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Based on the reasoning of the Appellate Body in Canada/United States – Continued Suspension of Obligations in the EC–Hormones Dispute (‘Continued Suspension’), this paper analyzes the distinction between the national-treatment obligation under Article III of GATT and the requirement under the Agreement on Sanitary and Phytosanitary (SPS) Measures that such measures be based on a risk assessment that takes into account available scientific evidence. The Appellate Body's reasoning makes clear that the primary purpose of the SPS Agreement is to discipline discriminatory regulation, and not the level of protection. We argue that the case clarifies that de facto protection (market segmentation) created by an SPS measure must be motivated by demonstrating that the measure is addressing a market failure, as reflected in the existence of some scientific basis for a health or safety concern. The scientific-basis requirement is a means for determining the intent of an SPS measure. While this is a factor that is ostensibly not relevant in GATT national-treatment cases, the need for scientific justification is not a move away from a concern with preventing illegitimate discrimination against imported products.
2 Alan Olmstead and Paul Rhode (2009), ‘The battles against animal diseases: science, policy, and the origins of economic regulation in the United States’, http://ele.arizona.edu/papers/ELErhode2-6-09.pdf.
3 Mancur Olson (1965), The Logic of Collective Action: Public Goods and the Theory of Groups, Cambridge, MA: Harvard University Press.
4 See Robert Howse (2000), ‘Democracy, Science and Free Trade: Risk Regulation on Trial at the World Trade Organization’, 98 Michigan Law Review 2329.
5 Appellate Body Report, EC – Measures Concerning Meat and Meat Products (EC–Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I, 135.
6 EC–Hormones, para. 200.
7 EC–Hormones, para. 208.
8 Appellate Body Report, US–Continued Suspension, para. 267.
9 Panel Report, US–Continued Suspension, para. 7.434.
10 Appellate Body Report, US–Continued Suspension, para. 522.
11 Panel Report, US–Continued Suspension, para. 7.607.
12 Appellate Body Report, US–Continued Suspension, para. 528, citing Appellate Body Report, EC–Hormones, para. 193.
13 Panel Report, US–Continued Suspension, paras. 7.483 and 7.484.
14 Paragraph 4 of Annex A of the SPS Agreement provides as follows: 4. Risk assessment – ‘The evaluation of the likelihood of entry, establishment or spread of a pest or disease within the territory of an importing Member according to the sanitary or phytosanitary measures which might be applied, and of the associated potential biological and economic consequences; or the evaluation of the potential for adverse effects on human or animal health arising from the presence of additives, contaminants, toxins or disease-causing organisms in food, beverages or feedstuffs.’
15 Panel Report, US–Continued Suspension, para. 7.537.
16 Appellate Body Report, US–Continued Suspension, para. 559 (citation omitted).
17 Panel Report, US–Continued Suspension, para. 7.572.
18 European Communities' Appellant's Submission, para. 248.
19 Appellate Body Report, US–Continued Suspension, para. 590.
20 Ibid., para. 591.
21 Ibid., paras. 598–602 .
22 Ibid., para. 616.
23 Ibid., para. 620.
24 Ibid., para. 545.
25 Ibid., paras. 547–555 .
26 Ibid., para. 674.
27 Ibid., para. 702, citing Appellate Body Report, Japan–Apples, para. 179.
28 Panel Report, US–Continued Suspension, para. 7.581. The five hormones were progesterone, testosterone, zeranol, trenbolone acetate, and MGA.
29 Appellate Body Report, US–Continued Suspension, para. 621.
30 Ibid., paras. 685–688 .
31 Ibid., para. 712, quoting Panel Report, US–Continued Suspension, para. 7.648.
32 Ibid., para. 725.
33 Ibid., para. 734, quoting Panel Report, US–Continued Suspension, para. 7.835.
34 By ‘prudential regulation’, we mean regulation whose primary purpose is consumer protection, environmental protection, or other broad societal protection, but not regulation designed to engage in economic management, such as subsidies, protection from imports, monetary policy, etc.
35 See Robert E. Hudec (2003), ‘Science and post-discriminatory WTO law’, 26:2 Boston College International and Comparative Law Review 185.
36 Ibid. at 187.
37 ‘The broad and fundamental purpose of Article III is to avoid protectionism in the application of internal tax and regulatory measures. More specifically, the purpose of Article III “is to ensure that internal measures not be applied to imported and domestic products so as to afford protection to domestic production”. Toward this end, Article III obliges Members of the WTO to provide equality of competitive conditions for imported products in relation to domestic products … Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products ….’ Japan – Taxes on Alcoholic Beverages (Japan–Alcoholic Beverages II), WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, at p. 16.
38 See Appellate Body Report, Japan–Alcoholic Beverages II, at p. 27: ‘This third inquiry under Article III:2, second sentence, must determine whether “directly competitive or substitutable products” are “not similarly taxed” in a way that affords protection. This is not an issue of intent. It is not necessary for a Panel to sort through the many reasons legislators and regulators often have for what they do and weigh the relative significance of those reasons to establish legislative or regulatory intent’; and at p. 29: ‘Although it is true that the aim of a measure may not be easily ascertained, nevertheless its protective application can most often be discerned from the design, the architecture, and the revealing structure of a measure.’ See Robert E. Hudec (1998), ‘GATT/WTO Constraints on National Regulation: Requiem for an Aims and Effects Test’, 32 International Lawyer 619. See also Amelia Porges and Joel P. Trachtman (2003), ‘Robert Hudec and Domestic Regulation: The Resurrection of “Aim and Effects”’, 37 Journal of World Trade (commissioned paper).
39 Appellate Body Report, Japan–Alcoholic Beverages II, at p. 28.
40 Ibid., at p. 29.
41 Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos-Containing Products (EC–Asbestos), WT/DS135/AB/R, adopted 5 April 2001, at para. 98.
42 Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef (Korea–Various Measures on Beef), WT/DS161/AB/R and WT/DS169/AB/R, adopted 10 January 2001, at para. 133.
43 Appellate Body Report, EC–Asbestos, at para. 99. Note the different opinion with regard to the very specific aspects mentioned in para. 154. See the analysis of the Asbestos report in Henrik Horn and J.H.H. Weiler (2003), ‘European Communities – Measures Affecting Asbestos and Asbestos-Containing Products’, in Henrik Horn and Petros C. Mavroidis (eds.), The WTO Case Law of 2001: The American Law Institute Reporters' Studies, Cambridge: Cambridge University Press.
44 Working Party Report, Border Tax Adjustments, adopted 2 December 1970, BISD 18S/97.
45 Appellate Body Report, EC–Asbestos, at para. 101.
46 Ibid., at para. 117.
47 See, for instance, the criteria of cross-elasticity of demand to determine whether imported and domestic products are directly competitive or substitutable in the Appellate Body Report in Japan–Alcoholic Beverages II, at p. 26, or in Appellate Body Report, Korea – Taxes on Alcoholic Beverages (Korea–Alcoholic Beverages ), WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, at paras. 108–124 , or in the Appellate Body Report, United States – Transitional Safeguard Measure on Combed Cotton Yarn from Pakistan (US–Cotton Yarn), WT/DS192/AB/R, adopted 5 November 2001, paras. 89–102 .
48 Moreover, if it is true that consumers would not consider them interchangeable, then some may say that the regulation was not necessary.
49 Appellate Body Report, Korea–Various Measures on Beef, at paras. 133–149 .
50 Ibid., at para. 137.
51 Appellate Body Report, EC–Asbestos, at paras. 96 and 98: ‘in endeavoring to ensure “equality of competitive conditions”, the “general principle” in Article III seeks to prevent Members from applying internal taxes and regulations in a manner which affects the competitive relationship, in the marketplace, between the domestic and imported products involved, “so as to afford protection to domestic production”’.
52 Ibid., at para. 100.
53 Appellate Body Report, Korea–Various Measures on Beef, at para. 134.
54 See Hudec, supra note 35; and Frieder Roessler (1996), ‘Diverging Domestic Policies and Multilateral Trade Integration’, in Robert E. Hudec and Jagdish Bhagwati (eds.), Fair Trade and Harmonization, Pre-requisite for Free-Trade, Vol. II, Cambridge, MA: MIT Press.
55 Hudec, supra note 35, at 193.
56 See GATT Panel Report, United States – Section 337 of the Tariff Act of 1930 (US–Section 337), adopted 7 November 1989, BISD 36S/345, at para. 5.26; GATT Panel Report, United States – Measures Affecting Alcoholic and Malt Beverages (US–Malt Beverages), adopted 19 June 1992, BISD 39S/206), at para. 5.52; and GATT Panel Report, Thailand – Restrictions on Importation of and Internal Taxes on Cigarettes (Thailand–Cigarettes), adopted 7 November 1990, BISD 37S/200, at para. 223.
57 Appellate Body Report, Korea–Various Measures on Beef, at para. 164.
58 Ibid., at para. 177.
59 Ibid., at para. 162.
60 Ibid., at para. 163.
62 Appellate Body Report, EC–Asbestos, at para. 172: ‘We indicated in Korea–Beef that one aspect of the “weighing and balancing process … comprehended in the determination of whether a WTO-consistent alternative measure” is reasonably available is the extent to which the alternative measure “contributes to the realization of the end pursued”. In addition, we observed, in that case, that “[t]he more vital or important [the] common interests or values” pursued, the easier it would be to accept as “necessary” measures designed to achieve those ends. In this case, the objective pursued by the measure is the preservation of human life and health through the elimination, or reduction, of the well-known, and life-threatening, health risks posed by asbestos fibres. The value pursued is both vital and important in the highest degree. The remaining question, then, is whether there is an alternative measure that would achieve the same end and that is less restrictive of trade than a prohibition.’
65 Appellate Body Report, Korea–Various Measures on Beef, at para. 172.
66 Chad Bown and Joel P. Trachtman (2009), ‘Brazil – Measures Affecting Imports of Retreaded Tyres: A Balancing Act’, 8 (Special Issue 1) World Trade Review 85.
67 In EC–Hormones (US), the European Communities submitted that ‘the “substantive” provisions of the SPS Agreement can only be addressed if recourse is made to GATT Article XX(b), i.e., if, and only if, a violation of another provision of GATT is first established’. The Panels rejected this argument, indicating as follows: ‘The SPS Agreement contains, in particular, no explicit requirement of a prior violation of a provision of GATT which would govern the applicability of the SPS Agreement, as asserted by the European Communities’ (para. 8.36). The Panels added: ‘on this basis alone we cannot conclude that the SPS Agreement only applies, as Article XX(b) of GATT does, if, and only if, a prior violation of a GATT provision has been established. Many provisions of the SPS Agreement impose “substantive” obligations which go significantly beyond and are additional to the requirements for invocation of Article XX(b). These obligations are, inter alia, imposed to “further the use of harmonized sanitary and phytosanitary measures between Members” and to “improve the human health, animal health and phytosanitary situation in all Members”. They are not imposed, as is the case of the obligations imposed by Article XX(b) of GATT, to justify a violation of another GATT obligation (such as a violation of the non-discrimination obligations of Articles I or III)’ (para. 8.38). Panel Report, EC Measures Concerning Meat and Meat Products (Hormones) – Complaint by the United States (EC–Hormones (US)) WT/DS26/R/USA, adopted 13 February 1998 as modified by the Appellate Body Report, WT/DS26/AB/R, DSR 1998:III, p. 699.
68 In Australia–Salmon, the Appellate Body stated: ‘On the basis of [the] definition [prescribed in the first part of paragraph 4 of Annex A], we consider that, in this case, a risk assessment within the meaning of Article 5.1 must: (1) identify the diseases whose entry, establishment or spread a Member wants to prevent within its territory, as well as the potential biological and economic consequences associated with the entry, establishment or spread of these diseases; (2) evaluate the likelihood of entry, establishment or spread of these diseases, as well as the associated potential biological and economic consequences; and (3) evaluate the likelihood of entry, establishment or spread of these diseases according to the SPS measures which might be applied.’ Appellate Body Report, Australia–Salmon, WT/DS18/AB/R, adopted 16 November 1998, at para. 121.
69 Appellate Body Report, EC–Hormones.
70 Appellate Body Report, Australia–Salmon.
71 Appellate Body Report, Japan – Measures Affecting Agricultural Products (Japan–Agricultural Products II), WT/DS76/AB/R, adopted 19 March 1999.
72 European Communities – Measures Affecting the Approval and Marketing of Biotech Products (EC–Biotech), WT/DS291,292,293/R, adopted 21 November 2006.
73 It should be noted, of course, that the TBT Agreement, dealing with non-SPS technical regulations and standards, also addresses ‘post-discriminatory’ measures.
74 Amelia Porges and Joel P. Trachtman (2003), ‘Robert Hudec and Domestic Regulation: The Resurrection of “Aim and Effects”’, 37 Journal of World Trade.
75 Hudec, supra note 35, at 194.
76 See, e.g., Henrik Horn, Giovanni Maggi, and Robert Staiger (2008), ‘Trade Agreements as Endogenously Incomplete Contracts’, mimeo, forthcoming in the American Economic Review, 2009.
77 Henrik Horn (2006), ‘National Treatment in the GATT’, 96:1 American Economic Review 394.
78 Costinot develops a model showing that national treatment results in standards that are excessively restrictive, due to failure to take account of the interests of foreign producers exporting to the regulating market. On the other hand, under a regime of mutual recognition in which each state undertakes to accept as satisfactory the regulation of the home state of the exported good, standards will be too low due to a race-to-the-bottom effect in which the regulating government fails to account for foreign externalities. See Arnaud Costinot (2008), ‘A Comparative Institutional Analysis of Agreements on Product Standards’, 75 Journal of International Economic Law 197.
79 Horn, supra note 78, at 402.
80 See Bernard Hoekman and Michel Kostecki (2009), The Political Economy of the World Trading System, Oxford University Press, for a brief review of some of this literature.
1 This paper was prepared for The American Law Institute Principles of World Trade Law project. We are grateful for comments by participants in that project, and especially Henrik Horn and Joost Pauwelyn. The views expressed are personal and should not be attributed to the World Bank.
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