Indonesia Fails to Convince WTO on U.S. Clove-Cigarette Ban

Indonesia failed to prove that a U.S. ban on clove cigarettes, designed to prevent teenagers from starting to smoke, is unnecessary, a panel of World Trade Organization judges said.

“The panel found that the ban is inconsistent with the national-treatment obligation because it accords clove cigarettes less favorable treatment than that accorded to menthol-flavored cigarettes,” WTO judges in Geneva said in their report yesterday. “However, the panel rejected Indonesia’s second main claim, which was that the ban is unnecessary.”

Indonesia argued that U.S. tobacco legislation, signed by President Barack Obama in June 2009, breaks global trade rules because it outlaws cloves and not the mint used to make menthol cigarettes. Indonesia, the world’s largest producer of clove cigarettes, or kreteks, made by companies such as PT Gudang Garam, has exports valued at $500 million a year, a fifth of which go to the U.S.

Menthol-flavored cigarettes that are produced by U.S. manufacturers such as Altria Group Inc.’s Philip Morris USA and Lorillard Inc. (LO) were exempted from the U.S. ban as part of a 2008 compromise by lawmakers that led Altria to endorse the legislation. Menthol cigarettes, the most popular flavor, constitute 20 percent of the U.S. market, according to Federal Trade Commission data.

Studies show that 17-year-olds are three times more likely to use flavored cigarettes than people over 25, according to the U.S. Food and Drug Administration.

‘Scientific Evidence’

“The panel’s conclusion was based, in part, on its finding that there is extensive scientific evidence supporting the conclusion that banning clove and other flavored cigarettes could contribute to reducing youth smoking,” the judges said on the trade arbiter’s website.

When Indonesia lodged its complaint at the WTO in April 2010, the country’s trade minister, Mari Pangestu, said there was “a discriminatory component” in the Obama administration’s decision to exclude menthol from the cigarette-flavorings ban.

Indonesia says more than 6 million of its citizens depend on the production of clove cigarettes. Cloves, native to the Southeast Asian nation, are a spice taken from the dried flower buds of a tropical tree.

No one was available at Indonesia’s mission in Geneva to comment on the ruling.

To contact the reporter on this story: Jennifer M. Freedman in Geneva at jfreedman@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.

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