South Korea may face WTO sanctions from Indonesia

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GENEVA, Oct 22 (Reuters) South Korea could face trade sanctions from Indonesia over its failure to comply with a two-day World Trade Organisation (WTO) ruling, according to documents released today.

The WTO's Dispute Settlement Body (DSB) found in 2005 that Seoul's way of calculating anti-dumping duty on Indonesian paper products was inconsistent with international trade rules. But a compliance panel launched at Jakarta's request concluded that South Korea had not done enough to fix the violation.

That compliance report, which was adopted by the DSB today, opens the door for Indonesia to seek trade sanctions against South Korea to compensate for losses faced by its paper exporters affected by the anti-dumping measure.

Such a retaliation request may come as early as the DSB's next meeting on November 19. It would constitute the first time one developing country has sought retaliatory sanctions against another at the WTO.

''It is now up to Korea to bring itself into compliance with its treaty obligations. Indonesia expects Korea to do so immediately by withdrawing the anti-dumping measure,'' Indonesia said in its submission to the WTO body today.

''Korea's WTO-inconsistent measure has been in place for almost four years, improperly restricting Indonesia's access to the Korean market. Indonesia will have no choice but to request authorisation to take retaliatory action if Korea continues to enforce this WTO-inconsistent measure.'' Local producers account for about three quarters of the South Korean paper product market, with imports from Indonesia and China making up the rest. Indonesia's exports to South Korea are thought to be worth more than 100 million dollar yearly.

If Indonesia requests trade sanctions at the WTO, their size and shape could be challenged by South Korea and moved to arbitration that could take months. The sanctions could take the form of additional tariffs or duties applied to South Korean products entering Indonesia.

Seoul did not appeal against the compliance panel's findings, but did raise concerns about them in its submission to the WTO body.

''To be honest, Korea is puzzled by certain aspects of the panel's decision,'' it said in a written submission, suggesting that many of Indonesia's complaints had ''largely been rendered moot'' by recent changes to duties and negotiations with Indonesian exporters.

''Nevertheless, Korea is prepared to provide additional explanations and opportunities to comment required by the panel's decision. We look forward to discussing with our colleagues from Indonesia an appropriate schedule to implement the recommendations of the panel report,'' the document added.

Developing countries have been both complainants and respondents in WTO disputes over the treatment of goods ranging from bananas to bed linen to aircraft, though sanctions have only been levied on developed countries to date.

Brazil nearly faced sanctions in a dispute with Canada over aircraft subsidies that was later shifted outside the WTO dispute process. South Korea has previously filed complaints against the United States and the Philippines over their anti-dumping measures.

REUTERS AE RAI2254

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