ENVIRONMENTAL AND PRODUCT SAFETY CASES IN THE WTO WTO Research Center of AGU William J. Davey *

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1 ENVIRONMENTAL AND PRODUCT SAFETY CASES IN THE WTO WTO Research Center of AGU William J. Davey * I. Introduction A. The World Trade Organization - Background - result of Uruguay Round negotiations came into existence January 1, about 150 members and 25 candidates - although new, based on GATT - purpose expand international trade & raise living standards B. Basic Rules of WTO 1. trade liberalization - negotiate maximum tariffs - prohibit quotas 2. nondiscrimination - most-favored-nation treatment GATT Article I as to like products, must treat products from one WTO member like those coming from another - national treatment GATT Article III as to like products, internal taxes and internal sales regulations must not treat imported products less favorably than domestic products 3. Separate agreements on sanitary and phytosanitary measures (the SPS Agreement) and on technical requirements and standards (the TBT Agreement) establish special rules for technical standards and sanitary measures preference for rules based on international standards, preference for less trade restrictive standards, recognition of right of government to set high levels of protection 4. Other rules fair trade, transparency 5. Exceptions national security, health, conservation C. WTO Dispute Settlement 1. Mandatory if requested, must consult with another member about your laws and regulations 2. If consultations fail to settle, refer to panel of three experts to rule on case 3. Ruling subject to appeal to Appellate Body 4. Required to implement rulings; if fail, subject to retaliatory trade measures 5. To date, used frequently; good record of implementation II. WTO Agreement s Treatment of the Environment and Product Safety A. Introduction * Edwin M. Adams Professor of Law, University of Illinois College of Law. Former Director, WTO Legal Affairs Division ( ). 1

2 1. Preamble to WTO Agreement recognizes that trade liberalization should be undertaken in light of sustainable development principles 2. Concern over the environment at time of WTO creation led to establishment of WTO Committee on Environment B. WTO Rules on the Environment and Product Standards 1. WTO Members are generally free to impose environmental measures of their own choosing 2. Limitations a. non-discrimination if like products are involved, national treatment clause GATT Article III requires no less favorable treatment b. if national treatment clause violated, may invoke general exceptions clause of GATT Article XX that allow measures for health reasons or for conservation BUT must show that measure does not constitute arbitrary or unjustifiable discrimination or a disguised restriction on international trade c. if technical standard involved, must comply with TBT Agreement, which has preference for international standards, requires nondiscrimination, and provides that measure should not be unnecessary obstacles to international trade, i.e. not be more trade restrictive than necessary to fulfill a legitimate objective d. if a sanitary measure, must comply with SPS Agreement, which has a preference for international standards, requires science-based measures and risk assessments III. GATT Cases on the Environment and Product Safety I will first examine three GATT cases involving the environment and product safety in this section. In the next section, I will look at cases that have arisen under the SPS and TBT Agreements. The three GATT cases are the Gasoline, Shrimp and Asbestos cases. A. United States Reformulated Gasoline Case (First WTO Panel/Appellate Body Case, brought by Venezuela and Brazil) 1. A US law distinguished between gasoline sold in large cities, which became known as reformulated gasoline, and gasoline sold elsewhere, which was known as conventional gasoline. The law required cleaner gasoline in large cities, so as to reduce pollution. US companies were given several years to comply with the new standard for this reformulated gasoline. During the phase-in period for reformulated gasoline, for certain gasoline components, US 2

3 refiners were required only to maintain their existing level of clean gasoline production (their individual baseline). After the phase-in, they had to meet the national standard for reformulated gasoline, but they only had to maintain the pre-existing cleanliness levels of their conventional gasoline (an individual baseline). Imported gasoline was required to meet the new standard for cities immediately and to meet a statutory cleanliness level for conventional gasoline. In short, domestic refiners benefited from individualized standards based on their past production, whereas imported gasoline had to meet specific statutory standards. 2. The panel ruled that this rule violated GATT s national treatment clause (Article III) because imported gasoline was treated less favorably than domestic gasoline. The US did not appeal this finding. Note that the US could have avoided this problem by treating imported and domestic gasoline in the same way. 3. The US argued that the rule was within the general exceptions clause of GATT Article XX. That clause provides: Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in [GATT] shall be construed to prevent the adoption or enforcement by any [WTO Member] of measures: (b) necessary to protect human, animal or plant life or health; (g) relating to the conservation of exhaustible natural resources Note that the introductory clause Subject to the requirement is often referred to as the chapeau (French for hat ) The US argued that the rule (i) was a necessary health measure and (ii) was related to the conservation of exhaustible natural resources. The panel rejected both arguments. It found that the discrimination against imports was not necessary for health reasons and that the discriminatory aspect of the rules was not related to conservation. 4. The US appealed only the question of whether the rule was related to the conservation of exhaustible natural resources. The Appellate 3

4 Body concluded that the rule overall was related to conservation and that the panel was wrong to look to ask only if the discriminatory aspect of the rule was so related. 5. However, the Appellate Body found that the rule did not fall within the exception because it involved arbitrary or unjustifiable discrimination or a disguised restriction on trade. In particular, it found that the US had not treated foreign gasoline the way it had treated domestic gasoline (i.e. it had discriminated) because it had not tried to solve the technical problems it claimed prevented allowing foreign refiners from having individualized baselines. B. The US Shrimp Case (brought by India, Malaysia, Pakistan and Thailand) 1. This case involved a US law that banned the import of shrimp from countries that were not certified by the US as having a US-like rule that required shrimp catchers to use nets with turtle excluder devices. The US rule was adopted to protect sea turtles that otherwise might become trapped in shrimp fishing nets. 2. The US conceded that the rule violated GATT Article XI, which prohibits quantitative restrictions on imports, but it claimed that the measure was justified under the Article XX(g) exception discussed in the Gasoline case, i.e. that it was related to the conservation of exhaustible natural resources. The panel rejected that argument and the US appealed. 3. The Appellate Body found that turtles are an exhaustible natural resources and that the design of the US measure is not disproportionately wide in its scope and reach in relation to the policy objective of protection and conservation of sea turtle species. The means are, in principle, reasonably related to the ends. The means and ends relationship between [the US rule] and the legitimate policy of conserving an exhaustible, and, in fact, endangered species, is observably a close and real one. Therefore, it concluded that the US rule was related to the conservation of exhaustible natural resources. 4. The Appellate Body found, however, that elements of the US rule failed to meet the requirements of the chapeau of Article XX that it not constitute arbitrary or unjustifiable discrimination. The Appellate Body found that the US rule was discriminatory because - it excluded shrimp that had been caught using turtle excluder devices if they came from an uncertified country, even though 4

5 similar shrimp from a certified country would be allowed into the US - in the case of Caribbean nations the US had provided a phasein period of several years and provided technical assistance, whereas the Asian nations involved in the WTO case, did not enjoy such a phase-in or receive technical assistance - although this was an international problem, as the turtles migrated throughout the world, the US did not engage in negotiations with the Asian nations, although they did with others - the US rules were arbitrary because the procedures for seeking certification did not provide due process 5. The US modified its rules so that it would be possible for individual shipments of shrimp, caught with turtle excluders, to enter the US; it engaged in negotiations with the Asian countries, although it reached no definitive agreement on the underlying issue; it provided technical assistance to those countries; and it reformed its procedures. When Malaysia brought a new proceeding arguing that the US had failed to comply with the original ruling, the panel and the Appellate Body ruled that the US had complied. 6. The Shrimp case is important, as it suggests that a country may take unilateral action on international environmental matters, so long as (i) it does not discriminate and (ii) it makes some effort to reach agreement with the interested countries. C. The EC Asbestos case (brought by Canada) 1. France banned the use of most asbestos-containing products, although it permitted the use of certain other similar products that may cause health problems. Canada claimed that asbestoscontaining products were like the other products and that the French measure was discriminatory and not necessary for health protection. 2. The panel agreed that the products were like products and that there was GATT-illegal discrimination, but it found that the French measure was necessary to protect health because of the dangers of asbestos. Canada appealed. 3. The Appellate Body ruled that Canada had failed to establish that asbestos-containing products and the other products with similar uses were like products. According to the Appellate Body, it was appropriate in deciding the likeness question to consider the 5

6 different health risks posed by the products in question. Moreover, the Appellate Body found that likeness should normally be considered in light of the marketplace: Does the market consider the products to be like? These considerations supported a conclusion that the products were not like. (Interestingly, one member of the Appellate Body expressed disagreement with the idea of determining likeness mainly in light of the marketplace.) 4. The Appellate Body also considered whether the French measure was a necessary health measure. In its consideration of this issue, the Appellate Body stated: "The 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 lifethreatening, 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. Canada asserts that "controlled use" represents a "reasonably available" measure that would serve the same end. The issue is, thus, whether France could reasonably be expected to employ "controlled use" practices to achieve its chosen level of health protection a halt in the spread of asbestos-related health risks. In our view, France could not reasonably be expected to employ any alternative measure if that measure would involve a continuation of the very risk that the Decree seeks to "halt". Such an alternative measure would, in effect, prevent France from achieving its chosen level of health protection. 5. The Asbestos case was of great importance insofar as cases involving health issues are concerned. In such cases, a government s view of the health risk is important, particularly where it is able to cite scientific evidence in support. D. Summary of GATT Rules 6

7 1. WTO Members can regulate dangerous products and act to protect the environment, but must not discriminate 2. WTO Members can take unilateral action to protect the environment outside of their borders, but cannot discriminate and should not act arbitrarily. They may need to attempt to negotiate international rules in such a case 3. Open issues: - product vs. process distinction is a product made using one process like the same product using another process; suppose one process is more polluting than another relevance of the Shrimp case? - likeness of products generally how broad or narrowly should they be defined relevance of the Asbestos case? IV. The Agreement on Sanitary and Phytosanitary Measures (SPS Agreement) A. General Rules 1. SPS measures are defined as measures designed to protect the health of humans, animals and plants. They are to be applied only to extent necessary to protect human, animal or plant life or health; should be based on scientific principles and should not be maintained without sufficient scientific evidence (Article 2.2) 2. SPS measures should not discriminate unjustifiably or arbitrarily or constitute a disguised restriction on international trade (similar to rules for GATT Article XX(b) exception SPS Agreement related to XX(b)) (Article 2.3) 3. WTO members should use international standards where available, but may choose to achieve a higher level of protection (Article 3) 4. SPS measures must be based on a risk assessment (Article 5.1) 5. Members are to avoid arbitrary or unjustifiable distinction in levels of protection if they result in discrimination or a disguised restriction on trade (Article 5.5) 6. SPS measures shall not be more trade restrictive than necessary (Article 5.6) 7. Provisional action permissible when relevant scientific evidence is insufficient (precautionary principle) (Article 5.7) 7

8 8. Transparency requirements notification of SPS measures and proposed changes, enquiry points and SPS Committee review (Article 7) B. The EC Hormones Case (brought by US and Canada) 1. The EC bans sale and importation of beef from cattle treated with growth-promoting hormones 2. The main issue in the case was whether the EC had performed a risk assessment. According to the Appellate Body: - a risk assessment is to be undertaken in accordance with risk assessment techniques developed by international bodies - a WTO member need not conduct risk assessment itself, but must point to one when its measure is challenged - a member is free to set its acceptable level of risk, which may be zero (recall Asbestos) - to judge whether a measure is based on a risk assessment, it is necessary to ascertain if there is a rational relationship between the measure and the assessment - such a relationship can be found even though it is based on non-mainstream scientific opinion C. The Australia Salmon case (brought by Canada) 1. Australia prohibited the import of uncooked salmon 2. The interesting issue in the case concerned whether the Australian measure violated Article 5.5. The Appellate Body upheld a panel finding that it did. The panel had noted that Australia s rules on salmon were much stricter than its rules on other similar fish and concluded that this difference in the level of protection was arbitrary and resulted in discrimination in violation of Article 5.5. D. The Japan Agricultural Restrictions case (brought by the US) 1. Japan prohibited the import of fruit unless it had undergone a very complicated testing procedure 2. The interesting issue in the case was whether Japan could invoke Article 5.7 the precautionary provision. The panel and the Appellate Body concluded that it could not because it had not attempted to find relevant scientific evidence E. The Japan Apples case (brought by the US) 8

9 1. The case is similar to the Japan Agricultural Restrictions case (involving restrictions on fruit imports). Apples from the United States are permitted to enter Japan only if a long list of conditions is satisfied. At issue in the case was whether those conditions, which were imposed to prevent the entry into Japan of a disease affecting fruit trees known as fire blight, were justified by sufficient scientific evidence, as required by SPS Article 2.2. The panel concluded that they were not. 2. The Appellate Body upheld the panel s rather strict interpretation of the SPS Agreement. According to the Appellate Body, the question is whether there is a rational relationship between the SPS measure and the scientific evidence. In this case, the Appellate Body agreed that the Japanese measure was disproportionately strict in light of the scientific evidence, which according to the panel showed that it is not likely that imports of mature, symptomless apples would serve as a pathway for the entry, establishment or spread of fire blight in Japan. 3. This report seems to accord less discretion to a government than is suggested in the Hormones and Asbestos case, although both of those cases involved human health and not plant health. It seemed that the experts consulted by the panel did not completely rule out the entry of fire blight, but only concluded that it was very unlikely. As such, it is not clear to me whether Japan will be able to argue that it is not required to remove all of its restrictions but rather that it can keep some. F. Conclusion Overall impact of SPS Agreement will probably be to improve government decision-making in respect of SPS measures and encourage developing countries to use international standards V. The Agreement on Technical Barriers to Trade (TBT Agreement) A. General Rules 1. The TBT Agreement applies to technical regulations and standards, including in particular product characteristics and production methods and labeling. Technical requirements are mandatory; standards are not. Note that the TBT Agreement does not apply to SPS measures. 9

10 2. Technical requirements are subject to a most-favored-nation and national-treatment obligation. (TBT Article 2.1) 3. Technical requirements are not to be adopted with a view to or with the effect of creating unnecessary obstacles to international trade; they shall not be more trade restrictive than necessary to fulfill a legitimate objective. (TBT Article 2.2) 4. WTO members are to use international standards except when they would be an ineffective or inappropriate means to fulfill a legitimate objective. (TBT Article 2.4) 5. Notice and transparency requirements are imposed. B. The EC Sardines Case (brought by Peru) 1. The only TBT case to be considered in the WTO dispute settlement system was the Sardines case, which involved an EC regulation that limited the use of the term sardines to species found mainly near Europe 2. The panel and Appellate Body concluded that there was a relevant international standard, which would have allowed the term sardines to be applied to a broader range of related fish and that the EC could not show that the international standard was ineffective or inappropriate to achieve its consumer protection goals. VI. Conclusion A. Summarize B. Also note arguments concerning the general impact of development on the environment and whether WTO rules encourage the adoption of weak environmental rules as a means of attracting investment 10