Further thoughts on the role of regulatory purpose under article III of the general agreement on tariffs and trade

Journal of World Trade

Volumn 37, Issue 4, 2003, Pages 737-760

  Regan, Donald H ^a  

^a UNIVERSITY OF MICHIGAN   (United States)

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EID: 65849386315     PISSN: 10116702     EISSN: None     Source Type: Journal    
DOI: 10.54648/trad2003035     Document Type: Article

References (92)

1. Robert Hudec, GATT/WTO Constraints on National Regulation: Requiem for an "Aims and Effects" Test, 32 Int'l Lawyer 32 (1998), 619-649.
2. Donald Regan, Regulatory Purpose and "Like Products" in Article III:4 of the GATT (With Additional Remarks on Article III:2), 36 J.W.T. 3 (June 2002), 443-478.
3. Japan - Taxes on Alcoholic Beverages [hereinafter Japan - Alcohol or Japan], WT/DS8 and DS10 and DS11/AB/R (adopted 1 November 1996).
4. And what if there are multiple purposes? The rough answer is that the regulation should be invalidated if and only if the contribution of protectionist purpose was a but-for cause of the adoption of the regulation. For further discussion of why I think the purpose test, as I understand it, is the right test, see sections IV and V below, and see also Regan, note 2 above, 444-464;
5. and Donald Regan, Judicial Review of Member-State Regulation of Trade Within a Federal or Quasi-Federal System: Protectionism and Balancing Da Capo, 99 Michigan L. Rev. (August 2001), 1853-1902.
6. Regan, as note 2 above, 471-477.
7. Chile - Taxes on Alcoholic Beverages, WT/DS87 and DS110/AB/R (adopted 12 January 2000) [hereinafter Chile - Alcohol or Chile], paras 62, 71. Chile, of course, was about Article III:2, second sentence. But there is no reason to doubt that what they say about the interpretation of "so as to afford protection" applies anywhere that phrase is relevant - in particular, after European Communities - Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R (adopted 5 April 2001) [hereafter EC - Asbestos or Asbestos], in connection with Article III:4. See section VI below.
8. Chile - Alcohol, para 62 (emphasis in original).
9. E.g., John Jackson, William Davey and Alan Sykes, Legal Problems of International Economic Relations: Cases, Materials, and Text, 4th edn (St Paul, MN: West Publishing, 2002), p. 502; Henrik Horn and Petros Mavroidis, Still Hazy After All These Years: The Interpretation of National Treatment in GATT/WTO Case-Law on Tax Discrimination, manuscript on file with the author, 2002. An exception is Gaëtan Verhoosel, National Treatment and WTO Dispute Settlement: Adjudicating the Boundaries of Regulatory Autonomy (Oxford: Hart Publishing, 2002), who sees Chile as different from Japan, although he does not share my view that Chile establishes the centrality of protectionist purpose. Verhoosel argues that Chile establishes a necessity test under Article III. For a brief discussion of such tests, see section V below.
10. Chile - Alcohol, para. 62, quoting and adding the emphasis to Japan - Alcohol, s. H.2(c).
11. Chile - Alcohol, para. 71 (first emphasis added. Footnote omitted).
12. See Hudec, as note 1 above, 629-632;
13. Regan, as note 2 above, 471-477.
14. Japan - Alcohol, s. H.2(c).
15. Chile - Alcohol, paras 62, 67, 71.
16. The reader might wonder if the Chile report, which undoubtedly makes purpose central, is so clear that the ultimate question is protectionist purpose. On that issue, see section V below.
17. Chile - Alcohol, para. 62.
18. See Canada - Certain Measures Concerning Periodicals, WT/DS31/AB/R (adopted 30 July 1997), s. VI.B.3, considering ministerial statements.
19. See also, on the general issue of identifying purpose (in this case under the Agreement on the Application of Sanitary and Phytosanitary Measures 5.5), Australia - Measures Affecting Importation of Salmon, WT/DS18/AB/R (adopted 6 November 1998), para. V.C.3.12 (using legislative reports),
20. and EC - Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R (adopted 13 February 1998), paras 244-245 (commenting on the lack of lobbying by domestic producers and on consumer worries about food safety).
21. It is possible to think that the Appellate Body was wrong not to be persuaded by Chile's explanation, or indeed that they were wrong to have thought that the structure of the tax scheme made a prima facie case of protectionist purpose. Horn and Mavroidis, as note 8 above, make arguments for both of these views. But even if the Appellate Body misapplied their approach (I am not persuaded is the case), that does not undermine my claim about what the approach was.
22. Note 16 above.
23. Id.
24. Nor, from the other direction, is it a necessary condition for finding protectionist purpose that any legislator should have been so careless as to make a protectionist speech on the record.
25. And if there are multiple purposes? See note 4 above.
26. The case I hypothesize may be rare, but we should still have a theory that accommodates it in principle. And thinking along these lines also matters in practice because of the way the purpose question may become entangled with judicial review of empirical judgments about effects through the issue of the appropriate degree of deference. See section V below.
27. I set aside the special problem of effects on animals, as from leg-hold traps or cosmetics testing.
28. People sometimes object to the fact that on my purpose view, an identically worded statute may be legal in one jurisdiction and illegal in another. But actually, that will be true on any plausible test. It is certainly true, for example, on a test that looks at effects, since an identically worded statute can easily have different effects in different jurisdictions. On a different point, it might be suggested that willingness to look beyond the face of the statute for evidence of protectionist purpose leaves governments with transparent political processes at a disadvantage. But surely we believe that the other benefits of transparency more than compensate, especially if we reflect that it may not be an advantage to most nations' populations at large for their governments to be able to get away with protectionist laws. On yet another point, it might be asked why I assume a law passed at the behest of environmentalists is efficient and a law passed at the behest of an industry seeking protection is not: even environmentalists lobby and are a political interest group. The best answer in the present context is just that GATT Article III seems to presuppose such a distinction, when it disfavours "protection". But beyond that: (1) the forces that benefit from protection get a good deal of consideration for their interests out of the operation of the market (even if not as much as they want), whereas environmental externalities are by definition not considered by the market mechanism; (2) protectionist forces are more naturally organized than environmentalist forces, so their coming together may be less evidence of strength of interest. Both of these considerations explain why industry groups may be more likely than environmental or consumer groups to achieve "overrepresentation" in the political process. Of course, what I am relying on here is not a hard-and-fast distinction - some environmental laws are inefficient, and some protectionism may be defensible - but it does seem a reasonable working presumption.
29. Chile - Alcohol, para. 71.
30. Ibid., para. 69 (emphasis added by the Appellate Body).
31. Verhoosel, as note 8 above, reads Chile - Alcohol as asserting his view that the use of unnecessarily restrictive means, relative to the regulator's announced purpose, is the sort of discrimination with which we are concerned. This ignores the fact that the Appellate Body says that a lack of relation of means to ends is evidence of discrimination, and that it says the task is to identify the purpose.
32. When this is the case, the question in the means/ends inquiry is not the truth of the empirical judgments and the objective soundness of the normative commitments implicit in the government's story. The issue is rather the plausibility of the government's story, its ability to displace protectionism as the best explanation of the government's choice.
33. What we are talking about here is deference under Article III. For reasons that are explained in section VII below, we may not want so much deference under Article XX. The Appellate Body may have cause to regret the very deferential stance it suggests under XX in Asbestos, paras 167-175.
34. I assume that we are dealing with what I call "strict" LRM analysis in Regan, as note 4 above, pp. 1899-1900.
35. Alan Sykes has recently argued that WTO tribunals actually engage in some balancing (and hence make some value judgments) in the course of what they refer to as less restrictive means analysis. Alan Sykes, The Least Restrictive Means, 70 Univ. Chicago L. Rev. 1 (Winter 2003), 403-419.
36. Cf. Verhoosel, as note 8 above, pp. 109-110.
37. On the concerns of the "concurring" member, see Regan, as note 2 above, 445.
38. EC - Asbestos, para. 88.
39. Ibid., para. 99.
40. There is no inconsistency, of course, since the words of the text are to be read in context, and the context varies from provision to provision.
41. EC - Asbestos, paras 93, 98.
42. European Communities - Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R (adopted 25 September 1997), para. 216.
43. For an explanation of why I say "seemingly" contrary assertion, see Regan, as note 2 above, 475, n. 91.
44. EC - Asbestos, para. 115.
45. European Communities - Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/R (18 September 2000).
46. This view is discussed in section VIII below, where I point out that despite its hold on people's imagination, it has no support in GATT or WTO jurisprudence.
47. EC - Asbestos, para. 115
48. Hudec, as note 1 above, 639. Bob also pressed this point upon me in e-mail exchanges.
49. I have explained in Regan, as note 2 above, 455-456, that all origin-specific measures that treat foreign products less favourably violate Article III and go to Article XX. In rare cases, such measures may not have a protectionist purpose (see, e.g., the US Supreme Court case Maine v. Taylor, 477 U.S. 131 (1986)), but there is a very strong presumption that they do, and no government can reasonably be offended by being asked for formal justification under Article XX for a measure that is origin-specific. It makes sense to disparage such measures.
50. See Regan, as note 2 above, 465-467.
51. Vienna Convention on the Law of Treaties, Article 31.1.
52. Regan, as note 2 above, 444-454.
53. Actually, it is people who oppose the purpose inquiry on putative grounds of judicial incompetence or institutional legitimacy who seem more open to a charge of teleological interpretation.
54. EC - Asbestos, paras 113-116.
55. Ibid., para. 109.
56. For a similar, more extensive survey of the contributions of the Appellate Body in Asbestos, see Robert Howse and Elizabeth Tuerk, "The WTO Impact on Internal Regulations - A Case Study of the Canada - EC Asbestos Dispute", in Graínne De Búrca and Joanne Scott (eds), The EU and the WTO: Legal and Constitutional Aspects (Oxford: Hart Publishing, 2001).
57. E.g., EC - Asbestos, paras 118, 121. Also, the desire to suggest that the health risk itself might establish unlikeness, independent of the competitive relationship, seems to be precisely what occasions the "concurring statement", paras 149-154, although this may seem to confirm that the majority rejected that possibility.
58. EC - Asbestos, para. 100;
59. for discussion of this paragraph, see Regan, as note 2 above, 468-471. Let me also mention here a distantly related point for which I have found no better place. I have heard it suggested, in support of the view that any disparate competitive impact violates Article III, that we should approach the question of "likeness" under Article III:4 the same way antitrust lawyers approach the comparable issue in defining markets to calculate market share. If the claim were simply that insofar as we are trying to establish competitive relationship as a necessary element of likeness, we should use the same econometric tools that have been refined in antitrust investigations, I would have no disagreement of principle (although I would want to consider further if, in the WTO context, parties have the resources and tribunals have the competence to use these tools). But the claim seems to be rather that the Article III:4 "likeness" issue in its entirety is the same as the market definition issue for antitrust. That simply begs the crucial question of whether competitive relationship is sufficient for Article III likeness. In the antitrust context, the issue is competitive relationship, pure and simple. In the Article III context, the hard issue is precisely if likeness is about competitive relationship alone, or if something else is involved. We cannot appeal to the antitrust inquiry as fully analogous until we have decided independently what is the proper role of regulatory purpose under Article III.
60. As stated, this test could be construed as a rational means test or an LRM test, if the question of whether the products are or are not distinguished by some specified non-protectionist policy is to be decided by the tribunal for itself. But I explained in section V above why considerations of appropriate deference convert the means/ends test into a protectionist purpose test.
61. In Chile - Alcohol, of course, the issue was not "likeness", but "so as to afford protection". But my claim is that under III:4, the issue of "so as to afford protection" is in effect included in the issue of likeness. We would also proceed in much the same way under III:4, mutatis mutandis, if the regulatory purpose inquiry, which is required by the "so as to afford protection" idea, were considered under the rubric of "less favourable treatment" rather than under the rubric of "likeness".
62. Border Tax Adjustments - Report of the Working Party (adopted 2 December 1970), B.I.S.D. 18th Supp. 97 (1972).
63. EC - Asbestos, para. 102.
64. This is true both in III:2, which, syntactically, imposes a prohibition, and in III:4, which, syntactically, imposes a positive requirement.
65. See GATT, Article II:2(a) and Note Ad Article XVI. This is not altered, on the export side, by Annex I, paras (g) and (h), of the Agreement on Subsidies and Countervailing Measures, since it will still be the regulator who tries to identify like products on which taxes as large as the export-remission were levied (or on which as much prior-stage cumulative indirect tax was remitted) when sold for domestic consumption.
66. The general reason for this is a deep asymmetry between "likeness" and "unlikeness". We can show products are unlike (i.e., we can justify different treatment) by showing that they differ with respect to any one non-protectionist purpose. In order to show definitively by positive argument that they are like (that the same treatment is required), we must consider all possible non-protectionist purposes and show the products do not differ with regard to any of them. How we avoid this problem and make a claim of likeness possible in the Article III and border tax contexts is explicated in the text.
67. In the border tax context the focus is directly on possible non-protectionist purposes, and not on protectionist purpose, because the border tax provisions are authorizing something that is a sort of "protection". The overt purpose of the regulator in making the adjustments is to improve the competitive situation of its products; but this is a context where we regard that as acceptably "removing an artificial disadvantage" rather than unacceptably "creating an advantage". Hence the challenger will get no mileage out of simply showing a "protective" purpose.
68. United States - Taxes on Petroleum and Certain Imported Substances (Superfund), B.I.S.D. 34th Supp. 136 (1988) (adopted 17 June 1987).
69. Ibid., para. 5.2.4.
70. On examination, the issue gets a lot more complicated than it looks at first. The special nature of border tax adjustments is entangled with issues about the relevance of regulatory purposes based on production methods. And we need to consider the interaction of possible border tax adjustments by both countries at both ends of the transaction.
71. Border Tax Report, para. 18.
72. Japan - Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages, B.I.S.D. 34th Supp. 83 (1988) (adopted 10 November 1987).
73. Ibid., paras 3.10, 5.2-5.5.
74. Ibid., paras 5.9(a),(b).
75. Ibid., para. 5.13.
76. See sections II and III above; and Regan, as note 2 above, 476-477.
77. Japan - Alcohol, s. H.1(a).
78. Notice that one feature of Japan - Alcohol that is continued totally undisturbed in Korea - Taxes on Alcoholic Beverages, WT/ DS75 and DS84/AB/R (adopted 17 February 1999), and Chile - Alcohol is this rejection of the disparate impact view. Both of the later cases continue the same basic framework from Japan that I have explained in the text is inconsistent with the disparate impact view.
79. Italian Discrimination Against Imported Agricultural Machinery, B.I.S.D. 7th Supp. 60 (1959) (adopted 23 October 1958).
80. As note 61 above.
81. United States - Section 337 of the Tariff Act of 1930, B.I.S.D. 36th Supp. 345 (1990) (adopted 7 November 1989).
82. With regard to Superfund, remember I am now talking about the Article III aspect, where there was no serious "likeness" issue, and not the border tax adjustment aspect, discussed in section VII, where there was such an issue.
83. Incidentally, the origin-specificity of the measure also removes any significance from the Panel's observation that it finds "no evidence that [the illegal differences in treatment] had been deliberately introduced so as to discriminate against foreign products". Section 337, para. 6.2.
84. Superfund, paras 5.1.1, 5.1.2.
85. See again note 70 above.
86. See section VI above, note 50; and Regan, as note 2 above, 468.
87. EC - Asbestos, para. 100;
88. and Regan, as note 2 above, 468-471.
89. See Regan, as note 2 above, 465-467.
90. When I asked a colleague if I had overlooked any cases that somebody might think supported the disparate impact view, he mentioned (not as serious support, but just as cases someone might bring up) the Minnesota taxcredit for microbreweries and the Canadian provinces' minimum prices on beer. One could write paragraphs on each of these cases, but I shall deal with them summarily. Whatever the Minnesota microbrewery case might suggest if it were a free-standing decision, it seems to me it would take exceptional brazenness to claim it supports the disparate impact view if we remember that it was just one "caselet" in United States - Measures Affecting Alcoholic and Malt Beverages, B.I.S.D. 39th Supp. 206 (1993) (adopted 19 June 1992), the fons et origo of the "aims and effects" test.
91. With regard to Canada - Import, Distribution and Sale of Certain Alcoholic Drinks by Provincial Marketing Agencies, B.I.S.D. 39th Supp. 27 (1993) (adopted 18 February 1992), there are two points: first, there was a strong whiff of protectionist purpose in the "origin-specific" procedure of setting the minimum price for beer by reference to the prices of domestic producers, see paras 5.29-5.32; second, there was no controverted issue of "likeness", so the decision does not remotely establish that competitive relationship is all that matters to likeness, which is the central element of the disparate impact view.
92. Incidentally, if we look at Article I cases, not worrying about just how the tests under Articles I and III might compare, Spain - Tariff Treatment of Unroasted Coffee, B.I.S.D. 28th Supp. 102 (1982) (adopted 11 June 1981), might seem to suggest a disparate impact approach, but to the extent that it does, it is surely cancelled by Japan - Tariff on Import of Spruce-Pine-Fir (SPF) Dimension Lumber, B.I.S.D. 36th Supp. 167 (1990) (adopted 19 July 1989), which incidentally adopts a clear purpose approach, saying the challenger must show the tariff classification "has been diverted from its normal purpose so as to become a means of discrimination", para. 5.10.