Indonesia v. United States

The United States Federal Food, Drug, and Cosmetic Act (“FFDCA”) prohibits the production and sale in the United States of cigarettes with characterizing flavours (such as clove, strawberry, or chocolate), but does not prohibit regular or menthol cigarettes. Indonesia, which exports clove cigarettes to the United States, brought this case before the World Trade Organization.  Here, the Appellate Body upheld an earlier Panel's findings that FFDCA is inconsistent with provisions of the Technical Barriers to Trade ("TBT") Agreement. The Appellate Body, however, disagreed with the Panel's interpretation of “like products” and “treatment no less favourable” in the TBT Agreement.

The Appellate Body considered that the determination of whether products are “like” within the meaning of the TBT Agreement is a determination about the competitive relationship between the products.  Regulatory concerns underlying a measure, such as the health risks, may be relevant to the determination of “likeness” to the extent they have an impact on the competitive relationship between the products.  Based on this interpretation, the Appellate Body agreed with the Panel that clove and menthol cigarettes are “like products.”

In determining whether a measure's detrimental impact on imports constitutes "less favourable" treatment, the Appellate Body found that a panel must carefully scrutinize the particular circumstances of the case, namely the design, operation, and application of the regulation, and, in particular, whether that regulation is even handed.  Based on this interpretation, the Appellate Body found that these factors  strongly suggests that the FFDCA has a detrimental impact on competitive opportunities for clove cigarettes and reflects discrimination against the group of like products imported from Indonesia.

Finally, the Appellate Body upheld the Panel's finding that the United States acted inconsistently with the TBT Agreement by allowing only three months between publication and entry into force.

United States - Measures Affecting the Production and Sale of Clove Cigarettes

  • United States
  • Apr 4, 2012
  • World Trade Organization Appellate Body

Parties

Plaintiff Indonesia

Defendant United States of America

Third Party

  • Brazil
  • Colombia
  • Dominican Republic
  • European Union
  • Guatemala
  • Mexico
  • Norway
  • Turkey

Legislation Cited

Related Documents

Type of Litigation

Tobacco Control Topics

Substantive Issues

Type of Tobacco Product

None

"In respect of end-use, we have disagreed with the Panel's conclusion that the end-use of clove and menthol cigarettes is simply "to be smoked". Nevertheless, we have considered, based on the Panel's findings, that both clove and menthol cigarettes are capable of performing the more specific end-uses put forward by the United States, that is, "satisfying an addiction to nicotine" and "creating a pleasurable experience associated with the taste of the cigarette and the aroma of the smoke". We have thus concluded that the different end-uses of clove and menthol cigarettes support the Panel's overall finding of likeness. Finally, we observe that the United States has not appealed the Panel's findings regarding the physical characteristics and the tariff classification of clove and menthol cigarettes. The Panel found that clove and menthol cigarettes are physically similar as "they share their main traits as cigarettes, that is, having tobacco as a main ingredient, and an additive which imparts a characterizing flavour, taste and aroma, and reduces the harshness of tobacco"; and that they are both classified under subheading 2402.20 of the Harmonized Commodity Description and Coding System. In the light of all of the above, while we disagree with certain aspects of the Panel's analysis, we agree with the Panel that the "likeness" criteria it examined support its overall conclusion that clove and menthol cigarettes are like products within the meaning of Article 2.1 of the TBT Agreement."
"As a consequence of our interpretative approach to the concept of "like products" in Article 2.1 of the TBT Agreement, we have also disagreed with the Panel's decision to examine the extent of substitutability of clove and menthol cigarettes from the perspective of a limited group of consumers, that is, young smokers and potential young smokers. We have, nevertheless, considered that the Panel's error does not vitiate the conclusion that there is a sufficient degree of substitutability between clove and menthol cigarettes to support an overall finding of likeness under Article 2.1 of the TBT Agreement. We have also determined that the Panel's decision that it could not rely on certain evidence submitted by the parties did not amount to an error under Article 11 of the DSU."