Baltazar|Linaac|Metin|Morales|Tantoco

03March2016
MKT171X

AustraliaCertainMeasuresAffectingtheImportationofFreshPineapple

I.IntroductiontotheCase

Since the Philippines is located in the tropical environment, plantations of a great

number of agricultural produce such as mangoes, banana and pineapple have sustained the
inhabitantsaswellaspeoplefromallovertheworld.
While the service and manufacturing sectors have been growing rapidly, the
agricultural sector still makes up 9.5% of the GDP. The Philippines produce a largevariety
ofagriculturalcommodities,includingpineapple(FairFoodInternational,2013).

II.BackgroundofIndustryandTrade

Although not a native of the Philippines, the country currently is the fourth biggest
producer of pineapple and second to Thailand in being one of the biggest exporters of
pineapples in the world. (DA, 2009) Export quality pineapples comes from Mindanao while
domesticallyconsumedpineapplescomefromLuzonandVisayas(DOST,2003).

The major export destinations for freshpineapplesareJapan,SouthKorea,Chinaand

Singapore. Top export markets for dried pineapples include USA, japan, the Netherlands,
ChinaandHawaii(DTI,2013).

STRENGTH

WEAKNESSES

Extensively
Sensitive
cultivated in the waterlogging.
country.

OPPORTUNITIES

to World
demand
high.

THREATS

market Insufficient supply

remains ofqualityfruits.

Expansion
of Lack of financing Increase on export Concern on
pineapple plantation and
market both for fresh and management
lands.
assistance for small processed.
Phytophthora.
growers
and
processors.
Support of private Poor
transport Niche markets for
sectors
on infrastructure
organically grown
postharvest facilities facilities.
pineapples.
andequipment.
DA,2013

Environmental
impact
conventional
management
pineapple.

the
of

of
in

Australia on the other hand is too a producer andconsumerofpineapples.According

to Growcom, the Pineapple Growers Advancement Group and Horticulture Australia
Limited, as of 2010, some of the pineappleindustrysstrengthsaregoodcommunicationand
cohesion within the industry, levy income available to fund critical industrylevel projects,
resilient and responsive growers and there is existing skills and experience in pineapple
breeding that could be better resourced to breed superior varieties. Weaknesses on the other
handinclude:futureviabilityof processingindustryinAustralia,lackofcoordinationinfresh
market supply and there is minimal understandingofconsumerneeds.Opportunitiesthatcan
be capitalized are the international examples of capacity togrowpercapitaconsumption,the
potential for increased infrastructure sharing within regions while threats include the
exposure to cost increase, labor shortages and skill deficiencies, environmental impacts and
regulationsandclimatechangeandvariability(Growcom,2010).

As of today, countries currently able to import fresh pineapples include the

Philippines, Sri Lanka, the Solomon Islands and Thailand with Malaysia pursuing market
access.

2016 marks the 70 years ofAustraliaand thePhilippinesbilateralrelations.Together,

the
Australias trade relationship with the Philippines is supported by the ASEAN Australia
New Zealand Free Trade Agreement (AANZFTA) and the East Asia Summit (EST). But
looking into the World Trade Organizations dispute section on its website, the Philippines
has had two complaints against Australia. Case number DS270 which is about certain
measures affecting the importation of fresh fruits and vegetables and also DS271, certain
measures affecting the importation of fresh pineapples which the paper will further discuss
andtackle.

III.HowWTOsettlesdisputes

WhyandHowGovernmentsInterveneinInternationalTrade
Governments intervene in international trade due to political, economic, and cultural
motives. Political motives include job protection, national security, and international trade
conflicts such as unfair trading practices done by other countries and gaining influence in
other nations. Economic motives include protection of infant industries (i.e., emerging
industries) and promotion of strategic trade policies (i.e., government intervention to boost
trade by takingadvantageofeconomiesofscale,etc.).Lastly,theculturalmotiveisprimarily
protectionofnationalidentity.

There are different methods that governments use to intervene in international trade,
eithertopromoteorrestrictit.Themethodsarelistedbelow:

Promote
Subsidies
Exportfinancing
ForeignTradeZones
SpecialGovernmentAgencies

Restrict
Tariffsexport,transit,andimporttariffs
Importandexportquotas
Embargos
Localcontentrequirements
Administrativedelays
Currencycontrols

WTOandFreeTrade

The World Trade Organization (WTO) was created during the Uruguay Round of
GATT (General Agreement on Tariffs and Trade) negotiations. GATT had been created to
promote free trade by reducing barriers to trade, but it proved insufficient. WTO thus
included trade services, intellectual property rights, and trade barriers, especially for
agricultural products. Its three goals include (1) helping free flow of trade, (2) negotiating
openingofmarkets,and(3)settlingtradedisputesamongmembers.

HowWTOSettlesDisputes

WTO operates under a principle of nondiscrimination called

normal trade relations
.
This means that WTO is required to treat all member countries equally. TheWTOfollowsa
procedure of settling disputes that follows a rulesbased system to ensure efficiency. Trade
disputes take approximately one year without appeals to complete, and one year and three
monthswithanappeal.Theprocedureisasfollows:

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

themselves.TheWTOdirectorgeneralmaymediateorhelpthesediscussions.
2. Panel Set Up, Panelists Appointed (~45 days for setup): the panel helps the
Dispute Settlement Body make rulings and recommendations, and have tofollow
citedagreements.
3. Panel Discussions, Final Report given to parties (~6 months):
the panel
discussions include hearings, rebuttals, experts to review technical matters, draft
reports submitted forcommentsandreview,andafinalreportthatthenbecomesa
ruling.
4. FinalPanelReportgiventoWTOmembers
(~3weeks)
5. DisputeSettlementBodyadoptsreportifthereisnoappeal
(~60days)
6. Appealsreport
(~6090days)
7. DisputeSettlementBodyadoptsappealsreport
(~30days)
Total:~1yearwithoutappeal,~1yearand3monthswithappeal

Once the case has been decided, thecountriesmustadoptthisruling.Theguiltyparty

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

final goal to get each country to comply with the ruling. The Dispute Settlement Body may
be asked to intervene if either of the countries continues to ignore the rulings. They also
monitorhowtherulingsareimplemented.

IV.DiscussionofCaseandInterview

A trade dispute arose between Australia and the Philippines when the formerbanned
the latter from theexportationoffreshpineapplesintotheAustralianmarket.ThePhilippines
filed a complaint and on October 18, 2002, requested consultations withAustraliaoncertain
measures affecting the exportation of pineapples. This included the Plant Biosecurity Policy
Memorandum requiring that fresh pineapple fruits from the Philippines, among other
requirements, be decrowned and subjected to preshipment methyl bromide fumigation as
conditionsforimportationintoAustralia.

The Philippines considered these measures as being inconsistent with the obligations
of Australia under the GATT 1994andtheSPSAgreementortheSanitaryandPhytosanitary
Measures which provides the basic rules for ensuring a transparent and fair health laws and
regulations. However, the WTO noted that the SPS Agreement can be effective in
protectionismduetoitsbeingtechnicalanddeceptive.

In 2005, after three successful trial shipments of pineapples, Filipino exporters could
now begin commercialscale shipments into Australia. Biosecurity Australia allowed these
trial shipments to be fumigated using its methylbromidetreatmentwhichridsthepineapples
of insects and pests and at thesametime, prolongs thefruitsshelflife.BiosecurityAustralia
alsoagreedtowaivethedecrowningrequirementofthepineapples.

In order to gain further insight into the nature anddynamicsoftraderelationsaswell

as trade disputes, an interview was conducted with Mr. Leodegario C. Alabarca Jr. of the
Bureau of International Trade Relations. As a Senior Trade and Industry Development
Specialist (STIDS) of the WTO Desk, and a WTO Desk Officer, the scope of his work
includes handling issues relating to the WTO. Each officer is assignedtoaparticularsubject
matter under theWTOagreementswithMr.Alabarcadealing,inparticular,withassignments
onagricultureandintellectualproperty,amongothers.

Every country participating in trade relationships have responsibilities to fulfill their

obligations and to follow the regulations of the WTO. The MostFavoured Nation (MFN)
treatment of the WTO states that under the organizations agreements, countries cannot
normally discriminate between their trading partners. When engaging in the buying and
selling of commodities, tariffs are required by the local government of the company as a
means of regulating trade policies. Tariffs are taxes imposedonimportedgoodsandservices
used to restrict tradeandprovideadditionalrevenueforgovernmentsanddomesticproducers
at the expense of consumers and foreign producers (
Investopedia.com
). In the Philippines,

tariffs are
ad valorem or calculated on the basis of a commoditysvalueand notitsquantity,
size, or any other factor (
BusinessDictionary.com
). For instance, if Mercedes weretoimport
its cars into the Philippines wherein cars are designated to pay a40%tariff, avehiclevalued
atP1.5MwillhavetopaycustomsatotalamountofP600,000asitstariff.

Tariff rates in the country, says Mr. Alabarca, are moreorlesspermanentandcannot

be adjusted so easily. Decisions involve a number of preliminary discussions, public
hearings, as wellastheparticipationofdifferentrelevantagenciescomingtogethertodiscuss
the respective amounts. Additionally, tariff rates are not consistent throughout and is
dependent ontheclassificationofproductbeingexported,orimported,byacountry. Itwould
also depend on the sensitivity of the good involved in the trade. By way of illustration, the
tariff rateforfreshpineapples,driedpineapples,andcannedpineappleswouldnotnecessarily
be identical despite being made upofthesameagriculturalproduce.Ontheotherhand,there
are products which are exempted from WTO provisions such as rice in order to protect the
interest of local rice farmers.However,therealitythatlocal farmercannotmeetthecountrys
rice demand leads to an increase in prices,resultingintheneedforthe governmenttoimport
riceinordertostabilizeprices.

The Philippine government is the primary entity that creates and enters trade policy
rules, as well as negotiates the tariff rates of different products withthegovernmentofother
countries. Private companies engaging in international trade negotiate the terms of the
transaction, including specific prices and the total volume of the commodities involved, but
must report and approach the government when negotiating for tariff rates. In the case of
Philippine exportofbananas toJapan,Mr.Alabarcacitesthattheprivatesectorwhich,inthis
case, is the Department of Agriculture, requested for tariff negotiation. According to Mr.
Alabarca, tariff negotiation is not immediately processed following its request. Preliminary
research and study are conducted in order to determine the stake and position oftheproduct
in the parties (countries) involved, before proceeding with the necessary steps addressing
suchdisputes.

It is the observance oftheregulationswhichallowsforsuccessfultraderelations.The

most common reason behind trade disputes, Mr. Alabarca states, is the noncompliance of
such rules by the parties (countries) involved. Mr. Alabarca cites the dispute between the
Philippines and Thailand over the formers export of cigarettes into their country (DS371).
As previously mentioned, all negotiations unrelated to the matter of tariff rates and
deliberationareconductedbetweentherespectiveentitiesoftheprivatesector.

In the case of the cigarette dispute between the Philippines and Thailand, Philip
Morris Philippines, being the company involved in the actual trade, felt the repercussion of
the tariff rates and reported accordingly to the government. According to Philip Morris
Philippines, Thailand used a valuation system in violation of the customs valuation
agreementprovided by theWTO.Thegovernment,inturn,conductedaCompleteStaffWork

(CSW) which involves interagency meetings and further research into the different relevant
aspectsofthecase(ex.economic,agricultural,legal)beforeproceedingfurther.Allreportsof
trade disputes are assessed by the government accordingly inotherwords,thebodyisnot
required to respond and take action for every complaint brought before it after its
reassessmentofthesituation.

Resolving trade disputes are done either through bilateral, regional, or multilateral
negotiations. If all these engagements fail, countries may avail of the dispute settlement
mechanism available in these fora where trade disputes are resolved with governments as
parties. Should the government prove to be unsuccessful in terms of negotiations, it has the
option to move forward and bring the matter forth to the WTO Dispute Settlement.Indoing
so, it has two options with regards to legal counsel. In the case of the cigarette dispute
between the Philippines and Thailand, Philip Morris Philippines hire international trade
lawyers to represent the company and who served as the governments legal advisor
throughout the duration of the hearings and settlements. On the other hand, the government
may also seek aid from the Advisory Centre on WTO Law (ACWL), a nongovernmental
organization whose members are governments of different countries, most of whom are
developing nations with the Philippines being one of its original members. The ACWL is
able to provide lawyers for parties (countries) involved in a tradedispute,providedthatonly
one party may avail of such services. In the case of the pineapple dispute between the
PhilippinesandAustralia,thecountrymadeusofACWLlawyers.

Upon the WTO Dispute Settlement hearing, the parties (countries) involved are not
required to make any monetary settlements whatsoever. Once a decision has been made ina
trade dispute, it is incumbent upon the concerned government to change the measure in
question or in issue by adjusting in accordance to WTO standards for such measures.
Nonetheless, there have been cases, Mr. Alabarca adds, wherein the implicated party
continues to implement measures in violation of WTO regulations. On such occasions,
injured parties may utilize trade retaliation as a means of enticing compliance.Inthecaseof
thepineappledisputebetweenthePhilippinesandAustralia,Mr.AlabarcasaysthePhilippine
government may advise the Australian government that should it not allow for the entry of
the countrys local fruit into their market, it will increase the tariffofotherAustraliangoods
enteringthePhilippinemarket.

VI.ConclusionandSuggestions/CurrentSituation

To understand the stakes of trade conflicts between two countries likesAustraliaand

the Philippines, it is crucial to keep in mind that each country intends to defend its own
interests.Reasonsfoundarenationalsecurity,jobprotectionornationalidentity.
Australia intends to protect its own agriculture but faces cheaper price from imported
pineapple becauseoftheAANZFTA,whichexemptspineapplefromtradetariffs.Thatswhy
Australia asked WTO for the decrowned and methyl fumigated pineapples coming from the

Philippines : a way to prevent importation for 3 years. Even if one conflict has been solved
and the Philippines can export their pineapples again to Australia, Australia, will sooner or
laterfindanewwaytoprotectitsinterests,throughcontentrequirementsassizeorquality.

Nevertheless, there are other ways to avoid trade barriers:forexample,tosupportits

exportations, Philippines could choose to devalue the peso, if there are enough supportive
industries, which would make their exports cheaper for importer countries, so more
competitive. Agriculture is still 10% of GDP and Philippines isa bigexporterofagricultural
goods:theyshouldbetontheircomparativeadvantage.
Government could at the same time invest more in agriculture to increase
productivity, better infrastructures to encourage small producers, in a time where more and
more farmers leave the countryside to go to the city. Fruits quality would also need to be
supported as it can be a risk for the industry. Actually, many small producers dont use
pesticide and fertilizers because too expensive for their daily expenses, so they produce
organic fruits without putting them under label :thisnichemarketoforganicfruitsshouldbe
exploited and encouraged by the government. This is a way to strongly compete with
Australianorganicandnonorganicpineapple.
Global exports of fresh and processed fruits are still increasing, so PhP should take
this opportunity to improve its industry and grow, at the expense of other big producerslike
Thailand,andbecomemoreimportantonallitsmarkets.

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

measures, like Australia did in 2002 with local content requirements, complaining toWTO..
Nevertheless, such processes areverylongtobesolvedevenifWTOfinallyallowedFilipino
exports pineapples to Australia again. There are some other strategic ways to solve and/or
avoidconflicts.

Sources(MLA)

Alabarca,LeodegarioC.,Jr.Telephoneinterview.16Mar.2016.

Principles of the Trading System.

WTO.
N.p., n.d. Web. 15 Mar 2016.
<
https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm
>

Tariff Definition.
Investopedia. N.p., 24 Nov. 2003. Web. 15 Mar. 2016.
<
http://www.investopedia.com/terms/t/tariff.asp?layout=orig
>

Wild, John J., and Kenneth L. Wild.

International Business: The Challenges of
th
Globalization
.6
ed.Essex:PearsonEducationLimited,2012.Print.

World Trade Organization. Understanding the WTO: Settling Disputes.

WhatistheWTO?
WTO,2016.Web.13Mar.2016.

World Trade Organization. Australia Certain Measures Affecting theImportationofFresh

Pineapple.
DisputeSettlement
.WTO,2016.Web.15Mar.2016.