Is this compliance cool?

The COOL dispute (DS384) is back again. I had blogged about it here, here and here. New regulations by the US in order to comply with the WTO ruling have been issued. They are found here. OpenMarket.org has a detailed account of the latest compliance issues here.

Canada states that it does not amount to compliance of the WTO decision.

A long battle over what constitutes compliance? A la the Airbus Boeing dispute?

This is one "COOL" Arbitrator

The Country of Origin Labels (COOL) dispute was decided by the Appellate Body against the US in July 2012 in DS384 and DS386.Thereafter on 21 August 2012, the United States informed the DSB that it intended to implement the DSB recommendations and rulings in a manner that respects its WTO obligations and that they would need a reasonable period of time to do so.

On 13 September 2012, Canada requested that the reasonable period of time be determined through binding arbitration pursuant to Article 21.3(c) of the DSU. On 26 September 2012, Canada requested the Director-General to appoint the arbitrator.  On 4 October 2012, the Director-General appointed Mr Giorgio Sacerdoti to act as arbitrator under Article 21.3(c) of the DSU.  

The Arbitrator issued his award in November 2012 essentially giving the US a "reasonable period" of 10 months from the date of the Appellate Body decision to comply with the DSB decision. i.e. until May 2013.

The Arbitrators detailed Award is found here.

Some interesting aspects of the Award:

1. Arbitration awards of the WTO under the DSU are also detailed decisions involving questions of law and interpretation.

2. They involve jurisprudential issues and interesting legal reasoning.

3. This Award brought out the process of US law and regulatory processes and gave precedence to domestic procedures and processes n coming to the conclusion of what constitutes a reasonable period of time.

4. Withdawal of a measure may not be the only way to comply with a WTO ruling. Modification too is an option. As stated by the Arbitrator in para 77 of the Award:

"In my view, withdrawal, in the sense of repealing, is not the only way to comply with the DSB's recommendations and rulings. I note that the arbitrator in Colombia – Ports of Entry observed that "withdrawal of the inconsistent measures is the 'preferred' means of implementation", but that "modification [of the inconsistent measure] is within the 'range of permissible actions' available" to the implementing Member. I agree that a Member whose measure has been found to be inconsistent with the covered agreements may generally choose either to repeal or modify the inconsistent measure. Therefore,I consider that the reasonable period of time that I have to determine in this arbitration should allow the United States to comply with the DSB's recommendations and rulings either by modifying the COOL measure, or by repealing it with regard to muscle cuts of beef and pork."

5. And finally, compliance in WTO cases can be not only highly complex issues of legal and factual interpretation but also very time consuming. It also underscores the necessity of strong legal capacity to wade though the legal labyrinth to justify a modification or a measure as being compliant to a decision or also to seek a reasonable period to implement a decision.

6.I found the interests of "developing countries" being taken in deciding the reasonable period particularly relevant in para 71:

"Finally, I am mindful that Article 21.2 of the DSU provides that "[p]articular attention should be paid to matters affecting the interests of developing country Members with respect to measures which have been subject to dispute settlement." Moreover, it has been recognized in past arbitrations that Article 21.2 directs the arbitrator acting pursuant to Article 21.3(c) to pay particular attention "to 'matters affecting the interests' of both an implementing and complaining developing country Member or Members". Therefore, as in the present case Mexico is a complaining developing country Member, the matters affecting its interests in this arbitration should be the object of my "particular attention".

7. I found the Arbitrator's Award extremely engaging, well written, simple and explicit.

Is the Clove Cigarettes case too going the Arbitration way with a modification of the measure? Also there will be many domestic reactions to this Award in the US. Will be interesting to see the domestic dynamics of all this.

TBTs, WTO and protectionism

The debate in the international economic law and policy space with respect to protectionism has shifted from tariffs and import restrictions to a new form - technical barriers to trade. With recent disputes at the WTO focusing on technical measures and holding them incompatible with WTO law, the balance between regulating domestic policy space with such measures and barriers to trade is a delicate one. While some argue that the WTO Appellate Body decisions in COOL, Tuna and Clove Cigarettes is an infringement of domestic policy space, others take the position that discriminatory measures do impact trade and are unreasonable restrictions on free trade. The decisions have initiated a jurisprudence around the Technical Barriers to Trade Agreement which will develop over the years. the focus of disputes too will gradually shift from issues on tariffs to more subtle, nuanced technical measures.

An interesting conference on this topic is being held at the WTO Public Forum on this subject.Titled "TBTs on the Rise: The Future of Consumer Information Labels, Sustainability Standards and Product Bans in the Light of Latest WTO Case Law", it seeks to throw light on the several issues on this sententious topic.

"Ruling on the three disputes this year, the WTO Appellate Body, for the first time, established case law on various key TBT issues. The approach(es) deployed will critically inform future policy making on related areas – be it on biofuels, animal welfare or climate-related standards.

It is against this background that the session will explore the current technical regulation and standard landscape and the outlook for selected policy areas. Speakers representing a variety of angles will address, among others, the value of international standards, the future of labelling and the outlook for regulation in areas such as biofuels, tobacco, animal products and meat."

Would be interesting to get hold of the presentations and viewpoints taken at this forum. Can conclusions on protectionist trends be drawn from such measures? Are they permissible in the WTO context? Has the Appellate Body exceeded its mandate by a spate of "judicially active" decisions? Are countries increasingly using technical barriers to become protectionist? Does this have a developed-developing country angle?

Reactions to COOL Panel Report

Media in the U.S and Canada have widely reported on the COOL Panel report of the WTO. The Wall Street Journal commented briefly on the Panel Report.


" Canada wins a major victory in WTO country-of-origin case" thundered iPolitics, a news service based in Ottawa. The preparation that was undertaken by the various stakeholders in Canada was evident - "The Canadian Pork Council and the Canadian Cattlemen’s Association co-ordinated with the Government of Canada to launch a WTO dispute in December 2008. The strong legal team, dedicated aggies and trade negotiators, supported by enthusiastic industry advisors, fought a lengthy, at times frustrating, two-year battle. The win was well worth the effort ."


Several local Associations in the US (Americal Meat Institute and the U.S. National Pork Producers Council)  have welcomed the decision against the United States law because of the costs it involved.


Dissenting voices have also been heard within the United States against the judgement. While the US Trade officials (Andrea Mead, spokeswoman for the USTR) remain determined to justify their legislation - “We remain committed to providing consumers with accurate and relevant information with respect to the origin of meat products that they buy at the retail level,” Mead said in a statement. “In that regard we are considering all options, including appealing the panel’s decision.”, several citizen/consumer gropus have criticised the panel Report as going against consumer interests. Public Citizen, a non-profit advocacy group based in Washington have been vociferous against the Panel report. In a Press release they have stated ,


"Today’s ruling makes very clear that these so-called ‘trade’ pacts have little to do with trade between countries and a lot to do with our major agribusiness corporations being free to sell mystery meat in the United States, with neither consumers nor our elected representatives in Congress able to ensure its safety, much less even know where it is from.” 


The debate about consumer interests (consumer information) vis a vis free trade, questioning of domestic policy domain in a globalised, multilateral trading regime seems to be the backdrop of this criticism.


An interesting study prior to the Panel report by Wendy A Johnecheck highlights the issue of the interpretation of WTO legal obligations in an economic perspective. 


"First, while WTO law is not necessarily in full agreement with the tenets of international trade theory, economics has had a strong influence on WTO law.  The number one rationale put forward for the creation of the WTO legal regime is an economic one relating to the liberalization of trade and pursuit of benefits described by the 90 theory of comparative advantage.  This perspective that trade is economically beneficial has been a large part of the impetus behind the international community’s agreement to establish a set of international obligations to discipline domestic measures that restrict trade. Thus, it seems appropriate to compare the likely results from the dispute settlement body’s interpretation of consumer information measures with results based on identifying globally welfare enhancing regulation.  The purpose of this exercise, however, is not to advocate for the use of an economic efficiency criterion for disciplining domestic regulation under given provisions of the WTO framework.  The author in fact views this approach to interpreting the WTO commitments as inappropriate given that it is not authorized by the WTO Treaty.  Member nations did not choose to operationalize the aim of liberalizing trade through prohibiting measures that are globally welfare reducing and that should be fully respected.  Instead, the aim of this comparison is to contribute to the discussion on the extent to which the treaty text and its associated adjudicative findings should stray from its theoretical underpinnings. As Lowenfield notes, ‘a good case can be made that most of the rules of international economic law have been developed against the backdrop of the theory of international trade, and of the question  - sometimes explicitly, at other times tacit – of how far deviations from the theory should be allowed.’


This relationship is also apparent in that dispute settlement bodies integrate economic theory into their legal reasoning.  In light of this backdrop, this section aims to make transparent the issues relevant to a discussion considering the extent that economic theory should inform the application of WTO law to consumer information measures. " 


This study makes interesting reading!

"COOL" is not so cool for the United States

The Dispute Panel Report on the Country of Origin Labelling case has reported that the measure of the United States was in violation of its obligations in the WTO Agreements, particularly the TBT Agreement. The USTR Press Release hinted at a possible appeal.


In a detailed Panel Report running into more than 200 pages the Panel has decided on the issue whether the US statutory provisions and implementing regulations setting out the United States' mandatory country of origin labelling regime for beef and pork (“COOL measure”);  as well as a letter issued by the US Secretary of Agriculture Vilsack on the implementation of the COOL measure (“Vilsack letter”) is in violation of United States commitments in the WTO agreements. Canada and Mexico had brought the dispute to the panel.


According tot he WTO website "the Panel determined that the COOL measure is a technical regulation under the TBT Agreement, and that it is inconsistent with the United States' WTO obligations.  In particular, the Panel found that the COOL measure violates Article 2.1 of the TBT Agreement by according less favourable treatment to imported Canadian cattle and hogs than to like domestic products.  The Panel also found that the COOL measure does not fulfil its legitimate objective of providing consumers with information on origin, and therefore violates Article 2.2 of the TBT Agreement."


As per Article 2.1 of the TBT Agreement, 


"With respect to their central government bodies:
2.1 Parties shall ensure that technical regulations and standards are not prepared, adopted or applied with a view to creating obstacles to international trade. Furthermore, products imported from the territory of any Party shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country in relation to such technical regulations or standards. They shall likewise ensure that neither technical regulations nor standards themselves nor their application have the effect of creating unnecessary obstacles to international trade."


Amongst a plethora of issues that the Panel addressed, the issue whether the mandatory nature of country of origin labelling mandated by the statutory and administrative measures of the United States resulted in the according of a "less favourable treatment" to imported products from Canada and Mexico as compared to products of the national origin in the United States. The arguments of Canada and Mexico, which the Panel accepted were to the effect that the COOL requirements did accord "less favourable treatment" to imported products. It even referred to a Congressional Research Service Report on COOL measures on page 90 of its Report. The Panel has in coming to a conclusion on whether "less favourable treatment" has been accorded has studied in detail the entire industry practice of meat production and segregation. Essentially, to comply with the labelling conditions imposed by the COOL provisions would be imposing a greater cost on multiple country of origins labelling and hence according "less favourable treatment" to imported products. 


As the Panel noted "As a result, overall, the least costly way of complying with the COOL measure is to rely on
exclusively domestic livestock. Thus, in general, business scenarios involving imported livestock, including the scenario involving exclusively imported products, are overall more costly than the exclusively Label A approach".


The reduction of competitiveness of imported products due to compliance with the COOL measures was one of the primary motivations for the panel to come to the conclusion that the measure was in violation of Article 2.1 of the TBT Agreement. The Panel also found that the COOL measure does not fulfil its legitimate objective of providing consumers with information on origin, and therefore violates Article 2.2 of the TBT Agreement.


An interesting aspect of this Report is the threadbare analysis of industry practices and econometric models to arrive at conclusions. It is a classic case of analysing economic principles and realities in interpreting legal provisions. In other words, the Panel has not interpreted law in a vacuum but has done so in the context of trade and economic practices!


This analysis of mine has been from a cursory reading of the Panel report. What impact this Report would have on Country of origin labelling regulations across the world needs to be analysed. I might have missed out major issues and undertsandings. That would be for another day!