Dominican Republic Loses on Plastic Bag Safeguards Case at WTO

In a dispute that pitted the Dominican Republic against four of its developing country trading partners, a WTO panel last week ruled that Santo Domingo’s safeguard duties on plastic bags and tubular fabric imported from Central America do indeed violate WTO rules (DS415, 416, 417, 418).

Costa Rica, El Salvador, Guatemala, and Honduras had challenged the value-added tax at the global trade body, arguing that it violated the WTO’s rules on safeguards contained in the General Agreement on Tariffs and Trade (GATT) and the specialised Safeguards Agreement.

The four Central American countries further complained that the measures were applied in a discriminatory manner, given that the Dominican Republic’s safeguard tariffs had not been applied to relevant imports coming from Colombia, Indonesia, Mexico, and Panama. The Safeguards Agreement requires most-favoured nation (MFN) treatment among WTO members.

While the panel acknowledged that there had been an increase in imports, it rejected Santo Domingo’s arguments and confirmed that the tariffs were inconsistent with WTO rules. The global trade arbiter further asked the Dominican Republic to bring its measures into compliance.

Notably, the 38 percent tax was within the Dominican Republic’s WTO tariff ceiling of 40 percent on propylene bags and tubular fabric. However, the Caribbean island state had committed itself to duty free access as part of its free trade pacts with the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) countries. The tax was due to expire on April 2012.

Given that this duty free access had been granted as part of a regional trade pact, and not within the WTO context, Santo Domingo had insisted that the WTO panel decline jurisdiction over the case.

The panel rejected this claim, however. Keeping in line with previous WTO decisions, the panel found that free trade agreements and WTO commitments could apply in parallel, stressing that the sole fact that the safeguard tariffs were also higher than the bound tariffs agreed to in the preferential trade agreement was not sufficient to deny jurisdiction.