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?

To comply or not to comply - Dolphin safe labeling in the U.S.

The Dolphin Safe Tuna case at the WTO has generated considerable debate and discussion in terms of the interpretation of the TBT Agreement as well as the next steps related to compliance for the U.S. The WTO Appellate Body had ruled against the labeling scheme as being inconsistent wit Article 2.1 of the TBT Agreement since it treated Mexican tuna products less favorably than U.S. tuna products. The case also raises the issue of the right forum for the dispute since NAFTA mandates the disputes of such a nature to be brought before it's adjudicatory process.  I have blogged about the case here, here and here.

ASIL Insights has a piece recently that highlights the importance of the case for WTO jurisprudence. Elizabeth Trujillo in her piece titled "The WTO Appellate Body Knocks Down U.S. “Dolphin-Safe” Tuna Labels But Leaves a Crack for PPMs" explains in great detail the interpretation of various provisions of the TBT Agreement and its impact on non-product related process and production measures (PPMs).

"US—Tuna II is a landmark case for the trade and environment relationship and, more specifically, for the future adjudication of technical regulations under the TBT Agreement. In finding the U.S. labeling scheme inconsistent with TBT Article 2.1, the Appellate Body effectively characterized a measure based on non–product–related PPMs as a discriminatory technical regulation. However, the case leaves open the applicability of the TBT Agreement to PPM-based regulations in general—a controversial issue especially for developing nations because of the effect such regulations may have on market access of their products."

I am not going into the details of the AB report here as this has already been done. the focus of this post is an interesting reference to views in the U.S. not to comply with this decision. Eyes on Trade has referred to them here. A letter from a few U.S. Senators has urged the U.S. Administration not to abandon the labeling scheme:

"We are deeply disappointed by the WTO's final ruling, but we stand firmly committed to the Dolphin-Safe label. Let us be clear - Congress has no intention of repaying or weakening the current law applying to this label. Therefore, we request your assistance in developing a solution of complying with the ruling that maintains the current level of protection for dolphins."

Can the U.S. "develop a solution" that both complies with the WTO ruling as well as does not change the labeling scheme? Would extending the same certification standards and regulatory strictness to non-Eastern Tropical Pacific (ETP) regions be sufficient to ensure compliance?

The issue of compliance in WTO law is a complex one. What constitutes compliance in the present case. Striking down the labeling scheme would be one way to comply with the ruling. But would it be the only way? Are there other innovative ways to comply with the ruling, yet maintaining the same labeling scheme? This once again brings out the fact that a country can creatively engage with the WTO system to protect one's perceived national interest. How the U.S. would comply in this case is a matter of conjecture at this stage. Domestic interests and compulsions would probably shape the nature and form of U.S. compliance in this case.


The more important point is that even after a WTO ruling has been given there is debate internally in the country as to whether there should be compliance. In other words, the options before a member in a WTO dispute does not end with the WTO ruling. With strategic lawyering and creative interpretations, one may still continue with the old measure but remain in compliance. This, however, also raises issues about the efficacy of the WTO DSM which is based on a rule based system and an adjudicatory process hat ensures compliance or retaliation. It is one thing not to comply and face retaliation as per the DSU, but quite an other thing to continue with the measure that was held to be violative but to claim compliance.

Interesting times for WTO jurisprudence.

Compliance in international law and Domestic political compulsions

Why do countries comply with international law? In the context of the WTO, why do countries follow the rules of multilateral trade embodied in its various Agreements? Is the fear of retaliation and reputational risk the primary reasons for compliance? Is the consequence of non-compliance so strong that a country would prefer to comply with trade rules even though it has an impact on domestic interests? Is a "country" a single entity when it comes to compliance with international law or is there an amalgam of complex, divergent interests that guide a country's actions? Do domestic interests have a role to play in compliance with international rules?

Joel Trachtman has offered complex mathematical models to understand the underlying rationale for compliance to international rules in his article "International Law and Domestic Political Coalitions: A Grand Theory of Compliance with International Law". He has essentially argued that compliance with international law is essentially a result of varying domestic compulsions and the competing strengths of these compulsions determine compliance.

" Compliance by any individual state with an international legal rule is, in the final analysis, dependent on a political decision to comply made within that state‘s domestic political process. This domestic decision is both necessary and sufficient to result in compliance. While this decision is purely a domestic political decision, it is importantly influenced by international dynamics. These international dynamics will include the likely response by other states to a decision by the target state whether to comply. But importantly, these international dynamics are neither necessary nor sufficient to cause compliance. Their causal effects are always mediated through domestic politics."

Explaining the advantage of following this rationalist theory of compliance wherein a State's international obligations are primarily dependent on domestic compulsions, the author explains:

" A theory of formation and compliance with international law that focuses on the role of domestic political coalitions achieves important theoretical advances. First, as suggested above, it allows for the possibility of greater explanatory and predictive power than ―unitary state‖ theories of compliance. Second, it encompasses the role of individuals in domestic politics, and therefore moves toward a more liberal and cosmopolitan understanding of the role and dynamics of international law. A domestic coalition-based theory of international law transcends the state and examines individual preferences, but takes the state as the partial mediator of individual preferences.

On the other hand, it is clear that domestic politics about the formation of and compliance with international law is fundamentally different from most other domestic politics. This is because domestic politics about formation of and compliance with international law must concern itself with the responsive actions of other states. International law that involves commitments by other states by definition involves the contribution of value, or the taking of value, by other states. This difference contributes to a different political equilibrium from that which would be possible if the only exchanges of political value took place within the state."

It would be interesting to study particular cases of compliance to international trade rules in terms of the domestic interests having a role. For example, what domestic interests will have a role in influencing US compliance in the Cloves Cigarettes case or Tuna case? An amalgam of interests of public health activists, domestic sovereignty advocates and international law lobbyists would ultimately determine the decision to comply or not. In a way, this churning of domestic political interests is a positive development. It brings about internal political debate and transparency. However, domestic interests are unclear in certain cases. For example, what would the apparent "domestic interest" be in Honduras or Ukraine be to challenge Australia's Tobacco  plain packaging law? Interests of multinational corporations operating in a country too can be construed as constituting an influential "domestic interest".

I have often argued on this blog that there is no "unitary" national interest in international trade law. It is an amalgam of interests of exporting producers, importing manufacturers, traders, domestic consumers and the government. Whose interest prevails when a country takes a decision of compliance or non-compliance depends on a variety of factors concerning impact, influence and interest. A country's international compliance record is influenced by domestic compulsions. However, is there an overriding national interest? Can governments play a role in arriving at a national interest template keeping in view divergent and often clashing domestic, political interests? Can the government play the role of a neutral mediator? Is the government above the influences of such interests?

Tuna report, compliance and jurisdiction - Some questions

The Appellate Body of the WTO had recently delivered the Tuna Report about which I have blogged here and here. The Report was adopted by the Dispute Settlement Body. One would assume, in the context of dispute settlement proceedings, that an Appellate Body decision brings to closure issues raised in the dispute and the next stage of compliance would be the focus. However, increasingly in WTO disputes (whether it is the Airbus  Boeing dispute, Cloves Cigarette dispute and now the Tuna dispute), the Appellate Body decision is not resulting in a finality to the proceedings. Parties to the dispute continue to canvas their their original positions and do not perceive the need to change their domestic policy in consonance with the Appellate Body decision. Complex issues of what would constitute compliance to the decision or whether the measures undertaken are in fact "compliance" have taken centre stage.

The recent contentions of Mexico and the U.S. at the adoption of the Tuna Report that reflected similar sentiments of "non-finality" was interesting:

Mexico maintained, inter alia:

"In Mexico’s opinion, the reports had also correctly considered that the “dolphin safe” labelling was a technical regulation as per the TBT Agreement.  With regard to non-discrimination, Mexico welcomed the Appellate Body’s reversal of the panel’s finding that the US measures were not inconsistent with Article 2.1 of the TBT Agreement.  The Appellate Body found that the US measures were inconsistent with Article 2.1 as they granted Mexican tuna products less favourable treatment to that granted to like products originating in the US and other countries.  With regard to Article 2.2 of the TBT Agreement, Mexico was disappointed with the Appellate Body’s reversal of the panel’s finding that the US dolphin safe labelling provisions were more trade restrictive than necessary to fulfil the US legitimate objectives. ... 

 Mexico hoped that the US would implement the DSB’s recommendations."

The U.S. response in the DSB was:

"With regard to Article 2.1, the US agreed that to determine whether imported products were accorded less favourable treatment would require an analysis of whether the measure at issue modified the conditions of competition to the detriment of imported products.  However, the US was of the view that the Appellate Body had misapplied this concept and had ignored the fact that the Mexican and US tuna product producers were in the same situation and the adverse effects resulted from the private choices made by the individual producers.  The US was also concerned about the Appellate Body’s finding that WTO committee decisions can be subsequent agreements that must be read into the covered agreements."

Hence, would this also be a protracted "compliance" issue that looks likely in the Cloves Cigarettes case or will the U.S. comply with the modification of their prohibition. Another contentious issues in the context of Mexico's claim in the WTO was whether it was right in doing so in the context of the avenues available under NAFTA. Did the NAFTA preclude Mexico from pursuing a WTO remedy?


Robert Howse commenting on this blog earlier with reference to the dispute and the NAFTA rule said:

"Dear Srikar, on the NAFTA issue take a look at Article 2005, paragraphs 1 and 4. It makes clear that any dispute " (a) concerning a measure adopted or maintained by a Party to protect its human, animal or plant life or health, or to protect its environment, and (b) that raises factual issues concerning the environment, health, safety or conservation, including directly related scientific matters," must be taken to NAFTA not the WTO, where it arises under both Agreements, at the request of the responding party (and the US so requested).

I don't see why some group of states can't agree among themselves to choose a particular method to solve a dispute, which is different from that specified in a multilateral treaty to which they are parties, provided that they do not affect the rights of third states under the multilateral treaty, who are not privy to this special arrangement."

The US seems to have reiterated this position in the proceedings:

" The US regretted Mexico’s decision to continue with the WTO dispute settlement given that NAFTA parties had agreed that certain disputes involving both the WTO Agreement and the standards-related provisions of NAFTA would be heard solely under NAFTA’s dispute settlement procedures.  With respect to procedure, the US noted and expressed its disappointment that the Appellate Body had issued its report outside the 90-day period as stipulated in Article 17.5 of the DSU. The US reiterated its commitment to fulfilling the legitimate objectives of the Dolphin Protection Consumer Information Act."

What was interesting was Mexico's response to the NAFTA bar:

"In response to the US statement regarding NAFTA’s dispute settlement procedures, Mexico said that the US had refused to have panellists sit in disputes and this was a technically complex dispute requiring a detailed analysis.  Mexico noted that the US itself had brought a previous dispute (Mexico-Corn Syrup) to the WTO and thus found the US behaviour contradictory. "

Do two wrongs make a right? Is a particular act of a country (in this case the US step of going to the WTO) sufficient precedent even if it was not permitted? Can Mexico justify its act of approaching the WTO because the U.S. had done so in an earlier case? Or does the U.S. have the right to question Mexico's step to approach the WTO when it has itself done so earlier? Were the circumstances different then? Which forum decides this? Could the Panel or Appellate Body of the WTO have gone into the issue of their jurisdiction and have not maintained Mexico's complaint? What does the Vienna Convention on the Law of Treaties have to say about this? This would be a discussion for another day.

Aid, trade and WTO disputes

I had recently blogged about the issue of linking aid and trade disputes in the context of Mexico's challenge of the dolphin safe tuna labelling of the US here. I had felt:

"Is the suggestion of reconsidering economic assistance if Mexico persist with its WTO action indicating the political economy of trade? While the WTO rule based dispute settlement open to all member countries for disputes concerning alleged violation of obligations under the WTO agreements, is the political economy of aid stronger? Would it be right for a country receiving aid from another country to initiate a WTO dispute against it? If it is not right, then many countries in the developing world cannot initiate WTO disputes against their aid donors. Should the two issues be linked at all? While the WTO dispute settlement mechanism is a rule based system based on rights and obligations and not "power based" relations, in reality, is there a larger political economy of trading power, aid, foreign relations, economic influence that determine compliance and non-compliance of WTO disputes."

CATO Institute in a blog piece titled "Protectionist Denial and Bribery" seemed to have a somewhat similar view on the issue:

"The most revealing part of the letter, however, is in the last paragraph when the representatives ask the President to bribe the Mexican government to go away.

"If the Mexican government continues to pursue WTO action in this case, we ask that your administration reconsider the level of economic assistance Mexico receives from U.S. taxpayers."

This doesn’t seem very respectful of a dispute settlement process the U.S. has used on numerous occasions to challenge WTO-inconsistent measures like Europe’s aircraft subsidies, Korea’s beef restrictions, India’s chicken restrictions, China’s export quotas, China’s duties on chicken parts, China’s duties on steel, and China’s green energy subsidies, to name a few recent examples.  Criticizing the WTO judicial process as overreaching because it revealed the inadequacies of a favored piece of protectionist legislation and then threatening to abuse the process through petty sanctions does nothing to enable consumers to protect dolphins and makes it more difficult for the United States to mount effective challenges to foreign protectionism."

Some food for thought on issues relating to aid, trade and WTO disputes? 

Aid and Trade - Mexico, U.S. and dolphin-safe Tuna labeling case

The dolphin safe Tuna labeling case decided by the Appellate Body of the WTO held the US measure in violation of Article 2.1 of the TBT Agreement since it accorded less favourable treatment to tuna from Mexico. I have blogged about the issue here. While what steps constitute compliance is a subject matter of an interesting debate in the IELP blog here, my attention was drawn to a letter by some members of the US House of Representatives to the U.S. President regarding the need for complying with the WTO decision. I am not going into the merits of the reasoning provided here as to why the US should not comply with the decision. Rather, my attention was drawn to the last para of the letter which said:

"We urge your administration to make clear that the U.S. will not water down or eliminate the very successful dolphin-safe labeling regime. Any hardship that the Mexican government claims to be experiencing from its inability to comply with perfectly reasonable dolphin-safe requirements is clearly offset by the $33 million in development assistance Mexico is receiving from the U.S. in FY 2012, and dwarfed by the nearly $200 million it has received since 1999. If the Mexican government continues to pursue WTO action in this case, we ask that your administration reconsider the level of economic assistance Mexico receives from U.S.taxpayers.Moreover, we urge you to advocate for a means of clarifying that WTO rules are not meant to allow this type of dispute settlement case related to non-discriminatory voluntary labeling regimes" 

Is the suggestion of reconsidering economic assistance if Mexico persist with its WTO action indicating the political economy of trade? While the WTO rule based dispute settlement open to all member countries for disputes concerning alleged violation of obligations under the WTO agreements, is the political economy of aid stronger? Would it be right for a country receiving aid from another country to initiate a WTO dispute against it? If it is not right, then many countries in the developing world cannot initiate WTO disputes against their aid donors. Should the two issues be linked at all? While the WTO dispute settlement mechanism is a rule based system based on rights and obligations and not "power based" relations, in reality, is there a larger political economy of trading power, aid, foreign relations, economic influence that determine compliance and non-compliance of WTO disputes?

Tuna decision, US domestic policy space, WTO

(Courtesy:Pacific bluefin tuna caught in a net in Baja California, Mexico. Photograph: Oxford Scientific/Getty Images)

The Appellate Body (AB)decision in the Tuna case is out and is available on the WTO website here. It has already generated considerable debate in the press here and here as well as on premier international trade law blogs IELP and O'Neil Institute Trade Blog. The Eyes on Trade blog termed the ruling as a major blow to US consumer interests to make an informed choice. The AB reversed many aspects of the Panel decision and found that the US measure of "dolphin safe" labelling is inconsistent with Article 2.1 of the TBT Agreement as it accorded "less favourable treatment" to Tuna products from Mexico. It, however, reversed the Panel finding that the measure was inconsistent with Article 2.2 of the TBT on the grounds that the measure was not more trade-restrictive than necessary.

The AB finding on the violation of Article 2.1 of the TBT Agreement is interesting. Article 2.1 of the TBT Agreement states:

"2.1        Members shall ensure that in respect of technical regulations, products imported from the territory of any Member 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."

After a detailed analysis of the measure the AB held:

" 298. In the light of uncontested facts and factual findings made by the Panel, we consider that Mexico has established a prima facie case that the US "dolphin-safe" labelling provisions modify the conditions of competition in the US market to the detriment of Mexican tuna products and are not even-handed in the way in which they address the risks to dolphins arising from different fishing techniques in different areas of the ocean.  We consider further that the United States has not met its burden of rebutting this  prima facie case.  Since we are not persuaded that the Panel acted inconsistently with Article 11 of the DSU in reviewing the evidence and arguments before it, we accept the Panel's conclusions that the use of certain tuna fishing methods other than setting on dolphins "outside the ETP may produce and has produced significant levels of dolphin bycatch"and that "the US dolphin-safe provisions do not address observed mortality, and any resulting adverse effects on dolphin populations, for tuna not caught by setting on dolphins or high seas driftnet fishing outside the ETP." Thus, in our view, the United States has not justified as non-discriminatory under Article 2.1 the different requirements that it applies to tuna caught by setting on dolphins inside the ETP and tuna caught by other fishing methods outside the ETP for access to the US "dolphin-safe" label.  The United States has thus not demonstrated that the detrimental impact of the US measure on Mexican tuna products stems exclusively from a legitimate regulatory distinction.  

299. For these reasons, we reverse the Panel's finding, in paragraphs 7.374 and 8.1(a) of the Panel Report, that the US "dolphin-safe" labelling provisions are not inconsistent with Article 2.1 of the TBT Agreement.  We  find, instead, that the US "dolphin-safe" labelling provisions provide "less favourable treatment" to Mexican tuna products than that accorded to tuna products of the 

United States and tuna products originating in other countries and are therefore inconsistent with Article 2.1 of the TBT Agreement." 

Thus, though the measure does not specifically state that Mexican Tuna fish are subjected to the regulation, there is defacto discrimination. The measure impacts the competitive conditions for Mexico as well as being discriminatory since it has not considered the risks to Dolphins from other methods of fishing. Hence, a measure can be found to violate Article 2.1 of the TBT Agreement if it "in effect" is discriminatory and accords less favourable treatment even without specifically stating the origin of the product. This has implications of measures which overtly seem non-discriminatory but in practice, due to the reality of conditions, have a bearing on the competitive conditions of the country exporting.

The decision is in a series that have gone against the US at the WTO (COOL, Cloves Cigarettes being the other examples). What would the US reaction to this decision be?  The USTR website had no official reaction yet to the decision. Would it comply with the AB decision by modifying its measure and by removing the dolphin safe labelling? Would it risk non-compliance and face retaliatory measures from Mexico? What are the options before the US? Critics of the WTO would argue that it is yet another case of domestic policy choice being regulated by international law and a challenge to US national sovereignty. Others would argue that the rule based multilateral system had delivered yet again - of providing a rational, rule based interpretation to a long standing dispute.