Monday, April 9, 2012

Of Cigarettes and domestic policy space - WTO overrules the U.S.

The Cloves Cigarette dispute is in the news again. The Appellate Body recently in the matter relating to the US ban of clove cigarettes upheld the decision of the Dispute Panel of the WTO, albeit for different reasons. It held the measure of the ban of clove cigarettes while allowing menthol cigarettes as inconsistent with US' obligations under the TBT Agreement. 

The summary of conclusions is found here on the WTO website. The essential finding of the Appellate Body (AB) was that clove cigarettes and menthol cigarettes we "like products" under Article 2.1 of the TBT Agreement and that banning the former (imported product) while not banning the latter (domestic product) was according a less  favourable treatment to clove cigarettes and thus violating Article 2.1 of the TBT Agreement. The ruling also analyses various other issues relating to the TBT Agreement that I am not going into here. Suffice it to say that the ruling discusses in detail the jurisprudence surrounding the "like product" test as well as the limits to domestic policy space n the context of the TBT Agreement. The IELP blog has a very lively discussion on the "like product" analysis here.

The AB came to the conclusion on "like products" thus:
"                 Conclusion on "Like Products"

156. We have disagreed with the Panel's interpretation of the concept of "like products" in Article 2.1 of the TBT Agreement, which focuses on the purposes of the technical regulation at issue, as separate from the competitive relationship between and among the products.  In contrast, we have concluded that the context provided by Article 2.1 itself, by other provisions of the TBT Agreement, by the TBT Agreement as a whole, and by Article III:4 of the GATT 1994, as well as the object and purpose of the TBT Agreement, support an interpretation of the concept of "likeness" in Article 2.1 that is based on the competitive relationship between and among the products and that takes into account the regulatory concerns underlying a technical regulation, to the extent that they are relevant to the examination of certain likeness criteria and are reflected in the products' competitive relationship.

157. As a consequence of our interpretative approach to the concept of "like products" in Article 2.1 of the TBT Agreement, we have also disagreed with the Panel's decision to examine the extent of substitutability of clove and menthol cigarettes from the perspective of a limited group of consumers, that is, young smokers and potential young smokers.  We have, nevertheless, considered that the Panel's error does not vitiate the conclusion that there is a sufficient degree of substitutability between clove and menthol cigarettes to support an overall finding of likeness under Article 2.1 of the TBT Agreement.  We have also determined that the Panel's decision that it could not rely on certain evidence submitted by the parties did not amount to an error under Article 11 of the DSU.

158. In respect of end‑use, we have disagreed with the Panel's conclusion that the end‑use of clove and menthol cigarettes is simply "to be smoked".  Nevertheless, we have considered, based on the Panel's findings, that both clove and menthol cigarettes are capable of performing the more specific end‑uses put forward by the United States, that is, "satisfying an addiction to nicotine" and "creating a pleasurable experience associated with the taste of the cigarette and the aroma of the smoke".[1]  We have thus concluded that the different end‑uses of clove and menthol cigarettes support the Panel's overall finding of likeness.

159. Finally, we observe that the United States has not appealed the Panel's findings regarding the physical characteristics and the tariff classification of clove and menthol cigarettes.  The Panel found that clove and menthol cigarettes are physically similar as "they share their main traits as cigarettes, that is, having tobacco as a main ingredient, and an additive which imparts a characterizing flavour, taste and aroma, and reduces the harshness of tobacco"[2];  and that they are both classified under subheading 2402.20 of the Harmonized Commodity Description and Coding System.[3]

5.                  In the light of all of the above, while we disagree with certain aspects of the Panel's analysis, we agree with the Panel that the "likeness" criteria it examined support its overall conclusion that clove and menthol cigarettes are like products within the meaning of Article 2.1 of the TBT Agreement.  Therefore, we uphold, albeit for different reasons, the Panel's finding, in paragraph 7.248 of the Panel Report, that clove cigarettes and menthol cigarettes are like products within the meaning of Article 2.1 of the TBT Agreement."
The purpose of this blog piece is not to discuss the legal aspects of the ruling in detail. That is for another day. A few other thoughts on the impact of this decision:

1. The US administration as a domestic policy choice with a stated objective (dissuade smoking in younger populations) wanted to treat certain kinds of cigarettes differently. Both domestic and imported cigarettes of "these categories" were treated the same. Yet, the interpretation of international trade rules nullified this measure on the ground that this categorisation was not sufficient since other categories of cigarettes constitute like products and hence cannot be treated less favourably. Hence, though all clove cigarettes whether domestically produced or imported were treated on par (banned) since menthol cigarettes could be produced domestically, this amounted to a less favourable treatment to imported clove cigarettes even though the US, in its domestic policy wisdom, treated them differently. This is a classic case of a constraint on domestic policy space in the context of multilateral trade rules wherein certain measures can be challenged in the WTO which otherwise seemingly appear to be well within national domains.

2. The decision of the AB would be viewed in the US by some quarters as an assault on American domestic policy space and power. The DSM once again establishes its supremacy as a rule based system not whittled down by the power of trading partners. Decisions are based on legal interpretations of rules and jurisprudence. 

3. It would be interesting to see how the US reacts to this decision in terms of compliance - would it bring its domestic law in conformity or would it prefer to pay compensation or would it continue with non-compliance? In the last instance, Indonesia would have the authority to retaliate. How feasible is that keeping in view the trade relations as well as  the political economy realities of international trade between the US and Indonesia?

4. Another interesting aspect of the AB decision was the non-reliance on amicus curiae briefs as well as the help offered by the World Health Organisation. Deliberate avoidance of institutional overlap in the case of the latter?


Anonymous said...

The clarification of the status of the Doha Decision is also interesting. The US's attempt to eliminate the relevance of the decision on the basis that the procedures for an authoritative interpretation was not followed is interesting because (1) it implies that WTO procedures should be strictly followed but that was not its position when relying on the Singapore Ministerial Decision in Shrimp-Turtle, (2) it attempts to take off the table a heavily negotiated decision adopted by consensus at Ministerial Level. The Appellate Body responded perfectly - the Doha Decision is let in under the VCLT but the need to follow WTO procedures is also preserved.

Srikar said...

Interesting insights. Thank you!