Interpreting the chapeau of GATT article XX in light of the 'new' approach in Brazil-Tyres

Journal of World Trade

Volumn 43, Issue 3, 2009, Pages 507-539

  Davies, Arwel ^a  

^a SWANSEA UNIVERSITY   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

GATT; INTERNATIONAL LAW; TRADE AGREEMENT; WORLD TRADE ORGANIZATION;

BRAZIL;

EID: 80054773509     PISSN: 10116702     EISSN: None     Source Type: Journal    
DOI: 10.54648/trad2009021     Document Type: Article

References (109)

1. United States - Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R (adopted 6 Nov. 1998).
2. Ibid., para. 156. In a later passage, the task is described as that of 'locating and marking out a line of equilibrium between ...' these 'competing rights' so that neither '' will cancel out the other', para. 159.
3. This provision began merely with the phrase 'Nothing in Chapter IV of this Charter shall be construed to prevent the adoption or enforcement by any member of measures: ...'.
4. Note 154 of the Appellate report in Shrimp sets out the concerns of the Netherlands, Belgium, and Luxembourg to the effect that: Indirect protection is an undesirable and dangerous phenomenon .... Many times, the stipulations to 'protect animal or plant life or health' are misused for indirect protection. It is recommended to insert a clause which prohibits expressly to direct such measures that they constitute an indirect protection or, in general, to use these measures to attain results, which are irreconsiliable [sic] with the aim of Chapters IV, V and VI. E/PC/T/C.II/32, 30 October 1946. Developing countries shared this concern. For example, South Africa commented that the exceptions 'were rational but were open to widespread abuse' and that a 'provision to prevent abuse' should be incorporated. E / P C/T/C.II/50, 6.
5. The United Kingdom's proposed text for the chapeau read: The undertaking in Chapter IV of this Charter relating to import and export restrictions shall not be construed to prevent the adoption or enforcement by any member of measures for the following purposes, provided that they are not applied in such a manner as to constitute a means of arbitrary discrimination between countries where the same conditions prevail, or a disguised restriction on international trade. E/PC/T/C.II/50, 7 and 9; E/PC/T/C.II/54/ R e v.1, 28 Nov. 1946, 36.
6. In United States-Gasoline, it was noted that '... the kinds of considerations pertinent in deciding whether the application of a particular measure amounts to 'arbitrary or unjustifiable discrimination', may also be taken into account in determining the presence of a 'disguised restriction' on international trade'. However, in respect of neither phrase was any guidance provided on what the pertinent considerations might be. United States - Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R (adopted 20 May 1996), 25.
7. Brazil - Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R (adopted 17 Dec. 2007). 8 Howse and Regan have thoroughly defended the view that '... distinctions of nationality are irrelevant to economic efficiency. Products which differ only in their nationality should have the same competitive opportunities'.
8. Robert Howse & Donald Regan, 'The Product/Process Distinction - An Illusory Basis for Disciplining "Unilateralism" in Trade Policy', European Journal of International Law 11, no. 2 (2000): 249-289, 270.
9. More recently, Pauwelyn has noted that 'the core of any non-discrimination principle lies in the test of whether the regulation, either in law or in effect distinguishes based on national origin'.
10. Joost Pauwelyn, 'The Unbearable Lightness of Likeness', www.law.duke.edu/fac/pauwelyn/pdf/unbearable_lightness.pdf, 10 Jul. 2008.
11. Korea - Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161,169/AB/R (adopted 10 Jan. 2001).
12. United States-Gasoline, 23. The relevant passage is set out in s. 3.
13. Brazil - Measures Affecting Imports of Used Tyres, WT/DS332/R (adopted as modified by the Appellate Body Report, 17 Dec. 2007), para. 7.286.
14. Joost Pauwelyn, 'The Unbearable Lightness of Likeness', para. 7.288.
15. Joost Pauwelyn, 'The Unbearable Lightness of Likeness'. Even though there had been a ten-fold increase in the volume of imported retreaded tyres by weight between 2002 and 2004, the numbers involved remained modest having risen to only 2,000 tons per year by 2004.
16. Joost Pauwelyn, 'The Unbearable Lightness of Likeness', para. 7.295 (emphasis in original).
17. Joost Pauwelyn, 'The Unbearable Lightness of Likeness', paras 7.296-7.297.
18. The statistics here showed that imports of used tires has increased by a factor of 7.5 between the year of enactment of the import ban (2000) and 2005. More tellingly, imports of used tires had increased from less than 10,000 tons in 2000 to over 70,000 tons in 2005. Clearly, the increase here is of a different order than that associated with the MERCOSUR exemption.
19. Joost Pauwelyn, 'The Unbearable Lightness of Likeness', para. 7.308.
20. Joost Pauwelyn, 'The Unbearable Lightness of Likeness', para. 7.309.
21. Howse & Regan, as n. 8 above, 260.
22. Sanford Gaines, 'The WTO's Reading of the GATT Article XX Chapeau: A Disguised Restriction on Environmental Measures', University of Pennsylvania Journal of International Economic Law 22 (2001): 739-862, 779.
23. Brazil-Tyres, para. 7.309.
24. Julia Ya Qin, 'Defining Nondiscrimination under the Law of the World Trade Organization', Boston University International Law Journal 23 (2005): 215-297, 265.
25. This caveat is added because trade effects can be relevant to the issue of whether there is any discrimination at all, a point that is discussed in s. 3 of the main text.
26. Brazil-Tyres, para. 229.
27. Julia Ya Qin, 'Defining Nondiscrimination under the Law of the World Trade Organization', Boston University International Law Journal n. 437 (references omitted).
28. This phrase seems first to have been used by the GATT panel in Italian Discrimination against Imported Agricultural Machinery, L/833-7S60 (adopted 23 Oct. 1958), para. 12. The phrase is also elevated to the status of Treaty text by the GATS National Treatment provision Art. XVII:3.
29. Korea-Beef, para. 144.
30. United States-Gasoline, 23.
31. Brazil-Tyres, European Communities, paras 36 and 221.
32. Australia, para. 93.
33. Japan, para. 97.
34. Korea para. 104.
35. United States, para. 115.
36. Julia Ya Qin, 'Defining Nondiscrimination under the Law of the World Trade Organization', Boston University International Law Journal para. 111.
37. Julia Ya Qin, 'Defining Nondiscrimination under the Law of the World Trade Organization', Boston University International Law Journal, para. 93.
38. Agreement on Safegaurds, Arts 2.1 and 4.2.
39. It is certain that a challenged investigation will be found to be inadequate if it does not proceed beyond comparing import levels at two points in time. The requirement in Art. 4.2(a) to assess the 'rate and amount' of the increase requires that consideration be given to fluctuations in import levels between these two points. However, there is uncertainty over what pattern of fluctuations might lead the Appellate Body to strike down a finding of increased imports, in particular, where imports are declining toward the end of the investigation. See United States - Definitive Safeguard Measures on Certain Imports of Steel Products, WT/DS248,249,251,252,253,254,258,259/AB/R (adopted 10 Dec. 2003), paras 352-355.
40. Brazil-Tyres, para. 227.
41. United States-Shrimp, para. 148.
42. Julia Ya Qin, 'Defining Nondiscrimination under the Law of the World Trade Organization', Boston University International Law Journal, para. 149.
43. Julia Ya Qin, 'Defining Nondiscrimination under the Law of the World Trade Organization', Boston University International Law Journal, para. 165.
44. An interesting query is why the United States devoted so much attention to persuading the Appellate Body of the merits of its suggested approach, when, upon its application, it only served to confirm the presence of unjustifiable discrimination. The answer probably relates to the distinction between the measure itself and the manner of its application. Had the Appellate Body concentrated more on the measure itself, rather than (as required by the chapeau) the measure's application, it is entirely possible that the measure would have been exonerated. It was noted (at para. 161) that: [A]s enacted by the Congress of the United States, the statutory provisions of Section 609(b)(2)(A) and (B) do not, in themselves, require that other WTO Members adopt essentially the same policies and enforcement practices as the United States. Viewed alone, the statute appears to permit a degree of discretion or flexibility in how the standards for determining comparability might be applied, in practice, to other countries. However, any flexibility that may have been intended by Congress when it enacted the statutory provision has been effectively eliminated in the implementation of that policy through the 1996 Guidelines promulgated by the Department of State and through the practice of the administrators in making certification determinations. The suggested approach/new test can now be applied. If we concentrate on the measure itself, the discretion to accept the importation of shrimp caught with methods comparable to those mandated in the United States can be emphasized. Under the measure itself, the only reason for discriminating against shrimp from some countries would then be that these shrimps were actually caught in a manner detrimental to sea turtles. This reason clearly has a direct and strong connection to the policy objective.
45. Brazil-Tyres, para. 228.
46. United States-Gasoline, 23.
47. This is clear from para. 149 of United States-Shrimp set out in s. 4 above.
48. An example of such a situation can be provided by referring to the analysis of the Gasoline case provided in the main text above. Had the claims about difficulties with verification and enforcement been substantiated, there would have been at least a connection between the explanation for the discrimination and the policy objective. It would then have been necessary to assess whether the required 'rational connection' was present.
49. This idea was first expressed by the Appellate Body in Korea-Beef, para. 162 in the context of Art. XX(d). In European Communities - Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R (adopted 5 Apr. 2001), which involved Art. XX(b), the original statement was generalized so 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' (para. 172).
50. Brazil-Tyres, para. 230.
51. In its review of the panel's provisional justification analysis, the Appellate Body in Tyres described this exercise by quoting from its findings in United States - Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/AB/R (adopted 20 Apr. 2005), para. 143: the weighing and balancing process inherent in the necessity analysis 'begins with an assessment of the 'relative importance' of the interests or values furthered by the challenged measure', and also involves an assessment of other factors, which will usually include 'the contribution of the measure to the realization of the ends pursued by it' and 'the restrictive impact of the measure on international commerce'.
52. Donald Regan, 'The Meaning of "Necessary" in GATT Article XX and GATS Article XIV: The Myth of Cost-Benefit Balancing', World Trade Review 6, no. 3 (2007): 347-369.
53. This view seems to be confirmed by the Appellate Body's statements in Tyres. It was noted that possible alternatives must not only be less trade restrictive than the chosen measure 'but should preserve for the responding Member its right to achieve its desired level of protection with respect to the objective pursued'. See paras 156 and 170.
54. It is informative here to mention the view that the chapeau can be interpreted as embodying proportionality stricto sensu on the basis that Art. 30 second sentence of the EC Treaty uses the same language as the chapeau and has occasionally been interpreted by the European Court of Justice as a full proportionality principle. The prevailing view is that this approach should not be carried over to the WTO context.
55. Jam Neumann & Elisabeth Türk, 'Necessity Revisited: Proportionality in World Trade Organization Law after Korea-Beef, EC-Asbestos and EC Sardines', Journal of World Trade 37, no. 1 (2003): 199-233, 205-206.
56. There are perhaps four types of argument against balancing. First, there is little in the WTO texts that provides a mandate for balancing, and it is inconsistent with the ordinary meaning of the relevant Treaty terms. Second, it has been argued with reference to economic theory that balancing is not required in order to give virtual representation to the voice of foreign producers that are lost in the domestic political process. Global efficiency can be achieved merely through inquiry into the domestic rationality of the trade measure; a process that does not implicate balancing. In respect of both these perspectives.
57. Regan, 'The Meaning of 'Necessary' in GATT Article XX and GATS Article XIV', as n. 45 above. The third argument is that balancing can only acceptably occur against a background of strong democratic legitimacy, which the WTO presently lacks. see Neumann & Türk, as n. 47 above, 231-233. Finally, it is difficult for international courts to have at their disposal sufficient factual information to perform the quantitative analysis associated with cost-benefit balancing. It has been noted that '... in many cases the ECJ, although it has sufficient legitimacy, exercises judicial self-restraint and leaves the final decision on whether the measure satisfies the proportionality standard to the national court'.
58. Panagiotis Delimatsis, 'Determining the Necessity of Domestic Regulations in Services the Best Is Yet to Come', European Journal of International Law 19, no. 2 (2008): 365-408, 390.
59. This situation is not unique. There is an analogy here with United States-Gambling where the prohibition on the remote supply of gambling services was considered during provisional justification, and the possible permissibility of such gambling under the IHA was considered under the chapeau.
60. A further illustration relating to an alternative conception of the primary violation analysis in Brazil-Tyres is provided below. See the discussion that culminates with n. 76.
61. The Appellate Body noted in United States-Gambling that there is no 'requirement on panels to stop evaluating a responding party's defence once they have determined that a challenged measure is not provisionally justified under one of the paragraphs of the general exception provision' (para. 343).
62. United States-Gasoline, panel report, para. 6.25. Admittedly, the panel analyzed the 'necessary' requirement with reference to the 'less restrictive alternative' test, rather than by conducting a 'weighing and balancing' exercise. However, the former articulation of the approach toward the term 'necessary' can overlap just as much with the approach to the chapeau in Brazil-Tyres, as the latter articulation. Whether the required 'rational connection' between the explanation for the discrimination and the policy objective is present could be determined by asking whether a less trade-restrictive alternative to the selected measure is reasonably available.
63. Panagiotis Delimatsis, 'Determining the Necessity of Domestic Regulations in Services the Best Is Yet to Come', European Journal of International Law, para. 6.28.
64. United States-Gasoline, Appellate Body report, 26-27.
65. Brazil-Tyres seems to contradict this suggestion. While the measure was necessary, the chapeau still had a strong role to play. Of course, the explanation for this has already been referred to in the main text. This was a case in which completely different aspects of the measure (or, arguably, different measures) were examined in the different parts of Art. XX. In such cases, there is both little risk of blurring the internal boundary, and the chapeau is likely to retain a strong role.
66. For further discussion of whether the Appellate Body's reasoning in Gasoline introduces a necessity requirement into the chapeau, see Neumann & Türk, as n. 47 above, 227-228 and references cited therein.
67. It is possible that this point may have been appreciated by the drafters of the Canada - Peru Bilateral Investment Treaty. The language used in Art. 10 - the General Exceptions provision - is clearly inspired by GATT Art. XX. However, all three heads of provisional justification are preceded by the term 'necessary'. The agreement can be viewed through this gateway: www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/fipa-apie/index.aspx.
68. United States-Gasoline, Appellate Body report, 23.
69. United States-Shrimp, para. 161.
70. The only means to avoid the interpretation of a non-sequitur is to concede that the manner of application is considered in both the primary violation and chapeau analyses, but that the chapeau is concerned with a search for more egregious aspects of the application than the primary violation. However, this leads to the artificial situation of keeping something in reserve to consider under the chapeau, which could just as well be considered in the primary violation.
71. Yoshiko Naiki, 'The Mandatory/Discretionary Doctrine in WTO Law', Journal of International Economic Law 7, no. 1 (2004): 23-72.
72. Kwan Kiat Sim, 'Rethinking the Mandatory/Discretionary Legislation Distinction in WTO Jurisprudence', World Trade Review 2, no. 1 (2003): 33-64.
73. United States-Gambling, para. 339.
74. The same pattern was repeated in respect of the IHA. This enactment authorized domestic, but not foreign, service suppliers to offer remote betting services on certain horse races. The United States argued that this civil statute could not impliedly repeal earlier criminal statutes, but both the panel and Appellate Body found the evidence presented to be inconclusive. Therefore, the Appellate Body again fell back on the face of the IHA, which, on this occasion, was plainly discriminatory.
75. United States-Gasoline, panel report, para. 6.10.
76. This point is discussed above - presently 15.
77. The analysis here could be taken further by asking whether the primary violation analysis in Gambling was flawed and, if so, what implications this might have had for the clarity of the primary violation/chapeau boundary. Regan has argued that the Appellate Body mistakenly found an Art. XVI Market Access violation in its primary violation analysis.
78. Donald Regan, 'A Gambling Paradox: Why an Origin-Neutral "Zero-Quota" Is Not a Quota under GATS Article XVI', Journal of World Trade 41, no. 6 (2007): 1297-1317.
79. The view that there was no market access violation raises the possibility that the primary violation analysis ought to have centred on GATS Art. XVII, the national treatment provision, especially as the United States had not inscribed any limitation on national treatment in the gambling sector. Had this occurred, the chapeau analysis would surely have appeared in the Art. XVII primary violation analysis. In most respects, this would have been unproblematic since most of the enactments did not amount to national treatment violations, thereby removing the need for recourse to the Art. XIV General Exceptions. In other words, most of the enactments would have been exonerated under the national treatment primary violation analysis, for the same reasons they were exonerated under the chapeau. In contrast, however, the IHA would likely have amounted to a primary violation for the same reasons it was found to fall foul of the chapeau. From this position, it would be easy to commit the error of pointing toward the absence of any boundary between the primary violation and chapeau analyses. However, the error here would be to forget the intermediate stage of provisional justification. The analysis would not have reached the chapeau because by no stretch of the imagination could the explicit discrimination in the IHA be 'necessary to protect public morals'.
80. This view was expressed in a thought provoking contribution to the International Economic Law and Policy Blog posted by Julia Qin on 4 Dec. 2007. This contribution and others by leading commentators can be viewed at worldtradelaw.typepad.com/ielpblog/2007/12/ab-in-tyres-and.html as of 10 Jun. 2008.
81. This is clear from their responses to the Panel's Question 131. However, for reasons that are not obvious, by the time of the appeal, the European Communities had come to regard the import ban and the exemption as 'two aspects of a single measure'. Brazil-Tyres, Appellate Body report, para. 125.
82. Donald Regan, 'A Gambling Paradox: Why an Origin-Neutral "Zero-Quota" Is Not a Quota under GATS Article XVI', Journal of World Trade, paras 253-257.
83. This view was favoured by the European Communities. See Brazil-Tyres, panel report, para. 4.382.
84. Turkey - Restrictions on Imports of Textile and Clothing Products, WT/DS34/AB/R (adopted 19 Nov. 1999), para. 58. This is the second of the two tests in Turkey-Textiles; the first being that the measure is introduced upon the formation of a customs union that fully meets various provisions in Art. XXIV. In its Question 78, in Brazil-Tyres, the panel asked the European Communities whether it was of the view that '... no measure adopted by parties to a customs union after its formation could ever be justified under Article XXIV'. The European Communities responded that the formation process was typically 'gradual' in nature so that 'a measure may also be regarded as adopted on the formation of the customs union if it is adopted at a later point than the initial formation of a customs union, provided it is necessary for the formation of the customs union, and is adopted within a reasonable period of time'. The European Communities went on to argue that these conditions were not satisfied here.
85. This caveat is added as it is arguable that this test ought not to be applied in this case. The panel in United States - Definitive Safeguard Measures against Circular Welded Carbon Quality Line Pipe from Korea, WT/DS202/R, distinguished Turkey-Textiles in these terms: Turkey-Textiles concerned the imposition by a member of a customs union of restrictive measures against imports from a third country, upon the formation of that customs union. Clearly, if members of a customs union seek to introduce restrictive measures against imports from third countries, contrary to GATT 1994, it is entirely appropriate that they should be required to demonstrate the necessity of such measures. That being said, we are not at all convinced that an identical approach should be taken in cases where the alleged violation of GATT 1994 arises from the elimination of 'duties and other restrictive regulations of commerce' between parties to a free-trade area, which is the very raison d'être of any free-trade area. If the alleged violation of GATT 1994 forms part of the elimination of 'duties and other restrictive regulations of commerce', there can be no question of whether it is necessary for the elimination of 'duties and other restrictive regulations of commerce', para. 7.148 (emphasis in original). It is also arguable, however, that the panel's views in United States-Line Pipe are not as apposite to the situation in Brazil-Tyres, as they are in the safeguards context. A regional grouping cannot be recognized as a customs union under Art. XXIV:8 if safeguard measures can be imposed on the internal trade. In contrast, a customs union is not prevented from being recognized as such under this provision, merely because restrictions necessary under Art. XX are maintained. The European Communities made comparable submissions that the Brazil-Tyres panel set out in paras 4.413-4.420.
86. The Brazil-Tyres panel set out the exchange of arguments between the parties on this point at paras 4.421-4.422.
87. Brazil-Tyres, panel report, paras 4.425-4.448.
88. This was the European Communities' view of the scope of para. (d). See panel report, para. 4.440. The same sentiment has been expressed by a panel that noted that 'to secure compliance' means 'to enforce compliance' and that the 'the notion of enforcement contains a concept of action within a hierarchical structure that is associated with the relation between the state and its subjects'. Mexico - Tax Measures on Soft Drinks and Other Beverages, WT/DS308/R, adopted 25 Mar. 2006, paras 8.175 and 8.178.
89. Of course, this means that the chapeau analysis would have added nothing to the provisional justification analysis. However, this is a different boundary from that now under examination. It has also been argued the blurring of the boundary within the chapeau is not problematic. When a case comes to the chapeau via the necessity standard in provisional justification, the chapeau does not need to have a strong role in protecting against abuse of the exception. The protection is internal to the exception itself.
90. Brazil-Tyres, panel report, para. 7.308, provided in s. 2.
91. It is notable, however, that, unlike the MERCOSUR exemption, there was no discussion of the possibility of treating the court injunctions as an independent violation in either the panel or Appellate Body reports.
92. This idea is most closely associated with the work of Robert Hudec.
93. 'GATT/WTO Constraints on National Regulation: Requiem for an "Aims and Effects Test"', The International Lawyer 32, no. 3 (1998): 619-649.
94. The idea has perhaps been most fully explored in Regan's work.
95. 'Regulatory Purpose and "Like Products" in Article III:4 of the GATT (with Additional Remarks on Article III:2)', Journal of World Trade 36, no. 3 (2002): 443-478.
96. 'Further Thoughts on the Role of Regulatory Purpose under Article III of General Agreement on Tariffs and Trade', Journal of World Trade 37, no. 4 (2003): 737-760.
97. Continued support for this idea was recently expressed.
98. Nicholas DiMascio & Joost Pauwelyn, 'Nondiscrimination in Trade and Investment Treaties: Worlds Apart or Two Sides of the Same Coin?', American Journal of International Law 102, no. 1 (2008): 48-89, 83-84.
99. United States-Gasoline, Appellate Body report, 23.
100. Dominican Republic - Measures Affecting the Importation and Internal Sale of Cigarettes, WT/DS302/AB/R (adopted 19 May 2005).
101. Nicholas DiMascio & Joost Pauwelyn, 'Nondiscrimination in Trade and Investment Treaties: Worlds Apart or Two Sides of the Same Coin?', American Journal of International Law, para. 96.
102. Federico Ortino, From Non-discrimination to Reasonableness: A Paradigm Shift in International Economic Law? Jean Monnet Working Paper 01/2005, 49-50.
103. Above n. 79, 451 and n. 28.
104. This is assuming that the analysis would reach the chapeau, since the early consideration of regulatory purpose also blurs a third boundary - that between the primary violation and provisional justification.
105. Ortino, as n. 83 above.
106. DiMascio & Pauwelyn, as n. 79 above.
107. Andrew Newcombe, 'General Exceptions in International Investment Agreements', paper presented at the BIICL Eighth Annual WTO Conference (London, 13 and 14 May 2008).
108. The question would then have been whether the fixed bond requirement would have been necessary to secure compliance with the tax liabilities.
109. The panel noted that the bond had to be issued by financial institutions registered in the Dominican Republic. The effective cost of the bond was therefore the fee charged by the issuing institution with the fee for the importer from Honduras being USD 1,873 or around 2 cents per thousand cigarettes. Dominican Republic-Cigarettes, panel report, para. 7.299.