Trade Barrier : A case Study in Dispute on

Trade

Cigarettes Trade Dispute between Indonesia and the US

Alichia Diasuma Tarigan/023202005048
Jehan Nabilah/023202005034
Nadhirariani/023202005040
Silvia Irawan/023202005037
Tobacco Export to US
 Success Key Factors of Djarum
Company
• Uniqueness of Product
• Well segmented
• Production improvement
 Failure Key Factors of Djarum
Company
The Failure was determined by the foreign trade
barriers in the form of government policies
country of destination.
“Family Smoking Prevention and Tobacco Control Act” Public Law
111-31. Sec 907 which prohibits the existence of kretek cigarettes in America Union.

• In 1972 the Djarum company began exporting its products to

international markets, including China, Korea, Japan and the
United States. The most popular products in the United
States are the Djarum Super and Djarum Special.
• PT Djarum export its cloves cigarettes to US through Kretek
International Inc.
• By 2009, yearly revenue in the US Market reach 1,2 million
units.
Tobacco Consumption in the U.S

Adult
20 – 26%

Youth
12 – 19%
Sales of cigarettes in
the US

2007 : 470 million units

2008 : 430 million units
2009 : 220 million units

How many
2007 : 360 billion units
clove cigarettes
2008 : 346 billion units are imported
2009 : 317 billion units from Indonesia?
 Kind of Competition Happens

Local origin cigarettes US took a policy to ban flavored

versus imported Indonesia feels there had
cigarettes that contain aroma
cigarettes been a dispute
(cherry, chocolate, cloves)
MINTS ARE ALLOWED

Indonesia had submitted a Indonesia proposed

Negotiations failed
dispute resolution bilateral negotiations
application to the WTO
 Cigarette Dispute Settlement Stages
Indonesia's Submission of
Indonesian
Diplomacy Indonesia's
Government
and Protest to the
Consultation
Negotiation United States
with the US
Efforts to (objection
Government
the US note)

Dispute
Panel
Resolution
Implemen- Process and
Appeal Consultation Efforts
tation Panel
through
Judgment
the WTO
Result
 Indonesia's Diplomacy and Negotiation Efforts to the US
Submission of Indonesia's Protest to
the United States (objection note)
August 17th 2009
"Family Smoking Prevention and
Tobacco Control Act" Public Law
111-31. Sec 907 is a law that has
violated the general principles of
the WTO, namely non-
discrimination and the WTO
agreement on the Technical Barriers
to Trade (TBT Agreement).
Indonesian Government Consultation
with the US Government
March 7th 2010
United States based on research
"Richard Hurt" a professor of medicine
and director of the Nicotine Addiction
Center at the Mayo Clinic Minnesota
revealed that kretek cigarettes are
more dangerous. According to
scientists, the compounds contained
in kretek cigarettes or clove cigarettes
(topical anesthetic / eugenol) can
increase smoking interest for new
smokers.
 Dispute Resolution Efforts through the WTO
Indonesian Government
Lawsuit
April 7th 2010
1. in accordance with Article 2
section 1 of the TBT Agreement
which states that the US has
discriminated against kretek
cigarettes.
2. in accordance with Article 2
section 2 of the TBT Agreement
which in essence confirms that
the prohibition of smoking is not
necessary.
Panel Process and Panel
Judgment Result
June 24th 2011
The Panel issued a recommendation
report as outlined in the Report of the
Panel on the kretek cigarette dispute
case between Indonesia and the US. The
Panel has decided that in enforcing Sec.
907 (a) (1) (A) the United States has
violated the principles of the TBT
Agreement in Article 2 section 1, Article
2 section 9.2, and Article 2 section 12 .
 Dispute Resolution Efforts through the WTO

Appeal Stage Implementation Stage

April 4th 2012 June 14th 2012

The Appellate Body issued a final Indonesia and the US notify DSB that a
report in which the Appellate Body reasonable time frame for the US to
won Indonesia over the implement the decision and
dispute at the US appeal level. recommendation should be 15 months.
Thus, it is estimated that the US reasonable
period of time will end on July 24, 2013.

DSB-WTO recommendations for the US :

• Change regulations and provide compensation to Indonesia for losses suffered by Indonesia
as long as the regulation has not been revoked.
• Change regulations and give back permission for Indonesia to be able to export more kretek
cigarettes to the US.
• Not changing the regulations, but still paying compensation to Indonesia for losses suffered
while the regulation is in effect.
 The US did not Oct 3rd 2014
August 23rd Indonesia and
implement the
2013 → US agreed to MoU
WTO DSB
arbitration end and Agreement
recommend-
rate resolve the
ations
dispute

3 important points in the MoU :

• The US government has agreed to provide additional facilities for the Generalized
System of Preference (GSP) with additional value for the next five years and will also
consider the demand for other export products from Indonesia.

• The US also promised and agreed that it would not complain about the prohibition or
restriction of mineral export policies implemented by Indonesia and would not
interfere with market activities for Indonesian cigarette products to the US market until
further non-discriminatory arrangements were made so that it could result in losses.

• The United States has stated that it will assist Indonesia in improving the enforcement
of IPR (Intellectual Property Rights) so that Indonesia's status in enforcing IPR is better.
Future Directions and Challenges
• Tobacco (as well as cloves cigarettes) trade and
exports is a sensitive industry which is subject to
trade barriers in one country, mostly with the
argument of Public Health.
– Case of Australia dispute (plain packaging policy, WTO
DSB 2015)
– Case of Singapore Banning Flavored Cigarettes

• The increase of health awareness may impact on

this industry
– WHO Framework Convention on Tobacco Control
 Future Directions and Challenges
• Despite the challenges, cigarettes still have a huge
market, and it is projected that there will be no
significant drop of market (even after projected with
pandemic situation)
 Future Directions and Challenges
• Indonesia have it’s own long term plan for
cigarettes and tobacco industry (Kemenperin,
2009):

Source : kemenperin
 Governments and whole
Industry players must work
Lesson together to successfully enter
the international markets and
Learned break through barriers from
other countries .
 List of References
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 List of References
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 List of References
• “United States — Measures Affecting the Production and Sale of
Clove Cigarettes”. Retrieved on 13 February 2021 from
https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds406_e.
htm
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• Sunaryo, Thomas (2013).” Kretek Pusaka Nusantara, Serikat
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 List of References
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bkmk406r
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 List of References
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