Failures of Member States to
Justify the Trade-Restrictive Policy Measure
under the General Exception
in the WTO Dispute Settlement
Student Name: Yang Zhiying Student Number: 12271543 Study Track: Public International Law
Abstract
In recent years, Art.XX GATT 1994 has been increasingly used by the Member States, however, it is noted that although it is a way to legitimate the measure which may violate the substantial obligation under GATT 1994, it is nearly impossible for respondent States to successfully invoke Art.XX. This paper discusses the “necessity” and “chapeau” thresholds in the process of using Art. XX GATT 1994 to justify the policy measure which may have a restrictive effect on international trade, points out the difficult parts in the legal practice through the text of Art.XX and the analysis of the Panel and the Appellate Body in two cases, one failed under the “necessity” threshold and the other one failed the “chapeau” test. Then combine the previous findings with the legal performance of Member States in the statement, figure out the reason why it is difficult to use Art.XX GATT 1994 in justifying the challenged measure and recommend the Member States and the Dispute Settlement Body.
The article includes three parts: The first part introduces the developing application of Art.XX-from “rarely invoked” to “actively use”, calculates the practices of it from the establishment of the WTO up to now including statistics on cases invoking (a) to (j) of Art.XX and on which threshold/part the case fails under Art.XX. After finding that “necessity” and “chapeau” test, as the last two
thresholds, have excluded nearly all cases invoking Art.XX, it finds the difficulties of that by looking through the text of Art.XX, allocation of the burden of proof, ‘weighing and balancing’ formula and ‘least trade-restrictive’ test in the “necessity” threshold. The second part includes two case analyses, with China-audiovisual Products one failed “necessity” test and the other one EC-seal products failed on the “chapeau”. Through this analysis of the legal practice part, it can be known that although the Dispute Settlement Body does have some degree of discretion, unqualified and unrelated evidence stated by the respondent State is the main reason for the failure of invoking Art.XX. Therefore, the last part of the article would focus on possible improvements mainly for the Member States in the application of the general exception in the WTO framework, skills of
designing policy measures which may have a trade-restrictive effect, implementation of the measure and the performance under the burden of proof. For the Dispute Settlement Body, the only possible improvement concerned by the article through the previous analysis is to make a degree of
modification on the discretion of it on the two thresholds.
Key Words: General Exception of Art.XX, Necessity Threshold, Chapeau Test, Evidence, the
CONTENTS
I. Introduction 5
II. Art.XX GATT 1994 under WTO Dispute Settlement 6
A. From “Rarely Invoked” to “Actively Use” 6
B. Cases Involving Art.XX GATT since the Establishment of WTO 8
C. “Difficulties” of Invoking Art.XX to Justify 9
1. Conditions for Successful Application of Art.XX GATT 9
a. Chapeau of Art.XX 10
b. (a) to (j) of Art.XX 10
2. Burden of Proof When Art.XX GATT Invoked 11
3. Difficulties in Proving when Art.XX Invoked — on “Necessity Threshold” 12 a. ‘Weighing and Balancing’ Formula—Difficult for “0 risk” to Survive 13
b. ‘Least Trade-Restrictive’ Test 15
c. Sub-conclusion in “Necessity” 15
4. Difficulties in Proving when Art.XX Invoked — on “Chapeau” Test 16
III. Case Analyses—When Art.XX Involved, the Respondent States under “Necessity”
and “Chapeau” Threshold 18
A. China-Publications and Audiovisual Products: Failed “Necessity” Threshold 18
1. Introduction to the Case 18
2. Objective of the “0 Risk” Pursued by China and the “Necessity of the Wholly
State-owned Enterprises” 19
B. EC-Measures Prohibiting the Importation and Marketing of Seal Products:
Failed “Chapeau” Test 21
1. Introduction 21
2. Application of Art.XX(a) GATT under the “Chapeau” Test 23
a. “Discrimination” (Exemption) in the Public Policies 23
b. “Arbitrary” and “Unjustifiable” of the Identified “Discrimination” 25
IV. Possible Improvement 28
A. To Designed Policy Measure—Consistent with the Objectives of Subparagraphs
of Art.XX 28
1. Application of the General Exception in the WTO Framework 28
2. Skills of Designing Policy Measure 29
a. “Necessity” 29
b. Chapeau 30
a. Flexibility 31
b. Fairness 32
4. Under the Burden of Proof—Pay Attention to the Evidence Provided 33 a. Make Sure the Quality of Evidences Provided in Every Statement 33 b. Attention to the Connection between Evidence and Object of Proof 35
B. To the Panel and the Appellate Body During the Assessing Process 36
1. Limiting the Power of the Panel on the “Necessity” Test 36
2. Setting a More Specific Definition for Chapeau Terms 37
I. Introduction
Some people compare the multilateral trading system to a “maze of exceptions,” while others think that this system is full of holes because of various exceptions. However, it must be noted that the existence of exceptions is unavoidable in any international law, especially for the WTO legal system. The contents of the WTO rules cover trade in good and service, intellectual property rights, investment, trade, and many other aspects with a large number of documents and complex contents. Within the WTO system, it is not uncommon to see differences and conflicts of opinion and even resort to the dispute settlement mechanism due to the diverse and complicated relations among more than a hundred members. Bringing all members into a multilateral trading system and promoting the goal of global trade liberalization depends on the compromise members, and it is based on the compromises and concessions made by the Member States that the exception clauses could exist and develop, providing a broader space for the smooth operation of the WTO.
International law mainly relies on moral pressure and voluntary compliance to ensure the smooth implementation of its rules, which makes it inherently have various limitations and compromises which are difficult to overcome, and the WTO law is no exception. In order to ensure the
enforcement of the WTO rules and to give full play to its advantages of stability and predictability, the WTO Agreement have adopted a series of measures in terms of legal obligations or mandatory rules, which have changed the changed the traditional pattern of “weak law” in the past
international law and set up a new image of judicial and authoritative. With the great power of the dispute settlement mechanism, the exception clause has been activated through creative application in recent years, and the importance of it in the whole WTO rule system has gradually emerged.
Art.XX GATT 1994, as general exception, contains a wide range of provisions, including the maintenance of public morals, the protection of human and animal life or health, the protection of the country’s artistic, historical or archaeological treasures and the conservation of the exhaustible natural resources, which gives WTO Member States the right to pursue specific policy objectives. The GATT was provisionally applied from 1 January 1948 and was subsequently accepted by the WTO legal system. The content stipulated in Art.XX was not significantly modified. However, from 1948 to today, the rapid development of society has brought about extensive and profound changes in various fields such as politics, economy, culture, and law. The development of global trade has also presented a new look and characteristics, which was originally unimaginable and unable to be correctly estimated by the legislators. With the protection of public morals, the protection of the
environmental, labor rights, the protection of animal welfare and other non-trade values
increasingly attracted the attention of the WTO Member States, the Art.XX of GATT 1994 was frequently cited in practices of the WTO dispute settlement, and the importance of it (general exception-Art.XX) has become increasingly prominent. However, due to the strict application of Art.XX of GATT 1994, WTO Member States are rarely able to successfully justify the challenged policy measure under that. And in order to justify the challenged measure with a restrictive effect on trade, other than that the measure needs to be relevant to the Art.XX, it also needs to pass all scope, necessity and chapeau threshold and up to now, only one case successfully invoked the general exception, most cases failed at the second (necessity) and third (chapeau) threshold.
This article mainly adopts the methods of empirical research and comparative research, by studying the cases of China-publications and audiovisual products and EC-measures prohibiting the
importation and marketing of seal products, it focuses on the analysis of the reasoning and adjudication applied by the Panel and the Appellate Body invoking the Art.XX GATT 1994.
Besides, the article would seek the reason why it is difficult for the respondent State to justify under the Art.XX from the ‘necessity test’ and ‘chapeau review’ and finally raise the possible
improvements for both Member States who are going to invoke Art.XX and the Dispute Settlement Body in the assessing process.
II. Art.XX GATT 1994 under WTO Dispute Settlement
A. From “Rarely Invoked” to “Actively Use”
In the early stage of the existence of GATT, disputes involving Art.XX has rarely occurred, and it was not until the 1980s that disputes involving Article XX began to appear. Moreover, in the WTO dispute settlement involving GATT, it is mainly developed country Parties that invoke the general exception of Art.XX, especially the United States, the European Community, Canada, and Japan among which the United States used the most andThailand is the first developing country invoking it . The prosecution of measures involving matters of Art.XX is basically by the four powers 1
mentioned above, and Mexico is the first developing country that sued measures relating to the Art.XX.
WTO, United States-Measures Relating to Shrimp from Thailand-Report of the Appellate Body (16 July 2008), WT/
1
The above phenomenon is inseparable from the changes in the situation of international economic and trade relations. Through the first five rounds of multilateral trade negotiations during the GATT period, the tariff levels of the contracting parties were significantly reduced. Since then, 2
contracting parties, especially developed countries, have begun to shift the focus of trade protection measures from tariff barriers to non-tariff barriers. Some measures that constituted trade restrictions but were not explicitly prohibited by the GATT whose “legitimate basis” can be found in Art.XX began to emerge. When a Party adopts such measures to the detriment of the existing trade interests 3
of the other Parties, the latter often resorts to a dispute settlement mechanism on the ground that the measure violates the current GATT provisions, while the responding Party argues for “exemption” under Art.XX (in particular (b) (d) and (g)) to justify and require “exemption” which led to the case involving Art.XX.
From the “rarely invoked” to “active use” of Art.XX, the formation of two major legal outcomes in the GATT system was promoted: (1) in many cases since the 1980s, the Panel on Art.XX, especially on the application and interpretation of paragraphs (b) (d) and (g) were clarified, with “many
conditions” “created.” Although there are still inadequacies, the Panel has given a more certain and more operative meaning to the broad and vague terminology, moreover, in applying and interpreting Art.XX, the Panel often referred to or even cited the views of the previous Panel on this provision and this “de facto case law” approach helps to form a set of rules on the applications and
interpretation of Art.XX in a consistent manner. (2) The application of Art.XX (especially (b) (d) and (g)) by parties of GATT (mainly developed countries) forces parties to develop new “rules” 4
and “standards” outside the Art.XX GATT to regulate or adjust these “new trade protectionism”
“The weighted average tariff, which was as high as 35% at the time of the GATT’s establishment, fell to 15% by the
2
1960s” Hoekman B M , Kostecki M M, 1995. The Political Economy Of The World Trading System: From Gatt To WTO. Oxford University Press, p.13
These measures include: (1) technical standards for “protecting human, animal or plant life or health”, especially
3
sanitary quarantine measures against foreign agricultural products that may harm national health or spread epidemic diseases to domestic animals and plants, as well as anti-smoking, anti-alcohol and anti-air pollution measures to protect national health; (2) trade restrictions for the “conservation of exhaustible natural resources” (e.g. “clean air”,
endangered Marine life); (3) implementation of national intellectual property protection, investment review measures, national monopoly on specific products, etc. Among which environmental protection and IP protection are the most prominent.
The Panel basically denied the consistency between the relevant measures of the respondent with Art.XX in the
4
measures. These agreements are a series of legal outcomes basing on the Art,XX GATT dealing 5
with the trade in goods, as the jurisdiction of the multilateral trading system expands, among which, the establishment of the WTO Agreement defines “sustainable development” and “environmental protection” as the parallel goals and objectives of “trade liberalization”; Art.XIV GATT is the “derivative” of Art.XX GATT in the field of trade in services; SPS, TBT, and TRIPs are legal innovations and developments that more specifically and standardized the Art.XX (b) and (d) of GATT.
B. Cases Involving Art.XX GATT since the Establishment of WTO
Up to 1 June 2019, there have been 43 WTO cases involving the Art.XX GATT by respondent States seeking to justify the challenged measure. Of the 43 cases, 11 failed at the very beginning to show the relevance between the Art.XX general exception and the measures (the Panel may not assess whether the policy measure would be justified under Art.XX if it finds that another provision of GATT is not avoided) , so only 32 cases can be examined by the dispute settlement body. 6
After the first round, only 27 cases succeeded in meeting the first threshold: showing that the objective of the challenged measure was in the scope of (a) to (j) of Art.XX GATT. Although the challenged measure may have some effects on protection if the purpose of the designed policy measure is not consistent with the objective of categories under Art.XX, then it would fail the scope threshold and may not able to be justified under Art.XX.
The second threshold: “proof of necessity” is only met by 9 cases, so it is not hard to see most cases were “killed” in this step. The sequence of assessing the “necessity threshold” and “chapeau
threshold” was first settled in US-Shrimp case that the Appellate Body stated that the correct sequence of steps was first to examine whether the challenged policy measure was able to meet the
In the Tokyo Round, the Agreement on Technical Barriers to Trade was reached; in the final document of the Uruguay
5
Round, there were many provisions related or similar to Art.XX GATT 1994, such as the Preamble to the Marrakesh Agreement Establishing the WTO (expanding the full use of the world’s resources for the purpose of sustainable development, protecting and maintaining the environment); Preamble, Art.II, III, V of SPS; Preamble of TBT; Art.XIV of GATS and Art.III:2 and XXVII:2.
WTO, United States-Measures Affecting the Production and Sale of Clove Cigarettes-Panel Report (2 September
6
requirement of one of the categories under Art.XX and the chapeau of Art.XX would be the second steps for assessment. 7
Among the left 9 cases, only one of them (EC-Asbestos) survives under the last chapeau threshold and succeed in justifying the measure under Art.XX. As for eight cases that meet the “necessity” standard but fail to pass the chapeau threshold, tribunals have the discretion in assessing whether the challenged measure results in arbitrary or unjustifiable discrimination or whether the measure is a disguise of restriction on trade. Under this part, the assessment would be objective that it is possible for a designed policy with a legitimate purpose to fail the chapeau when it constitutes discrimination during the practice.
Although there are ten subparagraphs under Art.XX, among all legal practices considering Art.XX, only (a) (b) (d) and (g) (related to the protection of public morals; life and health of human, animal or plant; compliance with laws or regulations and sustainable development) has ever been invoked to justify the challenged measure.
C. “Difficulties” of Invoking Art.XX to Justify
1. Conditions for Successful Application of Art.XX GATT
Art.XX GATT is not a positive rule establishing obligations, but a series of “general exceptions” to obligations in GATT. Therefore, two important legal consequence is derived: like all other
exceptional provisions, Art.XX must be interpreted in a narrow sense; and when Art.XX is invoked, the burden of proof is borne by the party invoking it (respondent). In short, Art.XX permits and only permits Parties to make minimal deviations from their legal obligations from GATT/WTO, and this “minimum” is guaranteed by two levels of conditioning: (1) the chapeau to Art.XX indicates that parties may take specific measures subject to the following conditions: “does not constitute a means of arbitrary or unjustifiable discrimination between countries where same conditions prevail, or a disguised restriction on international trade” (2) the conditions ((a) to (j)) contained in Art.XX. The two together form a “protective wall” that limits the Art.XX to a strict scope.
WTO, US-Import Prohibition of Certain Shrimp and Shrimp Products-Report of the Appellate Body (12 October
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a. Chapeau of Art.XX
The chapeau of Art.XX consists of two parts: the first part allows “discrimination” in law, provided that such discrimination “does not constitute arbitrary or unjustifiable discrimination between countries where the same conditions prevail.” But what is “arbitrary”? What is “unjustifiable” and “the same conditions prevail”? Art.XX only provides such broad and vague conditions that the Panel still has not made a more precise definition, but rather discretion based on the specific circumstances of the case. However, in general, this part of the chapeau is essentially an obligation not to discriminate in the same situation, that is, to apply the measure to all states or persons. The second part, namely, “does not constitute a disguised restriction on international trade.”
The purpose of the chapeau is to prevent the abuse of Art.XX as general. The history of the development of Art.XX indicates that the chapeau was formulated to implement the following principles: Although Art.XX may be invoked as a legal right, and these exceptions should not undermine the legal obligations of the holder of the right under the GATT’s substantive rules. In other words, to ensure that these general exceptions are not abused, the measures under that particular exception must be reasonably implemented, that is, attention should be paid to both the legal obligation to invoke the exception and the legal rights of other relevant members. A measure justified by (a) to (j) would also stand the test of the chapeau.
b. (a) to (j) of Art.XX
Scope Threshold: To justify the challenged measure under Art.XX, the respondent State should, at
the very first prove that measure fall into the scope of (a) to (j) Art.XX that according to the Panel and the Appellate Body, the challenged measures should meet the objective of each category under Art.XX : to protect (a) public morals; (b) human, animal or plant life or health; (c) circulation of 8
gold and silver; (d) implementation of laws or regulations which are consistent with the GATT; (e) public stability; (f) national treasures (g) sustainable development (h) commodity agreement; (i) domestic processing industry; (j) acquisition or distribution of products, the Appellate Body believed that judicial review must be limited to means of achieving specific objectives and should not extend to the legitimacy of the purpose itself, which means that although the challenged policy
Article XX General Exceptions, available at: https://www.wto.org/english/res_e/booksp_e/gatt_ai_e/art20_e.pdf (last
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measure is designed with a legal purpose, it should not be justified under Art.XX if it does not meet any objective of categories under Art.XX. Moreover, parties invoking Art.XX should prove that the 9
measure or policy they take meets one or more objectives in Art.XX.
Necessity Threshold: According to the practices of Art.XX, (a) (b) (d) and (g) are mostly used to
justify the challenged measures, the necessity threshold requires that the measures should be necessary to reach the objective of each category under Art.XX , however, among all cases 10
invoking Art.XX, most cases failed because of the failure to meet this “necessity” threshold. The WTO dispute settlement body’s judgment on the “necessity” of Art.XX has consistently followed the “minimum trade restriction” established by the US Section 337 for a long period, but was replaced by a new necessity standard after the WTO was established. In the Korean-Various Measures on Beef case, a new criterion for necessity judgment was proposed which inherits the "reasonably available” factor in the traditional standard and introduces the concept of “balance” in the judgment of “reasonably available” which was further refined in the EC-Asbestos case and developed in the Brazil-Retreaded Tyres case.
2. Burden of Proof When Art.XX GATT Invoked
As the “general exceptions,” Art.XX GATT is the most common cited exception in dispute settlement practice. As early as the GATT period, there were a number of cases involving the burden of proof of Art.XX. In US-Tuna (Mexico) case, for instance, the Panel stated that the practice of the Panel had been to interpret Art.XX narrowly, placing the burden of proof on the party invoking it to justify its policy measure. Moreover, in the US-Malt beverage case, the Panel 11
also noted that parties had narrowly interpreted the Art.XX, providing that the burden of proof was placed on the party invoking Art.XX to justify its practice. 12
Horn, H. , & Mavroidis, P. C. 2009. Burden of proof in environmental disputes in the WTO: legal aspects. Working
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Paper, 18(2), pp.3.3.5
Public Citizen, Only One of 40 Attempts to Use the GATT Article xx/GATS Article XIV “General Exception” Has
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Ever Succeeded: Replicating the WTO Exception Construct Will Not Provide for an Effective TPP General Exception, 08-2015, p.3, available at: https://studylib.net/doc/18405166/only-one-of-44-attempts-to-use-the-gatt-article-xx-gats-a... (last visit: 30-05-2019)
GATT, United States-Restrictions on Imports of Tuna (Mexico)-Panel Report (3 September 1991), DS21/R-39S/155,
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pp.5.22
GATT, United States-Measures Affecting Alcoholic and Malt Beverages-Panel Report (19 June 1992), DS23/R-39S/
12
In WTO period, the burden of proof of Art.XX is more clearly stated than that of GATT(pre-WTO) period. The fact that a party invokes Art.XX does not mean that it does not need to provide the evidence necessary to support its claim. Similarly, the complainant must also provide sufficient statements and evidence to refute the defense’s claim (party invoking Art.XX). At the same time, unless the complainant has proven its rebuttal with sufficient evidence, the party raising Art.XX to justify does not need to prove that the claim in the rebuttal is incorrect.
The respondent shall normally bear the burden of proof under subparagraphs of Art.XX. However, it should be emphasized that in Art.XX(b) (measures necessary to protect human, animal or plant life or health), concerning whether the “necessary” requirement is met, the Appellate Body does not fully assign the burden of proof to the respondent. In Brazil-Retreaded Tyres case, the Appellate Body noted that the complainant should be responsible for pointing out the possible alternatives that the respondent could have taken. If the complainant indicates a possible alternative, the respondent may attempt to demonstrate that the proposed measure does not achieve the level of health
protection it has chosen and is therefore nor a “real alternative.” The respondent could also try to prove that the alternative raised is not reasonably available , and it seems that four parts should be 13
fulfilled to use Art.XX(b) to justify: first, the existence of alternative measures; second, it must have a less restrictive effect on trade than the challenged measure; third, it must be reasonably available and last, it can reduce health risk and achieve the level of health protection under the challenged measure. The first two parts should be proved by the complainant, and the burden of proof to the latter two is on the respondent.
Except for the subparagraphs of Art.XX, the burden of proof under the chapeau is normally assigned to the respondent. In US-Gasoline case, for example, the Appellate Body stated that a measure provisionally justified based on an exception enumerated in Art.XX, the burden of proof was on the respondent to prove the challenged policy measure would not constitute abuse. 14
3. Difficulties in Proving when Art.XX Invoked — on “Necessity Threshold”
WTO, Brazil-Measures Affecting Imports of Retreaded Tyres-Report of the Appellate Body (17 December 2007), WT/
13
DS332/AS/R, pp.156
WTO, US-Gasoline-Report of the Appellate Body (29 April 1996), WT/DS2/AB/R, pp.22-23. Also in WTO,
Brazil-14
Measures Affecting Imports of Retreaded Tyres-Report of the Appellate Body (17 December 2007), WT/DS332/AB/R, pp.7.37
From I.B.part, the calculation of cases involving Art.XX GATT since the establishment of WTO, it is not difficult to find that although the purposes of designed policy measures in most cases are for the protection of human ( animal and plant) health and sustainable development, some are for protection of public moral or intellectual property and all of them can be argued with the legitimate objective, the three thresholds almost kill this provision and make it nearly impossible for member 15
state to use it to justify because among all forty-three cases where Art.XX invoked, only one case survive all tests and successfully justify the WTO-inconsistent policy measure, and most cases fail because of not achieving the “necessity threshold.” If the success rate of using Art.XX is as low as 2.3 percent, which is even lower than that of the final ruling of all WTO cases . Although it should 16
be acknowledged that Art.XX, as a general exception, should be interpreted carefully and narrowly to avoid abuse, if only one case in the last twenty-four years was justified under Art.XX, the Panel and Appellate Body should reconsider and adjust the tests under Art.XX.
As mentioned in the I.C.1.b “Necessity Threshold” part, the necessity test is introduced in the Brazil-retreaded Tyres case and can be divided into ‘weighing and balancing’ formula and ‘least trade-17
restrictive’ test both of which are designed to estimate whether the challenged policy measure is necessary to be protected with the sacrifice of the international trade. Under the ‘Weighing and Balancing’ Formula, dispute settlement body (DSB) should assess the interest that the policy is going to protect; to what extent the WTO-inconsistent measure would reach its objective and what level of the restriction the measure would make on the trade. As for the ‘least trade-restrictive’ test, DSB should focus on the relationship between the interest and one of the category under Art.XX; to what level of protection the respondent was going to achieve; whether there is an alternative which is able to reach the level of protection and may have a less restrictive effect on the trade market and finally, whether the raised alternative is reasonably available.
a. ‘Weighing and Balancing’ Formula—Difficult for “0 risk” to Survive
‘Weighing and balancing’ was first raised in Korea-Beef case that the Appellate Body believes that the “necessity” should not strictly mean “indispensability”, policy measure which is only a little bit
Scope Threshold, “Necessity Threshold” and “Chapeau Threshold”
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The overall “success” rate of respondents in WTO cases reaching the final ruling is 9 percent.
16
WTO, Korea-Measures Affecting Imports of Fresh, Chilled and Frozen Beef-Report of the Appellate Body (11
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less linked to the protected interest but functions more than just “contribution” should also be allowed, which means that the importance of the interest that the policy measure is designed to protect should also be taken into consideration. That is to say, instead of only focusing on whether 18
the challenged measure is essential or not, DSB would consider the protected value to evaluate the proportionality of that measure. However, as the only case successfully justified under Art.XX, the 19
Panel and the Appellate Body, considered that there was no “reasonably available alternative measure,” so the ban on asbestos by France (Decree No. 96-1133) is indispensable for the
“protection of human life or health” because the objective of France is “0 risk”. From the practices 20
of Art.XX, it is not difficult to find, under ‘weighing and balancing’ formula, the objective falling into Art.XX (b) is more likely to survive than the objective in the scope of Art.XX(g) than that of Art.XX(a) and (d) because “0 risk” is the highest level of protection which is so absolute that only human life and health which is most crucial among four interests deserves this degree of protection. For cases not trying to use Art.XX(b) to justify, “0 risk” would not be an appropriate level of
protection and may not survive under the ‘weighing and balancing’ formula if the designed measure has an unreasonable restrictive effect on the trade market. For example, in Korea-Beef case, the objective of the dual retail system designed by Korea is to avoid “all fraud,” which is similar to the previous “0 risk”. However, the only measure that may reach the highest level of protection is to ban all imported beef which is nearly impossible, so the real purpose for Korea is to “minimize the fraud” in the market whose level could be achieved by enforcing alternative measures. In the 21
Brazil-tyres case, although in the opinion of the Panel, whether the challenged measure can achieve the objective of the Art.XX depends on whether it can “reduce the number of used tyres”, this is a narrow sense of understanding, it ignores the contribution of measure that should be considered to achieve the purpose of “protecting human, animal and plant life.” Besides, the Appellate Boyd did nothing to correct the Panel’s possible inconsistency with the narrow interpretation of Art.XX, it overly emphasized “contribution” that almost took it as the whole connotation of the “necessity” in this case.
WTO, Korea-Measures Affecting Imports of Fresh, Chilled and Frozen Beef-Report of the Appellate Body (11
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December 2000) WT/DS161/AS/R, WT/DS169/AB/R, pp.161-162
Fakhri, M. 2012, Andrew Lang. World Trade Law after Neoliberalism. Re-imagining the Global Economic Order.
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Oxford: Oxford University Press, 2011. Pp. xxix + 385. $120. ISBN:9780199592647.[J]. European Journal of International Law, 23(3):901-905.
WTO, European Communities-Measures Affecting Asbestos and Products Containing Asbestos-Report of the
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Appellate Body (12 March 2011), WT/DS135/AB/R
WTO, Korea-Measures Affecting Imports of Fresh, Chilled and Frozen Beef-Report of the Appellate Body (11
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Accordingly, “0 tolerance level” would be possibly be applied to the measure aiming at preserving human life and health, if the respondent successfully makes a prima facie case showing “necessity” to that high level to protection. Then it would be hard for the complainant to identify any alternative measures which are “reasonably available.” However, if “0 risk” level cannot pass the ‘weighing and balancing’ formula and be changed to a lower degree of protection, then alternative measures would be much more possible for the complainant to raise.
b. ‘Least Trade-Restrictive’ Test
The ‘least trade restrictive’ test is essentially a test of efficiency to see whether the challenged policy measure is the best choice to achieve the objective. Although the respondent has a right to 22
set any level of protection in the objective of the challenged measure, according to Panel in US-Gasoline case, the ‘least trade restrictive’ test is not to review the necessity of the objective of the measure but to examine the measure itself. That is to say, to survive under the ‘least trade
restrictive’ test, the respondent must be sure that the ‘policy measure in the scope of Art.XX can achieve the objective set by it’. 23
From the practices, it can be perceived, as mentioned in the previous ‘weighing and balancing’ formula part, it would be much easier to raise less trade-restrictive alternative when the risk of protection is more than zero. Theoretically speaking, the burden of proof of “necessity” is on the respondent, and after its statement, the complainant could argue by presenting a qualified
alternative. However, in US-Gasoline case, under the ‘least trade restrictive’ test, the Panel itself even take the burden of the complainant and put forward a less trade-restrictive alternative. 24
Therefore, respondents should be cautious and prove there is no possible alternative at all viable when it tries to justify the measure not under Art.XX(b) after passing the “scope threshold.”
c. Sub-conclusion in “Necessity”
Bown, Chad P. and Trachtman, Joel P., Brazil - Measures Affecting Imports of Retreaded Tyres: A Balancing Act
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(August 13, 2008) p.4. available at: http://dx.doi.org/10.2139/ssrn.1222981(last visit: 01-06-2019)
WTO, United States-Standards for Reformulated and Conventional Gasoline-Report of the Panel (29 January 1996),
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WT/DS2/R, pp.7.1
WTO, US-Gasoline-Report of the Appellate Body (29 April 1996), WT/DS2/AB/R, pp.27
Under the ‘weighing and balancing’ formula, to find out what is a reasonable level of protection for the interest and whether the challenged measure is irrationally restrictive on trade which is
disproportionate to its objective, DSB should focus on the real situation and characteristic of the State. This formula would screen all cases invoking Art.XX to justify and only leave cases where the protected value of designed policy measure is essential or the measure is proportionate enough for that objective. Besides, it seems that the “0 tolerance level” is only acceptable when the value protected by the challenged measure is “human health” under Art.XX(b). However, under other categories, the protected value would be toned down by DSB (in Korea-Beef and Dominican Republic-Cigarettes invoking Art.XX(d) to justify). In Australia-Salmon, when examining the most controversial elements of Art.5.6 of SPS agreement that ‘whether there is an alternative able to reach the appropriate degree of protection set by Australia’, according to the Appellate Body that if the level of protection which is not appropriate can be optionally decided by a member State, then it can be a disguise for respondent to shrink its responsibility under the Agreement. Therefore, under 25
the ‘least trade restrictive’ test, it is possible for tribunals to lower the degree of protection set in the objective of the respondent to an appropriate level in order to qualify the alternative measure. 26
According to all practices of Art.XX, although the objective of challenged policy measure is not discriminatory itself and is able to reach the level of protection decided by the respondent (Korea-want to eliminate commercial fraud in meat market; Dominican Republic-try to avoid the unlawful border transactions; China-protection of the cultural identity), tribunals would use both ‘weighing and balancing’ formula and ‘least trade restrictive’ test to assess whether it is the most efficient designed measure to achieve the appropriate level of protection to survive the ‘necessity threshold’.
4. Difficulties in Proving when Art.XX Invoked — on “Chapeau” Test
Reviewing the previous judicial practice of DSB, it can be found that there are few successful cases in which members invoke Art.XX (b) and (g). Even in the whole GATT history, there has been no successful case invoking the exception of environmental and resource protection. The “state of 0” continued until the US-Gasoline and US-Tuna case in the WTO period, but it only stopped at the
WTO, Australia-Measures Affecting Importation of Salmon-Report of the Appellate Body (20 October 1998), WT/
25
DS18/AB/R, pp.207
Michael Ming Du. "Autonomy in Setting Appropriate Level of Protection Under the WTO Law: Rhetoric or
26
Reality?" Journal of International Economic Law Vol. 13 Iss. 4 (2010) available at: http://works.bepress.com/ michael_du/1/ (last visit: 01-06-2019)
step of finding that the sued measures met the characteristics described in subparagraph. Both cases were ruled against for failing the chapeau test, and it was not until the EC-Asbestos case that becomes the first and only case in the history to win a full victory through the “two-tier test.”
Regulatory consistency and rationality is a crucial part according to the practice of the DSB. Worked as the supervisor of the domestic public policy, the Appellate Body considers that to achieve the real objectives of the Art.XX, the policies and regulations set by the Member States should not be discriminatory. The landmark cases in discussing the hardness in passing the
rationality of “chapeau” test are Brazil-Tyres, US-Tuna II and EC-Seal products, among which, the main reason of not passing the “chapeau” test is that although some “discriminations” in public policies are for the protection of specific interests or groups, they are not related to the legitimate objectives of Art.XX and it may even go against it . The Panel of the retreaded tyres case cites the 27
rationality test, concluding that although not conclusive, it is necessary to have rational thinking of the objective of the domestic public policy. So instead of only focusing on the so-called
“discrimination,” the trade flow of the tyres from the exempted groups should also be taken into consideration, which means that it is not necessary to analyze whether the policy has discrimination bias, but also to see what reality looks like. If the reality shows the discrimination in the public policy is not unacceptable, then the DSB should evaluate whether this “discrimination” is tolerable. But unlike Panel, the Appellate Body holds the consistency at a very high level. In the US-Tuna case, the problem is the limitation of the evidence under a complex system when there is a need of certain level of technical and scientific knowledge that seems overly strict and unrealistic according to the currently available information , and it is also impossible for the tribunals to get the 28
information themselves with no expertise in particular field.
As for the implementation after failing the chapeau, Brazil modified its policy to cover
MERCOSUR and minimize the discrimination, the US introduced new monitoring requirements having the influence on the domestic ships, and the EU canceled one of the exemptions although it still failed to reach the level of rationality set by the Appellate Body. However, these ways of reducing the discrimination weaken the ability of the governments to regulate for the public good,
WTO, Brazil-Measures Affecting Imports of Retreaded Tyres-Report of the Panel (27 December 2007), WT/DS332/
27
AB/R
H. Andersen, ‘Protection of Non-Trade Values in WTO Appellate Body Jurisprudence: Exceptions,
28
leading the end of each dispute to an expansion of protection for these same objectives of public policies, even go beyond the purpose of the regulatory government . From the analysis of the 29
implementation, in reality, it is not easy to relate the objective of the “discriminatory” exemption with the objectives of the Art.XX which has become the reason for failing the chapeau. If the “discrimination” in the chapeau is interpreted in a narrow way, then a consideration between ‘preventing discrimination’ and ‘improving regulation’ will be raised. Besides, considering that 30
different States may have a different situation, for some developing and underdeveloped countries, keeping the consistency is somehow impossible because of the poor governance and messy politics although it cannot be the excuse for the discrimination. Therefore, the rationality of the
implementation should also be taken into consideration by the DSB.
Accordingly, the difficulties for the chapeau test are mainly on the “discrimination” part which is first, the Appellate Body has set a high standard of criteria than others; second, the Appellate Body is not able to thoroughly analyze and understand all the relevant factors that the local government takes into account when formulating the public policies where the government needs to explain why the policy is formulated within the scope accepted by the DSB which can be a hard task for the respondent State; last, it is dangerous and unrealistic to impose too much consistency by the DSB on a vast pluralistic State.
III. Case Analyses—When Art.XX Involved, the Respondent States under “Necessity” and “Chapeau” Threshold
A. China-Publications and Audiovisual Products: Failed “Necessity” Threshold
1. Introduction to the Case
The WTO “China-Publications and audiovisual products” case was filed by the United States on 31
April 10, 2007, and it is the first time for the WTO dispute settlement body directly deal with the interpretation and application of the public moral exception clause of Art.XX(a) GATT which is of
Seals in the EC-Seal Product case and Dolphins in the US-Tuna Case.
29
S. Lester, ‘Book Review: World Trade Law after Neoliberalism’ 15(2) Journal of International Economic Law (2012),
30
701.
WTO, China-Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual
31
typical significance to the application of Art.XX(a)-for the protection of public morals. In the “China-publications and audiovisual products case”, the United States pointed out that China has adopted various measures to reserve the right to import films for theatrical release, audiovisual home entertainment products, sound recording products and publications for government-designated company and state-owned enterprise which is contrary to China’s obligation under Art.5.1 of China’s Accession Protocol and Art.83(d), Art.84(a) and Art.84(b) of China’s Accession Working Party Report to grant the right to trade in a non-discretionary manner. In response to the appeal of the United States, China invoked the public moral exception clause as a defense, especially in the stage of appeal, China focused on the application of Art.XX(a) to justify the designed policy under the protection of public morals.
In China’s view, cultural products are unique and can have potentially serious implications for society and individual morality. Therefore, for the importation of cultural products, China has established a systematic and efficient content review mechanism to prohibit the import of cultural products may have a negative impact on public ethics while the qualified import entities are also the decisive elements of the effective operation of the content review mechanism. China states that restricting the right to import management while protecting its public morality has limited impact on international trade, which conforms to the requirement of “necessity” of public moral exception clause under Art.XX. Its measure to restrict the right to import is not arbitrary but is applied
reasonably and in good faith, conforming to the requirements for the implementation of the general exception clause stipulated in the chapeau and is an exception to public morality. Regarding
China’s defense, the United States believes that the content review mechanism for cultural products should be independent of importation and should be carried out by individuals or entities having no relations to the imports at any time before, at the same time, and after the importation but China does not fully explain why the import entities is “necessary” to be a wholly state-owned enterprise and whether it is “necessary” to deprive all foreign-invested and private enterprises of the right to import cultural products in order to achieve the purpose of content review and protection of public moral. Furthermore, the United State has proposed a number of alternative measures that it believes can effectively protect public morality while safeguarding the right to trade.
2. Objective of the “0 Risk” Pursued by China and the “Necessity of the Wholly State-owned Enterprises”
For the Panel, after determining the measures are “necessary,” further comparison of the challenged measure with possible alternatives is also needed to confirm the conclusion. That is to say, that after the prima facie evidence provided by the respondent, the Panel should still consider the importance of the interest or value involved under the ‘least trade restrictive’ test and mainly examine whether the alternative measure can make equal contribution to the level of protection while having less restrictive effect on trade . In this case, the United States has proposed a series of alternative 32
measures that it believes are consistent with the WTO rules. The Panel selected “letting Chinese government do the content review” proposed by the US for comparison, and it believes that the independent responsibility of the Chinese government for content review would help China achieve the goal of protecting public morals and ensure that no prohibited cultural products will enter China. As for China’s statement that the alternative would affect the efficiency of content review and the trade flows, the Appellate Body considers that the government could set an office with sufficient qualified examiners at or near the customs to achieve the geographical coverage of the current publications import business unit. For time-sensitive publications, it can be submitted to the Chinese government for electronic review, the Panel stated that although it is not certain whether and to what extent the provision restricting right to import would limit the total importation of related products, the US proposal, which guarantees content review mechanism without restricting the right to import, is an effective alternative.
Regarding whether it is ‘reasonably available’, the Panel noted that the electronic publications, audiovisual products, and films are currently subject to final content review by the Chinese
government and according to Article 42(2) of the Publications Regulation, the Chinese government may review the contents of books, newspapers, and periodicals on its own or at the request of the importing business entities of the publication. At present, China’s wholly state-owned enterprises enjoy the right to import cultural products, and the Chinese government also provides financial support for the content review of it as the importer. Although it is certain that the implementation of the US proposal requires the government to redistribute human and financial resources, the cost of implementing the US proposal will not be “unreasonably high” because the government also provides financial support to the wholly state-owned enterprises under the original system and only the subject of the review changes from the wholly state-owned enterprise to government
departments. In the end, the Panel found the alternative proposed by the United States was
WTO, United States - Measures Affecting the Cross-Border Supply of Gambling and Betting Services , WT/DS285
reasonably available which was appealed by China, stating that it would require China to carry out a massive institution restructuring and system upgrading. Besides, the content review would be conducted in a single central agency based on the alternative, making it impossible to achieve the same “dual review” as the current system. In this regard, the Appellate Body believes that an alternative measure cannot be determined to be unreasonably available simply because the alternative measures will bring some changes or administrative costs. On the contrary, in order to prove that the alternative measures are not reasonably available, the respondent must provide sufficient evidence to prove that the alternative measures bring excessive burden, but China failed this requirement.
At this point, it is not difficult to find that the examination of the word “necessary” is the key to the success of invoking the GATT public moral exception clause, and it is also the focus of the disputes of all parties and of the analysis of the Panel and the Appellate Body. By examining the word “necessary,” we could also find that the Panel and the Appellate Body are cautious about the
application of the GATT public moral exception clause and are subject to certain conditions. This is not only reflected in the examination of the objective of the challenged measure, but also of the implementation result of the relevant measures to public moral protection. And this requires not only the importance and contribution of relevant measures to public moral protection, but also the minimum degree of restrictions effect on trade which are aimed at preventing WTO members from abusing the public moral exception clause of the GATT and not to make it a tool for trade
protectionism; on the other hand, to achieve a balance between free trade and public moral policies in WTO members.
B. EC-Measures Prohibiting the Importation and Marketing of Seal Products: Failed “Chapeau” Test
1. Introduction
In recent years, the use of inhumane methods to hunt seals has received increasing attention. For nearly half a century, many organizations concerned with animal welfare have repeatedly called for a ban on inhumane seal hunting. The European Union public generally believes that seals are sentient animals, so inhumane hunting and skinning methods would result in unnecessary suffering and it has long condemned this seal hunting and called for a ban on inhumane methods. Against this
background, the European Parliament and Council rules No. 1007/2009 on the prohibition of trade in seal products on September 16, 2009 . As a basic regulation regulating the trade in seal products, 33
the ban generally prohibits the importation and sale of all seal product, but stipulated in Art. 3, meet the requirements of the three categories of seal products can be imported and sold. On August 17, 34
2010, the European Union promulgated the detailed rules—the Regulation No.737/2010 , on the 35
implementation of the Regulation No.1007/2009. Canada and Norway are the two most giant commercial seal hunters in the world with the substantial economic benefits from the exportation of seal products every year and both of them believe that the regulation of EU on seal trade, especially the “Indigenous Exception” and “Marine Resource Management Exception”, violate the obligations of EU and infringe the rights of them under the GATT 1994.
The challenged measure in this care are the related rules for the regulation of trade in seal products issued by the EU from 2009 to 2010, mainly including the Regulation No.1007/2009 ban on trade in seal products and Regulation No.737/2010 detailed rules for the implementation of the
Regulation No.1007/2009. In the WTO dispute settlement, Canada and Norway jointly referred to the rules of regulating the trade of seal as “the EU Seal Regime” and were recognized by the Panel as an integrated measure. There are many controversial issues involved in this case, but the main 36
disputes are in three aspects: (1) whether the “EC Seal Regime” is complied with Art. 2.1 and 2.2 of the TBT Agreement; (2) whether the “Indigenous Exceptions” and “Marine Resource Management Exceptions” in the “EC Seal Regime” violate the non-discrimination obligation in Art. 1.1 and 3.4 of the GATT 1994; (3) whether the “EU Seal Regime” is designed to protect public morals and the welfare of seals and meets the requirements of Art.XX(a), Art.XX(b) and the chapeau of Art.XX. The thesis would focuses on the third part about the application of Art.XX, in this case, especially
Regulation (EC) No. 1007/2009 of the European Parliament and of the Council of 16 September 2009 on trade in seal
33
products, Official Journal of the European Union, L Series, No. 286 (31 October 2009)
(1) The placing on the market of seal products shall be allowed only where the seal products result from hunts
34
traditionally conducted by Inuit and other indigenous communities and contribute to their subsistence (2)The import of seal products shall also be allowed where it is of an occasional nature and consists exclusively of goods for the personal use of travelers or their families (3) The placing on the market of seal products shall also be allowed where the seal products result from by-products of hunting that is regulated by national law and conducted for the sole purpose of the sustainable management of marine resources.
Commission Regulation (EU) No. 737/2010 of 10 August 2010 laying down detailed rules for the implementation of
35
Regulation (EC) No. 1007/2009 of the European Parliament and of the Council on trade in seal products, Official Journal of the European Union, L Series, No.216 (17 August 2010).
WTO, European Communities-Measures Prohibiting the Importation and Marketing of Seal Products-Report of the
36
focus on the reason why it failed on the last chapeau threshold test to justify the challenged trade-restrictive measure.
2. Application of Art.XX(a) GATT under the “Chapeau” Test
The WTO Appellate Body established a “two-tier test” in the US-Gasoline case , and the “second-37
tier” is to examine whether the specific implementation of the controversial measure has complied with the chapeau of Art.XX of the GATT 1994, namely “the challenged measure shall not constitute arbitrary or unjustified discrimination between counties in the same situation or constitute a
disguised restriction on international trade.” The first tier test of Art.XX of the GATT 1994, especially the “necessity” test, would focus on the restrictive effect on the trade of the challenged measure, while the chapeau of Art.XX of the GATT 1994 focuses on the discriminatory nature of the relevant measure and trade protectionism. Besides, it should be noted that not all acts deemed to be discriminatory would violate the requirements of the chapeau. It is necessary to examine further whether the discrimination is arbitrary or unjustifiable, but if the measure is protectionist, and it could be directly inconsistent with the requirements of the chapeau.
In examining whether the “EC Seal Regime” is complied with the requirements of the chapeau of Art.XX of the GATT 1994, the Panel mainly relied on the previous analysis and rulings under the Art. 2.1 of the TBT Agreement which was appealed against by Norway and Canada. The Appellate Body believes that there is an essential difference in the legal standards, the scope and condition of application between the analysis of Art. 2.1 of the TBT Agreement and Art.XX of the GATT 1994, and it finally upheld the complainant’s appeal. After overturning the ruling of the Panel, the Appellate Body completed the analysis. It analyzes the discriminatory aspects of the
implementation of the “EC Seal Regime,” that is, whether the implementation of it would constitute an arbitrary or unjustifiable discrimination among counties with the same situation without
involving the trade protectionism aspects of the challenged measure.
a. “Discrimination” (Exemption) in the Public Policies
WTO, US-Gasoline-Report of the Appellate Body (29 April 1996), WT/DS2/AB/R, pp.
As early as in the US-Gasoline case, the Appellate Body has already stated that the criteria for the determination of “discrimination” in the chapeau should not be the same as those recognized in Art. 1.1 and 3.4 of the GATT 1994. The Panel in Brazil-retreaded tyres case has also pointed out that 38
the discrimination referred to the chapeau of Art.XX of the GATT 1994 is different from the “discrimination” in respect of products treatment which has been found to be in violation of one of the substantive obligations of the GATT 1994. The Appellate Body, in this case, gave a relatively 39
precise circumstance of “discrimination” under Art.XX of the GATT 1994.
The Appellate Body, in this case, pointed out that the theory that criteria for determining “discrimination” in the chapeau should not be the same as those in Art. 1.1 and Art. 3.4 of the GATT 1994 does not mean that the circumstances leading to “discrimination” under the chapeau could not be the same as those led to a violation of substantive obligations under the GATT 1994. The statement of the Appellate Body in the US-Shrimp case was referred to in the analysis that when two countries with the same situation are treated differently, then the “discrimination” in the
chapeau of Art.XX will occur. The Appellate Body then examined the discrimination created by 40
the “EC Seal Regime” in violation of Art. 1.1 of the GATT 1994, as determined by the Panel in this case and stated that the differential treatment of the “EC Seal Regime” between Canada and
Norway and Greenland constitutes “discrimination.” However, it believes that the ‘discrimination situation’ within the meaning of the chapeau includes, but is not limited to, discrimination leading to a violation of the substantive obligations under the GATT 1994, and therefore it is necessary to continue to examine whether the challenged measure has any discriminatory influence on other indigenous areas and whether such discriminatory effects amount to an ‘arbitrary or unjustifiable discrimination’. Eventually, the Appellate found that the implementation of the “EC Seal Regime” 41
constitutes two kinds of “discrimination”: (1) it leads to differential treatment between Canada and Norway and Greenland; (2) the IC exception in the “EC Seal Regime” had led to differences in
WTO, United States-Standards for Reformulated and Conventional Gasoline-Report of the Appellate Body (20 May
38
1996), WT/DS2/AB/R, pp. 23.
WTO, Brazil-Measures Affecting Imports of Retreaded Tyres-Report of the Panel (27 December 2007), WT/DS332/
39
AB/R, pp.203
WTO, United States-Import Prohibition of Certain Shrimp and Shrimp Products-Report of the Appellate Body (6
40
November 1998), WT/DS58/AB/R, pp.165.
WTO, European Communities-Measures Prohibiting the Importation and Marketing of Seal Products-Report of the
41
treatment of indigenous communities in Canada and Inuit people in Greenland. And accordingly, 42
as held by the Appellate Body, the “discrimination” within the meaning of the chapeau includes but is not limited to, the “discrimination” violating the substantive obligations under the GATT 1994.
It is noteworthy that the question “whether the violation of the non-discriminatory obligations under the GATT 1994 is subject to review by the chapeau of Art.XX” has been clarified by the Appellate Body, which is different from views of the ruling of Panel in the asbestos case. In the EC-asbestos case, the Panel noted that ‘the lower treatment of EC-asbestos compared with the alternative fibre indicated by Canada is irrelevant to the discrimination under Art.XX’. Accordingly, the view 43
of the Appellate Body is quite reasonable with two reasons: (1) when a situation constitutes the “discrimination” in the chapeau of Art.XX of the GATT 1994, it does not necessarily lead to the violation of the chapeau, because only when such “discrimination” is deemed to be arbitrary or unjustifiable, will it lead to the inconsistency with the chapeau requirements of Art.XX. (2). If the “discrimination” against the substantive obligations of the GATT does not need to be examined under the chapeau of Art.XX, then it may lead to the abuse of the general exceptions by the Member States, because that the specific exemptions under the Art.XX is concerned with the reasonableness of the challenged measure on restrictions of trade and do not consider whether discrimination is justifiable. The chapeau of the Art.XX is concerned with the discriminatory effects of the relevant measure and the existence of trade protectionism in the implementation of the
designed policy measure. And the challenged measure can only meet the requirements of Art.XX 44
of the GATT 1994 if they satisfy three conditions at the same time: reasonable trade restrictions; no arbitrary or unjustifiable discrimination or trade protectionism. Therefore, no matter whether the discriminatory nature of the challenged measure has been found to be in violation of any obligations under the GATT 1994 or not, it must be examined by the chapeau of Art.XX and it is able to be 45
justified if the identified “discrimination” is not “arbitrary” or “unjustifiable.”
b. “Arbitrary” and “Unjustifiable” of the Identified “Discrimination”
WTO, European Communities-Measures Prohibiting the Importation and Marketing of Seal Products-Report of the
42
Appellate Body (18 June 2014) , WT/DS400/AB/R; WT/DS401/AB/R, pp.5. 330
WTO, European Communities-Measures Affecting Asbestos and Asbestos-Containing Products-Report of the Panel
43
(5 April 2001), WT/DS135/R, pp.3.27
Lothar Ehring, 2002. “De Facto Discrimination in World Trade Law National and Most-Favoured-Nation Treatment –
44
or Equal Treatment? ,” Journal of World Trade, vol. 36, p76. such as Art. 1.1, Art. 3.4 of the GATT 1994
After determining that the challenged measure constitute “discrimination” under Art.XX, the next step for the Appellate Body is to examine whether the identified discrimination is arbitrary or unjustifiable, and the most important thing is how to define “arbitrary or unjustifiable.” In the US- case, the Appellate Body noted that the analysis of whether the discrimination was “arbitrary or unjustifiable should focus on “the grounds of discrimination” or “the evidence presented by the complainant to explain the existence of the discrimination.” And it laid out conditions that could 46
constitute “arbitrary or unjustifiable.” In the Brazil-retreaded tyres case, the Appellate Body stated 47
that if the measure discriminated between countries with the same situation, and there is no reasonable link between the discrimination and the objective of the challenged measure, then it constitutes arbitrary or unjustifiable discrimination under the chapeau of Art.XX. It considers that the “MERCOSUR exemption” based on the ruling of the enforcement of the Court of Arbitration, is not acceptable because it is not related to the legitimate objective pursued by the import ban and therefore constituted “arbitrary or unjustifiable discrimination.”
In this case, the Appellate Body pointed out that one of the most important factors in the analysis of arbitrary or unjustifiable discrimination was whether the discrimination could be closely related to the objectives of policies embodied in the specific exception to Art.XX of the GATT 1994. The objective of the “EC Seal Regime” is to address the moral concerns of the EU public about the welfare of seals and in pursuit of this objective, it prohibits the import and sale of seal products from “commercial” hunting, while allowing the sale and import of seal products from seal hunting that meet certain criteria such as sealing identity and hunting purposes. The complainant believes that these standards have nothing to do with the seal welfare, and the EU has not raised a defense. The “indigenous exception” is out of line with the objectives of the “EC Seal Regime” in which the EU proposes that grating exceptions to seal products from hunting by indigenous people is aimed at mitigating the adverse impact of designed policy measure on the interest of them while maintaining the public morality regarding the animal(seal) welfare. However, the Appellate Body held that although the EU had responded to non-banning of the seal products from indigenous hunting, it has
strict and rigid requirements that countries exporting shrimp to the United States must use the same regulatory
46
standards as the United States, not taking into account the specific circumstances of different countries, especially the policies and regulations adopted by other countries to protect sea turtles besides those adopted by the United States. The United States has not negotiated as hard as other counties.
WTO, United States – Import Prohibition of Certain Shrimp and Shrimp Products-Report of the Appellate Body (6
47
not adequately explained that whether the differential treatment is compatible with the objective of the “EC Seal Regime” and the protection of the public moral . 48
The Appellate Body further analyzed the way in which the specific criteria for the “indigenous exception” were designed and implemented and found that there was ambiguity in terms of the “indigenous exception” clause, leading to the possibility that certification bodies could abuse the exception to allow seal products with commercial characteristics to be imported in the EU through this exception. As a result, the Appellate Body believes that the “EC Seal Regime” could be applied in a way that constituted “arbitrary or unjustifiable discrimination between countries where the same conditions prevail.” Besides, the Panel noted that the “indigenous exception” was in fact 49
only available to Greenland, while whether indigenous population from the other Member States could take advantage of this exception was directly attributable to the regulation itself, rather than the negative management practices of members (Canada). The EU appealed and argued that it was the responsibility of the Canadian government to set up a certification body, and EU authorities had made great efforts to help Canadian indigenous people benefit from the exception. In response, the Appellate Body believes that although the ban on the importation of seal products also affects the exportation of Inuit seal products from Greenland, the efforts of EU to facilitate the application of exceptions for other Member States were unequal to that in Greenland and thus amounted to “arbitrary or unjustifiable discrimination.” 50
The approach by the Appellate Body is a breakthrough in the Brazil-retreaded tyres case because applying the approach of the Appellate Body in the Brazil-retreaded tyres case, which ruled that “as long as the grounds of discrimination are inconsistent with the objectives of the challenged
measure, the implementation of the challenged measure would constitute an ‘arbitrary or
unjustifiable discrimination’” which may pose a dilemma for the EU. On the one hand, the EU 51
For example, the EU does not indicate why the need to protect the economic and social interests of indigenous people
48
necessarily means that the EU cannot do anything else to further address the welfare of seals in the context of indigenous hunting, because the hunting of seals by indigenous people also causing EU public concern. WTO,
European Communities - Measures Prohibiting the Importation and Marketing of Seal Products-Report of the Appellate Body (18 June 2014), WT/DS400/AB/R , WT/DS401/AB/R, pp. 5.320
WTO, European Communities - Measures Prohibiting the Importation and Marketing of Seal Products-Report of the
49
Appellate Body (18 June 2014), WT/DS400/AB/R , WT/DS401/AB/R, pp. 5.325-5.327
WTO, European Communities - Measures Prohibiting the Importation and Marketing of Seal Products-Report of the
50
Appellate Body (18 June 2014), WT/DS400/AB/R , WT/DS401/AB/R, pp. 5.330
Arwel Davies. 2009. “Interpreting the Chapeau of GATT Article XX in Light of the ‘New’ Approach in
Brazil-51
Tyres,” Journal of World Trade ,vol. 43, p. 531. available at: https://papers.ssrn.com/sol3/papers.cfm? abstract_id=2541638 p.25 (last visit: 11-06-2019)
must adopt a ban on the importation of seal products in order to maintain its public morality on the seals welfare; on the other hand, it also needs to protect the survival and cultural interests of the indigenous people which means that exemption from the importation ban on the related seal products should be given to them according to the EU policy measure. Then the EU should choose from either the abolition of the “EC Seal Regime” or the deletion of the “exceptional provisions,” however, both of them would lead to one of the considerations of the EU being unrealized. Besides, it may be unreasonable to simply consider whether the cause of “discrimination” is reasonably related to the objectives or the challenged trade-restrictive measure, as it quires justifying the discriminatory aspects of the measures on the grounds of trade restrictions. In this circumstance, 52
the objective of the “EC Seal Regime” is to protect public morality, which is essentially the objective of prohibiting the importation and sales of seal products. The use of protecting public morality as reason is only to defend the trade restriction aspect of the challenged measure, but the discriminatory aspect is not to pursue the protection of public morals, and it even may adversely affect the realization of that objective. Nonetheless, the Appellate Body should also consider
whether the discriminatory ground of the measure is more important the objectives of the exception clause under Art.XX and therefore find that the ground is able to be justified. Protecting the
interests of indigenous people is recognized by the international community and the EU has also signed relevant international agreements and is therefore obliged to protect indigenous people. Accordingly, the decision of the EU to grant an exception to these indigenous group is justified and should not be dogmatically recognized as “arbitrary or unjustifiable discrimination.”
IV. Possible Improvement
A. To Designed Policy Measure—Consistent with the Objectives of Subparagraphs of Art.XX
1. Application of the General Exception in the WTO Framework
At present, the exception clause under the WTO framework is not limited to Art.XX of the GATT, but also widely exists in WTO Agreements such as GATS, the Agreement on Trade-Related Aspects of Intellectual Property Rights, and the Agreement on Government Procurement. In
Sanford Gaines. 2001. “The WTO’s Reading of the GATT Article XX Chapeau: A Disguised Restriction on
52
Environmental Measures,” University of Pennsylvania Journal of International Economic Law ,vol. 22, p. 779. available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=301404 (last visit: 11-06-2019)
