereas, the WTO covers more broadly including trade in
services and intellectual property as stated in the Agreement on Trade Related
Aspects of Intellectual Property Rights. In the early years of GATT establishment,
the GATT Trading Round in Geneva, Annecy, and Torquay concentrated
164 Jackson, J. H. (1990). Restructuring the GATT system (p. 37). London: Royal Institute of
International Affairs.
62
negotiations on tariff reductions to encourage trade to be more open. According to
the Directorate of Commerce, Industry, Investment and Intellectual Property Right,
the trade rounds resulted in a reduction of 45,000 tariffs worth USD 10 billion,
which was one fifth of the world trade.165
The Kennedy Round began discussing the issue of dumping and anti-dumping
policy. However, the anti-dumping agreement discussed in the Tokyo Round. The
framework of anti-dumping agreement was introduced the procedures and
standards on calculating margin dumping and determining whether the domestic
industry is injury or not.166 Furthermore, there is the Tokyo Round where in this
round the WTO focused on the non-tariff barriers aside continuing tariff
negotiations for the first time.167 The last round was the Uruguay Round that lasted
from 1986 to 1994 leading to the formation of the WTO.
After going through long stages of negotiation process, finally formed WTO at
the GATT Contracting Parties on the Ministerial meeting in Marrakech, Morocco
on 12-15 April 1994 adopted a Final Act of 15 April 1994 as the date of the WTO's
establishment. The Final Act realizing the results of the Uruguay Round of
Multilateral Trade Negotiations. 168 However, WTO was ratified by States and
effectively enacted by the Agreement Establishing the World Trade Organization
or WTO Agreements.169 The WTO Agreement contains the general institutional
framework for conducting trade relations among its member states.170 The WTO
Agreement contains a number of agreements as an Annexes.
Regarding the decision making process, it is stated that the WTO will continue
the decision-making practices that have been carried out in GATT which is by
165 Kementerian Luar Negeri Republik Indonesia. (2008). Sekilas WTO (World Trade
Organization)(5th ed., p. 6). Jakarta: Direktorat Perdagangan, Perindustrian, investasi, dan HKI
Direktorat Jenderal Multilateral Kementerian Luar Negeri RI. 166 Matsushita et al., Op.cit., p.401. 167 Kartadjoemena, H. S. (2002). GATT dan WTO Sistem, Forum, dan Lembaga Internasional di
Bidang Perdagangan (p. 164). Jakarta: UI-Press. 168 World Trade Organization. (n.d.). Final Act embodying the results of the Uruguay Round of
Multilateral Trade Negotiations. Retrieved from https://www.wto.org/english/docs_e/legal_e/03-
fa_e.htm 169 Riyanto, A. (2003). World Trade Organization (p. 20). Bandung: Yapemdo. 170 Article I: 1 of the WTO Agreement.
63
consensus, if there is no member has formally objected to a problem. In the case of
a consensus being reached, a voting can be held. 171
III.1.2 Objectives, Functions and Benefits of WTO
The WTO has several important objectives, including encourage cross-
border trade flows by reducing and removing barriers that may disrupt the flow of
trade and services, facilitating negotiations by providing more permanent
negotiation forums, and resolving trade disputes caused by inter-state conflicts of
interest. 172 Another objectives of the WTO is stated in the preamble of the
Agreement Establishing the World Trade Organization:
"That trade relations and economic activities of member
countries should be implemented with a view to improve
living standards, ensuring full employment, steadily growing
volumes of real income and effective demand, expanding
production and trade in goods and services, as well as with
the optimal use of world resources in accordance with
sustainable development. It also seeks the environment and
improves the implementation in an appropriate way to the
needs of individual countries at different economic levels.”173
The main function of the WTO is to provide an institutional framework for
trade relations between member states in implementing agreements and various
legal instruments contained in the Annex of WTO Agreements.
According to the Article III WTO Agreement, there are five functions of the
WTO in particular174:
1. Supervise and regulate the administrative course of the Trade Policy
Review Mechanism (TPRM), actions, and matters contained in the
agreement.
171 Syahmin, A. K. (1988). Hukum Organisasi Internasional (p. 53). Bandung: Armico. 172 Kartadjoemena, H. S., Op.cit.,p.76. 173 Agreement Establishing The World Trade Organization 1994. 174 Article III WTO Agreement.
64
2. The WTO serves to facilitate the implementation, administration and
implementation of WTO agreements and other multilateral and plurilateral
agreements.
3. Providing a forum for negotiations and negotiation forum for members who
have trade issue.
4. As the administrative place of a dispute settlement system among member
countries pursuant to the Understanding on Rules and Procedures
governing the Settlements of Dispute or referred to the Dispute Settlement
Understanding (DSU).
5. Cooperate with the International Monetary Fund (IMF) and International
Bank for reconstruction and development as well as its affiliated agencies.
According to Dr. Munir Fuady, S.H., M.H., LL.M., there are 10 benefits of
the WTO which is beneficial for its member countries, such as encouraging peace
by cooperating in trade, inter-state disputes can be handled structurally, facilitate
trade between countries, encourage tariff and non- tariffs reduction, providing
consumers with variety choice of products, increasing state revenues, encouraging
economic growth, encouraging more efficient trade, protected countries from unfair
trade competition practices, and encouraging the creation of clean government. 175
III.1.3 Vision and Mission of the WTO
In the establishment of the WTO as an international organization governing
international trade, a series of visions have been applied as the foundation of the
organization. The WTO vision is summarized in the following WTO principles:
a) Most Favoured Nation (MFN)
The MFN principle is the principle whereby a trade is conducted, should be
exercised on the basis of Non-discrimination principle where it shall not
discriminate one member to any other member of the WTO. This is in accordance
with the general provisions of the WTO where international trade should be
175 Fuady, M. (2000). Hukum Perdagangan Internasional Aspek Hukum dari WTO (pp. 78-79).
65
conducted without discrimination.176 If a member country gives special treatment
to a member country then it should be the same to the rest of the member country
without any discrimination. Thus, according to this principle, all member countries
are bound to provide other countries equal treatment in the implementation and
import and export policies as well as in respect of other costs. This MFN principle
is contained in Article 1 of GATT 1994 which states that all countries should be
treated on the same basis and all countries enjoy the benefits of a trade policy.
b) National Treatment
According to the principle, member countries are required to provide equal
treatment of imported and local goods without any distinction. This principle is
widely applicable. This principle applies also to all taxes and other charges, applies
also to legislation, regulation and legal requirements affecting the sale, purchasing,
transportation, distribution or use of products in the domestic market. 177 The
principle is usually done by imposing a tax on imported goods that exceed the tax
on similar domestic goods. Therefore, the principle of national treatment in its
development is an elaboration of the principle of balanced protection among
domestic producers and producers coming from abroad. This principle is contained
in the WTO agreements, namely Article III GATT 1994, Article 17 GATS and
Article 3 TRIPs. 178
c) Transparency
In this principle, each WTO member country is obliged to be open or
transparent to its various trade policies. This principle will make business actors
easier to engage in trading activities. To support this principle, member states are
expected to notify all policies relating to the trade in goods, services and intellectual
property.179
176 Kartadjoemena, H. S., Op.cit.,p.6. 177 Ibid. 178 Kartadjoemena, H. S., Op.cit.,p.7. 179 Ibid.
66
d) The principle of protection through tariff (tariff binding)
According to John Carter the meaning of tariff is the tax imposed on goods that
are lifted from a political power to another territory. This tax is particularly on
goods imported from one political territory to another, or the tax rate imposed on
the goods. Each WTO member country is bound by any tariff agreed upon. This
principle is contained in article II of GATT 1994.
e) The principle of non-tariff barriers
This principle is a form of protection from a particular member country of the
WTO with the intent to protect its domestic industry by exercising certain
safeguards that are not done by tariff measures. The non-tariff barriers action is
prohibited. If a country wants to provide tariff protection for domestic products, it
must be by way of tariff protection, it is as much as possible lowered tariffs so that
there is still possible to have a competition. 180
Meanwhile, the mission of the WTO is aimed at encouraging free and smooth
world trade by promoting lower trade barriers and providing a platform for trade
negotiations and resolving disputes between member states. 181 The goal is to help
producers of goods and services, exporters, and importers conduct its business.
III.1.4 The Structure and the Decision Making Process in the
WTO
In general, the WTO has its main organizational structure as can be seen in
the Article IV Structure of the WTO in the Agreement Establishing the World Trade
Organization. The structure in the WTO consists of182:
1) Ministerial Conference
The Ministerial Conference is the highest decision-making forum in the WTO.
It regularly holds meetings every two years.183 The ministerial conference was
180 Munir Fuady. Hukum Perdagangan Internasional Aspek Hukum dari WTO.Op.cit.,pp.78-79. 181 Ibid. 182 World Trade Organization. (n.d.). Agreement Establishing the World Trade Organization.
Retrieved from https://www.wto.org/english/docs_e/legal_e/04-wto.pdf 183 Kartadjoemena, H. S., Op.cit.,p.190.
67
established by the Minister of Trade of all WTO member countries. This structure
is the body performing the functions of the WTO, regulates the WTO and is
responsible for scheduled the WTO's strategic goals. The decision-making is done
consensus. The Ministerial Conference has authority to decide all matters
concerned with Multilateral Trade Agreements (MTAs). Ministerial Conference
may appoint a Director General who carries out his duties and activities in
accordance with the provisions of the Ministerial Conference. 184 The Director
General and secretarial staff have an exclusive international characters, in which
they are not allowed to request or receive instructions from any government or
external agency outside the WTO.
2) General Council
General Council is a high-level decision-making body of the WTO in Geneva
that meets regularly to carry out the functions of the WTO. General Council serves
as a daily representatives of member states. General Council will regularly oversee
the implementation of Agreement and the decisions made by Ministers. General
Council has representatives such as ambassadors or equivalents, from all member
governments and has the authority to act on behalf of ministerial conferences which
meet every two years.'' It is also responsible to oversee the management of the WTO
which based in Geneva. The General Council also oversees three bodies that will
report its activities to the General Council, as follows:
a) Council for Trade in Goods (Goods Council). This body is responsible
for monitoring the implementation of the agreements reached in the field
of trade in goods.
b) Council for Trade in Services (Services Council). This body is
responsible for monitoring the implementation of the agreements
reached in the field of services.
184 World Trade Organization. (n.d.). WTO | General Council. Retrieved from
https://www.wto.org/english/thewto_e/gcounc_e/gcounc_e.htm
68
c) Council for Trade-Related Aspects of Intellectual Property Rights
(TRIPs Council). This body is responsible for addressing issues in
intellectual property among member countries.
3) Trade Policy Review Body
This body is a body formed by all WTO members and has the duty to establish
a policy monitoring mechanism in the field of trade. This body also has the duty to
carry out monitoring of the policies of each country aside trade but also in the
economic field which has broadly impact on international trade. It organizes
meetings where each member country is obliged to report its entire economic policy
on the WTO. 185 The body regularly reviews trade and practice policies of all
member countries. This review is intended to provide an overall indication of how
countries are performing their obligations, as well as to contribute to increasing
compliance by the WTO parties to their obligations.
4) Dispute Settlement Body (DSB)
DSB is a body responsible for overseeing the entire process of dispute
settlement in the WTO. The membership of DSB consists of all WTO member
countries. DSB has the authority to establish the Panel, adopted Panel's and
Appellate Body's reports, overseeing the implementation of decisions and
recommendations of the Panel or Appellate Body. 186 The DSB is chaired by a chair
elected by consensus by member countries of WTO. There are several
responsibilities of the chairman of DSB, especially in a special situation, for
instance to extend the consultation period. The responsibility of the chairman is
contained in the Article 1.2, 7.3, 12.10, 24.2 and 17.9 of the DSU. Decision-making
at DSB by consensus. That is, a decision is valid if no member country is present at
a DSB meeting that rejects the proposed decision. The decision-making at DSB is
done by consensus. It means, a decision is valid if only no member country is
present at the DSB meeting that rejects the proposed decision.
185 Kartadjoemena, H. S., Op.cit.,p.191. 186 Article 2:1 of the DSU.
69
Here is the diagram of the WTO Structure:
Diagram 3.2
The Structure of the WTO187
III.1.5 Code of Conduct WTO
Code of Conduct is a code of ethics that contains some rules, as agreed into
a shared commitment. The Code of Conduct in the WTO is called Rules of Conduct
contained in WT/DSB/RC/1 published on December 11, 1996. 188 The rules of
conduct contain rules to understand the procedures governed dispute settlement as
attached in Annex 2 related with this conduct. Rules of Conduct WTO started from
Preamble which recognizing the importance of the Understanding on Rules and
Procedures Governing the Settlement of Disputes (DSU) and affirming the
operation of the DSU would be strengthen by the rules of conduct to maintain the
integrity, impartiality and confidentiality towards the new dispute settlement
mechanism. Rules of conduct WTO consists of governing principle, scope, textiles
187 World Trade Organization. (n.d.). WTO | Understanding the WTO - organization chart.
Retrieved from https://www.wto.org/english/thewto_e/whatis_e/tif_e/org2_e.htm 188 World Trade Organization. (n.d.). WTO | Rules of conduct. Retrieved from
https://www.wto.org/english/tratop_e/dispu_e/rc_e.htm#top
70
monitoring body, self-disclosure requirements by covered persons, confidentiality,
procedures concerning subsequent disclosure and possible material violations, and
the review contained Annex 1a, Annex 1b, Annex 2 and Annex 3.
In the Governing Principle section of the Rules of Conduct of the WTO
appeared that every person covered by this rule is independent and impartial, must
avoid any direct or indirect conflict of interest, and shall respect the confidentiality
of the trial process according to the dispute resolution mechanism. In the second
part of the Observance of the Governing Principle contains to ensure the observance
of the Governing Principle of these Rules, each covered person is expected, such as
to adhere strictly to the terms of the DSU; to disclose the existence or development
of any interest, relationship or thing that the person is expected to know and will
most likely influencing in relation to the subject matter of the proceedings process.
Furthermore, in the part III.2, such person needs to fulfill their responsibilities in
dispute settlement and not giving the responsibility to others. Such person shall not
incur any obligation or receive any profit which would interfere the performance of
the person in a dispute settlement duty.
In the part IV of the Rules of Conduct, there is an explanation of the persons
served on a Panel, on the Appellate Body, as an arbitrator, and as an expert
participated in the dispute settlement mechanism as mentioned in Annex 1b.
Moreover, in the self-disclosure requirements by covered persons in the Section
VI.4 stated that all panelists, arbitrators and experts must complete the form in
annex 3 of these rules to be given to the Chairman of the DSB for consideration by
the parties to the dispute. Subsequently, in section VI.6 there is a part that discussed
about confidentiality of the information. During the dispute, the chairman of the
DSB, the Secretariat, the disputing parties, and the persons involved in the dispute
settlement mechanism shall maintain the confidentiality of the information revealed
through this disclosure process, even after the panel process and its enforcement
procedures are completed.
Furthermore, there is a review section comprising Annex 1a, Annex 1b,
Annex 2 and Annex 3. There are certain provisions of the arbitrator in Annex 1a as
set forth in the Article 21.3 (c); 22.6 and 22.7; 26.1 (c) and 25 of the DSU; Article
8.5 of the Agreement on Subsidies and Count Measures; Article XXI.3 and XXII.3
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of the General Agreement on Trade in Services. In Appendix 1b there is a provision
of experts in providing information in accordance with Article 13.1;13.2 of the DSU;
Article 4.5 of the Agreement on Subsidies and Count Measures; Article 11.2
Agreement on Implementation of Sanitation and Phytosanitary Measures; and
Article 14.2; 14.3 of the Agreement on Technical Barriers to Trade. In Annex 2
there is an illustrative list of information required to submit in a dispute in
accordance with the Rules of Conduct for the Understanding on Rules and
Procedures Governing the Settlement of Disputes.
Lastly, in Annex 3 there is a disclosure form that stated covered person will
understand the ongoing task of participating in the dispute settlement mechanism
until the DSB makes a decision to adopt a report relating to the proceedings or its
settlement and shall respect its obligations with the respect to the confidentiality of
the dispute settlement process. At the end, there is dated and signed as a valid sign
of the form of disclosure.189
III.2 WTO MULTILATERAL TRADING SYSTEM
The WTO's multilateral trading system is governed by an agreement
contained the basic rules of international trade as well as agreements as a result of
negotiations that have been signed by member countries. The Agreement is a
contract between member states that bind the government to comply with it in the
implementation of its trade policy. The Agreement is known as the WTO
Agreement which contains several annexes. The annexes contained in the WTO
Agreement set out detailed trade and trade relations issues.
The Annexes of the WTO Agreement consisted of Annex 1, 2, and 3 which
formed an integral part of the WTO Agreement.190 Annex 1 of the WTO Agreement
consists of: (i) Annex 1A that is Multilateral Agreements on Trade in Goods; (ii)
Annex 1B, namely the General Agreements on Trade in Services and Annexes; and
(iii) Annex 1C, namely Agreement on Trade-Related Aspects of Intellectual
Property Rights. One of Annex 1A of the WTO Agreement is the Anti-Dumping
189 World Trade Organization. (n.d.). WTO | Rules of conduct. Retrieved from
https://www.wto.org/english/tratop_e/dispu_e/rc_e.htm#fntext2 190 Article II: 2 of the WTO Agreement.
72
Agreement (ADA). ADA is the result of a revised Anti Dumping Agreement
framework on the Tokyo Round. The revised matters are: (i) more detailed rules
for calculating margin dumping; (ii) detailed procedures for initiating and carrying
out investigations; (iii) regulations for the implementation and duration of
imposition of anti-dumping; and (iv) certain standards for anti-dumping dispute
resolution.191
Annex 2 of the WTO Agreement is the agreement on the dispute settlement
or Understanding on Rules and Procedures Governing the Settlement of Disputes
or known as Dispute Settlement Understanding (DSU). In Annex 3 of the WTO
Agreement, there is a Trade Policy Review Mechanism (TPRM).192 Meanwhile, in
Annex 4 of the WTO Agreement, there is Plurilateral Trade Agreements that is
binding to all member States which have signed it.193
III.2.1 WTO Agreements
As the result of the Uruguay Round, there is a legal text consists of about
60 agreements and annexes. WTO Agreements including General Agreement on
Tariff and Trade (GATT), General Agreement on Trade and Services (GATS),
Trade-Related Aspects of Intellectual Properties (TRIPs) and Dispute Settlement
Understanding (DSU). There are various commitments inside these agreements to
open member country's market and lower tariffs and other trade barriers. General
Agreement on Tariff and Trade (GATT) covers Agreement on Agriculture,
Agreement on the Application of Sanitary and Phytosanitary Measures, Agreement
on Textiles and Clothing, Agreement on Technical Barriers to Trade, Agreement
on Trade-Related Investment Measures (TRIMs), Agreement on Implementation of
Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping
Agreement), Agreement on Implementation of Article VII of the General
Agreement on Tariffs and Trade 1994, Agreement on Pre-shipment Inspection,
Agreement on Rules of Origin, Agreement on Import Licensing Procedures,
191 Kementerian Luar Negeri Republik Indonesia., Op.cit.,p.39. 192 Ibid. 193 Article II: 3 of the WTO Agreement.
73
Agreement on Subsidies and Countervailing Measures, and Agreement on
Safeguards.194
General Agreement on Trade and Services (GATS) cover the areas of
Movement of Natural Persons, Air Transport, Financial Services, Shipping, and
Telecommunication. Whilst agreement on intellectual property is regulated in the
Intellectual Property Agreement (TRIPs).195 TRIPs can be used to enhance the
protection of Intellectual Property Rights from trading products, guarantee the
procedures for the exercise of Intellectual Property Rights which do not impede
trade activities and develop principles, rules and mechanisms of international
cooperation in dealing with the trade in counterfeit or hijacking of Intellectual
Property Rights. The standards regarding the existence, scope and use of
intellectual property rights are under the terms of the TRIPs including copyright,
perpetrator rights, sound recording producers and broadcasting institutions, brands,
geographical indications, industrial designs, patents, integrated circuit layout
designs, confidential information including trade secrets, and new crop varieties.
Furthermore, there is an Understanding on Rules and Procedures Governing
the Settlement of Disputes or abbreviated as Dispute Settlement Understanding
(DSU) contained in Annex 2 which is a dispute settlement procedure within the
WTO system. This procedure is used for all disputes among WTO members arising
from disobeying obligations and rules as set out in the WTO agreements. The rules
and procedures in the DSU apply for all disputes arising out of the covered
agreements as regulated in Appendix I of the DSU. 196
III.3 Indonesia and South Korea Membership in the WTO
Indonesia has been a member of GATT since February 24, 1950. 197
Indonesia ratified the WTO Agreement with Law No.7 of 1994198 and became a
194 Annexes of the WTO Agreement. 195 Ibid. 196 Appendix I of the DSU. 197 World Trade Organization. (n.d.). WTO | GATT members. Retrieved from
http://www.wto.org/english/thewto_e/gattmem_e.htm 198 Indonesia. (1994). Undang-Undang Nomor 7 Tahun 1994 tentang Pengesahan Agreement
Establishing the World Trade Organization (3564). Retrieved from Database Peraturan BPK RI
website: https://peraturan.bpk.go.id/Home/Details/46225
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member of the WTO since January 1, 1995. 199 Indonesia ratified the WTO
Agreement due to the awareness to expand the market especially in goods and
services, as well as to enhance the competitiveness especially in the international
trade. It is required in the implementation of national development. Therefore, the
President with the approval of the People's Legislative Assembly decided to ratify
the Agreement Establishing the World Trade Organization on November 2, 1994.
Meanwhile, South Korea has been a member of GATT since April 14, 1967200 and
has been a member of the WTO since January 1, 1995.201
III.3.1 Indonesia and South Korea at DSB
Indonesia has been through several experiences in the dispute settlement of
the DSB WTO. Indonesia has been a complainant, defendant, and third party each
four times. Indonesia was become a defendant party against the EU, Japan, and the
United States in the case of Indonesia-Certain Measures Affecting the Automobile
Industry from 1996 to 1998.202 In 1998 Indonesia acted as a third party with other
WTO member countries facing a case between the EU against Argentina in the case
of Safeguard Measures on Imports of Footwear.203 Apart from being a defendant
and a third party, Indonesia has become a complainant in the case of Korea-Certain
Paper Products or Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia.204
In the process of dispute settlement at the WTO, South Korea has been a
complainant fourteen times, defendant fourteen times, and third party
approximately 46 times.205 South Korea has been a third party against Indonesia as
199 World Trade Organization. (n.d.). WTO | Indonesia - Member information. Retrieved from
http://www.wto.org/english/thewto_e/countries_e/indonesia_e.htm 200 World Trade Organization. (n.d.). WTO | GATT members. Retrieved from
http://www.wto.org/english/thewto_e/gattmem_e.htm 201 World Trade Organization. (n.d.). WTO | Korea, Republic of - Member information. Retrieved
from http://www.wto.org/english/thewto_e/countries_e/korea_republic_e.htm 202 World Trade Organization. (n.d.). Indonesia — Certain Measures Affecting the Automobile
Industry. Retrieved from https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds54_e.htm 203 World Trade Organization. (n.d.). Safeguard Measures on Imports of Footwear, WT/DS121.
Retrieved from https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds121_e.htm 204 Korea—Anti-Dumping Duties on Imports of Certain Paper from Indonesia, Panel Report.
WT/DS312. 205 World Trade Organization. (n.d.). WTO | Indonesia - Member information. Retrieved from
http://www.wto.org/english/thewto_e/countries_e/indonesia_e.htm
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defendant in the case of National Car. Besides that, South Korea has experienced
as the defendant against Indonesia in the case of Korea-Certain Paper where
Indonesia is the complainant.
III.4 The Dispute Settlement Mechanism of the WTO
In conducting trade activities especially international trade, there is always
potential for any disputes to be happened. Disputes may arise when a country
establishes trade policies that could harm another country or is contrary to its
commitments in the WTO. These kind of things might happen during the trading
process. Therefore, the WTO has created the dispute settlement procedures
contained in the DSU to overcome any disputes occurred. The procedures of the
DSU are applied to all disputes related to the WTO Agreement. The dispute
settlement system in the WTO is one of the functions of the WTO to maintain order
in international trade activities through the application of the rules formed
multilaterally. This system was created by WTO member states at the time of the
Uruguay Round with the purpose creating a strong system and can be binding on
all parties to resolve trade disputes within the WTO framework. The dispute
settlement system in the WTO contained principles that are fair, quick, effective
and mutually beneficial.206
The dispute settlement system of the WTO plays an important role in
clarifying and enforcing the obligations of members in the WTO Agreement. The
WTO dispute settlement system was established as an update to the existing
General Agreement on Tariff and Trade (GATT) dispute settlement system. By the
presence of the WTO dispute settlement system, it is hoped that the stability and
approximation of international trade regulations would be in favor of business
activities, farmers, workers and consumers from around the world. The main
objective of the WTO dispute settlement system is to provide security and
predictability of the multilateral trading system.
The dispute settlement mechanism of the WTO is a crucial aspect in the
effectiveness of implementation to practice the WTO function. The dispute
206 Ibid.
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settlement mechanism in the current WTO Agreement refers to the provisions of
Article XXII and XXIII of GATT 1947 which contain simpler provisions. Article
XXII requires the disputing parties to settle its dispute through bilateral
consultations or multilateral consultations. Moreover, the provisions of GATT 1947
regulated into the WTO rules of Understanding on Rules and Procedures Governing
the Settlement of Disputes or DSU. The DSU is in Annex 2 of Agreement
Establishing the World Trade Organization 1994. It is an integral part of the WTO
Agreement. It means, the binding power of the agreement is same as the main
agreement which is the WTO Agreement.
The dispute settlement of the WTO is the responsibility of the DSB which
is the embodiment of the General Council. DSB is the only body that has the
authority to form a Panel consisting of experts to examine particular cases. DSB
may also accept or reject the Panel's decision on the appeal level. The DSB monitors
the implementation of decisions and recommendations as if any retaliation from a
country imposed to the defeated country.
III.4.1 The Settlement of Trade Dispute in the WTO
The dispute settlement system in the WTO has become a necessary tool in
resolving international trade disputes that occur among WTO members. The dispute
settlement system within the WTO has evolved from the previous dispute
settlement system at the GATT into a structural and standardized settlement system.
It is including formal procedures that must be met and implemented in every
decision that is going to be taken. The WTO dispute settlement system evolved as
a manifestation to accommodate the national interests of each member country in
order to realize the interests of the international community. The WTO dispute
settlement system is a remedy or an improvement over an adverse policy.207
The latest development of the trade dispute settlement system in GATT is
the enactment of the WTO from 1 January 1995 which gave rise to a more
comprehensive, legalistic dispute settlement system and more protection for
developing countries. The dispute settlement in the WTO is focused on a rule-based
207 Kartadjoemena, H. S., Op.cit.,p.232.
77
approach rather than a power-based approach. The latter principle can be seen in
the GATT system. In addition, the terms of the rules and procedures for dispute
settlement have been made thus the implementation is more effective than in the
GATT 1947 system as the realization of the determination of member countries to
create more binding rules.208
Although many procedures of the WTO that are similar to the litigation,
disputing member states are still expected to negotiate and resolve their own issues
before the Panel is formed. Therefore, the first stage of the consultation was the
inter-governmental consultation involved. Even if the case continued to the next
phase, consultation and mediation are still possible to be held. The use of dispute
settlement mechanisms should be based on good faith and not countermeasures
against any harm caused by other member states.209 By the implementation of each
phases in the existing dispute settlement procedures proves that WTO expects a
solution to any disputes among member states. It should be done with an effective
and efficient dispute settlement system as WTO offered. This is due to the
agreement among member countries to use a multilateral settlement system instead
of taking unilateral action. It means countries must comply with agreed procedures
and respect the decisions taken.
III.4.2 WTO Dispute Settlement Bodies
There are several bodies implemented in the dispute settlement mechanism
of the WTO are as follows:
1. Dispute Settlement Body (DSB) is a body established by the WTO
Agreement and serves to implement the rules and procedures contained in
the WTO Agreement. The DSB has the authority to set up the Panel, receive
the Panel reports and reports from the Appellate Body, oversee the
implementation of Panel's decision and recommendation, and authorize
208 Hata. (2006). Perdagangan internasional dalam sistem GATT & WTO: Aspek-aspek Hukum &
Non Hukum (p. 116). Bandung: Refika Aditama. 209 Ibid.
78
suspension of concessions and other obligations in the related
agreements.210
2. Panel shall be a group of persons who are competent formed by the request
of the disputing parties. They could be a competent government and/or non-
governmental individuals who have served as state envoys in the WTO,
teaching, or publishing books related with international trade law or policy,
also served as senior trade officer in the member states. 211 To ensure
independence, Panelists must be elected on a different background and
experience. 212 The Panel shall not be from a citizen who is a party to a
dispute or a Third Party cannot be a Panelist for any disputes that his country
is facing. The panelist performs his duties in a personal capacity, not as a
government or organizational delegate. The Panel function is assisting the
DSB in making recommendations or decisions. The Panel should consult
regularly with the parties to the dispute and give them the opportunity to
seek a satisfactory solution to both parties.213
3. The Appellate Body is an appeals body established by the permanent DSB
that would hear appeals from the Panel level.214 This body consists of seven
personnel, and three of them will serve in each case.215 This body consists
of recognized person in terms of capacity, both in the field of international
trade law and matters governed by the WTO agreement in general, and not
affiliated with the government.216 The appeal is limited to the legal issues
contained in the Panel's report and the Panel's interpretation. The Appellate
Body is authorized to maintain, correcting, and alter the findings of the law
as well as the Panel's conclusion. Once a Panel or Appellate Body finds an
act inconsistent with the WTO Agreement, the Appellate Body shall
210 Article 2:1 of the DSU. 211 Article 8:1 of the DSU. 212 Article 8:2 of the DSU. 213 Article 11 of the DSU. 214 Article 17 of the DSU. 215 Article 17:1 of the DSU. 216 Article 17:3 of the DSU.
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recommend the associated member to adapt such action to the WTO
Agreement. However, if the DSB has ratified a Panel and/or Appeals report,
the recommendations contained are legally binding.217
III.4.3 The WTO Dispute Settlement Procedures
There are six dispute resolution procedures in the WTO, as follows:
1. Consultation.
At the consultation stage, member states should seek to resolve issues
mutually satisfactory to both parties before entering the further stage. 218
Consultation must be confidential 219 , meaning it does not involve the WTO
Secretariat. WTO mechanics consultation in a good faith based on a request from
either party or both parties. The applications of consultation should be notified to
the DSB and the relevant bodies and councils. The application must also be made
in a formal writing containing the reasons for the dispute and the legal basis to
submit the application. The WTO also stressed that the disputing parties should
resolve the dispute with consultation first before jump into the next phase of
settlement. A member country that applied for consultations may proceed to the
establishment of the Panel if: (i) the WTO member country filed the consultation
request does not give any respond within ten days since the date of receipt of the
request; or (ii) undergo a consultation process of more than thirty days or other
periods agreed upon from the date of receipt of the application.220
2. Peaceful endeavors.
It is an alternative dispute resolution for WTO countries to solve the
procedural or substantial problems in the WTO Agreements. In addition to
consultations, peaceful endeavors in the WTO dispute resolution system consists of
good offices, conciliation, mediation, and arbitration. The submission of
applications for good services, conciliation and mediation may be made at any time
217 Bossche, P, Natakusumah, D., & Koesnaidi, J. W. (2010). Pengantar Hukum WTO: [World
Trade Organization] (p. 103). 218 Article 4:5 of the DSU. 219 Article 4:6 of the DSU. 220 Article 4:3 of the DSU.
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by mistake one party to the dispute. 221 The implementation of good services,
conciliation and mediation shall be subject to the agreement of both disputing
parties. 222 The implementation shall also be confidential and without prejudice to
the rights of both parties.223 Good services, conciliation and mediation can be
initiated and terminated at any time. Once good services, conciliation and mediation
are deemed to fail, the complainant party can go to apply for the Panel's
establishment.224 If good services, consultations and mediations are conducted
within sixty days of the date of receipt of the consultation request, must give sixty
days from the date of receipt of the consultation request before requesting the
Panel's establishment.225
3. Panel Process.
If consultations and peaceful endeavors have failed to resolve the dispute,
the complainant party may request the establishment of the Panel.226 The request
for the formation of the panel shall be made in writing and addressed to the
Chairman of the DSB. The request for the establishment of the Panel shall include
whether the consultation has been undertaken, the act of being the object of the
dispute, and the summary of the legal basis.227 The contents of the request for
determination of the Panel shall specify the terms of reference for the Panel
examination. After receiving a written statement from the disputing parties
containing facts of their case and argument, the Panel held its first substantive
meeting. At the meeting, the Panel may ask the complainant state to file the case.
At the same meeting, the Panel asks the defendant to submit their point of view
towards the case. Third parties who have notified the DSB regarding their interest
in the dispute could attend during the first substantial meeting. At the second
substantial meeting, rebuttal was made and then submitted by the disputing parties.
The disputing parties shall submit a written rebuttal to the Panel before the second
221 Article 5:3 of the DSU. 222 Article 5:1 of the DSU. 223 Article 5:2 of the DSU. 224 Article 5:3 of the DSU. 225 Article 5:4 of the DSU. 226 Article 6:1 of the DSU. 227 Article 6:2 of the DSU.
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substantial meeting takes place. After considered the written and oral arguments,
the Panel issues a descriptive section containing the arguments and facts of the draft
report. In the period set by the Panel, the parties to the dispute shall respond in
writing. Once the response is received, the panel issues a confidential interim report.
Thereafter, the panel provides a period of time for the parties to the dispute to
review some aspects of the interim report. This stage is called the interim review
stage. The Panel's final report shall be submitted to the parties to the dispute within
six months of the drafting of the panel.228 The Panel's final report is not directly
authorized by the DSB until twenty days after the report is circulated to the WTO
countries to observe the report.229 The WTO member countries that objected to the
report should provide the reason for their objection in writing to be circulated no
later than ten days before the meeting to which the report will be authorized by the
DSB.230
4. Appeal.
Once the Panel report is appealed, the dispute is resolved through the
Appellate Body and for temporary the Panel Report cannot be solved in the DSB.
The Panel's report should be appealed before it was approved by the DSB. 231 The
Appellate Body is limited to the legal issues contained in the Panel's report and the
interpretation of the law made by the Panel. 232 Appeals can not examine the facts
on which the Panel reports are based, since examining the facts is the Panel's duty
in the WTO dispute resolution system. The appeals process should not be more than
60 days, since the parties formally notify the appeal, but if the Appellate Body can
not meet the deadline then it can extend up to a maximum of 90 days by notifying
the DSB in writing along with the reason for the extension. Then, three of the seven
permanent members of the Appeals Body will examine each appeal. After making
the announcement of appeal, only other compensation, concessions or other
228 Article 12:8 of the DSU. 229 Article 16:1 of the DSU. 230 Article 16:2 of the DSU. 231 Ibid. 232 Article 17:6 of the DSU.
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obligations are deferred but the recommendation to adapt the action to the WTO
provisions has not been implemented. 233 The Report made by the Appellate Body
shall be adopted by the DSB and accepted unconditionally by the parties to the
dispute after 30 days after the expenditure. 234
5. Implementation of recommendation and rulings.
This is the final stage of the dispute resolution phase in the WTO. The
outcome of the verdict is submitted directly to the parties by giving 30 days from
the adoption of the panel to implement the decisions and recommendations issued
by the DSB. 235 If the parties feel that the given time period is not possible, then the
parties may be able to get an appropriate time to implement it. To ensure that the
defeated party implement the DSB recommendation and rulings, the DSB will
continue to monitor the implementation. When the Panel or the Appellate Body
makes recommendations to a WTO member country to adjust its actions under the
provisions of the WTO law, the member country shall obey the agreement in
accordance with Article 21:1 of the DSU. If the defendant does not adjust with the
DSB recommendation, the injured party may compensate and retaliate as set forth
in Article 22 paragraph 1 of the DSU. This action shall be conducted as a
counterweight if the offending party can not perform recommendation within a
reasonable period of time. However, if the defendant fails to implement the
recommendation and refuses to comply, then it will be forwarded to the arbitration.
6. Arbitration.
Arbitration is one of the alternative paths as a means to resolve disputes
made by mutual agreement and mutually agreed upon. 236 Arbitration which
includes peaceful endeavor is arbitration based on article 25 DSU. A quick
arbitration in the WTO as an alternative dispute resolution can provide a solution
of a a clear dispute on the subject by both parties in dispute. 237 An agreement on
233 Article 22:8 of the DSU 234 Ibid. 235 Ibid. 236 Article 25 of the DSU. 237 Article 25:1 of the DSU.
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the use of arbitration shall be notified first to all WTO member countries before the
arbitration proceedings begin. 238 The parties to the arbitration proceedings shall
agree to comply with the arbitration decision. The arbitral award shall be notified
to the DSB and the Council or the Committee of the relevant WTO Agreement. 239
Here is a diagram of Dispute Settlement Procedures of the WTO: 240
Diagram 3.3
Dispute Settlement Procedures of the WTO
238 Article 25:2 of the DSU.
239 Article 25:3 of the DSU.
240 World Trade Organization. (n.d.). Settling Dispute. Retrieved from
https://www.wto.org/english/thewto_e/whatis_e/tif_e/utw_chap3_e.pdf
84
The diagram above is the standard procedures of the disputes settlement in
the WTO. In this case, the case took place for eight years because there were two
phases of dispute settlement process. The phase is divided into two periods, which
are 2002-2005 is the case of Korea-Certain Paper Case (KCP) and 2006-2010 is the
case of Korea-Certain Paper Recourse Case (KCPR). Both cases are resolved in the
two different Panel Reports of the DSB titled Korea—Anti-Dumping Duties on
Imports of Certain Paper from Indonesia and Korea—Anti-Dumping Duties on
Imports of Certain Paper from Indonesia Recourse to Article 21.5 of the DSU by
Indonesia.
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CHAPTER IV
THE MECHANISM OF THE DISPUTE SETTLEMENT OF
DUMPING ALLEGATION ON IMPORTS OF CERTAIN
PAPER FROM INDONESIA
IV.1 The Dispute Settlement Process
IV.1.1 Phase I: The Dispute Settlement Process in 2002-2005
On 30 September 2002, the Korea Trade Commission (KTC) received an
application from the Korean producers to start an anti-dumping investigation on
imports of business information paper and wood-free printing paper originating
from China and Indonesia. 241 The KTC sent questionnaires and initiated an
investigation on 14 November 2002. The original deadline for response to the
questionnaire sent to the Indonesian company was extended for three weeks, but
Tjiwi Kimia did not give any responds.242 On 24 September 2003, KTC issued Final
Determination regarding the imposition of anti-dumping duties imposed on 7
November 2003 against the SMG group by 8.22%, April Fine and other companies
by 2.80%.243
On 9 May 2003, KTC stated that paper exporting companies from Indonesia
has conducted dumping practice and decided to impose temporary anti-dumping
duties with amount for PT Pabrik Kertas Tjiwi Kimia Tbk accounted to 51.61%,
PT Pindo Deli 11.56%, PT Indah Kiat 0.52%, April Fine and others by 2.80%.244
However, on 7 November 2003 KTC lowered its anti-dumping duties on imports
of certain paper from Indonesia under the terms of PT Pabrik Kertas Tjiwi Kimia
Tbk, PT Pindo Deli and PT Indah Kiat respectively decreased by 8.22%, for April
Fine and others 2.80%.245 Due to this dumping allegation, the export of the product
241 Korea—Anti-Dumping Duties on Imports of Certain Paper from Indonesia, Panel report, p.1. 242 Ibid. 243 Ibid., p.2. 244 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Op.cit., p.6. 245 Ibid., p.2.
86
suffered a loss. Indonesia's wood-free copy paper to South Korea in 2002 totaled
US$ 102 million down to US$ 67 million in 2003.246
On 4 June 2004, Indonesia filed the case in the palm of DSB WTO because
Korea has violated Article VI GATT 1994 and Article 1 of the ADA, especially in
the case of Single Dumping Margin, the use of facts available, the definition of like
products, and the determination of the Investigation Period. On 7 July 2004, South
Korea and Indonesia conducted a consultation phase held in Geneva which was
undertaken as the first stage in the dispute resolution mechanism at the DSB of the
WTO. At the moment, Indonesia believes that KTC does not provide respondents
a fair opportunity to defend their interests. Respondents are the subsidiaries of the
SMG of Indonesia. Indonesia said that various aspects of anti-dumping imposed by
South Korea on Indonesian paper imports are inconsistent with Article VI of
GATT, Article 1 ADA, and other provisions of the ADA concerning Anti-
Dumping. 247 However, the South Korea denied the statement from Indonesia.
Before verifying the questionnaire Indonesia which has given to South Korea, KTC
consults with the designated representatives of Sinar Mas Group respondents on the
location of raw materials required for verification, and then verifies detailed work
plans sent for Indonesia. Upon verification, KTC conducted meetings where the
KTC provides a written report to all parties regarding the preliminary calculation
of proposed anti-dumping duties and oral descriptions of problems encountered in
the verification process.
Since the settlement of the dispute between two parties did not reach an
agreement in the bilateral consultation, the dispute continued at the next stage of
dispute settlement mechanism namely the request of the Panel establishment. The
request was conducted on 16 August 2004.248 The Panel was established on 25
October 2004 with composition Mr. Ole Lunby from Norway as the Chairman of
the Panel, Ms. Deborah Milstein from Israel and Ms. Leane Cornet Naidin from
Brazil as members of the Panel. The Director-General of the WTO also determines
246 Ibid. 247 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Panel report, Op.cit., pp.20-21. 248 Ibid.
87
Canada, China, the European Community, Japan and the United States as the third
party in the Panel.249 Afterwards, on 1st January 2005, the first Panel hearing was
held and was attended by disputing parties with the Chairman and members of the
Panel determined by Director-General the WTO. On 2nd February 2005, the
disputing parties met with third parties in the next hearing. Indonesia requested the
Panel to review South Korea's actions in determining the amount of anti-dumping
duties which considered inconsistent with the WTO provisions.250 However, the
Panel hearing resumed on another meeting on 30 March 2005.
Subsequently, on 28 October 2005 DSB WTO formally released the Panel
Report titled Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia (WT/DS312). Although Indonesia did not win all the claims, Indonesia
won the Panel hearing because South Korea was required to adjust its anti-dumping
duties policy under the terms of the ADA.251 On 28 November 2005, the Panel
Report was approved by the Chairman of the DSB because South Korea as the
defendant party did not appeal to the Appellate Body of the DSB in WTO. The
dispute settlement phase is divided into two periods, which are 2002-2005 is the
case of Korea-Certain Paper Case (KCP) and 2006-2010 is the case of Korea-
Certain Paper Recourse Case (KCPR).
IV.1.2 Phase II: The Dispute Settlement Process in 2006-2010
On 10 August 2006, the Director General of International Trade
Cooperation in the Ministry of Trade Republic of Indonesia delivered a letter to the
Ambassador of the Republic of Indonesia to the WTO to submit a request.
Indonesia sent a request to the Chairman of the DSB WTO to re-formed the Panel
with the original composition and to meet with South Korea to compile and sign
the Sequencing Agreement thus Indonesia does not lose the right of compensation
and retaliation if South Korea does not implement the results of the DSB of the
249 Ibid. 250 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Panel report, Op.cit., pp.2-3. 251 Kementerian Perdagangan Republik Indonesia. (2010). Profil Kasus Tuduhan Dumping Review
Korea Selatan Terhadap Produk PPC (Plain Paper Copier/Business Information Paper), WF
(Uncoated Wood-free Printing paper) and Uncoated Wood-Free Paper in a Form of Roll, Sheet or
Other) Asal Indonesia. Jakarta: Direktorat Jenderal Kerjasama Perdagangan Internasional.
88
WTO Panel. On 17 August 2006 Sequencing Agreement or called Understanding
Agreement between South Korea and the Republic of Indonesia was signed.
However, on 01 September 2006 Indonesia delivered its disappointment in
response to the KTC's implementation Report dated 27 July 2006 for failing to
implement the results of the Panel Recommendation and Rulings.
On 15 November 2006, Indonesia and South Korea resumed consultations
but the consultation did not reach an agreement. Due to the absence of an
agreement, Indonesia proposed the establishment of the Panel to the DSB on 22
December 2006. On 5 February 2007 the Panel was formed with the same
composition as the original Panel. On 24-25 April 2007, Indonesia stated that KTC
should use the company's interest rate with the same activity. If the interest rate
used to calculate the constructed normal value is April Pine's interest rate, then the
dumping margin of PT. Indah Kiat and PT. Pindo Deli is de minimis (less than 2%)
and the imposition of anti-dumping duties can be stopped.252 On June 22, 2007, the
Panel Chairman stated that the Panel won the Indonesian sue against South Korea
in the case of the Anti-Dumping application imposed by the South Korean
government on the SMG business group.
On 28 September 2007, the WTO issued a Panel Report on the
implementation of Article 21.5 DSU or known as Implementation Report Panel
Recourse to Article 21.5 of the DSU by Indonesia. In the report stated that KTC has
violated the WTO provisions in calculating the dumping margin for PT. Indah Kiat
and PT. Pindo Deli. On 10 December 2007 there was a bilateral consultation
between Indonesia and South Korea, at which time the Indonesian Ambassador to
the WTO conveyed the 'Legal Opinion of ACWL' stating that Indonesia needs to
submit an application to obtain authorization using the right of retaliation in
accordance with the provisions of Article 22.2 of the DSU. 253 However, on 25
February 2008, the Minister of Trade of the Republic of Indonesia issued a letter
dated No.200 / M-DAG / 2/2008 regarding the continuity of Indonesia-Korea
252 Ibid. 253 Kementerian Perdagangan Republik Indonesia. (2010). Profil Kasus Tuduhan Dumping Review
Korea Selatan Terhadap Produk PPC (Plain Paper Copier/Business Information Paper), WF
(Uncoated Wood-free Printing paper) and Uncoated Wood-Free Paper in a Form of Roll, Sheet or
Other) Asal Indonesia, Op.cit. p.3.
89
dumping dispute panel submitted its consideration for Indonesia not to apply for
the authorization of the right of retaliation in accordance with Article 22.2 of the
DSU.
On 25 September 2008, KTC in the letter AD-225-1 addressed to PT. Indah
Kiat and his group, have submitted the Report on Implementation of the WTO
Compliance Panel Decision. In the Report, KTC concluded there was no solid basis
for altering the anti-dumping duties on imports of certain Paper from Indonesia. On
31 October to 2 November 2008, The Directorate of Trade Security re-consulted
with the ACWL to figure out the right of Indonesia to conduct retaliation in respond
to the Report on Implementation of the WTO Compliance Panel Decision. In
addition, Indonesia consulted to what extent the WTO compliance report's
effectiveness. The result of the consultation was ACWL suggested the Government
of Indonesia and SMG not to respond towards the Report because the content of the
report is not about the decision of the Panel but the reaffirmation of the
determination of interest rate used by the KTC when calculated the dumping margin
for PT. Indah Kiat and PT. Pindo Deli.
In the second review process of the imposition of anti-dumping duties by
KTC, the South Korean Ministry of Strategy and Finance has received an anti-
dumping investigation application from the Korean domestic industry. It is
conducted due to the continuity on investigation of the anti-dumping duties on
imported uncoated wood-free paper products from Indonesia on 27 November 2009.
On 8 January 2010, The Director General of KPI sent a letter to the Deputy Minister
for Tax and Customs, Ministry of Strategy and Finance of South Korea to deny the
request of Korean domestic industries to extend the anti-dumping duties on imports
of certain paper from Indonesia. The only reason of the rejection is the SMG and
Minister of Finance and Economy have agreed on an agreement on price
undertaking.254 However, the letter did not get any response. Furthermore, on 4
February 2010, KTC requested Indonesian domestic exporters to provide an initial
answer towards the questionnaire no later than 26 February 2010.255 The complete
254 Ibid. 255 Ibid.
90
answer of the questionnaire should be submitted to KTC no later than 17 March
2010.
On 22 March 2010 the Indonesian Ambassador to the WTO held an
informal meeting with the WTO Ambassador to South Korea as a response towards
the investigation of Sunset Review. Moreover, on 16 April 2010, the Director
General of International Trade Cooperation sent a letter to Chairman of KTC,
Ministry of Knowledge and Economy with expectation that the Sunset Review of
uncoated paper products should be stopped, but the letter also received no response.
On 17 May 2010, the Minister delivered a letter to the Korean Ministry of Strategic
and Finance (MSF) which addressed the same concern and the letter was responded
by the Director of the Custom Policy Division of MSF on 4 June 2010. The respond
was stating the investigation of sunset review initiated on 26 June 2010 was based
on the request of domestic producers and will be decided after the results of the
investigation within 6 months or no later than 10 months. 256 On May 18, 2010,
Indonesia delivered the first Statement in the DSB routine session which essentially
reminded Indonesia that South Korea has been conducting anti-dumping duties on
imports of certain paper from Indonesia since 2003. The imposition of the anti-
dumping duties has been declared by the DSB of the WTO Panel report that does
not comply with the provision of ADA.
Thereupon, on 22 June 2010 Indonesia re-stated the statement to the next
DSB meeting in essence of the disappointment of Indonesia with the Korea which
considered the violations was committed only procedural, not substantive. In fact,
the main issue is the calculation of margin dumping that was using inaccurate data
or not in accordance with the facts available.257 Indonesia has stated even though
both Panel's recommendation and rulings from different hearings were made by the
DSB of the WTO, it does not make South Korea implement the recommendation.258
South Korea remains with its stance by conducting the Sunset Review and assumed
256 Ibid. 257 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia. Panel Report. Op.cit. 258 Kementerian Perdagangan Republik Indonesia. (2010). Profil Kasus Tuduhan Dumping Review
Korea Selatan Terhadap Produk PPC (Plain Paper Copier/Business Information Paper), WF
(Uncoated Wood-free Printing paper) and Uncoated Wood-Free Paper in a Form of Roll, Sheet or
Other) Asal Indonesia, Op.cit.
91
has implemented the recommendation of the Panel DSB of the WTO since 2007.259
On 12 July 2010, KTC gave the Supplement Questionnaire to be filled and should
be returned at a particular time. However, the SMG asked for an extension
submission date and granted by the KTC until 9 August 2010.260 Until the Trade
Attaché conveyed that KTC has stopped the anti-dumping duties on imports of
certain paper from Indonesia on 21 October 2010. It is happened with a reason that
South Korean domestic industries were no longer get injury.
Here is the table of KCP and KCPR:
Table 4.1
Korea Certain Paper Case (KCP) and Korea Certain Paper Recourse Case
(KCPR)
KCP KCPR
1. Parties Complainant:
Indonesia
Respondent: South
Korea
Third Parties:
Canada, China,
European
Communities, Japan
and the United
States.
Complainant:
Indonesia
Respondent: South
Korea
Third Parties: China,
European
Communities, Japan,
Chinese Taipei
(Taiwan) and the
United States.
2. Duration of Dispute
Settlement Process
One year starting from
the formation of the
Panel until the release of
Panel Report (25
October 2004 – 28
October 2005).
Seven months. Starting
from the formation of
the Panel until the Panel
Report
(5 February 2007 – 28
September 2007)
259 Ibid. 260 Ibid.
92
3. Primary Dispute Dumping Allegation and
the imposition of Anti-
Dumping Duties on
imports of certain paper
from Indonesia.
Implementation of DSB
recommendations and
rulings in the case of
KCP.
4. Date and Place
Consulting
On 7 July 2004 Internal
consultation between
Indonesia and South
Korea conducted in
Geneva.
On 15 November 2006,
Indonesia and South
Korea held consultations
in Geneva.
5. The representatives
during the
consultation process
Indonesia was
represented by Herry
Soetanto as the
Director General of
International Trade
Cooperation of the
Ministry of Trade
Republic of
Indonesia.
South Korea was
represented by
Korean Trade
Commission.
Indonesia represented
by the Ambassador of
the Republic of
Indonesia to the
WTO.
South Korea is
represented by South
Korean Ambassador
to Indonesia.
6. Points discussed in the
consultation
Discusses data that
should be used as a
basis for alleged
dumping practices and
regarding
misapplication of the
Anti-Dumping
Agreement and the
The implementation by
South Korea of the DSB
recommendations and
rulings in KCP.
93
Article 6 of GATT 1994
especially in the case of
single dumping margin,
the use of facts
available and definition
of like products, and the
determination of
investigation period.
7. The establishment of
the Panel
Based on Article 6 of the
DSU.
Based on Article 21.5
DSU.
8. Panel Session Two times. One time.
9. Recommendation In order to make South
Korea adjust its action
and policy which are
inconsistent with the
WTO Provisions.
The Panel does not
provide new
recommendation
because the
recommendation of the
KCP Panel are still
valid.
Source: Report of the Panels in the case of Korea—Anti-Dumping Duties on Imports of
Certain Paper from Indonesia and Korea—Anti-Dumping Duties on Imports of Certain
Paper from Indonesia Recourse to Article 21.5 of the DSU by Indonesia.
IV.2 Dispute Settlement Results
On 28 October 2005 DSB of the WTO formally released the Panel Report in
the case of Korea-Anti-Dumping Duties on Imports of Certain Paper from
Indonesia (WT / DS312). Although Indonesia did not win all its claims, Indonesia
won the panel proceedings and Korea asked to adjust the imposition of Anti-
Dumping Duties under the terms of the ADA. The following panel results with
respect to:
94
1) KTC’s dumping determination:261
a. The KTC has acted inconsistently with the Article 6.8 of the Agreement, by
directly switching to the facts that exist with respect to Indah Kiat and Pindo
Deli;
b. KTC has acted inconsistently with the Article 6.8 of the Agreement and
Paragraph 3 of Annex II in the case of ignoring domestic sales data filed by
Indah Kiat and Pindo Deli;
c. The KTC has acted inconsistently with the Article 6.8 of the Agreement and
Paragraph 6 of Annex II in respect of informing Indah Kiat and Pindo Deli
of the decision to refuse their domestic sales data and give them an
opportunity to provide further explanation;
d. KTC has acted inconsistently with the Article 2.2 of the Agreement using
normal values for Indah Kiat and Pindo Deli;
e. The KTC has acted inconsistently with the Article 6.8 of the Agreement and
Paragraph 7 of Annex II with respect to 'special caution' in the use of
information from secondary sources, not from domestic sales data provided
by Indah Kiat and Pindo Deli;
f. The KTC has acted inconsistently with the Article 6.8 of the Agreement and
Paragraph 7 of Annex II, but does not act inconsistently with Article 6.8 the
Agreement and paragraph 6 of Annex II in connection with the
determination of Tjiwi Kimia's dumping margin;
g. The KTC has acted inconsistently with Article 6.10 and 9.3 of the
Agreement by treating the three Sinar Mas Group companies as sole
exporters and assigning a single dumping margin to them;
h. KTC has acted inconsistently with Article 6.7 of the Agreement with no
respect for the disclosure of verification results;
i. KTC has acted inconsistently with Article 6.4 of the Agreement with respect
to detailed calculations of the normal values for Indah Kiat and Pindo Deli;
261 Korea—Anti-Dumping Duties on Imports of Certain Paper from Indonesia, Op.cit., pp.148-
149.
95
j. Indonesia has failed to provide evidence relating to Indonesia's own claims
under Article 12.2 of the Agreement relating to alleged KTC errors in
disclosing detailed calculations of the normal values for Indah Kiat and
Pindo Deli;
k. KTC has acted inconsistently with Article 2.6, 3.1, 3.2, 3.4, 3.5 and 3.7 of
the Agreement with respect to the definition of other similar products.
2) Results of panel rulings related to the determination of losses by KTC's dumping
determination: 262
a. KTC has acted inconsistently with Article 3.1, 3.2 and 3.4 of the Agreement
with respect to price analysis.
b. KTC has acted inconsistently with Article 3.4 of the Agreement with respect
to the determination of the impact of import dumping products on domestic
industry.
c. KTC has acted inconsistently with Article 3.4 and 3.5 of the Agreement
relating to the treatment of import dumping products by South Korea
producers of the subject country.
d. KTC has acted inconsistently with Article 6.2, 6.4 and 12.2 of the
Agreement on the influence of imported prices discarded on the Korean
industry.
e. KTC has acted inconsistently with Article 6.4 and 6.9 the Agreement in
connection with the effects of the price of imported products suspected of
dumping on the South Korean industry.
3) The DSB of the WTO refused to manage with the following claims:263
a. The alleged violation by the KTC regarding its policy pursuant to Article
6.9 the Agreement in respect of its dumping provisions.
b. Alleged violations by KTC under Articles 3.1 and 3.5 of the Agreement in
relation to cause and effect analysis.
c. Alleged violations by KTC under Articles 3.1, 3.2 and 3.5 the Agreement
by assigning imports from Indah Kiat as dumping products.
262 Ibid. 263 Ibid., p.150.
96
4) The DSB of the WTO does not address the following claims since it has been
withdrawn by Indonesia:264
a. Alleged violation Articles 6.1, 6.4 and 6.9 of the Agreement by KTC by
not giving Indonesian exporters an opportunity to view, and comment on
data relating to the first investigation of 2003.
b. Alleged violation of Articles 6.4 and 6.9 of the Agreement by KTC by not
informing Indonesian exporters of South Korean decision to change the
threat of loss to material loss.
In the report stated that in calculating the margin dumping for PT Indah Kiat
and PT Pindo Deli, Korea has violated the provisions of the WTO. To that end,
Indonesia asked South Korea to comply with the decision of the DSB Panel of the
WTO. According to Herry Soetanto, Director of International Trade Cooperation
of the Ministry of Trade at the time to ANTARA News, Indonesia has conveyed its
concern regarding the decision of the DSB to the Ambassador of South Korea while
receiving the South Korean Ambassador in Jakarta on 4 October 2007.265 On the
same occasion, Herry Soetanto also said that South Korea still has a chance to
appeal against the DSB decision. However, South Korea did not appeal to the
Appellate Body of the WTO. Therefore the DSB Panel of the WTO recommends
the Dispute Settlement Body to require South Korea to comply with paragraph 8.1
(a) (v), 8.1 (a) (vi), 8.1 (a) (ix), 8.1 (a) (x), 8.1 (b ) (ii) and 8.1 (b) (v) in accordance
with its obligations under the WTO Agreement.266
In the Panel Report of the KCPR, the Panel concluded that:267
1. KTC has acted inconsistently with Article 6.8 of the Agreement and
paragraph 7 of Annex II by failing to exercise special circumspection in the
use of information from secondary sources in its effort to base its
determination of interest expenses.
264 Ibid. 265 Burhani, R. (2007, October 4). Indonesia Minta Korsel Patuhi Putusan
WTO. AntaraNews.com[Jakarta]. Retrieved from
https://www.antaranews.com/berita/79611/indonesia-minta-korsel-patuhi-putusan-wto 266 Korea—Anti-Dumping Duties on Imports of Certain Paper from Indonesia, Op.cit., p.151. 267 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia Recourse to Article 21.5 of the DSU by Indonesia, Op.cit. p.94.
97
2. KTC has acted inconsistently with its obligations under Article 6.2 of the
Agreement by declining to give SMG an opportunity to make comments on
the evaluation of the injury factors under Article 3.4.
3. Indonesia has failed to make a prima facie case with regard to its claims
under Articles 6.4, 6.5 and 6.9 of the Agreement concerning alleged
disclosure of violations in connection with the KTC’s injury re-
determination.
4. Panel has applied judicial economy with regard to: (i) Indonesia's Claims
under the Article 2.2, 2.2.2, 2.4 and 2.1 of the Agreement on the
determination on the basis of the best available information; (ii) Regarding
the inconsistency of the KTC's re-determination where South Korea has
failed to respect its obligation under the Article 1 of the Anti-Dumping
Agreement to ensure that anti-dumping measure should be applied only
under the circumstances provided as in the Article VI of the GATT 1994
and pursuant to investigations initiated and conducted in accordance with
the provisions of the Anti-Dumping Agreement.
5. Since the original DSB recommendations and rulings in 2005 remain
operative, panel make no new recommendation.
Upon the decision of the DSB Panel of WTO as mentioned above, the DSB
recommends that South Korea to make a recalculation of its decision and make
adjustments to the obligations set out in the WTO agreement. Indonesia has directly
requested South Korea to comply with the decision of the DSB Panel of WTO to
the South Korean Ambassador on 3 October 2007, but South Korea still does not
implement the decision. In fact, KTC has submitted the Report on Implementation
of the WTO Compliance Panel Decision. In its report, KTC concluded that there is
no compelling reason for South Korea to revoke the imposition of anti-dumping
duties on imports of certain paper from Indonesia.268 On 28 September 2007 Panel
under the Article 21.5 DSU submitted a report adopted on 22 October 2007.
268 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia Recourse to Article 21.5 of the DSU by Indonesia, Op.cit.
98
Therefore, Indonesia as aggrieved party due to the imposition of anti-dumping
duties by South Korea may file a compensation and retaliation claims as stipulated
in the Article 22 Paragraph 1 of the DSU if the violating party can not or does not
want to implement the recommendations within the specified time period to
compensate and retaliate. Indonesian companies accused of dumping also urged the
Indonesian government to take the action of retaliation as they judge since the case
went, the accused businessmen were harmed due to the declining production and
caused Indonesia's paper exports to South Korea plummet to nearly 70%. 269
However, Indonesia does not exercise the right of retaliation until the South Korea
officially stopped the investigation of anti-dumping on Indonesian paper products
along with the imposition of anti-dumping duties on 21 October 2010.
IV.3 Recommendation of the Panel DSB
In the WTO Panel Report consists of nine sections, namely: (1) introduction;
(2) factual aspects; (3) the parties' requests for findings and recommendations; (4)
arguments of the parties; (5) arguments of the third parties; (6) interim review; (7)
findings; (8) conclusions and recommendations; and (9) Articles 19: 1 of the DSU,
which includes suggestions. In this section, the Panel Report section that will be
discussed in more depth is a recommendation.270 The recommendations are part of
the Panel's report stating that member states that have been inconsistent with the
WTO provisions align their actions or policies with a covered agreement. The Panel
shall make recommendations if the Panel has concluded that the Member State has
taken action or issued an inconsistent policy with a covered agreement. The
recommendation only contains that member states that have been inconsistent to
adapt their actions or policies with the covered agreement, but does not contain
what or how the inconsistent member states adjust their actions or policies. In the
recommendation, the violated party shall make improvements in accordance with
DSB recommendations. If the violated party does not make any improvements, the
269 Purwanto, H. (2007, November 22). Ekspor Kertas ke Korsel Turun 70
Persen. Antaranews.com[Jakarta]. Retrieved from
https://www.antaranews.com/berita/84291/ekspor-kertas-ke-korsel-turun-70-persen 270 World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain Paper from
Indonesia, Op.cit.,
99
aggrieved party may compensate and retaliate as provided in the Article 22
paragraph 1 DSU as a counterweight if the infringing party can not implement the
recommendation within a reasonable period of time. According to Article 22
Paragraph 1 of DSU, retaliation and compensation are conducted only to make party
implement the recommendation and rulings and adjust the action in accordance
with the WTO Agreement.
IV.3.1 Compensation
Compensation is included in the Article 22 paragraph 1 of the DSU which is
a voluntary action and if granted must conform to the covered agreement.271 If the
violated party is unable to implement the DSB recommendations within a
reasonable time as provided in Article 21 Paragraph 3 of the DSU, then the
aggrieved party may negotiate to determine acceptable compensation and shall be
consistent with the relevant covered agreement. Furthermore, in the Article 21
Paragraph 3 point (a) up to (c) set about a reasonable period of time which is a
period of time mutually agreed by the parties to the dispute within 45 days after the
date of adoption of the recommendations and rulings or in the absence of such
agreement; and a period of time determined through binding arbitration within 90
days after the date of adoption of the recommendations and rulings.272
Furthermore, Article 22 Paragraph 2 stated that if the negotiated
compensation is not successfully agreed upon within 20 days after the expiry of the
reasonable time limitation, the plaintiff in the dispute may request the DSB
authorization to suspend concessions or other obligations against the defendant
party. DSB is authorized to authorize to suspend concessions and / or other
obligations under the terms of the covered agreement.273 The Minister of Trade of
the Republic of Indonesia gave an instruction for Indonesia to take bilateral steps
first in order to read the readiness of South Korea in implementing DSB WTO
recommendations. In accordance with the direction of the Minister of Trade of the
Republic of Indonesia, on 10 December 2007 Indonesia and South Korea held
271 Article 22:1 of the DSU. 272 Article 21 paragraph 3 (a) until (c) of the DSU. 273 Article 22:2 of the DSU.
100
bilateral consultations. However, the consultation failed to resolve the dispute
because South Korea did not want to compensate Indonesia. The voluntary
compensation and based on the agreement cannot be achieved. However, Indonesia
can not force South Korea to compensate, but Indonesia has the right to request to
the DSB WTO authorization to conduct retaliation.
IV.3.2 Retaliation
One way out that could be the last attempt in settling dispute when a violated
country cannot implement the DSB recommendation is retaliation274 or suspension
of the concession. If the retaliation conducted as in the Article 22 Paragraph 6 does
not work, the DSB shall authorize to suspend concessions within 30 days after the
expiration of the reasonable period unless the DSB by consensus determines
otherwise. However, in practice in the WTO, retaliation instruments are rarely
performed by Member States. This is because there are many things behind the non-
retaliation among WTO member countries. One of the most acceptable reasons is
the high political nuance in the application of retaliation of other member states.
IV.4 The Binding Power of the Recommendation of Panel DSB
Binding power is the binding force of a decision in which the parties of a
dispute must respect to the decision by not taking verdict action against the
rulings.275 Like the verdict, the recommendations also have binding power, so the
parties to the dispute must respect and adhere to the recommendations. Although
the recommendations have binding powers for disputing parties, it is not uncommon
for the disputing parties which have been declared inconsistent, yet not
implementing the recommendations. This is because the dispute is occurred to a
sovereign state, so the winning state can not force a losing country to implement its
recommendations. However, the WTO provides an alternative compensation and
274Kartadjoemena, H. S. (2000). Substansi Perjanjian GATT/WTO dan Mekanisme Penyelesaian
Sengketa (1st ed., p. 272). Jakarta: UI-Press. 275 Syahrani, H. R. (2009). Buku Materi Dasar Hukum Acara Perdata (5th ed., p. 135). Bandung:
Citra Aditya Bakti.
101
retaliation for the winning member states. Such compensation and retaliation are
provided to enable inconsistent countries to implement the recommendations.276
IV.4.1 The Implementation of the DSB’s Recommendation
The DSB of the WTO has 20 days from the date of circulation of Panel's
report to consider its endorsement.277 A member country that has objected to the
Panel's report shall provide their reasons in writing at least ten days before the DSB
meeting where the consideration of the ratification of the report becomes an
agenda.278 The disputing member country shall have the right to participate fully in
the DSB's consideration to endorse the panel report.279 The Panel Report shall be
ratified within 60 days of the circulation of the report to all WTO members, unless
one of the parties to the dispute has appealed, or unless the DSB by consensus
decides not to ratify the report. The consensus is a negative consensus, which means
consensus reached if all members do not agree on a thing. If the DSB does not hold
a meeting within a period of twenty days to sixty days from the circulation of the
Panel report, the DSB shall hold a special meeting to consider the ratification of the
Panel's report.280
If the Panel concludes any policies of a member country has been
inconsistent towards the WTO provisions, the Panel shall recommend to the
member country concerned to adjust its policy to the provisions of WTO.281 When
a Panel report is ratified, the Panel report recommends a 30 day report since the
ratification date, thus the member State which inconsistent towards the WTO
Agreement shall notify the DSB. It is related with the intention to implement the
DSB recommendations.282 In case the DSB does not hold a meeting within 30 days
since the ratification of the Panel Report, the DSB convenes a particular meeting in
order to hear the intentions of the member States.283 Each inconsistent member
276 Matsushita et al., Op.cit., p.143. 277 Article 16:1 DSU. 278 Article 16:2 DSU. 279 Article 16:3 DSU. 280 Article 16:4 DSU. 281 Article 19:1 DSU. 282 Article 21:3 DSU. 283 Ibid.
102
states should implement DSB recommendations within a reasonable period of time
as follow: (1) a time period proposed by a member country that should implement
recommendations if approved by the DSB; or otherwise approved by the DSB, (2)
the time period agreed by both parties to the dispute within 45 days of the
ratification of the recommendation; or if there is no such agreement, (3) the term
shall be determined by arbitration within 90 days from the ratification of the
recommendation.284
The first option is a time period proposed by the member country concerned
may be accepted by the winning member country in dispute, then the proposed term
may be approved by the DSB. However, if the proposed time period is not accepted
by the winning state in the dispute, the member country may prevent the consensus
necessary to approve the proposal.285 For the second option, the winning country
must obtain an agreement with its opposing member states within 45 days. If no
agreement is reached, an arbitration is elected to determine a reasonable period of
time in implementing the DSB recommendations. If the parties have not reached
agreement on the arbitrator within ten days of the appointment of the arbitration,
the Director-General of the WTO shall appoint the arbitrator within ten additional
days.286
The arbitrator shall determine a reasonable period within 90 days of the
ratification of the report. However, the disputing parties within 43 days are allowed
to reach agreement on the duration of implementation of the DSB recommendation
before appointing the arbitration. If within 45 days of such negotiations are
unsuccessful, the remaining 45 days can be used for arbitration, including the
appointment of the arbitrator.287 The existing arbitrators' rulings about a reasonable
period of time for the implementation of the DSB recommendations do not provide
a clear example of a reasonable time period. The DSU does not specifically specify
such a reasonable period of time, but only provides guidance to the arbitrator that
284 Artikel 21:3 DSU. 285 Article IX:1 of the WTO Agreement. 286 Artikel 21:3 DSU. 287 Article 21:3 (c) DSU.
103
the reasonable period of time does not exceed 15 months from the end of the
recommendation and the rulings.288
The complexity of the circumstances and conditions of the implementation
of DSB recommendations is a factor considered by arbitrators.289 Matters that must
be considered related to the interests of developing member countries need to be
given special attention to determine a reasonable period of time for the
implementation of DSB recommendations, thereby enabling longer duration of the
DSB recommendations.290 The Implementation of the DSB recommendation is
supervised by DSB until the process is completed. The process of implementing the
DSB recommendations is completed when member countries have been
inconsistent with the WTO provisions align their actions or policies with the WTO
provisions. Member States may pose issues relating to such implementation in the
DSB.291 Issues related to the implementation of the recommendations should be
included in the agenda of the DSB meeting and remain on the agenda until the issue
is resolved six months after a reasonable period of time for implementation, unless
there is consensus or otherwise.292
A member country that has to implement DSB recommendations shall
report progress reports in writing to the DSB no later than ten days before each DSB
meeting is held.293 If member countries do not implement DSB recommendations
within the prescribed period of time, DSB surveillance continues even if there is
compensation or retaliation. Compensation and retaliation are temporary policies
and are not intended for the full implementation of DSB recommendations.294 This
is only to make the DSB recommendation and rulings can be implemented.
On 28 October 2005 the Panel issued its report for the case of Korea-Anti-
Dumping Duties on Imports of Certain Paper. In the report, the Panel recommends
that South Korea shall adjust its inconsistent policies and actions in line with the
WTO provisions. The Panel's report was ratified by the DSB WTO on 28 November
288 Ibid. 289 Article 21:3 of the DSU. 290 Article 21:2 DSU. 291 Article 21:6 DSU. 292 Ibid. 293 Ibid. 294 Article 22: 1 DSU.
104
2005. 295 On 20 December 2005, South Korea declared about the intention to
implement the DSB recommendations to the Chairman of the DSB. Indonesia and
South Korea reached agreement on a reasonable period of time to implement the
DSB WTO recommendation on 10 February 2006. The reasonable period is eight
months and ended on 28 July 2006.296
South Korea claimed they have implemented the DSB recommendation
within a reasonable period of time. Indeed, South Korea was initially cooperative
in implementing DSB recommendations by notifying its intention to implement the
recommendations to the DSB. However, Indonesia got different point of view
towards this case and led to a new dispute was called as Korea Certain Paper
Recourse. The major reason this happened is due to the imposition of anti-dumping
duties on imports of certain paper Indonesia. South Korea has not revoked the anti-
dumping duties imposed to Indonesian domestic companies. In fact, in January
2010 South Korea held a review called Sunset Review on anti-dumping duties that
could possibly lead to an extended period of anti-dumping duties. Indonesian paper
exporters continue to urge the Indonesian government, especially SMG to conduct
retaliation.297 However, on October 2010 South Korea has revoked the imposition
of the anti-dumping duties on imports of certain paper from Indonesia.
Hence, it can be seen that the role of the DSB of the WTO in this case has
been proven to settle the trade dispute case. This can be seen from the dispute
settlement process undertaken by the DSB to assist in the trade dispute settlement
related to the imposition of anti-dumping duties between Indonesia and South
Korea. The DSB of the WTO has implemented the process and procedures of the
dispute settlement mechanisms that have been governed by the WTO provisions.
295 Korea—Anti-Dumping Duties on Imports of Certain Paper from Indonesia, Panel Report,
Action by the Dispute Settlement Body, WT/DS312/5. 296 Korea—Anti-Dumping Duties on Imports of Certain Paper from Indonesia, Agreement under
Article 21:3 (b) of the DSU, WT/DS312/6. 297 Hen. (2010, October 13). Sinarmas Minta Pemerintah Balas Korea Terkait Anti-Dumping
Kertas. Detikfinance. Retrieved from https://finance.detik.com/berita-ekonomi-bisnis/d-
1464180/sinarmas-minta-pemerintah-balas-korea-terkait-anti-dumping-kertas
105
CHAPTER V
CONCLUSION
The research underlines the dispute resolution process by the DSB in the
WTO. The researcher goes through several dispute resolution phases started from
2002-2010. The phase is divided into two periods, which are 2002-2005 is the case
of Korea-Certain Paper Case (KCP) and 2006-2010 is the case of Korea-Certain
Paper Recourse Case (KCPR). Both cases are resolved in the two different Panel
Reports of the DSB titled Korea—Anti-Dumping Duties on Imports of Certain
Paper from Indonesia and Korea—Anti-Dumping Duties on Imports of Certain
Paper from Indonesia Recourse to Article 21.5 of the DSU by Indonesia. The case
began when the South Korean paper industry filed an anti-dumping petition against
imports of certain paper products from Indonesia to the Korean Trade Commission
(KTC) on September 30, 2002. At that point, South Korea enacted Anti-Dumping
Duties on imports of certain paper products from Indonesia in 2003 as a form of
protection towards South Korean domestic market. There were numbers of
companies were charged with anti-dumping duties, including PT. Indah Kiat Pulp
& Paper Tbk, PT. Pindo Deli Pulp & Mills, PT. Pabrik Kertas Tjiwi Kimia Tbk and
April Fine Paper Trading Pte Ltd.
According to the Report of the Panel of Korea—Anti-Dumping Duties on
Imports of Certain Paper from Indonesia, on 9 May 2003 KTC stated that paper
exporting companies from Indonesia has conducted dumping practice and decided
to impose temporary anti-dumping duties with amount for PT Pabrik Kertas Tjiwi
Kimia Tbk accounted to 51.61%, PT Pindo Deli 11.56%, PT Indah Kiat 0.52%,
April Fine and others by 2.80%.298 However, on 7 November 2003 KTC lowered
its anti-dumping duties on imports of certain paper from Indonesia under the terms
of PT Pabrik Kertas Tjiwi Kimia Tbk, PT Pindo Deli and PT Indah Kiat respectively
decreased by 8.22%, for April Fine and others 2.80% according to the Report of the
298 World Trade Organization. (2005) Korea—Anti-Dumping Duties on Imports of Certain Paper
from Indonesia, Op.cit., p.6.
106
Panel.299 Due to this dumping allegation, the export of the product suffered a loss.
Indonesia's wood-free copy paper to South Korea in 2002 totaled US$ 102 million
down to US$ 67 million in 2003 as stated in the Report of the Panel.300
In order to be able to answer the research question in the research, the
researcher tries to use the concept of Liberalism theory in International Relations
where the actor is not only the State but also the non-State actor is included. The
non-State Actor here is including individuals which is the community where few
Indonesian domestic companies were accused of dumping from South Korea.
Based on the theory of Liberalism in International Relations, there is called
cooperation that is needed to control the state to be able to achieve peace. In this
research, cooperation can be seen from the dispute resolution mechanism which
consists of consultation, meeting and dialogue, whether directly or indirectly
between the State government to achieve peace and avoided war. In addition, the
researcher uses the concept of Liberal Institutionalism theory which sees the role
of international institutions able to encourage and promote cooperation among
countries. It is proved by the presence of the World Trade Organization (WTO).
The WTO has several member countries around the world to comfy all actors in
doing international trade cooperatively. In accordance with its function, the WTO
provides a place for member countries to resolve the dispute among them who
submitting the claims to the WTO. In the case of Korea—Anti-Dumping Duties on
Imports of Certain Paper from Indonesia, there is a good mechanism in the trade
dispute settlement of the DSB in the WTO. It can be seen during the consultation
process conducted twice in 2002-2005. Plus, the establishment of the Panel
authorized to conduct an investigation into this case. The DSB also provides the
right to appeal against any party who is displeased with the Panel Report received.
Coupled with an increasingly wider dispute resolution system compare to the
previous dispute resolution system of the organization, GATT in 1994.
The dispute settlement system of the WTO plays an important role in
clarifying and enforcing the obligations of members in the WTO Agreement. There
299 Ibid. 300 Ibid.
107
are several phases of the dispute resolution in the WTO, namely the consultation
phase, peaceful endeavors, panel process, appeal, implementation of
recommendation and rulings and arbitration. The dispute settlement procedures
applied in the WTO make the whole process structured and in part. Dispute
Settlement Mechanism procedures adopted by the WTO to resolve international
trade dispute is effective in settling the trade disputes among countries. In this case,
Indonesia has benefited from the procedures and the dispute settlement mechanisms
in the DSB WTO. This can be said effective since it is proven able to resolve inter-
country trade disputes, yet takes a long period of time. The case was started in 2002
and was completely completed by the proceedings won by Indonesia in 2010.
Indeed, it took eight years to solve the dispute case occurred between Indonesia and
South Korea.
The research is related with issues in International Relations as a science. It
is due to the existence of an international organization called the World Trade
Organization as a part of international relations as non-State Actor which related
with international trade. Besides that, this research involved two countries which
are Indonesia and South Korea as the disputing countries. These two disputing
countries are known as the State Actors. This research showed that a non-State actor
can form a norm that govern the pattern of the country in reaching its national
interests. Moreover, in this research shows that the premise of liberalism is proved
especially in the field of international trade in which the actor is not only a State
but also non-State actor which involved in international relations and cooperation
is important to be achieved through negotiations or dialogue rather than war. This
is obviously against the premise of realism which assumes the international system
is an anarchic condition that is only see a State as an actor in international relations
as well as the unitary and rational in which the state will always pursue its national
interests in the framework of survival and will always seek for power. Regardless
of the attitude of South Korea that had not complied with the recommendations and
rulings by DSB WTO, it is different kind of things which categorized into another
perspective. It could be said so since the DSB of the WTO has its rules and
provisions regarding the implementation of DSB recommendations and rulings that
are not complied with. The aggrieved state may apply compensation or retaliation
108
against the offending country in accordance with Article 22 Paragraph 1 of the
Dispute Settlement Understanding (DSU). However, the Government of Indonesia
does not apply the retaliation.
To that end, the researcher can conclude that in the case of the Korea-Anti-
Dumping Duties on Imports of Certain Paper from Indonesia, the DSB has
implemented the WTO dispute settlement procedure and the Liberalism in
International Relations work because it can be used to analyze the case of Korea—
Anti-Dumping Duties on Imports of Certain Paper from Indonesia fruitfully. It can
be seen that the role of the DSB of the WTO in this case has been proven to settle
the trade dispute case. This can be seen from the dispute settlement process
undertaken by the DSB to assist in the trade dispute settlement related to the
imposition of anti-dumping duties between Indonesia and South Korea. Even
though it took quite a long time of the settlement, yet it can be resolved as in the
case of Korea--anti-dumping duties on imports of certain paper from Indonesia. The
DSB of the WTO has implemented the process and procedures of the dispute
settlement mechanisms that have been governed by the WTO provisions. Therefore,
regarding the development process of the anti-dumping case imposed by the KTC
against Indonesia, it needs a reform in the process of the dispute settlement at the
WTO. The reform could be into the procedure of dispute settlement become simpler
and is not spending long period of time to resolve any trade disputes among the
WTO member countries.
In addition, the researcher would like to suggest the Government of the
Republic of Indonesia to conduct socialization to local producers and other
domestic exporters about the intricacies of doing international trade and the
possibility of disputes that might happen later. It is needed thus the domestic
business actors are prepared enough with the threat of dumping to avoid such loss
and repetition of disputes in the future.
109
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Agreement Establishing the World Trade Organization (3564). Retrieved
from Database Peraturan BPK RI website:
https://peraturan.bpk.go.id/Home/Details/46225
World Trade Organization. Agreement Establishing the World Trade Organization.
117
World Trade Organization. Agreement on Implementation of Article VI of the
General Agreement on Tariffs and Trade 1994.
World Trade Organization. Understanding on Rules and Procedures Governing the
Settlement of Disputes.
World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain
Paper from Indonesia (WT/DS312/R), Report of the Panel.
World Trade Organization. Korea—Anti-Dumping Duties on Imports of Certain
Paper from Indonesia Recourse to Article 21.5 of the DSU by Indonesia
(WT/DS312/RW), Report of the Panel.
118
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