International Trade Summary

ContentsPart 1: The Law of International Trade and the Multilateral Trading System........................................................7

Introduction to World Trade Law........................................................................................................................7Economics of Trade Law.....................................................................................................................................7

Part 2: History, Institutional Aspects, and the Relationship between International Law and Domestic Law.........7History of the WTO.............................................................................................................................................7Structure and Purpose of the WTO [74]..............................................................................................................8Structure of the WTO..........................................................................................................................................8World Trade Law and International Law............................................................................................................9

Article 31 of the Vienna Convention...............................................................................................................9World Trade Law and Domestic Law...............................................................................................................10

Direct effect [124]..........................................................................................................................................10Part 3: Dispute Settlement in the WTO.................................................................................................................11

Dispute Settlement in the GATT.......................................................................................................................11The DSU Process...........................................................................................................................................11EC-Bananas...................................................................................................................................................13Timing/sequencing issue...............................................................................................................................13Alternatives to Dispute Settlement.............................................................................................................14

Interaction of the DSU Rules with other WTO Agreements.............................................................................14Procedural and Systemic Issues [182]...............................................................................................................14

Violation Complaint:.....................................................................................................................................14Non-violation complaint:...............................................................................................................................15What type of measures can be challenged?...................................................................................................15Burden of proof [191]....................................................................................................................................15Standing [191]...............................................................................................................................................16Third parties [194].........................................................................................................................................16Transparency [195]........................................................................................................................................16Amicus Curiae [198]......................................................................................................................................16Treaty interpretation [202].............................................................................................................................16Precedential effect [204]................................................................................................................................16Standard of review [206]...............................................................................................................................16Standard or Review to be applied to actions of domestic actors [208].........................................................17Judicial economy [216]..................................................................................................................................17Multilateralism v Unilateralism [221]...........................................................................................................17Criticism and Appraisal of the DSU Process [226].......................................................................................18

Traditional GATT Obligations..............................................................................................................................18Border Measures: Tariffs and Quotas................................................................................................................18

Introduction....................................................................................................................................................18Tariff..............................................................................................................................................................18GATT rules on Bound Tariffs: Article II [241].............................................................................................18Customs Valuation: GATT Article VII.....................................................................................................19Customs classification [244]..........................................................................................................................19Non-violation Nullification or Impairment Remedy [251]...........................................................................20Valuation of Goods by Domestic Authorities [255]......................................................................................21Classification of Goods by Domestic Authorities [258]................................................................................21Quotas............................................................................................................................................................21Tariff Quotas [267]........................................................................................................................................22Export Quotas/Tariffs [268]..........................................................................................................................22

Non-Discrimination: MFN and National Treatment.............................................................................................22Non-Discrimination...........................................................................................................................................22

National Treatment: Domestic Taxes and Regulations.................................................................................22Art III:2 Tax Measures [281].........................................................................................................................23Art III:4 Regulatory Measures [299].............................................................................................................25Conclusions and general observations [319].................................................................................................27

Most Favored Nation Principle [322]................................................................................................................28Like Products.................................................................................................................................................28Non-discrimination........................................................................................................................................29Unconditional MFN.......................................................................................................................................29

GATT Exceptions..................................................................................................................................................30Bilateral/Regional Trade Agreements...............................................................................................................30The Development of Regionalism through PTAs?............................................................................................31GATT Article XXIV and GATS Article V.......................................................................................................31

Obligation to notify the CRTA......................................................................................................................31External Trade Requirement..........................................................................................................................32Internal Trade Requirement [361].................................................................................................................33

PTAS and Dispute Settlement...........................................................................................................................33Article XX General Exceptions.............................................................................................................................34

General Interpretive issues................................................................................................................................34‘Necessary’ versus ‘relating to’.....................................................................................................................34

Major Listed Exceptions....................................................................................................................................35XX(a): Public Morals....................................................................................................................................35XX(b): Human, Animal or Plant Life or Health............................................................................................35XX(d): Compliance Measures.......................................................................................................................36

XX(g): Conservation of Exhaustible Natural Resources...............................................................................37The Chapeau!.....................................................................................................................................................39

US-Gasoline...................................................................................................................................................39US-Shrimp [414]...........................................................................................................................................40

Remedies for Fair and Unfair Trade- Subsidies and Countervailing Measures....................................................40Identification of subsidies that are subject to the SCM agreement...................................................................40

Definition of Subsidy.....................................................................................................................................40Specificity......................................................................................................................................................42

Regulation of specific subsidies under the SCM agreement.............................................................................43Prohibited subsidies.......................................................................................................................................43Application of the Export Contingency Standard for ‘In Fact’ Subsidies.....................................................44Art 3.1(a) & Annex 1 [439]...........................................................................................................................45Domestic Content Subsidies..........................................................................................................................46Actionable Subsidies.....................................................................................................................................46Non-actionable subsidies...............................................................................................................................47

Dispute Settlement and Remedies.....................................................................................................................47Special Rules for Certain Countries [450].........................................................................................................48

Agriculture Agreement..................................................................................................................................48GATT.............................................................................................................................................................48TRIMS Agreement........................................................................................................................................49

Countervailing Measures...................................................................................................................................49Canada-US Lumber dispute [454].................................................................................................................49

Dumping and Anti-Dumping Measures.................................................................................................................50Anti-dumping: A basic overview.......................................................................................................................50Anti-Dumping Investigations............................................................................................................................51

Initiation.........................................................................................................................................................51Is there dumping? [472].................................................................................................................................52Comparing the Export Price and Normal Value: Calculating the Dumping Margin!...................................53Zeroing [476].................................................................................................................................................54Domestic Dumping Determination (By Canadian Agency dealing with Sorel Footwear) [483]..................55

Injury..................................................................................................................................................................56Was there an injury in that Canada Sorel waterproof boots case? [498].......................................................57Causation [same as for subsidies]..................................................................................................................57

Safeguards..............................................................................................................................................................58Procedural Requirements...............................................................................................................................58

Conditions to be satisfied in order to apply safeguard measures.......................................................................58Increased Imports...........................................................................................................................................59Unforeseen Developments.............................................................................................................................59

Serious Injury or Threat Thereof...................................................................................................................60Causation and Non-attribution.......................................................................................................................60

Standard of Review............................................................................................................................................61Application of safeguard measures....................................................................................................................62

The Extent of Safeguard Measures................................................................................................................62Parallelism.....................................................................................................................................................62Measures in the form of Quantitative Restrictions........................................................................................63Excluding Developing Country Members.....................................................................................................63Duration of Safeguard Measures...................................................................................................................63Provisional Safeguard Measures....................................................................................................................63Maintaining an equivalent level of concessions............................................................................................63

SPS and TBT Agreements.....................................................................................................................................64SPS Agreement..................................................................................................................................................64

Basic Rights and Obligations: Article 2........................................................................................................65Harmonisation: Article 3...............................................................................................................................65Equivalence: Article 4...................................................................................................................................65Assessment of Risk and Determination of the Appropriate Level of SPS Protection: Article 5...................65Article 5.5: Discrimination or Disguised Restriction on Trade.....................................................................67Article 5.6: No more trade-restrictive than necessary...................................................................................68Transparency: Article 7.................................................................................................................................69

TBT Agreement.................................................................................................................................................69Article 2: Preparation, Adoption and Application of Technical Regulations by Central Government Bodies.......................................................................................................................................................................69US-Clove Cigarettes......................................................................................................................................70U.S. Country of Origin Labeling (COOL).....................................................................................................71US-Tuna II.....................................................................................................................................................73

GATS-Trades in Service........................................................................................................................................73Scope of the GATS............................................................................................................................................74

What Services are Covered?..........................................................................................................................74How are Services Traded?.............................................................................................................................74Relationship between GATT and GATS.......................................................................................................74

General Obligations and Disciplines.................................................................................................................75Most Favoured Nation Treatment..................................................................................................................75Transparency..................................................................................................................................................75Domestic Regulation: Article VI...................................................................................................................75Exceptions......................................................................................................................................................75

TRIMS: Trade-Related Investment Measures.......................................................................................................77TRIMS Agreement........................................................................................................................................77

Dispute Settlement.........................................................................................................................................78International Investment Regulation outside the WTO Context.......................................................................79

Bilateral Investment Treaties (BITs) and Investment Provisions of Free Trade Agreements.......................79Metalclad Corporation v Mexico [651].........................................................................................................80Multiateral Agreement on Investment...........................................................................................................81

De Gossis Reading.............................................................................................................................................81Investor Nationality.......................................................................................................................................81Definition of Investment................................................................................................................................82MFN and National Treatment........................................................................................................................82Fair and Equitable Treatment and Full Protection and Security....................................................................82Free Transfer of Capital.................................................................................................................................82Expropriation.................................................................................................................................................82Performance Requirements............................................................................................................................83Contracts and Obligations Observance..........................................................................................................83Dispute Resolution.........................................................................................................................................83

Foreign Investment Review in Canada- Slides..................................................................................................83

Part 1: The Law of International Trade and the Multilateral Trading System

Introduction to World Trade Law We are looking at the legal instruments that regulate trade flows. These can be based on both international agreements and domestic law. The WTO Agreement is the

principal agreement, but regional trade agreements (NAFTA, EU, MERCOSUR, ASEAN) also play an important role.

Global trade has increased in recent years because of (1) technological advances, (2) the reduction in trade barriers, and (3) globalization.

As it stands, large economies tend to dominate trade (they have more goods to sell), but developing countries must also rely on trade for growth and are active participants.

Trade is seen as a good thing because it is argued that it promotes poverty reduction, democracy, and peace. Free trade is generally more beneficial than protectionism despite being less popular, but there is debate. However, the current free trade regime is not perfect for developing countries (patent laws, agricultural

subsidies, and high tariffs on manufactured products), but the book’s general conclusion is that trade is good.

We must also note that not all trade agreements are the same. There are varying levels of integration between agreements.

Entire GATT/WTO system is premised on the idea that trade liberalization is good for everyone.

Economics of Trade Law Adam Smith talked about absolute advantage, but Ricardo perfected with comparative advantage. Comparative advantage is the notion that every country has an advantage at producing something (whether

they are absolutely better or relatively better). Free trade therefore allows wealth maximization because everyone is getting the best deal. But this is complicated when there are multiple countries and multiple goods. In reality the theory doesn’t

play out. (For instance the political reasons to bail out GM even if one argues that Japan has a comparative advantage in auto production.)

There are incentives to barriers (invisible revenue increases, developing new industries, industries with spillover effects)

Still free trade is still the best policy despite imperfections. Moreover, the principle of comparative advantage is based on the notion of shallow integration. However,

today integration is deeper and effects not only production outputs, but impacts efficiency in terms of intellectual property and governance and regulation.

Part 2: History, Institutional Aspects, and the Relationship between International Law and Domestic Law

History of the WTO The WTO is a member-driven organization, it serves the interests of governments in the way that

governments see fit (it does not govern) US took the lead in the aftermath of WWII to create an international trade institution (proposed the ITO) The ITO proposal was drafted at the same time as the GATT (an international agreement to reduce tariffs).

However, the ITO failed (too ambitious), the GATT succeeded (restricted to tariffs). There were problems however as the GATT was designed to be implemented with the ITO, therefore some

provisions were left incomplete. (GATT is not an institution) GATT was subsequently renegotiated throughout various “Rounds” each focusing on different roles for

GATT and trying to take the agreement further (the Uruguay Round finally created the WTO)

WTO negotiations were long and turbulent, but were a necessary response to the incoherence, legal uncertainty and political weakness of the GATT.

Structure and Purpose of the WTO [74] 3 purposes

o Negotiation forumo Provides a set of ruleso Helps settle disputes among Members

Governed by the following principleso Non-discrimination (MFN and National treatment)o Freer trade through reductions in trade barrierso Predictability through binding trade commitments (transparency)o Fair and undistorted competition (Art XX chapeau)o Special treatment for developing countries

Ultimate goals include increasing living standards, attaining full employment, growth of real income and effective demand and an expansion of the production of and trade in goods and services

o Achieved in accordance with sustainable development and through increasing integration of developing countries

o Achieved through the reduction of trade barriers and the elimination of discrimination in international trade relations

Specific agreements pursue particular principles TRIPS sets out substantive IP protection rules GATS provide for service market access rules that go beyond non-discrimination SPS requires that measures be based on ‘scientific principles’ TBT requires that Members ensure that technical regulations are not prepared with

the effect of creating unnecessary obstacles to international trade SPS, TBT, TRIPS promote harmonisation and mutual recognition of laws

The scope of the WTO (Article II of the WTO Agreement) is to provide a common institutional framework for the conduct of trade relations between members in matters relating to the agreements

The function of the WTO (Article III of the WTO Agreement) o (1) facilitate the implementation, administration, operation, and further objectives of the Agreement

and Plurilateral Trade Agreements; o (2) provide a forum for negotiations among members for matters dealing with the agreements and

for further negotiations among members; o (3) administer the Dispute Settlement Understanding (DSU); o (4) administer the Trade Policy Review Mechanism (TPRM) and; o (5) cooperate with the IMF and the World Bank to achieve greater coherence in global economic

policy making [82]

Structure of the WTO The substantive agreements (GATT, GATS, TBT, DSU, etc.) are contained in the annexes of the WTO

Agreement [83]. The Ministerial Conference is all the Members brought together to make decisions. The General Council is under the Ministerial Conference and is composed of Member representatives. They

carry out the function of the Ministerial Conference between Conferences (usually monthly). The General Council also directs the activities of the three sub-councils [85].

The Secretariat does the administrative work. The WTO adopts a consensus approach to decision-making (allowing Members to keep control).

o This usually means that Agreements get watered down. o It was easier in the GATT years when there were fewer countries (they were all developed too)

The Ministerial Conference and the General Council have the exclusive authority to adopt interpretations of the WTO Agreements (Article XI:2 WTO Agreement).

o The interpretations are binding, but this has never been used [94]. The Ministerial Conference can also allow waivers to WTO obligations (Article IX:3), it was later agreed

that it should voted on instead. o Waivers are super exceptional [95].

Obtaining amendments is difficult. You need consensus at the Ministerial conference or it waits for 90 days. Then it is put to a vote at the Ministerial Conference that needs a 2/3 majority. Then it is put to the Members who need to pass it with a 2/3 majority.

o If it affects rights and obligations, only those who voted for it are affected. States negotiate to join the WTO and it is a long process. It is easy to withdraw.

World Trade Law and International Law World trade law and international law are largely considered to be separate spheres, but the WTO is an

international treaty, and this is part of the larger body of international law There is debate over the role of international law in WTO law For those who see a substantial role [104]:

o WTO law looks like international law in the sense that the creators are the subjects, there is cooperation and equality, and it is derived from state agreement.

o Treaties are born into a system of international law; there is no hierarchy.o The applicable law before a WTO panel depends on: (1) the claims presented; (2) the defences

invoked; (3) the scope of the relevant rules; (4) conflict rules. WTO dispute settlement does not exist in a legal vacuum and they can look to and apply international law.

o The WTO dispute settlement covers more than the WTO agreements (slave trade example where the DSU would have to apply peremptory norms).

o The WTO rules belong to the rules of international law and thus international law is a part of that law.

This argument is countered [112]:o There is no normative basis why international human rights law trumps international trade law.

Moreover, the WTO Agreements were negotiated based on political balancing of international interests.

o There is a choice-of-law problem in the international horizontal legal order. But you cannot impose order where none exists.

o There is a distinction between law that applies to state conduct and law that applies to WTO dispute settlement.

WTO panels have refused to apply other treaties because they were not intended to be a part of dispute settlement.

o There could also be impacts on third party rightso Bringing in other law would upset the balance achieved through WTO negotiation Rounds.

Article 31 of the Vienna Convention There is a common point. International law is mentioned in Article 3.2 of the DSU and in Article 31 of the

Vienna Convention. But the disagreement lies in what should come in beyond that. There are three ways that international law can be applied by the DSB: (1) through interpretation; (2) as

evidence; (3) as law. In EC-Biotech the AB left some flexibility to use other international law if it was informative and the

claimant was not relying on them [120]. o Pursuant to Article 31(1) of the Vienna Convention, the terms of a treaty must be interpreted in

accordance with the “ordinary meaning” to be given to these terms in their context and in the light of its object and purpose.

o In addition to dictionaries, other relevant rules of international law may in some cases aid a treaty interpreter in establishing the ordinary meaning of treaty terms in the specific context in which they are used. Such rules would not be considred because they are legal rules, buth rather because they may provide evidence of the ordinary meaning.

World Trade Law and Domestic Law The application of international law within countries depends on the country The role of domestic law varied depending on what kind of international law it is (treaty, decision, custom,

jus cogens), and how the country treats international law.

Direct effect [124]o A private person in a state may base a claim in, and be grated relief from, the domestic of that state

against another private person or the state on the basis of the state’s obligations under international treaty

Private actors directly derive rights and assume obligations under a self-executing treatyo Direct effect only exits under constitutions that follow the monist doctrine, as opposed to a dualist

systemo Direct effect is seen by some as a weapon against protectionism and raising the right to trade to that

of a human right. Direct effect would also increase reliability and certainty, enhance economic integration, and

would benefit smaller countries who depend on rule of law.o However, direct effect would cause domestic imbalance and could threaten democracy

Direct effect is not necessary to ensure that governments follow international law Moreover, the fact that most states do not have direct effect puts those that do in a

disadvantaged position. The middle ground is that states enforce DSB decisions domestically (this is based on equality and looks

like minimal direct effect) USA and direct effect [129]

o There is no direct effect o No provision of the WTO agreements will have effect within the US if it is inconsistent with any US

lawo No WTO provision can operate to change prior or subsequent US lawo No private or other persons, other than the US, has standing within a US court to invoke a WTO

agreement to challenge actions of the federal government or its agencieso Only states can make claims. o However, there is indirect effect in the USA

WTO law can be used to interpret US law based on the Charming Betsy case. An Act ought never to be construed to violate the law of nations if any other possible

construction remains But Chevron says that the courts must defer to Congress is Congress is clear.

The EU and direct effect [139]o EU law gets predominance over national law o Not for GATT because it was considered to be a tool for negotiation and impreciseo WTO law can neither be invoked by individuals nor by EU Member States to challenge the

lawfulness of EU measures Van Parys case

WTO agreements cannot be relied upon before EU courts except where the EU intended to implement a particular WTO obligation

The recommendations of a DSB ruling are not mandatory Chiquita case

Exception to general rule applies only where the lawfulness of an EU measure which “specifically transposes prescriptions arising from the WTO agreements into Community law

General obligations of a DSB ruling does not fit exception, must be specific FIAMM case

Rejects direct effect because the courts of EU’s most important trading partners did not allow WTO law to be invoked, there would be an unequal application of WTO rules

Canada and direct effect: o No direct effecto There is a dualist system

An implementing legislation must be passed to give effect to treaties in the domestic legal system

Canada implemented the WTO agreements into domestic law in 1995 Private party prohibited from bringing an action against federal or provincial

legislation to enforce or determine any right or obligation arising under WTO law

Part 3: Dispute Settlement in the WTO

Dispute Settlement in the GATT Article XXII and XXIII provide the foundation of the dispute settlement system

o Art XXII: Consultation Consultation regarding any matter affecting the operations of ‘this Agreement’

o Art XXIII: Nullification or Impairment Remedy can be requested when any benefit accruing to it directly or indirectly under the

GATT is being nullified or impaired, or that the attainment of any GATT objective is being impeded as the result of:

Failure of another Member to carry out its GATT obligations Application by a Member of any measure, whether or not it conflicts with GATT

provisions The existence of any other situation

Mega-problems arose!o Cases became very complex for the GATT membership to resolveo GATT membership grew and diversified exponentially (developing countries came into play!)

Different values and interpretations brought into playo Approval of a GATT violation report required UNANIMOUS APPROVAL

The violating party had a veto over its own sanctions

The DSU Process WTO created a system of compulsory, binding and enforceable dispute settlement One of the most important and widely utilised international tribunals

o Very effective in terms of compliance with decisions The provisions for dispute settlement are set out in the DSU Art. 2.1 of the DSU establishes the Dispute Settlement Body (DSB), which administers the DSU rules

and oversees the dispute settlement process Two big changes

o Appellate body to review panel’s legal decisionso The DSB automatically adopts reports unless it decides by consensus not to adopt the report

First step is Consultation

o Process formally begins when a Member requests consultations with another Member regarding a perceived nullification or impairment of benefits

o Consultations are confidential, and without prejudice to the rights of any Member in any further proceedings

o Consultations can be multilateral or bilateralo Large number of disputes resolved, either through a mutually agreed solution or through

abandonment Next step is Panels

o If consultations fail, the complaining party has the right to request the DSB to establish a panelo Panels are composed of 3 well-qualified individuals

Quite often, present or former Members of government delegations to the WTO who are not parties to the dispute

o Article 7 provides the standard terms of reference for panelso Panel process is similar to most domestic courtso Panel report can be appealed or adopted by the DSB

And then there are the Appellate Bodieso Appeals are limited to issues of law covered in the panel reporto Factual findings can be reviews pursuant to Art 11 in limited circumstances

Implementation timeo Art 3.7 states that the primary objective of dispute settlement is to secure the modification or

withdrawal of the offending measureo Art 21.1 states that prompt compliance is essential

Reasonable time limit exceptions allowed Losing party put under surveillance to ensure compliance

Article 21.5 Compliance reviewo If a complainant believes the Member has failed to implement the DSB’s recommendations and

rulings within the reasonable period, it may request authorisation from the DSB to suspend concessions with respect to the offending Member

o The conformity of the attempted compliance measure must first be decided by a neutral body before authorisation to suspend concessions can be granted

This is done via the same dispute resolution process It is called an Art. 21.5 compliance review

Art 21.5 specifically refers to the ‘measures taken to comply’, and it is these measures that will be the focus of the proceedings

o Therefore, the claims, arguments, facts in a 21.5 review may not necessarily be the same as those raised in the original dispute, see Australia-Salmon[164]

Compensation and Suspension of Concessions or other Obligationso If compliance is not achieved, there are two possibilities for resolution of the dispute

Compensation Member will provide additional trade benefits, often reduced tariffs Compensation is prospective in that the compensation will be for only the continued

breach of its WTO obligations Any compensation must be in conformity with all WTO obligations, i.e MFN

o Tariff reductions must be applied to all WTO members Compensation is rarely used If a compensation agreement cannot be reached within 20 days…

Suspension of Concessions or other Obligations Art 22 grants a Member to request authorisation from the DSB to suspend

concessions to the violating Member

It is then referred to an arbitrator to determine whether the requested suspension amount is equivalent to the level of nullification or impairment

Commonly referred to as ‘retaliation’, it has two objectiveso Rebalance the tariff concessionso Induce the Member to comply with its obligations

Retaliatory measures often target powerful interest groups Art 22.3(a) states that Members should first seek to suspend concessions with respect

to the same sector that the initial violation was foundo If not practicable, concessions in other sectors under the same agreement

If not practicable and the circumstances are serious enough, suspend concessions in another agreement

Referred to as ‘cross-retaliation’ Very important to developing countries!

Imports in a particular sector or agreement may not be large enough to have much impact

These countries rely upon certain imports from larger nations and raising barriers will decrease supply and increase of the price of the product

Explained in EC-Bananas

EC-Bananas Issue is what “not practicable or effective” means in Art 22.3 when determining which concession to

suspendo ‘practicable’ means ‘available or useful in practice; able to be used’o ‘effective’ means ‘powerful in effect’

This means that the party seeking the suspension has to be ensured that the impact of that suspension is strong and has the desired effect

o Can this objective be achieved in a situation where a great imbalance in terms of trade volume and economic power exists between the complainant and the other Member

In situations where the Complainant is highly dependent on imports from the other Member, suspension of certain concessions or other obligations entail more harmful effects for the Complainant!

In these circumstances, a consideration by the Complainant in which sector or under which agreement suspension may be expected to be least harmful to itself would seem sufficient

o To look to other sectors or agreements, it suffices that the concessions under the same sector or agreements were EITHER not practicable OR not effective

Consistent with goal of Art 22 which is to induce compliance If complainant was required to select impracticable or ineffective suspensions,

compliance would not be achieved Complainant must make prima facie case

o Other party bears ultimate burden of showing that suspension within the same sector/agreement would be both practicable and effective

When we move from same sector to same agreement to neither same agreement/sector, the burden of proof is raised

o Additional consideration is added for the counter-retaliation, as it must be shown that the “circumstances are serious enough”

o Factors listed in subparagraph (d) help in this determination (d)(i): Consider the sector and agreement where the violation was found Also consider the “importance of …trade” to that party in relation to the WTO violation (d)(ii): consider “broader economic elements” & “broader economic consequences”

Timing/sequencing issue After the reasonable time period to comply with DSB measures, Art 21.5 states that the compliance panel

must rule within 90 days on the compliance measure after the date of referral of the mattero Art 22.6 states that a Member can apply to suspend concessions 20 days after the time period expires

One can suspend concessions before a compliance ruling!o How do we get out of this problem???

Initiate Art 21.5 and 22.6 procedures at the same time, and stay the 22.6 procedure OR initiate Art 21.5 review prior to Art. 22.6

Alternatives to Dispute Settlement Art 5 provides for mediation through a neutral arbitrator in a non-binding environment Art 25 allows for binding arbitration where the parties agree to the issues and procedures beforehand

Arbitration awards are binding, cannot be appealed, and are enforceable by the DSB Stats on WTO Dispute settlement on page 176

Interaction of the DSU Rules with other WTO Agreements The DSU provides the primary rules on dispute settlement, and it applies to all WTO agreements

o Covered agreements found in Appendix 1 However, the DSU does not exclusively provide the rules and procedures guiding dispute settlement in all

caseso As per Appendix 2, some agreements include special or additional rules, i.e. anti-dumping

If there is no difference, then the DSU rules apply together with the special provisions When the DSU and special provisions cannot be read as complementing each other, then the

special provisions override DSU rules

Procedural and Systemic Issues [182] Art XXIII set out two types of harms

o 1) any benefit accruing directly or indirectly under the GATT is being nullified or impairedo 2) attainment of a GATT objective is being impeded

3 causes of harmo 1) failure of a Member to carry out its GATT obligations; violationo 2) application by another Member of any measure whether or not it conflicts with GATT provisions;

non-violationo 3) existence of any other situation; situation

GATS and TRIPS agreement have similar provisions In practice, almost all complaints are GATT impairment violations As Art XXIII makes clears, a Member does not challenge another Member’s measures as violating the rules

directlyo Effects-based: the challenge based on the nullification as a result of measures alleged to cause a

violation

Violation Complaint: A violation exists when a measure is inconsistent with WTO rules Art 3.8 of the DSU states that once a violation has been established, there is a rebuttable presumption

that the breach has caused nullification or impairmento Never been successfully rebutted

EC-Bananas III

o EC attempted to rebut the presumption of nullification on the basis that the US has never exported a single banana to the EC and therefore could not possibly suffer any trade damage

The AB disagreed and stated that “the fact that the US is a banana producer and that a potential export interest by the US cannot be excluded and that the internal market of the US for bananas could be affected by the EC banana regime and by its effects on world supplies and world prices of bananas

DSU protects expectations on the competitive relationship between imported and domestic products, NOT expectations on export volumes

Turkey-Textileso After throwing on tariffs on India products contrary to the GATT, Turkey tried rebutting the

presumption by saying India imports increased! AB disagreed again saying that it is not proven that the textiles wouldn’t have been higher if

it weren’t for the tariffs

Non-violation complaint: Addresses the concern that the Members may act in a manner that complies with the letter of the law but

nevertheless frustrates an objective or undermines WTO commitments o Ensures that Members act in good faith

3 elements to a claimo 1) application of a measure by the responding partyo 2) existence of a benefit accruing under the agreemento 3) nullification or impairment of that benefit as the result of the application of the measure

Art 26.1 states that there is a higher burden of proof to establish a presumption than for violations EC-Asbestos

o Measure at issue was a French decree banning certain asbestos products First element satisfied

o 3rd element Panel stated that nullification/impairment exists when the measure had the effect of upsetting

the competitive relationship between Canadian asbestos and substitute products Concluded that since this measure was an ‘import ban’, it could be presumed that this

competitive relationship was upseto 2nd element

The benefits claimed by Canada were tariff concessions dating back to 1962 Panel held that it was Canada’s responsibility to demonstrate why it could not reasonably

anticipate that France would adopt measures restricting the tariff concessions and the use of asbestos 35 years after the concessions were made

Furthermore, the panel stated that the scientific evidence created a context in which Canada could not reasonably not have anticipated that sooner or later asbestos would be banned in France

If a responding party loses a non-violation case, it must make a mutually satisfactory adjustment to the measure, but is not required to withdraw the measure

What type of measures can be challenged? Acts setting forth rules or norms that are intended to have general and prospective application are

challengeable measures Mandatory/discretionary distinction discussed in the US-Exports Restraints case

o Principle that only legislation that mandates a violation of a WTO obligation can be found to be inconsistent with those obligations

o Legislation which merely gave the discretion to the executive authority of a contracting party to act inconsistently with the WTO agreement could not be challenged as such

Only the actual application of such legislation could be subject to challenge

This aligns with the Charming Betsy doctrine

Burden of proof [191] The same as any of our domestic courts

Standing [191] While Art 3.7 calls upon Members to ‘exercise judgment as to whether action under these procedures would

be fruitful, these rules practically provide few constraints on Memberso No requirement that a complaining party must have a ‘legal interest’ in order to bring a case

AB stated that it must presume that whenever a panel is request is submitted, the Member is acting in good faith

o US had standing in the EC-Bananas even though it never exported bananas to the EC The fact that it was a banana producer was enough

Third parties [194] If any Member believes that it has a substantial interest in a matter before the Panel, it can generally

participate in the case as a third partyo 3rd parties receive all submissionso 3rd parties submit submissions and arguments are reflected in the decision

Transparency [195] Many aspects of the DSU proceedings are to remain confidential Individuals not involved in the dispute are excluded from panel proceedings, and transcripts of these

proceedings are not publicly available

Amicus Curiae [198] Panels may, but are not required to, accept amicus submissions Although NGOs have no right under the DSU to have a panel consider the content of their amicus briefs, a

panel does have broad authority under Art 13 of the DSU to seek information, and thus it was permitted consider such briefs if it chooses to do so

o Any person, legal or natural, must apply for leave to file such a briefo Finding from US-Shrimp

Treaty interpretation [202] Art 3.2 of the DSU

o The Members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law.

o Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.

Article 31 of the Vienna Convention on the Law Treaties explain the ‘customary rules of interpretation of public international law’

o Interpretation must be based above all upon the text of the treaty Only under special circumstances may supplementary materials be used to assist in the

interpretation

Precedential effect [204] DSB reports are binding only on the parties to the dispute, however there is an strong expectation that prior

disputes should be taken into account in future cases

Standard of review [206] Same as our courts AB set up mostly for legal questions, review on the basis of correctness

Can overturn finding of facts where there was ‘deliberate disregard or wilful distortion or misrepresentation of the evidence’

Panel’s can only rule on arguments presented to it, or else violate principle of ‘due process’

Standard or Review to be applied to actions of domestic actors [208] Two types of decisions

o Domestic sanitary and phytosanitary (SPS measures) decisions Discussed in the EC-Hormones case

Decisions to ban certain meats that had been treated with hormones Reason for ban was a risk to human health from consuming such meat Canada and US challenged the ban as being discriminatory and not based on sound

science Issue was how much deference should be given to the EC’s government agency

making the decision to impose the bano AB states that the appropriate standard of review, as it was not stated in the

SPS Agreement, can be found in Art 11 of the DSU A panel should make an objective assessment of the matter before it This standard falls in between de novo and total deference

o Trade Remedy Decisions Domestic measure is one based on a quasi-judicial decision by a government agency

Panel will apply Article 11 of the DSU as well to conduct an objective assessment of the review conducted by the national investigating authority

o Did the agency examine all relevant facts, explanations, conclusions before ito The panel would consider the quality of the agency’s decision, in terms of the

reasoning and general approach of the investigation Was it reasoned and adequate? Coherent and consistent?

Examine the consistency of the US action with the international obligations of the US, and NOT the consistency of the US action with the US domestic statute implementing the international obligations of the US

With most WTO complaints outside trade remedy decisions, panels will simply consider whether the measure is consistent with WTO rules

o With trade remedy decisions, WTO panels review the decision-making process as much as the decision itself

Article 11 of the DSU sets out the standard ‘objective assessment’o The Anti-Dumping Agreement sets out an explicit standard in Art 17.6

Judicial economy [216] Panels only decide essential issues required to resolve disputes However, judicial economy cannot be exercised where only a partial resolution of a dispute would result

Multilateralism v Unilateralism [221] Article 23 of the DSU was designed to limit the use of unilateral trade measures

o Members may not address trade disputes through unilateral determination; they must follow the procedures of the DSU

US- Certain EC Productso “Article 23 of the DSU must be interpreted with a view to prohibiting any form of unilateral action

“Such unilateral actions threaten the stability and predictability of the multilateral trade system, a necessary component for "market conditions conducive to individual economic activity in national and global markets" which, in themselves, constitute a fundamental goal of the WTO.”

“Unilateral actions may prompt economic operators to change their commercial behaviour in a way that distorts trade. Economic operators may be afraid to continue ongoing trade with, or investment in, the industries or products threatened by unilateral measures.”

“Unilateral actions are, therefore, contrary to the essence of the multilateral trade system of the WTO”

o Each time a Member seeking the redress of a WTO violation is not abiding by a rule of the DSU, it violates Article 23 of the DSU

“The US specifically chose the increased bonding requirements as a retaliation measure, because it considered that it would have an effect similar to that of increased import tariffs and would therefore stop trade.

Criticism and Appraisal of the DSU Process [226] Can almost guarantee that it won’t be on the exam; covered topics include:

o Usage rateso Implementation problems and delayso US sovereignty threatened by the DSUo Can a international tribunal be independento Proposed reform

Traditional GATT Obligations

Border Measures: Tariffs and Quotas

Introduction Border measures are imposed at the border, and stand in contrast to internal measures that apply within the

territory of the country Each Member has submitted a Schedule of Concessions, under which it ‘binds’ its tariffs on designated

productso Commitment by a Member that it will not impose a tariff higher than the listed rates

Quotas are generally prohibited or tightly regulated More flexibility given to tariffs as they preserve the benefits of free market competition better than quotas

o With tariffs, products can still be purchased, albeit at a higher priceo Quotas limit the availability of imports

Border measures tend to be used more for protectionist purposes than to promote other social policies

Tariff Also referred to as duties or custom duties Long-standing means of protecting domestic industries from foreign competition

o Also a means of raising revenue for the government Import tariff is a tax on imports imposed when goods cross the border

o Impose a burden in the form of higher prices, as the cost of the tariff leads sellers to increase prices, ultimately paid by the consumer

3 types of tariffso Ad valorem tariff is based on a fixed percentage of the value of the good that is being importedo Specific tariff relies on a designated amount of money that does not vary with the price of the

product, and is typically based on quantity or weight of the producto Mixed tariff combines aspects of the first two types of tariffs

GATT rules on Bound Tariffs: Article II [241] Rules are set out in Article II, entitled ‘Schedules of Concessions’ Article II:1

o “Each contracting party shall accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement.

The provision that gives the schedule a legal basis Article II:1(b)

o “The products described in Part 1 of the Schedule…shall…be exempt from ordinary customs duties in excess of those set forth and provided therein. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with the importation in excess of those imposed on the date of this Agreement…”

The first sentence states that custom duties do not exceed what is established in the schedule The second sentence is to prevent Members from evading their scheduled commitments by

imposing what is effectively an ‘ordinary customs duties’ under another name The AB has held that the ‘legitimate expectations’ of Members are not relevant for the interpretation

o It is the common intention of the parties that is to be examined In Argentina-Textiles, Art II:1 does not require that Members impose the same ‘type’ of duty that is set

out in their scheduleo If a Member’s schedule refers to a specific duty, it may nonetheless impose an ad valorem duty as

long as the actual amount of the duties imposed does not exceed the amount by in the schedule A schedule of concessions is usually self-explanatory…except for INRs

o An INR is a right of a particular Member relating to a concession in another Member’s schedule The Member was the country seeking the concession and retains certain rights if

modification or withdrawal of the concession is requested Countries that have recently acceded to the WTO have the highest number of INRS as

per their demands upon joining the WTO

Customs Valuation: GATT Article VII Calculation of duties owed is based either on the value of the goods or on the specific number of units Determination of the precise value calculated via rules set out in GATT Art VII or the Customs Valuation

Agreemento Per the agreement Art 1, first domestic custom authorities use the ‘transaction value’o Price actually paid or payable for the goods when sold for export the country of importation

If inapplicable, use the transaction value of ‘identical goods’, Art 2 If inapplicable, use transaction value of similar goods, Art 3

o Deductive value, Art 4 Computed value, Art 5

Some other reasonable means of valuation, Art 7

Customs classification [244] World Customs Organisation (WCO) administers the international rules on tariff classification through the

use of the Harmonised System (HS)o There is also a non-binding dispute settlement procedure provided by the WCO

EC-Computer Equipmento During Uruguay Round, EC classified LAN equipment as ‘automatic data processing’o It then changed the classification to telecommunication apparatus, subject to higher tariff rateso US argued that these changes in classification resulted in tariff rates for the products that were less

favourable than those bound in the EC’s Schedule, violating GATT Article II:1 AB stated that, when interpreting the terms of EC’s Schedule, one must consider the HS and

related explanatory notes

Decisions of the WCO are relevant as well One must also examine the existence and relevance of subsequent practice

AB considers that the classification practice of the EC during the Uruguay Round can be used to interpret the Schedule

“The purpose of treaty interpretation is to establish the common intention of the parties to the Treaty. To establish this intention, the prior practice of only one of the parties may be relevant, but is clearly of more limited value that the practice of all parties

EC- Chickeno Tariff heading ABC covered frozen boneless chicken cuts, while XYZ covered certain types of

‘salted’ meato The EC then reclassified frozen boneless chicken cuts impregnated with salt from XYZ to ABC

classificationo Complainant argued that the salted chicken cuts were properly classified as ‘salted’ and that it has

been classified as such for 6 years As the reclassification caused higher tariffs, it was claimed that this was an Art II:1 violation

o EC contented that the salting that had taken place did not qualify the products as ‘salted’ because it had not been undertaken for the purpose of long term preservation of the product

AB stated that the clear, unambiguous interpretation of ‘salted’ means that anything that was salted is ‘salted’

Non-violation Nullification or Impairment Remedy [251] Art II:2 GATT

o “Nothing in this Article shall prevent any contracting party from imposing at any time on the importation of any product:

(a) a charge equivalent to an internal tax imposed consistently with the provisions of paragraph 2 of Article III in respect of the like domestic product or in respect of an article from which the imported product has been manufactured or produced in whole or in part;

(b) any anti-dumping or countervailing duty applied consistently with the provisions of Article VI;

(c) fees or other charges commensurate with the cost of services rendered Art II deals with duties or other charges on imported products that are applied at the border In contrast, Art III:2 deals with internal taxes or charges on products within a Member’s borders

o It covers domestically produced goods as well as imports that have already entered the Member’s customs territory

This distinction gets confusing when the duty/charge applied at the border is related to a similar tax or charge that is applied internally

o Note to Art III instructs that where there is a tax/charge on imports, and a related tax is applied internally to domestic like products, the import tax/charge is to be regarded as an internal tax or charge, even if it is applied at the border

o While Art II:2(a) does not classify such an import charge as an ‘internal tax’, it does state that import charges that are equivalent to certain internal taxes are not prohibited under Art II

o The inquiry under Art III is whether the import charge itself should be considered an internal tax, whereas Art II:2(a) is whether the import charge is equivalent to some other internal tax

o Great example found on page 266 Pure internal measures are subject to Art III Pure borders measures are Art XI Note to Article III explains where a tax is applied at the border, Art III is usually used

An example of Domestic Tariff Schedules provided on pg 253-255

Valuation of Goods by Domestic Authorities [255] US Agency Ruling on how to properly value the good for ad valorem purposes Whether a Customs decision to include the refunded GST in transaction value was proper?

o Preferred method of appraisement is transaction value defined as the price actually paid or payable for the merchandise when sold for exportation

o In a previous case, the court determined that when VAT taxes are separately identified and are refunded, they may not be included in the transaction value of the merchandise

“the drafters of Art VII of the GATT did not intend for refunded internal taxes to be included in the definition of the price actually paid or payable

o Neither GST or PST should be included in the price actually paid assuming that the taes paid in the country of exportation were refunded to the importer

Classification of Goods by Domestic Authorities [258] Classification shall be determined according to the terms of heading and any relative Section or Chapter

Notes Any reference in a heading to an article shall be taken to include a reference to that article incomplete or

unfinished Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or

combinations of that material or substance with other materials or substanceso Mixtures shall be classified as if they consisted of the material or component which gives them their

essential character The heading which provides the most specific description shall be preferred to headings providing a more

general description Special containers for specific products classified as the specific products

Quotas Art XI:1 General Elimination of Quantitative Restrictions

o “No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.

Applies to all prohibitions or restrictions, other than duties/taxes/charges, on both imports and exports

Quantitative restrictions, while generally prohibited, are permitted in various circumstanceso Art XI:2 sets specific exceptionso Art XXII provides for restrictions to be used to address balance of payment difficultieso Where quotas are permitted, Art XIII provides some specific rules to ensure the non-discriminatory

administration of quantitative restrictions In India-Autos, it was determined that Art XI does not apply solely to border measures,

o It is the nature of the measure as a restriction in relation to importation which is the key factor India-Autos

o Endorses the generally broad scope of the prohibition expressed in Art XI:1; any form of limitation imposed on, or in relation to importation constitutes a restriction on importation within the meaning of Art XI:1

A “restriction” need not be a blanket prohibition or a precise numerical limit One must identify not only a condition placed on importation, but a condition that is

limiting Burdensome practices have fallen under Art XI

Ban on imports below a minimum price constitutes a restriction as well A discretionary import licensing scheme, where licenses were not granted

automatically but rather on unspecified merits was contrary to Art XI Use a substance over form approach

o The trade balancing condition [trade measure in question] does not set an absolute numerical limit on the amount of imports that can be made.

o It does, however, limit the value of imports that can be made to the value of exports that the signatory intends to make over the life of the MOU.

If all signatories could at all times have an unlimited desire and ability to export, this obligation would be unlikely to have any impact upon import decisions.

That is not a realistic scenario. In reality, therefore, the limit on imports set by this condition is induced by the practical

threshold that a signatory will impose on itself as a result of the obligation to satisfy a corresponding export commitment. The amount of imports is therefore linked to a certain amount of anticipated exports.

Trade restriction!o Trade balancing obligations limits the amount/value of imports by linking

them to an export commitment

Tariff Quotas [267] A tariff quota charges a certain duty rate for some set number of imports

o When that number is exceeded, a higher duty rate is charge Tariff quotas are generally permitted

o Art XIII:5 makes clear that the rules on non-discriminatory application of quantitative restrictions apply to tariff quotas as well

Export Quotas/Tariffs [268] Art XI:1 applies to import and export quotas!

o Used for national security, protecting natural resources, help a domestic industry Nothing prohibits export tariffs

Non-Discrimination: MFN and National Treatment

Non-Discrimination De facto versus De Jure Discrimination

o De jure discrimination involves discrimination that is apparent on the face of the measureo De facto discrimination involves measures that do not explicitly differentiate between imports and

domestic goods These measures may distinguish between different products, based on their physical

characteristics Formally different treatment is not sufficient to find a violation

o Korea-Beef, different treatment must actually have an adverse effect on the conditions of competition for imports

In order to determine whether a violation exists, there will have to be an examination of whether the differentiation between imports and domestic products actually puts imports at a disadvantage as compared to domestic products

National Treatment: Domestic Taxes and Regulations National treatment and MFN are the two main non-discrimination requirements in WTO rules

o Whereas the MFN requirement prohibits discrimination among trading partners, the National treatment requirement prohibits discrimination against foreign products

National treatment arose to prevent circumvention of tariff concessions by means of discriminatory internal measures

GATT Article IIIo Paragraph 1: … internal taxes and other internal charges, and laws, regulations and requirements

affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production

The broad and fundamental purpose of Art II is to avoid protectionism in the application of internal tax and regulatory measures

o Paragraph 2: The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products.

o Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1

A tax violating sentence 2 and not sentence 1 occurs in cases where competition was involved between the taxed product and a directly competitive or substitutable product which was not similarly taxed

o Paragraph 4: The products … shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use…

No less favourable treatment be accorded to imported products as to domestic like product

Art III:2 Tax Measures [281]o First sentence: Like products

Are the imported products like the domestic products Are taxes applied to imports in excess of those applied to like domestic products A) Like products

Question generally arises when a government imposes a tax or other charge that varies among products that are part of a closely related group

Japan-Alcoholo Are vodka and shochu like products?

They share most physical characteristics Except for filtration, there is virtual identity in the definition of the two

products End-uses were virtually identical

o Interpretation of ‘like’ should be examined on a case-by-case basis. This would allow a fair assessment in each case of the different elements that constitute a ‘similar’ product. Some helpful factors include

Product’s end-uses in a given market Consumers’ tastes and habits Product’s properties, nature, quality Tariff classification

o “In Art III:2 first sentence, the accordion of “likeness” is meant to be narrowly squeezed

Controversial ‘individual/strict’ like product approach, or the diagonal approach [276]o Once products have been found to be like, there can be no differentiation in the

treatment given to them; any differentiation will lead to a finding of violation

B) Taxed in excess Even the smallest amount of ‘excess’ is too much. The prohibition of discriminatory taxes is

not conditional [Japan-Alcohol]o No de minimis exception

Aim and Effects test US-Taxes on Automobiles

o Art III states that internal taxes should not be applied to imported or domestic products so as to afford protection to domestic production

Reasoned that Art III serves only to prohibit regulatory distinctions between products applied so as to afford protection to domestic production.

Its purpose is not to prohibit fiscal and regulatory distinctions applied so as to achieve other policy goals

One must examine the aim and effect of the particular tax measureo Was the regulatory distinction taken so as to afford protection to domestic production

Japan-Alcohol outright rejected the ‘aims and effect’ test!o “The proposed aim-and-effect test is not consistent with the wording of Art III:2 first

sentence. The basis of the test is found in the words “so as to afford protection” contained in Art III:1. Art III:2 first sentence, contains no reference to those words!”

o Second sentence: Directly competitive or substitutable products Whether the imported products and the domestic products are directly competitive or substitutable

products which are in competition with each other? Not similarly taxed? Dissimilar taxation applied to afford protection to domestic production? A) Directly competitive or substitutable

Korea-Alcohol: Product categories should not be so narrowly construed as to defeat the purpose of anti-discrimination

o Apple and oranges could be directly competitive Japan-Alcohol: The directly competitive or substitutable standard is somewhat broader than

the likeness standard, covering products that are not similar enough to be deemed likeo Apart from the likeness factors, also look at the marketplaceo The decisive criterion is whether they have common-end uses, as shown by elasticity

of substitution B) Not similarly taxed

Check out page 294 for the lulzy Chilean tax measures on alcohol Appellate Body- Chile- Alcohol

o ‘Not similarly taxed’ brings a higher burden of proof than the likeness analysis De minimus exception applies

o Case at hand, alcohol content <35% has a 27% tariff Alcohol content > 39% has a 47% tariff

o Roughly 75% of domestic production enjoy the lowest tariff, and 95% of all imports will be taxed at the highest rate

o Panel found that goods (alcohol below 35 degrees and alcohol above 39 degrees) are directly competitive or substitutable

Most imported products face a heavier tax burden than most domestic products

The difference in tariffs is more than de minimis C) Applied so as to afford protection

Appellate Body- Chile- Alcoholo “it is possible to examine objectively the underlying criteria used in a particular tax

measure, its structure, and its overall application to ascertain whether it is applied in a way that affords protection to domestic products”

The subjective intentions inhabiting the minds of individual legislators do not bear upon the inquiry

its protective application can most often be discerned from the design, the architecture, and the revealing structure of a measure

o There are very few beverages on the Chilean market, either domestic or imported, with an alcohol content of between 35° and 39°. The steeply graduated progression of the tax rates between 35° and 39° alcohol content seems anomalous and at odds with the otherwise linear nature of the tax system.

o In practice, the System will operate largely as if there were only two tax brackets: the first applying a rate of 27 per cent ad valorem which ends at the point at which most domestic beverages are found, and the second applying a rate of 47 per cent ad valorem which begins at the point at which most imports, are found.

The System tends to reveal that the application of dissimilar taxation of directly competitive or substitutable products will "afford protection to domestic production.

o Article III:2, second sentence provides for equality of competitive conditions of all directly competitive or substitutable imported products, in relation to domestic products, and not simply those imported products within a particular fiscal category

Art III:4 Regulatory Measures [299]o Governs ‘laws, regulations, and requirements’ (regulatory measure) other than taxes and chargeso There are four elements to Art III:4

1) A law, regulation or requirement Requires that there be a certain degree of formal government involvement

2) affecting the internal sale, offering for sale, purchase, transportation, distribution or use of imported products that

Applies to any regulatory measure which might adversely modify the conditions of competition between the domestic and imported products on the internal markets

Actual trades do not matter; wide scope of application 3) accords less favourable treatment to the imported products than to 4) like domestic products

o 3) Less favourable treatment Treatment no less favourable call for effective equality of opportunities for imports In de jure discrimination, the formally different treatment is examined to assess whether it results in

imported products being treated less favourably than domestic products Korea-Beef- de jure discrimination

The Korean measure formally separates the selling of imported beef and domestic beef. However, formal separation, in and of itself, does not necessarily compel the conclusion

o We must ask whether the measure modifies the conditions of competition to the disadvantage of the imported beef

In 1990, Korean implemented the dual retail system of beefo Vast majority of retailers chose to sell domestic beef exclusively

Effect was the virtual exclusion of imported beef from retailers that sold domestic beef as well

Resulted in the drastic reduction of commercial opportunity to generate sales Results in less favourable treatment as per Art III:4

o Although retailers were free to choose between import and domestic beef, the legal necessity of making a choice was imposed by the measure itself!

Intervention of some element of private choice does not relieve responsibility EC-Asbestos, regarding de facto discrimination

If there is less favourable treatment of the group of like imported products, there is protection

o Emphasizes comparison of a group of imported products, rather than an individual imported product

Rejects the strict/individual approach explained aboveo This is key in de facto claims as one of the key issues is what percentage of imported

and domestic products receive the worse treatment Dominican Republic- Cigarettes, on de facto discrimination

A government measure requires that importers and domestic producers to post a bond in order to sell goods

o No direct relationship between the bond requirement and saleso Domestic producers have a higher market shareo Therefore the per unit cost of the bond is higher for the importso Honduras argues that this is de facto discrimination

The Panel rejects Honduras’ claim!o Art III obliges Members to provide equality of competitive conditionso “Any expense that is fixed may lead to different costs per unit among supplier firms. o As long as the difference in costs does not alter the conditions of competition in the

relevant market to the detriment of imported products, that fact in itself is not enough to conclude that the expense creates a less favourable treatment for imported products.”

AB further explains that a measure’s detrimental effect on imports was not sufficient to find a violation if the detrimental effect is explained by factors or circumstances unrelated to the foreign origin of the product, such as, in this case, the market share of the importer

o Kinda sounds like the aims & effect test…oh well!o 4) Like domestic products

Although similar to Art III:2, there is a slight difference here EC-Asbestos

Art III:1 informs the subsequent provisions in the Articleo Its purpose is to ensure that internal measures 'not be applied to imported and

domestic products so as to afford protection to domestic productiono It obliges Members to provide  equality of competitive conditions for imported

products in relation to domestic products” “Although the obligations in Articles III:2 and III:4 both apply to "like products", the text of

Article III:2 differs in one important respect from the text of Article III:4. o Article III:2 contains  two separate  sentences, each imposing  distinct 

obligations:  the first lays down obligations in respect of "like products", while the second lays down obligations in respect of "directly competitive or substitutable" products.”

Art III:2 first sentence must be construed narrowly so as not to make the second sentence obligations meaningless

Art III:4 has no such problem “As products that are in a competitive relationship in the marketplace could be affected

through treatment of imports less favourable than the treatment accorded to domestic  products, it follows that the word "like" in Article III:4 is to be interpreted to apply to products that are in such a competitive relationship.

o Thus, a determination of "likeness" is a determination about the nature and extent of a competitive relationship between and among products.

Conclude that the scope of ‘like’ in Art III:4 is broader than its scope in Art III:2 first sentence

However, ‘product’ in Art III:4 is not broader than both sentences of Art III:2

4 general criteria for analyzing likeness (same as Art III:2)o Properties, nature and quality of the producto End-uses of the product (key as it shows marketplace competition)o Consumer’s tastes and habits (key as it shows marketplace competition)o Tariff classification of products

Physical properties deserve a separate examination that does not confuse the end-use analysiso Physical properties of a product may also influence how the product can be used,

consumer attitudes about the product, and tariff classification Examine the physical properties that are likely to influence the competitive

relationship between products in the marketplaceo Key indicator of likeness

Cannot assume that when two products can be used for the same end-use, their properties are then equivalent

Applying analysis to case, the carcinogenicity is a defining aspect of the physical property of chrysotile asbestos fibres

o When there is such a defining difference, the burden is much higher to show through the other criteria that the products are ‘like’

Although it is relevant that products have similar end-uses for a “small number of…applications”, a panel must examine the other, different end-uses for products

What is the proportion of overlapping end-uses? Likeness will also be shown when the two products can perform, with equal

efficiency, all of the functions performed by the other product Evidence relating to consumers’ tastes and habits would establish that the

health risks associated with chrysotile asbestos fibres influence consumer behavior

o The two products have different HS and tariff classifications Art III:4 and Art XX are distinct and independent provisions and their analysis cannot be

conflated, lest the scope of ‘likeness’ be broadened or restricted Another consideration is that in a market where there are regulatory barriers to

trade/competition, there may well be latent demand for a producto Evidence from other markets will be pertinent to the examination of the market at

issue

Conclusions and general observations [319] Art III:2 first sentence

o A discriminatory effect test that looks at the overall impact of the measure on the group of imported products as compared to the group of domestic like product

o Intent will not consideredo The likeness of products will have a very narrow scope under this provision

Art III:2 second sentenceo Discriminatory effect will be taken into account, as will objective intento The standard of directly competitive or substitutable products is fairly broad and relies heavily on

whether the products at issue compete in the market Art III:4

o Discriminatory effect will play an important role, and the role of intent is unclearo The like products standard lies somewhere between likeness under Art III:2 first sentence and

directly competitive or substitutable in Art III:2 second sentence Production process measures

o Internal laws that regulate the production process, as opposed to the product itself, do not fall under Art III in relation to their impact on imports and are thus subject to the stricter rules of Art XI

Example is a US law that regulated domestic tuna fishing practices so as to protect dolphins Discriminated based on the process of catching tuna, and not tuna itself

o Arguably overturned in US-Shrimp II

Most Favored Nation Principle [322] MFN principle means that a country must treat other countries at least as well as it treats the most favoured

country It eliminates distortions in production patterns, as companies will produce in the most efficient production

location, allowing comparative advantage to work It can result in broader trade liberalisation, as any tariff cuts offered to one country will apply to all

countries Unconditional MFN can simplify trade negotiations More straightforward and transparent customs policies Reduces international tensions

o Created after WWI as the many alliances were seen to have caused the war Main type of discrimination among trading partners is through bilateral and regional trade agreements

(FTAs) which are permitted if they meet the requirements of Art XXIV Article I: “With respect to customs duties and charges of any kind imposed on or in connection with

importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III

o Just about every government measure is covered Article I: “…any advantage, favour, privilege or immunity granted by any contracting party to any product

originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other Members

o Treatment offered to one Member must be provided to other Members as well With de jure discrimination, the only question is whether the products are like With de facto discrimination, the existence of different treatment among the imports is key

Like Products The question of like products generally arises in MFN cases when a government measure makes a

distinction between two products, rather than between two specific countrieso Where the product receiving inferior treatment is predominantly made by one Member, that Member

may complain that its products are not accorded advantages that like products from other Members receive, in violation of Art I:1

Spain-Coffee [326]o Tariff treatment of Brazilian coffee exports to Spain

Before 1979, Spain classified all unroasted, non-decaf coffee under one tariff heading After 1979, Spain sub-divided the classification into 5 parts (Columbian mild, mild, Arabica,

robusta) Brazil’s exports mainly fell into the 2 classifications that had the highest tariffs In contrast, the duty free coffee came predominantly from Spain’s former colonies Brazil argued that all the coffee sub-classifications were like and that the

classification system was set up to treat the colonies better than Brazil Panel found that the many types of coffee all held a universally regarded and well-defined

end-use Coffee is a single product intended for drinking No other WTO member applied its tariff regime in such a manner The minute differences such as geographical factors, cultivation methods, and genetic

factors were not sufficient to rebut the strong end-use argument

Japan-Lumbero “The GATT left wide discretion to Members in relation to the structure of national tariffs and the

classification of goods in the framework of such structureo The Harmonized System does not entail any obligation as to the ultimate detail in the respective

tariff classifications A tariff classification going beyond the HS’s structure is a legitimate means of adapting the

tariff scheme to each contracting party’s trade policy interests, comprising both its protection needs and its requirements for the purposes of tariff- and trade negotiations

o Tariff differentiation being a legitimate means of trade policy, a Complainant bears the burden of establishing that such tariff arrangement has been diverted from its normal purpose so as to become a means of discrimination

In sum, if the products in question are considered not like, they can be subject to disparate treatment, even if the result is that countries which produce mostly the higher tariff goods will be at a disadvantage

Non-discrimination The latter half of Art I Intent does not play a role De jure discrimination is straight forward.

o EC-Tariff Preferences: Any advantages granted to any product originating in any one Member shall be accorded immediately and unconditionally to the like products originating in all other Members

De facto discrimination is where the measure is origin-neutral on its face, as per Spain-Coffeeo It identified certain products as receiving worse treatment, and not certain Members

To resolve de facto discrimination, examine the different categories of treatment accorded to all imported like products, and then look at how different countries products are distributed within the categories (discriminatory effect)

o Another approach would simply look at whether any individual product from a Member is not accorded an advantage received by any individual like product from another country

It is enough that one product from one country does not receive an advantage that one like product from any other country is accorded, individual/strict approach

o Page 332 and Canada-Autos shows how these two approaches can lead to different conclusionso Canada-Autos

Canada established a complex regime to encourage domestic production of cars Two categories of tariff treatment : 0% and 6.1%

Duty-free treatment was available if certain conditions were met It was shown that most imports of certain countries paid a zero tariff, whereas most imports

from certain other countries paid the 6.1% tariff The differences were shown to be significant This method demonstrated that a certain discrimination occurred between Members

(discriminatory effect approach) Upon appeal, the AB stressed that Art I:1 requires that any advantage to any product be

provided to all other Members “The words of Art I:1 does not simply refer to some advantages

o The emphasis on any product reflects the individual product approach, under which the overall effect on different countries’ imports is irrelevant

Both approaches were adopted in this case

Unconditional MFN Means that the concessions apply to ALL Members, but it could also mean no strings attached Indonesia-Autos

o “any such advantage cannot be made conditional on any criteria that is not related to the imported product itself”

o the design and structure of the June 1996 car programme is such as to allow situations where another Member’s like product to a National Car imported by PT PTN from Korea will be subject to much higher duties and sales taxes than those imposed on such National Cars.

No taxes are imposed on a National Car while an imported like motor vehicle from another Member would be subject to a 35% sales tax.

The distinction depends on whether or not PT TPN had made a “deal” with that exporting company to produce that National Car

In the GATT/WTO, the right of Members cannot be made dependent upon, conditional on or even affected by, any private contractual obligations in place

The car programme the granting of customs duty benefits to parts and components is conditional to their being used in the assembly in Indonesia of a National Car.

There is also a condition for these benefits: the meeting of certain local content targets. The existence of these conditions is inconsistent with the provisions of Article I:1

Canada-Autos [337]o The panel reached a different conclusion, disagreeing with Indonesia-Autoso The duty exemption at issue was conditioned on using domestic value added and on meeting certain

product-to-sales ratio requirements Japan argued that the domestic value condition was unrelated to the product

o The panel concluded that “whether an advantage within the meaning of Art I:1 is accorded unconditionally cannot be determined independently of an examination of whether it involves discrimination between like products of different countries

Art I:1 does not impose a requirement of unconditionality that is separate from the general non-discrimination requirement

EC-Tariff Preferenceso At issue was a duty exemption that was conditioned on the designation of a country as having a drug

trafficking problemo The panel stated that the full and ordinary meaning of ‘unconditionally’ means “not limited by or

subject to any conditions” Because the tariff preferences are accorded only on the condition that receiving countries are

experiencing drug problems, the tariffs are not accorded unconditionally We are left with two opposing views!

GATT Exceptions

Bilateral/Regional Trade Agreements An important and controversial exception to MFN is Art XXIV

o It authorizes the formation of custom unions and free-trade areas (FTAs) Custom unions eliminate or substantially reduces internal tariffs and barriers within the arrangement while

also creating common external tariffs and trade policies o EC- European Communities

Unlike a customs union, an FTA does not affect each members external trade policies and tariffso NAFTA- North American Free Trade Agreement

The Development of Regionalism through PTAs? PTAs ease trade between natural trading partners and encourage trade and investment in developing

countries from developed countries PTAs can be negotiated much faster than the multilateral process, enable parties to liberalize beyond the

levels achievable through multilateral consensus PTAs help developing countries gain from regional integration and stronger economic ties to developed

countries, improving both the trading regimes and the rule of law while implementing structural reforms necessary to further their integration into the world economy

PTAs have the ability to establish prototypes for liberalization in a wide range of trading areas, such as environmentalism and labour practices

Members also negotiate PTAs so that they don’t get left behind and become disadvantaged in the world trading system

On the other hand, PTAs have the potential to threaten the sustainability of the multilateral trading systemo PTAs are inimical to the non-discriminatory WTO principleso Undermines transparency, predictability and MFN

Differing rules and standards create obstacles to trade facilitation by increasing administrative/transaction costs

PTAs may lead to trade creation, whereby trade is expanded between efficient producers/supplierso Can also lead to trade diversion, whereby trade is shifted from an efficient producer/supplier outside

the preferential trading arrangement to a less efficient producer/supplier inside the preferential trading arrangement

Rules of origin are designed to prevent a product being exported from a non-member country to a member country before being re-exported to another member country, thus gaining the reduced tariff

o Generally, a minimum level of value added must occur in a member country These standards differ widely

Results in situations where suppliers are denied the preferential tariff where they honestly thought the standard was satisfied

PTAs also skirt around substantial issues that have also plagued the GATT/WTO such as environmental standards, human rights, labour standards

GATT Article XXIV and GATS Article V Art XXIV establishes the basis for allowing PTAs as an exception to the MFN requirement Art XXIV:4: The contracting parties recognize the desirability of increasing freedom of trade by the

development, through voluntary agreements, of closer integration between the economies of the countries parties to such agreements. They also recognize that the purpose of a customs union or of a free-trade area should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories.

Art XXIV provides 3 requirements to establish a PTAo 1) procedural requirement to notify the WTO of the PTAo 2)An obligation not to raise the overall level of protection and make access for products and services

from Members not participating in the PTA more onerouso 3) An obligation to liberalise substantially all trade among members of the PTA

This is to ensure that each PTA facilitated, as opposed to hindered, trade and ensure that PTAs could not be used merely to disguise preferential arrangements

Art XXIV:5(c) allows for interim agreementso Agreement must include a plan for the finalisation of the PTAo Cannot last longer than 10 years without a full explanation

Obligation to notify the CRTA WTO members must notify the CRTA (Council of Trade in Goods) their desire to enter into a PTA

CRTA has full power to review a PTA and it requires consensus to approve the proposed PTAo This has only occurred onceo Majority of PTAs have been notified to the WTO after its successful completiono Because CRTA action requires consensus, no sanction/remedy has been imposed for PTAs that have

not been approved Art XXIV:7(a) states that PTAs do not require CRTA approval to be formed Do dispute settlement panels also have the jurisdiction to assess a PTA’s overall compatibility?

o The AB says that panels are required to do so in cases where PTAS are offered as a defence for a measure!

o Turkey-Textiles The PTA defence is only available when two conditions are fulfilled

1) the measure at issue is introduced upon the formation of a customs union that fully meets the requirements Art XXIV:5(a), 8(a)

2) the formation of that PTA would be prevented if it were not allowed to introduce the measure at issue

External Trade Requirement The external trade requirements differs under Art XXIV:5 upon whether the PTA is a customs union or a

free-trade area Free-trade areas (FTA)

o Art XXIV:5(b) requires that duties and other regulations of commerce applicable at the formation of such free-trade area to the trade of contracting parties not included in such area or not parties to such agreement shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation of the free-trade area

Members of the FTA may not alter their external protection in such a manner as negatively to affect non-FTA members

Customs Unionso Custom unions have two obligations

A)Not to raise the overall level of external protection above a certain threshold B) Compensate external members in cases where the custom duties in some members of the

customs union have been raised to match the level deemed appropriate by the customs uniono A) Not to raise overall level of external protection

Custom unions go beyond FTAs in that they also require common external protection Art XXIV:5(a) requires that the duties and other regulations of commerce imposed at the

institution of any such union in respect of trade with Members not parties to such union or agreement shall not on the whole be higher or more restrictive than the general incidence of the duties and regulations of commerce applicable in the constituent territories prior to the formation of such union or the adoption of such interim agreement, as the case may be

The comparison is to a tariff-line basis “…based upon an overall assessment of weighted average tariff rates and of custom

duties collected…on a tariff-line basis and in values and quantities, broken down by WTO country or origin…the duties and charges to be taken into consideration shall be the applied rates of duty

o B) Compensatory adjustment Art XXIV:6 provides that “if… a Member proposes to increase any rate of duty

inconsistently with the provisions of Article II, the procedure set forth in Article XXVIII shall apply.

“In providing for compensatory adjustment, due account shall be taken of the compensation already afforded by the reduction brought about in the corresponding duty of the other constituents of the union.”

When assessing whether compensation must be offered, one looks to the bound, as opposed to actual applied, tariff rate

In a situation where one member of the customs union will have to raise its bound tariff rate on a particular item, this does not necessarily mean that compensation will always be warranted

The disadvantages brought about by the formation of the customs union may be offset by the advantages gained through the increased market opportunities brought about the reduction of protection of another member in the customs union

Internal Trade Requirement [361] Art XXIV:8(a)(i), (b) provide for the elimination of duties and other restrictive regulations of commerce

with respect to substantially all the trade between PTA memberso Controversial what constitutes ‘substantial’

Has both qualitative and quantitative componentso The exceptions listed in Art XXIV:8 are not exhaustive as it failed to include Art VI anti-dumping

measures, XIX (safeguards), and other exceptions

PTAS and Dispute Settlement The “Understanding on the Interpretation of Art XXIV provides WTO panels a wide scope to review any

matter arising from a PTA notified under Art XXIVo No claimant has attempted to use GATT Art XXIV to invalidate a PTA

Every defence under Art XXIV MUST show that all of the elements of Art XXIV are met Turkey-Textiles

o India argued that Turkey’s introduction of quantitative restrictions its textile products was not necessary to comply with the EC customs union

o Turkey argues that Art XXIV:5(a) permits the introduction of new trade restrictions, provided that the overall incidence of duties and other regulations of commerce is not higher or more restrictive after the completion of the customs union than before

Turkey must prove that a custom union exists and that the formation of the customs union would fail if it weren’t allowed to introduce the trade measures

It is a necessity test!o In demonstrating that a customs union exists, the party must satisfy both the internal and external

trade requirements under Art XXIV:8 Internal requirement (8)(a)(i)- Were the duties/restrictions eliminated for substantially all the

trade between members? External requirement (8)(a)(ii)- Members must apply substantially the same duties to external

trade with third countries It does not require each constituent member to apply the same duties Substantially = something closely approximating sameness

o The AB began its analysis with the Chapeau to Art XXIV:5 which states that the provisions of the GATT shall not prevent the formation of a customs union provided that [Not to raise overall level of external protection requirement]

This means that the effects of the resulting trade measures and policies of a PTA cannot be more trade restrictive, overall, than were the constituent countries’ previous trade policies

It is an economic testo The AB then focused on the Chapeau to determine whether the formation of the customs union

would be prevented if it were not allowed to introduce the measure at issue Turkey argued that if it were not allowed to impose the quantitative restriction, then the EC

would exclude all Turkish imports in order to prevent the EC restrictions from being circumvented, thereby not satisfying the internal requirement (paragraph 8(a))

The AB rejected the argument finding that Turkey could have imposed other regulations such as appropriate rules of origin to prevent cheating!

o Therefore, Turkey was not required to impose quantitative restrictions The trade measures cannot be upheld by the customs union

This imposes a necessity test Members must show that the requirements to form the

agreement cannot be met without the measure at issue US- Line Pipe Safeguards [368]

o Korea claimed that by excluding Mexico and Canada from a safeguard measure in the form of a tariff quota, the US violated the MFN principle

US stated that NAFTA justified the differential treatment Korea stated that NAFTA cannot be used to justify MFN violations as the CRTA had

not yet ruled on the FTAo Panel found that NAFTA was in conformity with all requirements

No presumption that FTA is inconsistent until a CRTA ruling The panel stated that “if the alleged violation forms part of the elimination of duties, there

can be no question of whether it is necessary for the elimination of substantially all duties

Proposed reform of PTA formation submitted by Australia [374-378]o Define what ‘substantially all the trade’ meanso Define a bright line as to whether the exclusion of entire sectors, i.e. agricultural subsidies, is

appropriateo 95% tariff elimination to reach a broad range of sectorso Mandatory that a sector must be included if it reaches a 2% trade threshold

Article XX General Exceptions In limited circumstances, Members are permitted to act inconsistently with their GATT obligations in order

to pursue certain designated policies The ability to pursue the listed polices is limited by the Art XX chapeau which states that the availability of

these exceptions is:o “Subject to the requirement that such measures are not applied in a manner which would constitute a

means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade…”

o The chapeau is designed to ensure that Members do not abuse the exceptions by using them as a disguised mean of discrimination or a trade restriction of some other kind

General Interpretive issues Burden of proof is on the party invoking the exception Analyze the subparagraphs first, chapeau second

o Determine whether the measure falls within one of the listed exceptionso Determine whether the measure satisfies the chapeau

‘Necessary’ versus ‘relating to’ The word ‘necessary’ is used for some of the sub-paragraphs, but the phrase ‘relating to’ is used for others Relating to involves an examination of whether the means and ends of the measure are reasonably related

o Whether the design and structure of the measure are closely related to the goal of the measure Necessary = no other way

o Cannot justify a measure inconsistent with another GATT provision as ‘necessary’ if an alternative measure which it could reasonably be expected to employ and whish is not inconsistent with other GATT provisions is not reasonably available

o Where a measure consistent with the GATT is NOT reasonably available, a Member is bound to use, among the measures reasonably available to it, that which entails the least degree of incontinency with other GATT provisions

o Korea-Beef All indispensable measures are necessary Some measures that are not indispensible are still necessary

Involves a weighing and balancing a series of factors which include:o the contribution made by the compliance measure to the enforcement of the

law or regulation at issueo importance of the common interests or values protected by that law

EC-Asbestos: the more vital the interest pursued, the easier it would be to accept as necessary measures designed to achieve those ends

The preservation of human life is vital in the highest degreeo accompanying impact of the law on imports or exports

o EC-Asbestos “France could not reasonably be expected to employ any alternative measure if that measure

would involve a continuation of the very risk that the Decree seeks to halt. Such an alternative measure would prevent France from achieving its chosen level of health

protection Scientific evidence suggest that the level of exposure using the measures Canada proposed

can still be high enough for there to be a significant risk of cancero US-Gambling Services

GATS Article XIV(a) sets out the general exceptions in the same manner as GATT “the weighing and balancing process begins with an assessment of the relative

importance of the interests/values furthered by the challenged measureo The two other factors found in Korea-Beef are not exhaustive

A comparison between the challenged measure and possible alternatives should then be undertaken, and the results of such comparison should be considered in the light of the importance of the interests at issue

As for burden of proof, the responding party must make a prima facie case that its measure is necessary by providing evidence for a panel to assess the challenged measure

If the complainant party raises a WTO-consistent alternative measure, the responding party must show why its challenged measure remains necessary in the light of that alternative

Major Listed Exceptions

XX(a): Public Morals Necessary standard Covers gambling Not interpreted by case law

XX(b): Human, Animal or Plant Life or Health First determine whether the measure is designed to pursue a policy of protecting human, animal, plant life or

health Then determine whether the measure is necessary to achieve this objective 3 WTO cases to date: EC-Asbestos, US-Gasoline, EC-Tariff Preferences US-Gasoline

o US law required certain gasoline to be cleaner-burning to reduce motor vehicle emissionso Law was found to violate GATT Art III:4 based on its different treatment of foreign and domestic

products in terms of a methodology for determining gasoline quality

o Panel accepted argument that air pollution presents health risks to humans Because about half of air pollution is caused by vehicle emissions, and the measure reduced

these emissions, the measure fell within XX(b) policy goalso As to whether the measure was necessary, one must look at the measure itself

NOT simply whether discriminatory aspect of the measure can justify a measure under Art XX

Panel found that there were other measures that did not violate the GATT EC-Asbestos

o Panel held that the evidence demonstrated that handling chrysotile asbestos constitutes a health risk, and therefore the French policy was within the range of policies designed to protect life

o Was the measure necessary? One does not need to quantify the health risk WTO members have the right to determine the level of protection of health that they consider

appropriate in a given situation Rejects the proposal that necessary means that any other measure was impossible

Goes on to explain necessity test as outlined earlier in the summaryo The AB concludes that the preservation of human life or health by eliminating a known and life-

threatening risk is a value that is both vital and important in the highest degree EC-Tariff Preferences

o Granting of certain tariff concessions was tied to the existence of problems relating to drug production and trafficking in specific countries

Obvious MFN violationo EC contended that narcotic drugs obviously pose a grave risk to human life and heath

The tariff preferences contribute to the protection of human life and health by supporting the measure taken by other countries against the illicit production/trafficking of the drugs

After examining the express provision and the design, architecture and structure of the measure, the Panel stated that it found ‘nothing’ relating to a policy objective of protecting the health of EC citizens

There was no monitoring mechanism on its effectiveness Less trade-restrictive measures would achieve the same objective

o Financial and technical assistance to specified countries

XX(d): Compliance Measures Exception for measures ‘necessary to secure compliance with laws or regulations which are not inconsistent

with the GATT, including those relating to customs enforcement, IP protection, prevention of deceptive practices, and the enforcement of Monopolies under Art II:4 and Art XVII

o Non-exhaustive listo 1st element: Secure compliance = to enforce compliance/obligationso 2nd element: law which compliance is being secured does not violate the GATTo 3rd element: Necessity

Korea-Beef caseo Measure at issue created a ‘dual retail system’ for imported and domestic beefo Small shop owners could only sell imported exclusively or domestic exclusivelyo Art III:4 violation due to adverse effects on the conditions of competitiono Korea argued it was necessary to prevent fraud, as many shop owners sold imported beef while

calling it domestic beefo The AB stated that “the application by a Member of  WTO-compatible  enforcement measures to the

same kind of illegal behaviour – the passing off of one product for another – for like or at least similar products, provides a suggestive indication that an alternative measure which could "reasonably be expected" to be employed may well be available

Korea must now demonstrate that such an alternative measure is not reasonably available

alternative measures must not only be reasonably available, but must also  guarantee  the level of enforcement sought which, in the case of the dual retail system, is the elimination  of fraud in the beef retail market

o Members have the right to determine for themselves the level of enforcement of their WTO-consistent law and regulations

Provided that such law and such level of enforcement are the same for imported and domestically-produced products

Unlikely that intended level of protection was the total elimination of fraud That would require a total ban of imports. Assume that Korea intended to reduce considerably fraud

o The dual retail system "does appear to reduce the opportunities and thus the temptations for butchers to misrepresent foreign beef for domestic beef

o The system facilitates control and permits combating fraudulent practices ex ante.

The question remains whether other, conventional and WTO-consistent instruments cannot reasonably be expected to be employed to achieve the same result.

Korea, in the past, had published figures on the amount of fraudulent sales o Korea was able to detect fraud.

Fines could be an effective deterrent, as long as they outweighed the potential profits from fraud.

On record-keeping, if beef traders at all levels were required to keep records of their transactions, then effective investigations could be carried out

On policing, Korea had not demonstrated that the costs would be too high. For all these reasons, Korea has not satisfactorily demonstrated that alternative measures

consistent with the WTO Agreement were not reasonably available Securing through conventional, WTO-consistent measures a higher level of

enforcement could well entail higher enforcement costs for the national budget. However, through its dual retail system, Korea has shifted all of these costs of

enforcement to imported goods and retailers of imported goods, instead of evenly distributing such costs between the domestic and imported products

o WTO-consistent measures do not involve onerous shifting of enforcement costs which ordinarily are borne by the Member's public purse

XX(g): Conservation of Exhaustible Natural Resources Relating to standard This provision does not apply generally to ‘environmental protection’

o Scope has been broadened as both clean air and sea turtles are considered natural resources US-Gasoline

o US argued that clean air was an exhaustible recourse since it could be exhausted by pollutants such as those emitted through the consumption of gasoline

o Panel stated that clean air was a resource and it was natural, and that it could be depleted The fact that the depleted resource was defined with respect to its qualities and that the

resource is renewable was not decisiveo Was the measure related to conserving clean air?

First off, the measure itself, as a whole, must be examined for its relationship to the policy goal, as per the wording of the chapeau

As long as the measure as a whole is related to the relevant environmental concerns, it will fall within this exception

o The provisions of a measure can scarcely be understood if the provisions scrutinized individually, divorced from the other sections of the measure

Given the substantial relationship between the measure and the policies at issue, the measures are covered under the XX(g) exception

o Was the measure ‘made effective in conjunction with restrictions on domestic production or consumption?’

Requirement that the measures concerned impose restrictions on both imported and domestic gasoline

Even-handedness requirement The standard does not require identical treatment, because there would probably be

no GATT violation US-Shrimp [403]

o Congress passed a law that imposed an import ban on shrimp from particular countries unless the foreign government had a TED program similar to the US TED program

o Does the measure fall under Art XX (g)? Article XX(g) is not limited to the conservation of "mineral" or "non-living" natural

resources. living species capable of reproduction (renewable) are susceptible of depletion, exhaustion

and extinction, frequently because of human activities While Article XX was not modified in the Uruguay Round, the preamble attached to the

WTO Agreement shows that the signatories were fully aware of the importance and legitimacy of environmental protection as a goal of national and international policy.

The preamble of the WTO Agreement -- which informs not only the GATT 1994, but also the other covered agreements -- explicitly acknowledges "the objective of sustainable development

the generic term "natural resources" in Article XX(g) is not "static" in its content or reference but is rather "by definition, evolutionary"

measures to conserve exhaustible natural resources, whether living or non-living, may fall within Article XX(g)

The exhaustibility of sea turtles is very difficult to controvert since all of the seven recognized species of sea turtles are listed as “species threatened with extinction which are or may be affected by trade”

o Is there a territoriality problem with this measure? The sea turtle species are all known to occur in US waters

it is not claimed that  all populations of these species migrate to, or traverse, at one time or another, waters subject to United States jurisdiction.

No one claims any rights of exclusive ownership over the sea turtles We do not rule on whether there is an implied jurisdictional limitation in Article XX(g),

In the specifics of this case, there is a sufficient nexus between the sea turtles and the US for purposes of Article XX(g).

o Does the measure ‘relate to’ the general exception? look into the relationship between the measure at stake and the legitimate policy of

conserving exhaustible natural resources examine the relationship between the general structure and design of the measure here

and the policy goal, the conservation of sea turtleso The law imposes an import ban on shrimp that have been harvested with

commercial fishing technology which may adversely affect sea turtles. o This provision is designed to influence countries to adopt national regulatory

programs requiring the use of TEDs by their shrimp fishermeno Two basic import ban exemptions

Shrimp harvested under conditions that do not adversely affect sea turtles

Countries that have been certified by the US

o Two types of certification Fishing environment does not have sea turtles! Adopt a regulatory program similar to the US

In its general design and structure, the trade measure is not a simple, blanket prohibition The implementing guidelines, are not disproportionately wide in its scope and reach

in relation to the policy objective of protection and conservation of sea turtle species. The means are, in principle, reasonably related to the ends. The means and ends relationship is observably a close and real one

o Even-handedness requirement? Fishing restrictions are imposed on both the US shrimp and the imported shrimp

The Chapeau! “Subject to the requirement that such measures are not applied in a manner which would constitute a means

of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade”

o Measures must not be applied in a manner that constitutes arbitrary discrimination, unjustifiable discrimination, or a disguised restriction on international trade

US-Gasoline The measures imposed different standards on foreign companies as compared to domestic companies with

regard to a product sold in the domestic market The Art XX analysis is two-tiered:

o first, provisional justification by reason of characterization of the measure under XX(g); o Second, further appraisal of the same measure under the chapeau of Article XX.

The chapeau’s purpose is generally the prevention of abuse of the exceptions (good faith) Article XX exceptions should not be so applied as to frustrate or defeat the legal obligations of Member

under GATT’s substantive rules "Arbitrary discrimination", "unjustifiable discrimination" and "disguised restriction" impart meaning to one

anothero The fundamental theme is the purpose and object of avoiding abuse or illegitimate use of the

exceptions Alternative courses of action available to the US, including the imposition of statutory baselines without

differentiation as between domestic and imported gasoline. This would have completely avoided discrimination

o US argued that imported gasoline had a higher regulatory standard due to the administrative difficulties of verification and enforcement of foreign gasoline

These difficulties were deemed insufficient to excuse ‘unjustifiable discrimination There are established techniques for checking, verification, assessment and

enforcement of data relating to imported goodso The US had not previously negotiated with other Members before applying the new regulations

US did not adequately explore means, including cooperation with other Members, to mitigate the administrative problems used to justify the unequal treatment

o Furthermore, the US did not feel it feasible to require its domestic refiners to incur the physical and financial costs and burdens entailed by immediate compliance

With the lower domestic standard, the US wished to give domestic refiners time to restructure their operations and adjust to the requirements in the Gasoline Rule

Nothing in the record to indicate that the US did the same for foreign producers The resulting discrimination must have been foreseen, and was not merely inadvertent or unavoidable,

thereby constituting “unjustifiable discrimination” One puzzle is how this analysis differed from the initial Article III analysis?

o Was the chapeau analysis doomed to fail before it began?o Perhaps the discriminatory intent is what the chapeau is meant to capture?

The fact that the discrimination was foreseeable is what violated the chapeau

US-Shrimp [414] Unjustifiable discrimination was found because:

o ‘coercive effect’ as the measure required governments to adopt essentially the same policy as the US, without taking into account the different conditions in other countries

o Measure prohibits imports if they are from a non-certified country, without taking into account the different conditions in the different countries

o The US negotiated with some but not other countrieso Widely differing phase-in periods

Arbitrary discrimination o Limited flexibility in how officials made the certification determinationo Certification process was not transparent or predictable

In response to the decision, the US modified the sea turtle protection measureso Tried to negotiate with all relevant countrieso Allowed for certification of programs that were comparably effective in protecting turtleso Shrimp caught using TEDS could be imported even if the country had not been certified

Malaysia felt the new measures were still unacceptable and instituted a 21.5 proceedingo AB held that the US was not under a requirement to conclude a treaty, but to simply continue its

good faith negotiationso The additional flexibility eliminated the ‘coercive effect’ and ‘unilateral’ nature

Remedies for Fair and Unfair Trade- Subsidies and Countervailing Measures Although subsidies can be used in ways that cause economic harm to the recipient company’s foreign

competitors and thus cause trade frictiono Can also be used for a wide range of important social and economic policies, often in ways that do

not distort trade much at all A subsidy is a payment by a government to a firm or household that provides or consumes a commodity

o Governments often subsidise food by paying for part of the food expenditures of low-income households

Two major questionso What kind of government actions constitute subsidieso Which of these subsidies had trade-distorting effects that merited some disciplines?

Identification of subsidies that are subject to the SCM agreement The SCM agreement limits the scope of its coverage to government assistance that meets the definition of a

‘subsidy’ and to subsidies that are ‘specific’

Definition of Subsidyo Art 1.1 states that a subsidy shall be deemed to exist if two conditions are met

1)There must either be a financial contribution by a government or any public body or any form of income or price support

2) a benefit must thereby be conferredo Financial contribution

4 categories of Art 1.1(a)(1) (i) Government practice involving a direct transfer of funds or a potential direct transfer of

funds or liabilities (ii) Government revenue that is otherwise due is foregone or not collected (tax credits

(iii) Government provides goods or services other than general infrastructure, or purchases goods

(iv) Government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) which would normally be vested in the government, and the practice, in no real sense, differs from practices normally followed by governments

(i) Direct and Potential direct transfer of funds Whenever money is transferred from the government to a private company, there will be a

financial contributiono Grants, loans, equity infusions

When the government promises to transfer money under certain conditions, this transfer is considered ‘potential’ and also constitutes a financial contribution

(ii) Foregone or Uncollected revenue that is otherwise due Fiscal incentive such as a tax credit

o $500 rebate given on income taxes for every purchase of a domestic car Canada-Autos

o Through the import duty tax emption, Canada has “given up an entitlement to raise revenue that it could otherwise have raised

o Canada has ignored the defined, normative benchmark that it established for itself for import duties on vehicles under its normal MFN rate

o In finding ‘foregone revenue’, panels should seek to compare the fiscal treatment of legitimately comparable income to determine whether the contested measure involves the foregoing of revenue which is otherwise due

Too difficult to identify a ‘general rule of taxation’ for any particular income due to complex domestic tax systems

Reducing the tax bracket from 30% to 20% is not foregone revenue as the 10% reduction is no longer ‘otherwise due’

(iii) Government purchase of goods or provision of goods and services Where a government purchases goods, it will generally do so with a transfer of funds

(iv) Payments to funding mechanism/entrustment or direction of a private body Where a government involves private entities in the provision of one of the above types of

financial contributions Entrustment occurs where a government gives responsibility to a private body Direction refers to situations where the government exercises its authority over a private

body Entrustment/direction of a private body involves some form of threat or inducement

o Wall Street Bailout is an example Mere policy pronouncements insufficient, government needs a more active role

o Cannot be a mere by-product of government regulation Following factors are relevant:

o Extent of government ownership of the banks involvedo Weak financial situation of the recipient of the financing at the timeo Recognised public interest considerations of certain banks in deciding to participate

in the programso Restructuring took place in the framework of a formal government acto Withholding of info in the subsidy investigation

o Income or Price Support also involve any form of income or price support in the sense of Art XVI GATT Art XVI limits the covered support to that ‘which operates directly or indirectly to increase exports

of any product from, or to reduce imports of any product into, a member’s territory Agricultural subsidies

o Used to guarantee farmers’ incomes at a certain level through government paymentso Support pries of products at a certain level through government guarantees to buy the

product if the price should fall below that levelo Benefit

Use the ‘marketplace’ as a comparison Canada-Aircraft

“the trade-distorting potential can be identified by determining whether the recipient has a received a financial contribution on terms more favourable than those available to the recipient in the market

o If government offers a loan at 6% interest, whereas private banks offered a similar loan at 6% interest, a benefit has been conferred

o With grants, it can be assumed that there is a benefit as these are not available in the market

o Tax breaks are not available in the marketo For government purchases of goods, the purchase price or terms of provision would

be compared to what is available in the market

Specificityo Art 1.2 states that subsidies are subject to the rules on prohibited and actionable as, as well as the rules on

countervailing duties, only if they are specific as defined in Art 2o Specificity requirement is to exclude broadly based general welfare programs

Such programs are much less likely to have trade-distorting effects As compared to subsidies conferred to specific private corporations

These programs are also necessary to promote legitimate policy goalso Art 2: the existence of specificity will be based on the following principles

Art 2.1(a): specificity found when the granting authority or relevant legislation explicitly limits access to a subsidy to an enterprise or industry or group of enterprises or industries

Art 2.1(b): specificity will not be found in certain circumstances: Measure establishes objective criteria or conditions governing the eligibility for, and the

amount of, the subsidy The eligibility is automatic and such criteria are strictly adhered to

Art 2.1(c): if, notwithstanding (a) & (b), there are reasons to believe that the subsidy may in fact be specific, other factors may be considered:

Use of a subsidy program by a limited number of certain enterprises Predominant use by certain enterprises Granting of disproportionately large amount of subsidy to certain enterprises Manner in which discretion has been exercised by the authority granting subsidies

o US- Lumber CVDs Final The SCM Agreement does not provide any other rules concerning which enterprises could be

considered to form an industry or whether a group of industries have to produce certain similar products in order to be considered a "group"

common practice is to refer to industries by the type of products they produce "industry" in Article 2 SCM Agreement is not used to refer to enterprises producing specific goods

or end-products a single industry may make a broad range of end products and still remain a "industry"

o a subsidy limited to a single large industry could be found specific, even though the producers make a diversity of products

In the case at hand, only a group of wood product industries, consisting of the pulp and paper mills and the sawmills and re-manufacturers which are producing the subject merchandise used the stumpage programmes.

It does not seem that the US court simply labelled an aggregation of producers as a group of industries merely because they use a particular programme.

the stumpage programme can clearly only benefit certain enterprises in the wood product industries which can harvest and / or process the good provided

Article 2 SCM Agreement does not require a detailed analysis of the end-products produced by the enterprises involved, nor does Article 2.1 (c) SCM Agreement provide that only a limited number of products should benefit from the subsidy.

Specificity determined at the enterprise or industry level, not at the product level. Not determinative that these industries may be producing many different end-products

Canada argues that not only the manufacturers producing the subject merchandise" are using the stumpage programmes, but also manufacturers which are not producing the subject merchandise.

All these manufacturers can reasonably be found to form part of the same industries, which produce both the subject merchandise and other merchandise.

Specificity does not mean that the subsidies should be specific to these producers only, nor 2 that the subsidy be specifically targeted only the subject merchandise of producers who produce both subject merchandise and non-subject merchandise

o Spill-over effect is allowed for specificity to still exist

o Art 2.3 states that any subsidy falling under the provisions of Art 3 shall be deemed to be specific For example, an export subsidy that is available to all companies would not be specific under Art

2.1, but is deemed to be specific because it falls under Art 3o Art 3 outlines prohibited subsidies that are never allowed no matter what

Regulation of specific subsidies under the SCM agreement 3 types of regulations

o Rules on prohibited subsidieso Rules on actionable subsidieso Rules on non-actionable subsidies

Prohibited subsidies Banned in all cases

o Harsher treatment because of their strongly trade-distorting effects No requirement to demonstrate actual adverse effects because their adverse trade-distorting

effects are assumed Distinction between subsidy programs and one-time subsidies

o For programs, the mandatory/discretionary distinction applies As long as the program can be operated in a manner consistent with the SCM, it will be

found consistent Individual subsidies can still be found to violate the SCM

Art 3 sets out two kinds of prohibited subsidieso Export subsidies

Harm foreign competitors in markets around the worldo Domestic content subsidies

Limit foreign companies’ access to a Member’s domestic market Export subsidies

o Art 3.1(a) prohibits subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance, including those illustrated in Annex 1

o The mere fact that a subsidy is granted to enterprises which export shall not for that reason alone be considered to be an export subsidy

o Contingency requires some relationship between export and the subsidy

Contingent means ‘conditional’ or ‘dependent for its existence on something else A relationship of conditionality or dependence must be demonstrated Unsure whether the condition must be necessary or sufficient US-FSC

An exemption was available for 1) products made in the US and sold abroad, and 2) products made and sold abroad

o An export contingency exists because in certain situations defined under the measure, export is necessary in order to get the subsidy

The fact that the subsidy was also available for some products that were not exported was not relevant

How strong is the relationship? Is an incentive enough to support it? YES! Import duty exemption would be granted where certain production to domestic sales

ratio requirements were satisfiedo For example: Subsidy granted where domestic production is at least 95 cars

for every 100 sold domesticallyo Such a measure has the effect of increasing domestic production relative to

import sales and also encourages exports AB concluded that the import duty exemption is tied to the exportation of vehicles

because “the more vehicles that a manufacturer exports, the more vehicles it can import duty-free”

o Loose definition of conditionality; not even necessary v sufficiento US- Cotton Subsidies

The measure in question applied to both exporters and domestic users, and therefore there was arguably no conditionality or incentive

Subsidy was offered to both possible avenues of sales: export and domestic use However, the AB still found that export contingency existed

“the measures do not establish a single class of recipients of the payments The measures clearly distinguish between two types of eligible recipients The measures establish different conditions that eligible exporters and domestic users

must meet to receive paymentso There will be a Art 3.1(a) violation where there is formally different treatment of exports and

domestic products, even if this formal difference is merely for administrative convenience

Application of the Export Contingency Standard for ‘In Fact’ Subsidies Fact-based analysis from the total configuration of the facts constituting and surrounding the granting of the

subsidy, none of which will be likely determinative of the matter Requires 3 elements:

o 1) granting of a subsidyo 2) …is tied to…o 3) actual or anticipated exportation or export earnings

Canada-Aircrafto Sixteen different elements taken into account

statement of overall objectives; types of information called for in funding applications; eligibility criteria to decide whether to grant assistance; factors to be identified by officials in making recommendations about applications for funding; record of funding in the export field, generally, and in the aerospace and defence sector, in particular; the nearness-to-the-export-market of the projects funded; the importance of projected export sales by applicants to funding decisions; and the export orientation of the firms or the industry supported

o the eligibility criteria used by a granting authority, and their application in practice, may provide particularly good evidence of whether the granting of a subsidy is "contingent … in fact … upon export performance

o the fact that some of TPC's contributions, in some industry sectors, are  not contingent upon export performance, does not necessarily mean that the same is true for all of TPC's contributions.

It is enough to show that one or some of TPC's contributions do constitute subsidies "contingent ... in fact … upon export performance

Canada-Aircraft 21.5 Compliance Proceedingo Canada has taken two types of action in order to implement the recommendations

First, Canada has terminated existing TPC activities in the Canadian regional aircraft sector. Second, Canada has restructured the TPC programme so that most of the factual

considerations of the finding of a de facto export contingency no longer apply. According to Canada, the only factual consideration still applicable is the export

orientation of the Canadian regional aircraft industry The task of the Article 21.5 Panel is to determine whether the new measure is consistent with

Article 3.1(a) of the SCM Agreement. the relevant facts bearing upon the "measure taken to comply" may be different from

the relevant facts relating to the measure at issue in the original proceedingso Brazil’s argument is that the Canadian regional aircraft industry is "specifically targeted" for

assistance in two different ways under the revised TPC programme. First, the express identification of "Aerospace and Defence" as "Eligible Areas" puts these

industrial sectors, which include the Canadian regional aircraft industry, in a privileged position and represents "specific targeting"

Second, the Canadian regional aircraft industry is also "specifically targeted", in practice, through the allocation of TPC funding assistance.

65% of TPC funding has, in the past, "gone to the aerospace industry Brazil maintains that the reason for these two types of "targeting" is the high export-

orientation of the industryo The only "prohibited" subsidies are those identified in Article 3 of the SCM Agreement

a "relationship of conditionality or dependence", that the granting of a subsidy should be "tied to" the export performance, lies at the heart of Article 3.1(a)

it is not sufficient to show that a subsidy is granted in the knowledge, or with the anticipation, that exports will result

the "mere fact that a subsidy is granted to enterprises which export shall not  for that reason alone be considered to be an export subsidy

the export-orientation of a recipient may be taken into account as a relevant fact, provided it is not the only fact supporting a finding

o That an industrial sector has a high export-orientation is not, by itself, sufficient to preclude that sector from being expressly identified as an eligible or privileged recipient of subsidies.

Nor does the high export-orientation of an industry limit, in principle, the amount of subsidies that may be granted to that industry

Art 3.1(a) & Annex 1 [439] Art 3.1(a) states that export subsidies include those illustrated in Annex 1 Function is to establish that export subsidies exist in certain defined circumstances The List also offers examples of measures that affirmatively do not constitute export subsidies

o These measures shall not be prohibited under any provision of the Agreement Unclear whether a measure that falls under the scope of one of the defined circumstances but fails to meet

all the terms of the defined circumstances is therefore not an export subsidyo Government procurement via ABC is an export subsidy

If I have procurement via AB, is it automatically not an export subsidy?

Domestic Content Subsidies Art 3.1(b) prohibits subsidies contingent … upon the use of domestic over imported goods Same considerations as export subsidies applies Subsidies that violate this provision could also violate GATT Art III:4 and TRIMS paragraph 1(a)

Actionable Subsidies Subsidies that are not prohibited outright, but rather an action may be brought challenging such subsidies as

having certain negative trade effectso Where the existence of negative effects is shown, the subsidies violate the SCM

Art 5 sets out three types of adverse effectso 1) injury to the domestic industry of another Membero 2) Nullification or impairment of benefits accruing directly or indirectly to other Members under

GATT, in particular the benefits of concessions bound under Article IIo 3) serious prejudice to the interests of another Member

Injury shall be taken to mean material injury to a domestic industry, threat of material injury to a domestic industry or material retardation of the establishment of such an industry

Nullification or impairment is presumed where a violation has been shown under the GATT Serious prejudice is used in the same sense as GATT Article XVI:1, including threat of serious prejudice

o Art 6.3: serious prejudice may arise in any case where one or several of the following apply A) the effect is to displace or impede the imports of a like product of another Member

into the market of the subsidising Member B) “…” of another Member from a third country market C) the effect is a significant price undercutting by the subsidized product as compared with

the price of a like product, or significant price suppression, price depression, or lost sales in the same market

examination of actual price levels for the products at issue Significant means ‘important, notable, consequential’ Same market could be both a national market and the world market

D) an increase in the world market share of the subsidising Member in a particular subsidized primary product or commodity as compared to the average share it had during the previous period of 3 years, and this increases follows a consistent trend over a period when subsidies have been granted

Situations where the subsidy has the effect of increasing the world market shareo The share of the world market supplied by the subsidising Member

o A) and B) addresses situations where the effect of the subsidy displaces or impedes another Member’s sales

Examine market share data of the product at issue, or non-introduction of a product in the relevant market

o US-Cotton Four main, cumulative, grounds why a causal link exists between certain US subsidies

and the significant price suppression 1) US exerts a substantial proportionate influence in the world upland cotton market

o Increased production and supply of cotton will have an effect on prices 2) The nature of the US cotton subsidies

o Subsidies are directly linked to world prices for upland cotton, thereby insulating US producers from low prices

o the price-contingent subsidies involve very large amounts of US government money benefiting US upland cotton production

o The structure, design and operation of these measures constitutes evidence supporting a causal link with the significant price suppression

3) Discernible temporal coincidence of suppressed world market prices and the price-contingent United States subsidies

o Looking at the actual effect of subsidies on market priceo Data reveals that over the same period that the subsidies were granted, the US

market generated large supplies of upland cotton. o Over this same time period, market revenue of US upland cotton producers

decreased. So did world market prices. There was also a marked increase in US exports

4) evidence demonstrates a divergence between US producers' total costs of production and revenue from sales of upland cotton

o US upland cotton producers would not have been economically capable of remaining in the production of upland cotton had it not been for the US subsidies

the effect was to allow US producers to sell upland cotton at a price lower than would otherwise have been necessary to cover their total costs

the existence of this gap was to sustain a higher level of output than would have occurred in the absence of the United States subsidies

Non-actionable subsidies Section is no longer in force Non-actionable means that the subsidies meeting the conditions are not subject to the actionable subsidies

provisions or countervailing duties Subsidies were granted an exemption as they had little trade-distorting effects and pursued desirable policy

goalso Research and Development, Regional Development, Environmental Protection were listed as non-

actionable Although this section is no longer in force, these categories of subsidies can still be pursued if they are

designed to not cause an adverse effect or be classified as a prohibited subsidy

Dispute Settlement and Remedies Apart from the DSU, the SCM agreement contains several ‘special and additional rules’ Prohibited subsidies are governed under Article 4

o Art 4.7 states that the subsidy be withdrawn without delay o Much shorter time-frames, ~90 dayso Art 4.10 allows Members to take appropriate countermeasures where there has been non-compliance

with DSB recommendations Greater leeway to retaliation than the suspensions of concessions or other obligations under

the DSU Actionable subsidies are governed under Article 7

o Shortened time frames as compared to the GATT, but not as short as prohibited subsidies Art 7.9 gives around 6 months

o Art 7.9 authorises ‘countermeasures, commensurate with the degree and nature of the adverse effects determined to exist’

o Art 7.8 states that Members shall take appropriate steps to remove the adverse effects or shall withdraw the subsidy

Australia- Leather 21.5 Compliance Proceedingo Repayment is necessary in order to withdraw the prohibited subsidies found to exist

Not enough that an ex post facto change has been made

Key phrase is “at the time the subsidies were provided” The removal of the sales performance targets today cannot change the fact that, at the

time the subsidies were provided, they were contingent upon anticipated export performance

o However, the remedy is not intended to fully restore the status quo ante by depriving the recipient of the prohibited subsidy of the benefits it may have enjoyed in the past

o Nor is there a requirement to pay back interest on the subsidy granted Article 23 states that agency decisions must be subject to judicial review Footnote 35 states that action against foreign subsidies can be taken under the SCM agreement and

domestic countervailing duty law simultaneouslyo However, actual remedies may be imposed under only one or the other

Special Rules for Certain Countries [450]

Agriculture Agreement Special rules on subsidies for agricultural products The Agreement establishes subsidy commitment schedules for both domestic support and export subsidies

o Members agree not to provide more than the committed amount of subsidieso No commitment = no subsidies are permitted

Both the SCM and Agriculture Agreement apply simultaneouslyo Domestic agricultural subsidies must not have adverse effectso Agricultural export subsidies that violate Art 3.1(a) are prohibited

However, export subsidies within the commitment levels do not violate Art 3.1(a) Agricultural Agreement sets out specific examples of export subsidies under Art 9.1(a)

They go beyond the subsidy definition of SCM Art 1; broader prohibition 9.1(b) refers to ‘sale or disposal for export’ 9.1(c) refers to ‘payments on the export’

o Domestic support could result in a payment under Art 9.1(c) where the producer charges prices that do not recoup the total cost of production, over time

Existence of a subsidy is now contingent on the pricing decision of private companies

Art 10.1 states that export subsidies not listed in Art 9.1 shall not be applied in a manner which results in, or which threatens to lead to, circumvention of export subsidy commitments; nor shall non-commercial transactions be used to circumvent such commitments

GATT Art XVI:1 refers to subsidies that operate ‘directly or indirectly to increase exports of any products from, or

to reduce imports of any product…into a Member’s territory, and it provides for consultations where it is determined that serious prejudice to the interests of any other Member is caused or threatened by any such subsidisation’

Art XVI:3 states that Members ‘should seek to avoid the use of subsidies on the export of primary products and if they are granted, such subsidy shall not be applied in a manner which results in that contracting party having more than an equitable share of world export trade in that product’

TRIMS Agreement Paragraph 1 provides examples of measures that violate GATT Articles III:4 and XI:1

o Measures ‘compliance with which is necessary to obtain an advantage’ and which require certain actions, such as the purchase of domestic goods

o Since subsidies appear to provide an advantage, the use of such subsidies could violate these provisions

Countervailing Measures The SCM sets limits on the ability of Members to impose restraints on subsidies imports through

‘countervailing measures’, in particular tariff dutieso Current rules are provided in Part V of the SCM agreement, read together with GATT Art VI

GATT Art VI:3 states that these duties must not be abused for protectionist purposeso Duties cannot be imposed in excess of the subsidy amount

Subsidised imports are considered to be a form of unfair tradeo Tariff duties are used to ‘countervail/offset’ the subsidyo Countervailing duties are additional duties imposed in addition to the standard tariff rateo Countervailing duties determined based on the amount of subsidy

Countervailing duty proceedings stepso Domestic industry petitions a government agency for an investigation into the subsidisation of

specific imported products from certain countrieso If there is a prima facie case, the agency carries out an investigation

Existence and amount of the subsidy Whether the domestic industry has suffered injury Whether the subsidies imports caused the injury

Key concepts of injury and causation will be discussed in the Anti-Dumping sectiono SCM’s Article 15 analysis is almost identical

SCM Art 14 explains how to calculate the subsidy amount:o Government provision of equity capital shall not be considered unless the investment decision can

be regarded as inconsistent with the usual investment practiceo A loan by a government shall not be considered unless there is a difference between eh amount that

the firm receiving the loan pays on the government loan and the amount the firm would pay on a comparable commercial loan

Benefit shall be the difference between these 2 amountso A loan guarantee…unless there is a difference between the amount that firm receiving the

guarantee pays on a loan guaranteed by the government and the amount that firm would pay on a comparable commercial loan

Benefit is the difference between these two amounts adjusted for any differences in feeso The provision of goods or services or purchase of goods…unless the provision is made for less

than adequate remuneration, or the purchase is made for than adequate remuneration Adequacy of remuneration determined in relation to prevailing market conditions for the

good or service in the country of provision or purchase

Canada-US Lumber dispute [454] US argued that the provincial governments offer ‘stumpage rights’ (right to harvest timber on government

land) at below market price Canada asserts that a tenure or licence carries current and future obligations such as forest management

planning, fire protection, etc. which are independent of any harvest, and the right to harvest Crown timber is thus fundamentally different from the simple ownership right in trees.

o The only way for the government to provide the standing timber that it owns to the harvesters is by allowing the harvesters to come on the land and harvest the trees.

Such legal rights and obligations are transferred through the stumpage agreements. o The price to be paid for the timber, in addition to the volumetric stumpage charge for the trees

harvested, consists of various forest management obligations

These conditions of sale cannot alter the conclusion that the stumpage programmes provide standing timber

the tenure holders accept to pay a volumetric stumpage fee for the trees actually harvested and assume certain management obligations in order to obtain such timber

o the right to harvest standing timber is not severable from the right over the standing timber and providing the right to harvest timber is therefore no different from providing standing timber

The ordinary meaning of "goods" as "tangible or movable personal property other than money" is very broad and includes standing timber, as trees are tangible objects which are capable of being owned.

o a "good" includes "an identified thing to be severed from real property". Standing timber can be severed from real property

Article 31 Vienna Convention requires the determination of the ordinary meaning of the terms of the treaty in their context and in the light of its object and purpose.

o The immediate context of the term "goods" in Article 1.1 (a) (1) (iii) SCM Agreement is "goods or services, other than general infrastructure"

the term "goods" in this context is not qualified in any way and its use in the combination "goods or services" confirms that the term is to be understood broadly.

the drafters of the Agreement considered it necessary to explicitly exclude "general infrastructure".

implies that "goods or services" is sufficiently broad as to include "general infrastructure"; if not, there would have been no reason to explicitly exclude it.

If the drafters had wanted to exclude other items such as natural resources or non-tradeable goods, they would have also explicitly excluded such "goods or services

Article 1.1 (a) (1) (iii) SCM Agreement clarifies that a financial contribution also exists where, instead of a money-transferring action, goods or services are provided

o Article 1.1 (a) (1) (iii) SCM Agreement suggests that the goods or services are capable of being provided by a government; it does not address whether they can be imported or traded.

The fact that the SCM Agreement relates to subsidies in the trade in goods context only, and does not cover services, does not mean that the "goods" provided by the government necessarily have to be goods that can be traded or that are covered by the GATT

When the government provides goods or services, however, such action is clearly covered by the SCMo Standing timber, a physical and tangible object, is the log and lumber producers' prime input, and the

action by the government to supply this input to the producers of logs and lumber, is the provision of a good and therefore covered by the SCM Agreement

Dumping and Anti-Dumping Measures Basic concept behind dumping is that when companies sell products in a foreign market at too low a price,

they may cause economic harm to the domestic producers in that market because they will have trouble competing

Respond via anti-dumping measures, which are normally additional import tariff duties imposed on the dumped products, thus raising the price of the imported products and helping to eliminate the harm to the domestic industry

Anti-dumping: A basic overview National governments enact domestic anti-dumping regulations, and implement them through specialized

agencies Both prospective and retrospective systems are used

o In prospective systems, the dumping margin (the margin by which export sales are less than the comparisons sales) applies to all future sales until a review is requested or the order is terminated

o In retrospective systems, specific import sales are reviewed by investigators after the fact to determine the actual dumping margin for a past time period

The anti-dumping process investigates whether injurious dumping is occurring in relation to specific products from specific countries. There are three basic issues in each investigation:

o 1) Is there dumping?o 2) Is there injury?o 3) Is there a causal link between the dumping and the injury? Apply same analysis to subsidyo The responsible government agencies consider evidence submitted by the domestic industry and the

foreign exporterso If all three elements are found, anti-dumping duties will be imposed

These duties are imposed in the amount of the dumping margin for each product These duties will be reviewed periodically to ensure they still address dumping

All domestic anti-dumping laws must conform to international treaties: GATT/WTO! Article VI GATT deals with both anti-dumping and countervailing duties

o “The contracting parties recognize that dumping, by which products of one country are introduced into the commerce of another country at less than the normal value of the products, is to be condemned if it causes or threatens material injury to an established industry in the territory of a contracting party or materially retards the establishment of a domestic industry”

While injurious dumping is condemned, it is not prohibited Art VI permits Members to take certain actions against dumping, to limit its impact

Art VI:2 states that “In order to offset or prevent dumping, a contracting party may levy on any dumped product an anti-dumping duty not greater in amount than the margin of dumping in respect of such product

Negotiations at the Uruguay Round brought about the Agreement on the Implementation of Article VI of the GATT (Anti-Dumping Agreement)

o The Anti-Dumping Agreement, together with Article VI, contain the substantive rules and procedures on dumping and anti-dumping duties

Anti-Dumping Investigations

Initiation The domestic industry acts as a private enforcer of the law by filing a formal complaint with the relevant

government agencies. Two requirements:o 1) The application must be ‘by or on behalf of the domestic industry’

Under Art 5.4 of the Agreement, “on or behalf of the industry” means that the application is supported by those domestic producers whose collective output constitutes more than 50% of total production of the like product produced by that portion of the domestic industry expressing an opinion on the application

Furthermore, the application must have at least 25% support of the total production of the like product

This is to ensure that the overall impact an anti-dumping proceeding is positive for the industry

o 2) there must be sufficient evidence of dumping, injury, causation This requirement stems from Article 5.2 of the Agreement The following information should be submitted to prove claims

Description of volume and value of the domestic production of the like product by the applicant

Description of allegedly dumped product, countries in question, identify of each know exporter

Information on prices at which the product in question is sold

Information on the evolution of the volume of the allegedly dumped imports, the effects of these imports on prices of the like product in the domestic market, and the consequent impact of the imports on the domestic industry

Art 5.3 states that the “authorities shall examine the accuracy and adequacy of the evidence” Authorities may conduct on-site visits and investigations of the foreign companies

involved, provided they obtain agreement from them Pursuant to Art 6.8, inferences will be gathered on evidence presented by complainant

if the other parties impede on investigations

Is there dumping? [472] Article 2.1 states that “a product is to be considered as being dumped, i.e. introduced into the commerce of

another country at less than its normal value, if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country

Normal Valueo Normal value is “the comparable price, in the ordinary course of trade, for the like product when

destined for consumption in the exporting country” 1) ‘in the ordinary course of trade’ 2) ‘like product’ 3) destined for consumption in the exporting country 4) comparable price

o 1) Ordinary course of trade “sales are in the ordinary course of trade if made under conditions and practices that, for a

reasonable period of time prior to the date of sale of the subject merchandise, have been normal for sales of the foreign like product

Authorities must exclude all sales not in the ordinary course of trade from their investigation Normal value is determined on the basis of the remaining sales so long as there is

sufficient quantity of sales to permit a proper comparison with the export price A common basis for finding that a transaction not in the ordinary course of trade is when the

transaction takes place for less than the cost of production Another reason is if the sale takes place between affiliated parties The determination of whether a particular sales price is higher or lower than the ordinary

course of trade price is not simply a matter of comparing prices Price must be assed in light of the other terms and conditions of the transaction

o Volume of the product involved, i.e. buying in bulk!o Whether the seller undertook additional responsibilities, i.e. insurance

o 2) Like product Art 2.6 defines like products as “a product which is identical, i.e. alike in all respects to the

product under consideration, or in the absence of such a product, another product which, although not alike in all respects, has characteristics closely resembling those of the product under consideration”

o 4) Comparable price: the domestic price in the exporting country is the preferred figure to use as a normal value

Art 2.2 provides methods of calculating a normal value when the domestic price is not appropriate, such as when there are no domestic sales, or the volume of sales at too low a level

comparison of the export price with a comparable price of the like product when exported to an appropriate 3rd country, provided that this price is representative; or

with the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and for profits; constructive price

o the constructed price must be based on actual data pertaining to production and sales in the ordinary course of trade of the like product by the exporter

o If no actual data production possible, use the following factors Actual amounts incurred and realised in respect of production and

sales in the domestic market of the same general category of products Weighted average of the actual amounts incurred and realised by other

exporters/producers subject to investigation in respect of production and sales of the like product in the domestic market of the country of origin

Any other reasonable method, provided that the amount for profit so established shall not exceed the profit normally realises

Export Priceo Export price is the transaction price at which the product is sold by the exporting producer to the

importer in the importing countryo Circumstances where the transaction price is inappropriate

Transactions involves barter or internal transfers between related companies Association or compensatory arrangement between the exporter and the importer or a 3rd

party Art 2.3 provides for the export price to be constructed on the basis of the price at which the

imported products are first resold to an independent buyer

Comparing the Export Price and Normal Value: Calculating the Dumping Margin! Article 2.4:

o This comparison shall be made at the same level of trade, normally at the ex-factory level, and in respect of sales made at as nearly as possible the same time.

o Due allowance shall be made in each case, on its merits, for differences which affect price comparability, including differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other differences which are also demonstrated to affect price comparability.

o Allowances for costs, including duties and taxes, incurred between importation and resale, and for profits accruing, should also be made.

o If in these cases price comparability has been affected, the authorities shall establish the normal value at a level of trade equivalent to the level of trade of the constructed export price, or shall make due allowance as warranted under this paragraph.

Idea is to make sure that the particular prices used provide a useful comparison Article 2.4.2:

o the [dumping margin] shall normally be established on the basis of a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions or by a comparison of normal value and export prices on a transaction-to-transaction basis.

o A normal value established on a weighted average basis may be compared to prices of individual export transactions if

1) the authorities find a pattern of export prices which differ significantly among different purchasers, regions or time periods (targeted dumping); and

2) if an explanation is provided as to why such differences cannot be taken into account appropriately by the use of a weighted average-to-weighted average or transaction-to-transaction comparison

Zeroing [476] Practice of some Members calculate dumping margins on the basis of comparing weighted-average normal

value to individual export prices

o Difference between normal value & export price would be calculated for each export transactiono Positive margins (where export price was lower than normal value) was taken as iso Negative margins were counted as zero (zeroing)o Using this, countries applying anti-dumping duties are sometimes able to find that dumping existed

even when prices were on average the same in both the home and export marketso Check Page 476 for a great graph to explain it all

Zeroing underlies a fundamental disagreement over the nature of dumpingo Does dumping exist only when the average price of exported products is less than the average

normal value priceo Or does dumping exist for each individual dumped export sale below the average normal value

price? The AB has concluded that most, if not all, forms of zeroing are prohibited under Article 2.4.2 EC- Bed Linen

o Art 2.4.2 states that the existence of dumping margins must be established “on the basis of a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions”

o “By zeroing the negative dumping margins, the EC did not take fully into account the entirety of the prices of some export transactions, namely the exports where negative dumping margins were found.

This inflated the result from the calculation of the dumping margin!o “A comparison between export price and normal value that does not take fully into account the

prices of all comparable export transactions, such as the practice of zeroing, is not a fair comparison between export price and normal value.”

US- Softwood Lumber V [478]o “It is clear from Article 2.4.2 that a weighted average normal value is to be compared with a

weighted average of the prices of "comparable" export transactions, and not with prices of "non-comparable" export transactions.

"all" in "all comparable export transactions" means that Members cannot exclude from a comparison any transaction that is "comparable"

o It is not in dispute in this case that the US took into account "all comparable export transactions" Canada asserts that the terms "dumping" and "dumping margins" apply to the product under

investigation as a whole, and that the results of multiple comparisons and sub-categories must be aggregated in their entirety to establish the existence of margins of dumping for the product  as a whole

US argues that dumping margins can be established at the  sub-group level Therefore, US can exclude the sub-groups that show negative margins

o The AB says no!o Article VI:1 defines "dumping" as occurring where "products  of one country are introduced into the

commerce of another country at less than the normal value of the  products" Clear from the texts that dumping is defined in relation to a product as a whole as defined

by the investigating authority. "Dumping" exists only for the product under investigation as a whole, and cannot be found

to exist only for a type, model, or category of that producto it is only on the basis of aggregating  all  these "intermediate values" that an investigating authority

can establish margins of dumping for the product under investigation as a whole The results of the multiple comparisons at the sub-group level are, however, not "margins of

dumping" within the meaning of Article 2.4.2. o That ‘dumping margins’ can only be established for the product as a whole is in consonance with the

need for consistent treatment of a product in an anti-dumping investigation. The investigating authority must treat that product  as a whole for, inter alia, the following

purposes: determination of the volume of dumped imports, injury determination, causal link

between dumped imports and injury to domestic industry, and calculation of the margin of dumping.

o AB then repeats the ratio of EC- Bed Linens to reject the US’ claims

While some exporters have argued that the WTO rulings require the US to change its domestic zeroing methodology, US courts have repeatedly rejected this argument

o Corus Staal BV v Dept of Commerce [482] The Charming Betsy doctrine states that courts should interpret US law, whenever possible,

in a manner consistent with international obligations Corus asserts that by [zeroing], the Dept of Commerce has violated its obligations

under Art 2.4.2 “WTO decisions are not binding on the US, much less this court” “If US statutory provisions are inconsistent with the GATT or an enabling agreement, it is

strictly a matter for Congress

Domestic Dumping Determination (By Canadian Agency dealing with Sorel Footwear) [483] Investigation respecting alleged injurious dumping of certain waterproof footwear and waterproof footwear

bottoms, exported from China and Vietnamo Commissioner was satisfied that the subject goods have been dumped and that the dumping margins

were not insignificant Provisional duties were imposed

Investigation outlines the domestic industry (95% of the industry), the exporters of the dumped goods, the importers of the dumped goods

Investigation defines the subject goods thoroughly and in-depth, including examples of the subject goods and examples of what was excluded, production processes, and HS classification of imports

“Before making a preliminary determination of dumping, the Commissioner must be satisfied that the actual and potential volume of dumped goods is not negligible

o If volume is less than 3%, the volume is considered negligible The Commissioner asked the exporters for more info to rebut the claims against them

o They offered no evidence, therefore a negative inference is drawn Conclusion is based on evidence given by the Complainant

Normal values are based on the domestic selling prices of the goods in the country of export, OR the total cost of the goods (costs of production, administrative, selling and all other costs) plus an amount for profits

o The export price of subject goods shipped to Canada is normally the lesser of the exporter’s ex-factory selling price or the importer’s purchase price

o When the export price is less than the normal value, the difference is the dumping margin Dumping margins were determined in the following manner

o For imports from an exporter who was part of the sampling, the margins were based on the weighted average margin of determined for that exporter

o Exporter not part of the sampling, margins were based on the weighted average margin of dumpling for sampled exporters in the same country of export

o Experts not part of the sampling from a country with no complete submissions, the margin was based on the weighted average margin determined for all cooperative exports in the investigation

o Where the agency was unable to determine margins, the dumping margin was based on the highest margin determined for the investigation

o Where states were deemed to retain a monopoly on its export trade and controlled domestic prices, the domestic market selling prices would not be reliable. Therefore, the normal values would be established on a surrogate country basis

Injury Injury means either:

o 1) material injury to a domestic industryo 2) threat of material injury to a domestic industryo 3) material retardation of the establishment of a domestic industry

Article 3:1 Agreement states a determination of injury must be:o “based on positive evidence and involve an objective examination of both (a) the volume of the

dumped imports and the effect of the dumped imports on prices in the domestic market for like products, and (b) the consequent impact of these imports on domestic producers of such products”

US- Hot Rolled Steel o Positive defined as “evidence of an affirmative, objective and verifiable character, and it must be

credible”o Objective examination is concerned with the investigative process itself

“the way in which the evidence is gathered, inquired into and evaluated “the examination must conform to the principles of good faith and fundamental fairness Investigated in an unbiased manner

Article 3.2 Agreemento directs authorities to consider whether there has been a significant increase in dumped imports,

either in absolute terms or relative to production or consumption in the importing Membero Look at the effect of the dumped imports on prices

considering whether there has been significant price undercutting by the dumped imports as compared with the price of a like product of the importing Member; or

whether the effect of such imports is otherwise to depress domestic prices to a significant degree or prevent domestic price increases to a significant degree

Article 3:4 outlines which factors to look at:o an evaluation of all relevant economic factors and indices having a bearing on the state of the

industry actual and potential decline in sales, profits, output, market share, productivity, return on

investments, or utilization of capacity; factors affecting domestic prices; the magnitude of the margin of dumping; actual and potential negative effects on cash flow, inventories, employment, wages, growth,

ability to raise capital or investments. o This list is not exhaustive, nor can one or several of these factors necessarily give decisive guidance.o This list is a mandatory list of relevant factors which must be evaluated in every case

Article 3.7 of the Agreement provides that a determination of a threat to material injury shall be based on facts and not merely on allegation, conjecture or remote possibility

o The change in circumstances which would create a situation must be clearly foreseen and imminent

o Analyze the following factors: (i) a significant rate of increase of dumped imports into the domestic market indicating the

likelihood of substantially increased importation; (ii) sufficient freely disposable, or an imminent, substantial increase in, capacity of the

exporter indicating the likelihood of substantially increased dumped exports… (iii) whether imports are entering at prices that will have a significant depressing or

suppressing effect on domestic prices, and would likely increase demand for further imports; and

(iv) inventories of the product being investigated.o Totality of the factors (Art 3.7 and 3.4) considered must lead to the conclusion that further dumped

exports are imminent, and that, unless protection action is taken, material injury will occur

Was there an injury in that Canada Sorel waterproof boots case? [498] Complainant claims that the volume of subject goods from China is substantial, that the prices at which

Sorel footwear is being sold are both depressing and suppressing domestic prices and that, as a consequence, the domestic industry has suffered injury

Volume of Subject Goodso Sorel had a huge market shareo Company producing Sorel boots went bankrupt; no sales in 2000o In 2001, Columbia sold Sorel Boots via a Chinese manufacturer

Sales were considerably short of its historical market share 2002 sales were consistent with 2001 sales The sales reflect the pent-up demand for Sorel after no sales in 2000

o Tribunal found that there was no increase in the volume of imports of the subject good, such that it caused injury to the domestic industry

Priceso Columbia reduced retail price in 2001

Evidence showed that the previous prices were way too higho Claimed that this reduction caused the domestic industry to reduce their own prices

Evidence showed that Sorel prices had no correlation to domestic industry People were paying a premium for the Sorel name Furthermore, substantial price differentiation between the highest-priced style and the

lowest-priced style No close relationship between Sorel prices and the domestic brand prices

Impact on the industryo Domestic industry production of like goods rose each year since 2000…o All of the industries KPI’s showed improvements from 2000-2001

Finally, domestic industry argued that have to import finished products to add to their boots, instead of producing them themselves

o Not proof of injuryo Industry’s decision to import finished footwear components is consistent with improving their

business model and becoming more efficient & productive

Causation [same as for subsidies] Article 3.5 states that the dumped imports must, through the effects of dumping, cause injury:

o Demonstrate that the dumped imports are, through the effects of dumping, causing injuryo The demonstration of a causal relationship shall be based on an examination of all relevant evidence

before the authorities. o The authorities shall also examine any known factors other than the dumped imports which at the

same time are injuring the domestic industry, and the injuries caused by these other factors must not be attributed to the dumped imports.

o Factors which may be relevant in this respect include, inter alia, the volume and prices of imports not sold at dumping prices, contraction in demand or changes in the patterns of consumption, trade restrictive practices of and competition between the foreign and domestic producers, developments in technology and the export performance and productivity of the domestic industry.

What is the sufficient degree of causation?o “causal link denotes a relationship of cause and effect such that increased imports contribute to

‘bringing about’, ‘producing’, ‘inducing’ the serious injuryo Although that contribution must be sufficiently clear, it does not suggest that [dumping] is the

sole/exclusive cause of the serious injury Causal link may exist even though other factors are also contributing at the same to the

situation of the domestic industry Non-attribution requirement

o US- Hot Rolled Steel from Japan “The non-attribution language in Art 3.5 applies in situations where dumped imports and

other known factors are causing injury to the domestic industry at the same time “To ensure that the injurious effects of the other known factors are not attributed to dumped

imports, the injurious effects of these factors must be assessed as well “The assessment must involve separating and distinguishing the injurious effects of

the other factors from the injurious effects of the dumped imports

Safeguards Safeguard measures are intended to shelter troubled industries from economic harm caused by unexpected

surges in importso Economic harm includes decreased production and price, increased unemployment

Safeguards provide protection on a temporary basis via the raising of bound tariff levels, tariff quotas or quantitative restrictions

The main difference between safeguards and anti-dumping and anti-subsidy measures is that there is NO allegation of any unfair trade practice in the safeguard context

o Safeguards are more directly concerned with increases in the level of imports, something which occurs naturally as a result of trade liberalisation, rather than with the unacceptably low price of imports or the receipt of subsidies

Safeguard measures regulated under GATT Article XIXo Supplemented by the Uruguay Round with the Agreement on Safeguards

Procedural Requirements Found in Article 3 & 12 of the Agreement

o Under Art 3.1, measures can only be applied following a national investigationo Under Art 12, the WTO Committee on Safeguards must be notified of an investigation and the

decision to apply/extend a safeguard measureo Under Art 12.3, there must be consultations with those Members having a substantial interest as

exporters of the product concerned

Conditions to be satisfied in order to apply safeguard measures National investigators must conduct two inquiries

o A) determine whether the conditions for the application of safeguards can be satisfiedo B) consider the permissible scope of application of the safeguard measure

GATT Article XIX:1 (a) Emergency Action on Imports of Particular Productso If, as a result of unforeseen developments and of the effect of the obligations incurred by a

contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.

Safeguards Agreement Article 2.1o A Member may apply a safeguard measure to a product only if that Member has determined,

pursuant to the provisions set out below, that such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products.

The two instruments must be read in conjunctiono 4 conditions for the imposition of safeguards arise from these two agreements

1) increased imports 2) unforeseen developments 3) serious injury 4) causation

Increased Imports Art 2.1 states that the increase in imports can be absolute or relative to domestic production Argentina- Footwear: the increase in imports must have been recent enough, sudden enough, sharp

enough, and significant enough, both quantitatively and qualitatively, to cause or threaten to cause serious injury

US- Steel Safeguardso Art 4.2(a) states that the “competent authorities shall evaluate…the rate and amount of the increase

in imports of the product concerned in absolute and relative terms…”o The authorities are required to consider the trends in imports over the period of investigation

A determination cannot be made merely by comparing the end points of the period of investigation

A demonstration of ‘any increase’ in imports between any two points in time is not sufficient

o Increased imports requirement would be met when there were no fluctuations, and the investigation revealed a clear and uninterrupted upward trend in import volumes

Unforeseen Developments Increased imports must be a result of unforeseen developments of the obligations incurred by GATT 1951 Hatters’ Fur case

o Dispute arose from the increased imports of fur felt hats from Czech with special, as opposed to plain, finishes

The change in hat styles in itself did not constitute an unforeseen development “However, the US negotiators in 1947 could not reasonably be expected to foresee this style

change would take place on as large of a scale, and last for as long as a period Found that the increase in imports was due to the effect of the substantial tariff reduction

negotiated in 1947 With the intro of the Safeguards Agreement, does Art XIX:1 (a) impose independent obligations?

o Korea-Dairy: “…the first clause describes certain circumstances which must be demonstrated as a matter of fact in order for a safeguard measure to be applied consistently with the Article XIX provisions

The second phrase of Art XIX:1(a) will always be satisfied “This phrase simply means that it must be demonstrated that the Member has incurred

obligations under the GATT”o US- Steel Safeguards: “It is not sufficient merely to demonstrate that “unforeseen developments”

resulted in increased imports of a broad category of products that included the specific products subject to the respective determinations by the competent authority

“The demonstration of ‘unforeseen developments’ must be performed for each product subject to a safeguard measure”

Where macroeconomic events have effects across a number of industries (ex: 2008 US mortgage crisis), the agency must demonstrate the logical connection between the alleged unforeseen developments and the increase in imports in relation to each measure

Serious Injury or Threat Thereof 1) Identify the domestic industry 2) Injury determination

Identifying the relevant domestic industryo Under Art 2.1, the relevant domestic industry is that which is producing ‘like or directly competitive

products’ to those being imported in increased quantitieso Article 4.1(c): a "domestic industry" shall be understood to mean the producers as a whole of the

like or directly competitive products operating within the territory of a Member, or those whose collective output of the like or directly competitive products constitutes a major proportion of the total domestic production of those products.

o US – Lamb US imposed safeguards on imported lamb meat, and argued that the relevant domestic

industry included not only packers and breakers of lamb meat, but also growers and feeders of live lambs

Readily be seen how the growers and feeders of live lambs could be adversely affected by increased imports of lamb meat

The AB considered that there was no basis for the consideration that there was a ‘continuous line of production from the raw to the processed product’

“According to Art 4.1(c), the term “domestic industry” extends solely to the “producers…of the like or directly competitive products”. The definition focuses exclusively on the producers of a very specific group of products

Injury Determinationo Art 4.1 defines serious injury as a “significant overall impairment in the position of a domestic

industry” Threat of serious injury is a “serious injury that is clearly imminent

Based on facts and not merely on allegation, conjecture, remote possibilityo Article 4.2(a) outlines the relevant factors of an objective and quantifiable nature having a bearing

on the situation of that injury: the rate and amount of the increase in imports of the product concerned in absolute and

relative terms, the share of the domestic market taken by increased imports, Changes in the level of sales, production, productivity, capacity utilization, profits and

losses, and employmento Authorities must evaluate each factor listed in Article 4.2(a) as well as all other factors that are

relevant to the situation of the industry concerned

Causation and Non-attribution Article 4.2(b)

o “…investigation [must] demonstrate on the basis of objective evidence, the existence of the causal link between increased imports of the product concerned and serious injury or threat thereof. When factors other than increased imports are causing injury to the domestic industry at the same time, such injury shall not be attributed to increased imports.”

Causation Testo Same as the anti-dumping section! And the subsidy section!o US- Wheat Gluten: Investigating authority must establish whether the causal link exists between

increased imports and serious injury, and whether this causal link involves a genuine and substantial relationship of cause and effect between these two elements”

o Argentina- Footwear: “the relationship between the movement in imports and the movements in injury factors that

must be central to a causation analysis and determination If causation is present, an increase in imports normally should coincide with a decline in the

relevant injury factors

While such a coincidence by itself cannot prove causation, its absence would create serious doubts as to the existence of a causal link, and would require a very compelling analysis of why causation is still present

o Does this mix up correlation and causation? Non-attribution

o “When factors other than increased imports are causing injury to the domestic industry at the same time, such injury shall not be attributed to increased imports.”

o Other possible causes including rising input costs, decrease in capacity utilisation, changes in consumer preferences, technological developments which reduce demand for obsolete products, removal of subsidy payments, inadequate marketing

o Separate and distinguish analysis 1) the injurious effects caused to the domestic industry by increased imports are

distinguished from the injurious effects caused by other factors 2) Determine the amount of injury caused by the ‘increased imports’ alone

o The causation test cannot be meaningfully applied unless the non-attribution requirement has been met

Without knowing what proportion of the overall injury is being caused by other factors, the risk that some of the injury caused by the other factors will be incorrectly attributed to increased imports

To what extent must the increased imports contributes to the serious injury?o Same considerations as the Anti-Dumping Measures sectiono US- Wheat Gluten

“the need to distinguish between the effects caused by increased imports and the effects caused by other factors does not  imply that increased imports  on their own  must be capable of causing serious injury, nor that injury caused by other factors must be  excluded  from the determination of serious injury”

Under Art 4.2(a), “the competent authorities must evaluate all relevant factors having a bearing  on the situation of [the] industry”

“All these factors are to be included  in the determination and that the contribution of each relevant factor is to be counted in the determination of serious injury according to its "bearing" or effect on the situation of the domestic industry.

“[It does not support the ] conclusion that some of the "relevant factors" – those related exclusively to increased imports – should be counted towards an affirmative determination of serious injury, while others – those not related to increased imports – should be excluded from that determination”

o The AB’s approach requires investigating authorities to segregate the factors causing injury for the purpose of the non-attribution test, then to aggregate the factors for the determination of serious injury, and, finally, to segregate the factors again in order to apply the causation test

Standard of Review The standard of review for all WTO agreements, with the exception of the Anti-Dumping Agreement, is set

out in Article 11 of the DSU US- Steel Safeguards

o “the competent authorities must provide a reasoned and adequate explanation of how the facts support their determination

If there is no reasoned explanations, panels would be unable to make an objective assessment of its conformity with the Safeguards Agreement

Same standard applies to GATT Art XIX and the Safeguards Agreement

Application of safeguard measures

The Extent of Safeguard Measures Article 5.1 of the Agreement states:

o “A Member shall apply safeguard measures only to the extent necessary to prevent or remedy serious injury and to facilitate adjustment.

o If a quantitative restriction is used, such a measure shall not reduce the quantity of imports below the level of a recent period which shall be the average of imports in the last three representative years for which statistics are available, unless clear justification is given that a different level is necessary to prevent or remedy serious injury.

o Members should choose measures most suitable for the achievement of these objectives.” Members can apply safeguard measures to address only the contribution towards the serious injury caused

by the increased imports US- Line Pipe

o “the serious injury to which Article 5.1 refers is necessarily the same "serious injury" that has been determined pursuant to Article 4.2

o “The fact that these two provisions refer to the same "serious injury" does not necessarily lead to the conclusion that a safeguard measure may address the "entirety" of the "serious injury", including the part of the "serious injury" that is attributable to factors other than increased imports.

The non-attribution language is a benchmark for ensuring that only an appropriate share of the overall injury is attributed to increased imports

Parallelism The term parallelism does not appear in the agreement! The requirement is that there must be a parallel, or correspondence, between the imports investigated as

causing serious injury and the imports on which safeguard measures are imposed.o The same imports must be considered for both

US-Line Pipeo The concept of parallelism is derived from the parallel language used in the first and second

paragraphs of Article 2 of the Agreement: “A Member may apply a safeguard measure to a product only if that Member has determined

that such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products.

Safeguard measures shall be applied to a product being imported irrespective of its source.o To include imports from all sources in the determination that increased imports are causing serious

injury, and then to exclude imports from one source from the application of the measure, would give the phrase "product being imported" a  different  meaning in Articles 2.1 and 2.2

o “a gap between imports investigated and imports within the scope of the measure can be justified only if the authorities establish explicitly that imports from sources covered by the measure satisfy the conditions for the application of a safeguard measure, as set out in Article 2.1 and 4.2

Establish explicitly in reasonso The AB then assessed the evidence at hand…

“Although [US evidence] contains a determination that imports from non-NAFTA sources increased significantly, it does not establish explicitly that increased imports from non-NAFTA sources alone caused serious injury or threat of serious injury.

The evidence may provide a basis that imports from non-NAFTA sources, alone, caused serious injury, but this is not enough. It does not establish it explicitly

United States has violated Articles 2 and 4 by including Canada and Mexico in the analysis of whether increased imports caused or threatened to cause serious injury, but excluding Canada and Mexico from the application of the safeguard measure

o But does the NAFTA PTA exception override GATT obligations? Check the Panel’s reasoning “Korea asserts that the non-discriminatory application of safeguard measures is required by

Articles I, XIII:1 and XIX. The United States relies on the "limited exception" set forth in Article XXIV Article XXIV:8(b) defines a free-trade area as “a group of two or more customs territories in

which the duties and other restrictive regulations of commerce…are eliminated on substantially all the trade…”

the formation of a free-trade area will necessarily result in more favourable treatment for free-trade area partners

Since the line pipe measure introduces a tariff quota, the measure constitutes a "duty” If a PTA requires that substantially all duties be eliminated, the US was entitled to

rely on an Art XXIV defence against MFN violationso Therefore, it would be incongruous if the US could not rely on the Art XXIV

defence in respect of a violation of the non-discrimination requirement in Article 2.2

Measures in the form of Quantitative Restrictions Article 5 aims to limit the permissible extent of safeguard measures in the form of quantitative restrictions

on the basis that these measures inhibit trade more than tariff and tariff quotas Art 5.1 imposes a cap on the level by which a quantitative restriction can reduce the volume of imports

o “Not less than the average of imports in the last 3 representative years…unless clear justification is given that a different level is necessary to prevent or remedy serious injury”

o This provision does not apply to tariff quotas Art 5.2(a) deals with the situation where a quota is allocated among supplying countries and seeks to ensure

the equitable allocation of shares in the quotao Art 5.2(b) allows for exceptions where one Member’s exports have a disproportionate effect

Excluding Developing Country Members Art 9.1 require WTO members to exclude de minimis (3%) developing country exporters (9% collectively)

from the application of safeguard measures where certain conditions are present o Can either design safeguards measures to exclude developing countries; oro Create an import threshold which will satisfy Art 9.1, i.e. Imports above 9,000 tons of steel were

subject to a tariff, assuming that 9,000 tons represented at least 3% of the total steel imports

Duration of Safeguard Measures Even though safeguard measures respond to temporary emergency situations, Art 7.1 sets the general

maximum period for their application at 4 years Art 7.2 allows for the extension of the period Art 7.4 requires the gradual reduction if the measures last more than a year Art 7.5 prevents the imposition of new safeguard measures on products recently subject to them

Provisional Safeguard Measures Under Art 6, Members can apply provisional safeguard measures in the form of tariff increases where delay

would cause damage which it would be difficult to repairo Further conditions and explanations are in Article 6

Maintaining an equivalent level of concessions Under Article 8.1, Members seeking to apply or extend a safeguard must ‘endeavor to maintain a

substantially equivalent level of concessions existing under GATT 1994 between it and the exporting embers subject to the measure

o Reflects the notion that there is no allegation of an unfair trade practice by exporters

o Art 8.1 refers to Article 12.3, which requires Members to provide adequate opportunity for prior consultation with those Members having a substantial interest as exporters of the product concerned, with a view to achieving the rebalancing objective

Failure to provide adequate opportunity violates Article 8.1 Members concerned may agree on any adequate means of trade compensation for the adverse effects of the

measure on their tradeo Usually entails the Member applying safeguards to lower tariffs on other goods

If no agreement is reached within 30 days, Article 8.2 allows the affected exporting Member to suspend concessions

o Under Art 8.3, if the safeguard is responding to an absolute increase in imports and it conforms with the Safeguards Agreement, the right to suspend cannot be exercised for the first 3 years

SPS and TBT Agreements TBT: Technical Barriers to Trade

o Regulates the use of technical regulations, standards and conformity assessment procedures SPS: Sanitary & Phytosanitary Measures

o Regulates sanitary measures, which relate to human or animal health, and phytosanitary measures, which deal with plant health

o Pursuant to Art 1.5 of the TBT, if something is covered by the SPS Agreement, the SPS takes precedence

o “Basic aim of the SPS Agreement is to maintain the sovereign right of any government to provide the level of health protection it deems appropriate, but to ensure that these sovereign rights are not misused for protectionist purposes and do not result in unnecessary barriers to international trade”

If not based on sound science, implemented for protectionist purposes Another argument is that SPS and TBT target bad policy

Harmonisation principles could maximize global effectiveness of measures in question

GATT rules still apply to measures covered by the SPS and TBT agreements

SPS Agreement Annex A of SPS defines sanitary and phytosanitary measure as any measure applied:

o (a) to protect animal or plant life or health within the territory of the Member from risks arising from the entry, establishment or spread of pests, diseases, disease-carrying organisms or disease-causing organisms;

o (b) … from risks arising from additives, contaminants, toxins or disease-causing organisms in foods, beverages or feedstuffs;

o (c) … from risks arising from diseases carried by animals, plants or products thereof, or from the entry, establishment or spread of pests; or

o (d) to prevent or limit other damage within the territory of the Member from the entry, establishment or spread of pests.

Only measures taken for these purposes are covered by the SPS Agreemento To determine whether a particular measure is an SPS measure, one must determine the purpose

of the measure Art 1.1 specifies that “this Agreement applies to all sanitary and phytosanitary measures which may,

directly or indirectly, affect international trade The principle of non-discrimination is found in Articles 2.3 and 5.5 Rules governing trade restrictions are found in Articles 2.2, 2.3, 5.5, 5.6

o Similar provisions are found in GATT Article XI and XX chapeau

Basic Rights and Obligations: Article 2 Article 2.1: Members have the right to take sanitary and phytosanitary measures necessary for the

protection of human, animal or plant life or health, provided that such measures are not inconsistent with the provisions of this Agreement

Article 2.2: Members shall ensure that any sanitary or phytosanitary measure is applied only to the extent necessary to protect human, animal or plant life or health, is based on scientific principles and is not maintained without sufficient scientific evidence

o General obligation that applies to all SPS measures, regardless of their impact on tradeo Requirement that measures be based on sound science

Requires that there be a rational or objective relationship between the SPS measure and the scientific evidence

Determined on a case-by-case basiso Australia-Salmon: “Where there is a violation of the more specific Article 5.1-2, an Art 2.2

violation can be presumed Article 2.3: Members shall ensure that their SPS measures do not arbitrarily or unjustifiably

discriminate between Members where identical or similar conditions prevail, including between their own territory and that of other Members. SPS shall not be applied in a manner which would constitute a disguised restriction on international trade

o Imports the MFN and National Treatment requiremento Very similar to the Art XX chapeau

Article 2.4: SPM measures which conform to the relevant provisions of this Agreement shall be presumed to be in accordance with the obligations of the Members under the provisions of GATT 1994 which relate to the use of SPM measures, in particular the provisions of Article XX(b).

Harmonisation: Article 3 Article 3 promotes the use of international standards, guidelines and recommendations as the basis for

domestic SPS measures Art 3.1: Members shall base their SPS measures on international standards, guidelines or recommendations,

where they exist, except as otherwise provided for in this Agreement, and in particular in paragraph 3 Art 3.2: SPS measures which conform to international standards shall be deemed to be necessary to protect

human, animal or plant life or health, and presumed to be consistent with the relevant provisions of this Agreement and of GATT 1994

Art 3.3: Members may introduce or maintain SPS measures which result in a higher level of SPS protection than would be achieved by measures based on the relevant international standards if there is a scientific justification, or as a consequence of the level of SPS protection a Member determines to be appropriate in accordance with of Art 5:1-8

International standards as a basic standard for level of protection that is to be followed

Equivalence: Article 4 Mutual recognition of other Members’ law in certain circumstances Art 4.1: Members shall accept the SPS measures of other Members as equivalent, even if these measures

differ from their own or from those used by other Members trading in the same product, if the exporting Member objectively demonstrates to the importing Member that its measures achieve the importing Member's appropriate level of SPS protection…

Article 4 requires Members to recognize other Members’ measures that accomplish the same goals they are trying to promote and to treat them as if they were the same as their own

o Integrates markets by reducing burden caused by different regulatory systems

Assessment of Risk and Determination of the Appropriate Level of SPS Protection: Article 5 Article 5.1-5.3: Risk Assessment

o Article 5.1: Members shall ensure that their SPS measures are based on an assessment, as appropriate to the circumstances, of the risks to human, animal or plant life or health, taking into account risk assessment techniques developed by the relevant international organizations

Paragraph of Annex A defines risk assessment as: The evaluation of the likelihood of entry, establishment or spread of a pest or disease

within the territory of an importing Member according to the sanitary or phytosanitary measures which might be applied, and of the associated potential biological and economic consequences; or the evaluation of the potential for adverse effects on human or animal health arising from the presence of additives, contaminants, toxins or disease-causing organisms in food, beverages or feedstuffs.

Risk assessment requirement is a more specific formulation of the Art 2.2 sound science requirement

Based on: refers to a rational relationship between he measure at issue and the risk assessment

o Article 5.2 and 5.3 list the scientific and the economic factors when conducting the risk assessment Article 5.7: Provisional Measures where Scientific Evidence is Insufficient

o Article 5.7: In cases where relevant scientific evidence is insufficient, a Member may provisionally adopt SPS measures on the basis of available pertinent information, including that from the relevant international organizations as well as from SPS measures applied by other Members.

o In such circumstances, Members shall seek to obtain the additional information necessary for a more objective assessment of risk and review the sanitary or phytosanitary measure accordingly within a reasonable period of time.

This reflects the precautionary principle A lack of reliable information justifies some degree of regulation

o Japan-Apples US claimed that Japan’s measures to prevent the spread of a disease to its own apples were

too restrictive The measure imposed very heavily restrictive conditions for apples to be imported

o Japan argued, that due to the insufficiency of existing scientific evidence, it was permitted to adopt the measures

Article 5.7 sets out four requirements that must all be satisfied: (i) the measure is imposed in respect of a situation where relevant scientific evidence

is insufficient; (ii) the measure is adopted on the basis of available pertinent information; (iii) the Member seeks to obtain the additional information necessary for a more

objective assessment of risk; (iv) the Member reviews the measure accordingly within a reasonable period of time

"Relevant scientific evidence" will be "insufficient" within the meaning of Article 5.7 if the body of available scientific evidence does not allow, in quantitative or qualitative terms, the performance of an adequate assessment of risks as required under Article 5.1

The question is whether the relevant evidence, be it "general" or "specific", is sufficient to permit the evaluation of the likelihood of entry, establishment or spread of fire blight in Japan

The Panel found, according to the evidence provided, that there is a large volume of relevant scientific evidence which would allow the evaluation of the likelihood of entry, establishment or spread of fire blight in Japan through apples exported from the US

Japan maintains that, despite considerable scientific evidence regarding fire blight, there is still uncertainty regarding certain aspects of transmission

o The AB disagreed and stated that Article 5.7 is triggered not by the existence of scientific uncertainty, but rather by the insufficiency of scientific evidence

o EC – Hormones

“The basic submission of the EC is that the precautionary principle is "a general customary rule of international law"

Applying the precautionary principle means, it is not necessary for all scientists around the world to agree on the "possibility and magnitude" of the risk, nor for all or most of the WTO Members to perceive and evaluate the risk in the same way.

Articles 5.1 and 5.2 do not prescribe a particular type of risk assessment and do not prevent Members from being cautious in their risk assessment exercise

AB disagrees with the EC regarding the application of the precautionary principle! First, the principle has not been written into the SPS Agreement as a ground for

justifying SPS measures that are otherwise inconsistent with the obligations Secondly, the precautionary principle indeed finds reflection in Article 5.7 of the SPS

Agreement. o It is reflected also in the 6th paragraph of the preamble and in Article 3.3o These explicitly recognize the right of Members to establish their own

appropriate level of sanitary protection, which level may be higher (i.e., more cautious) than that implied in existing international standards

Thirdly, a panel charged with determining, for instance, whether "sufficient scientific evidence" exists should, bear in mind that governments commonly act from perspectives of precaution where risks of irreversible, damage to human health are concerned.

Lastly, however, the precautionary principle does not, by itself, and without a clear textual directive to that effect, relieve a panel from the duty of applying the normal principles of treaty interpretation in reading the provisions of the SPS Agreement

Therefore, the AB held that the precautionary principle does not override the provisions of Articles 5.1 and 5.2 of the SPS Agreement

Article 5.5: Discrimination or Disguised Restriction on Trade Article 5.5: “…each Member shall avoid arbitrary or unjustifiable distinctions in the levels it considers to

be appropriate in different situations, if such distinctions result in discrimination or a disguised restriction on international trade…”

o Similar but not identical wording to that of the Article XX chapeauo As per EC-Hormones, 3 required elements necessary for a finding of violation of Article 5.5

1) Members imposing the measure must have adopted its own appropriate levels of sanitary protection against risks to human life or health in several different situations

2) those levels of protection must exhibit arbitrary or unjustifiable differences in their treatment of the different situations; and

3) the arbitrary or unjustifiable differences result in discrimination or a disguised restriction of international trade

Australia- Salmono An Australian measure banned imports of salmon unless the salmon has been heat-treatedo Australia had identified 24 disease agents which might be present in Canadian salmon and were

considered to be a threat to the health of The Australian salmon populationo The heat-treatment requirement was designed to eliminate the threat from these diseaseso First element of Article 5.5

“we can compare situations under Article 5.5 if these situations involve either a risk of "entry, establishment or spread" of the same or a similar disease or of the same or similar "associated biological and economic consequences" and this irrespective of whether they arise from the same product or other products

No need however for both the disease and the biological & economic consequences to be the same or similar

An examination under Article 5.5 is not limited to diseases positively detected To the extent that both the products are known to be hosts to one of these disease

agents or give rise to an alleged concern for that disease agent, they can be associated with the same kind of risk, namely a risk of entry, establishment or spread of that disease

For situations to be comparable it is sufficient for these situations to have in common a risk of entry, establishment or spread of one disease of concern

o Second element of Article 5.5 the Panel began by noting that in view of the difference in SPS measures for salmon products

and the four categories of other fish, one might expect some justification for the more stringent SPS measures, such as a higher risk from imported salmon

However, the evidence showed that two categories of other fish products for which more lenient sanitary measures apply, present at least as high a risk as the risk associated with salmon

o This constitutes an arbitrary or unjustifiable distinctiono Third element of Article 5.5

Was there discrimination or a disguised restriction of international trade? The existence of a restriction on international trade was not really contested

o The inquiry is about whether the restriction really had a legitimate purpose, or whether it was just a hidden means of hindering imports

Focused more on the reasonableness and appropriateness of the measure rather than any effect it had on trade

The AB identified 5 warning signs that, considered cumulatively, lead to the conclusion that the SPS measures were a disguised restriction on international trade

1) the arbitrary or unjustifiable character of the differences in levels of protection 2) the rather substantial differences in levels of protection between the product at

issue and the like products 3) the inconsistency of the SPS measure at issue with Art 5.1 and 2.2 of the SPS

agreement 4) the substantial but unexplained change in conclusion between a draft report and the

final report which implemented the SPS measures; the draft measure recommended eliminating the salmon restrictions

5) the absence of controls on the internal movement of salmon products within Australia compared to the prohibition of the importation of ocean-caught Pacific salmon

Article 5.6: No more trade-restrictive than necessary Article 5.6: when establishing or maintaining SPS measures to achieve the appropriate level of SPS

protection, Members shall ensure that such measures are not more trade-restrictive than required to achieve their appropriate level of SPS protection, taking into account technical and economic feasibility

Footnote: a measure is not more trade-restrictive than required unless there is another measure, reasonably available taking into account technical and economic feasibility, that achieves the appropriate level of SPS protection and is significantly less restrictive to trade

o Very similar to the necessity test used in GATT Art XX

Australia- Salmon 21.5 Compliance Proceedingo Australia adopted a new measure under which salmon must either be heat-treated or be ‘consumer-

ready’ Policy goal was to prevent the further processing of uncooked salmon in Australia in order to

prevent the potential spread of disease

o Canada proposed that instead of applying a ‘consumer-ready’ requirement, Australia could simply ensure that imported salmon that undergoes further processing is processed in facilities that do not discharge untreated waste

Canada pointed to New Zealand’s system as a perfect example!o Panel began by assessing the 2nd element, whether another measure achieved the appropriate level of

SPS protection Panel examined whether a regime with no consumer-ready requirement could achieve the

same level of protection Panel could not find any experts or research that could justify the consumer-ready

requirement Panel found that other ‘controlled commercial processing’ measures, like New

Zealand, could achieve the same level of protectiono Panel assessed the 1st element, whether the alternate measure was reasonably available

The fact that New Zealand was already using the alternate regime, it was reasonably available

o Regarding the 3rd element, the Panel found that any other measure would be far less trade-restrictive as they would result in significantly more imported salmon being available for sale

Transparency: Article 7 Article 7: Members shall notify changes in their sanitary or phytosanitary measures and shall provide

information on their sanitary or phytosanitary measures in accordance with the provisions of Annex B.

TBT Agreement Covers three kinds of measures: technical regulations, standards, and procedures taken by governments

related to the assessment of conformity with technical regulations and standards (conformity assessment procedures)

Technical regulation: Document which lays down product characteristics or their related processes and production methods, including the applicable administrative provisions, with which compliance is mandatory.

o It may also include or deal exclusively with terminology, symbols, packaging, marking or labelling requirements as they apply to a product, process or production method.

Basically a product regulation Example is a measure that requires that car emissions not exceed a certain level

Because technical regulations are mandatory, their impact is felt more greatly. Therefore, TBT rules on regulations are more detailed and strict

Standard: Document approved by a recognized body, that provides, for common and repeated use, rules, guidelines or characteristics for products or related processes and production methods, with which compliance is not mandatory.

o It may also include or deal exclusively with terminology, symbols, packaging, marking or labelling requirements as they apply to a product, process or production method.

Conformity assessment procedures: Any procedure used, directly or indirectly, to determine that relevant requirements in technical regulations or standards are fulfilled.

Article 2: Preparation, Adoption and Application of Technical Regulations by Central Government Bodieso Article 2 addresses issues of discrimination and other trade effects, as well as harmonisation around

international standardso Applies only to central government bodies

Article 3 applies to local government bodies and non-governmental bodieso No sound science provision as found in the SPS Agreement

o Article 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.

MFN and National Treatmento Article 2.2: Members shall ensure that technical regulations are not prepared, adopted or applied with a

view to or with the effect of creating unnecessary obstacles to international trade. For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would create.

Such legitimate objectives are, inter alia: national security requirements; the prevention of deceptive practices; protection of human health or safety, animal or plant life or health, or the environment.

In assessing such risks, relevant elements of consideration are, inter alia: available scientific and technical information, related processing technology or intended end-uses of products.

This provision is similar to the ‘necessary’ test in GATT Article XX, and Article 5.6 SPSo Article 2.4: Where technical regulations are required and relevant international standards exist or

their completion is imminent, Members shall use them, or the relevant parts of them, as a basis for their technical regulations except when such international standards or relevant parts would be an ineffective or inappropriate means for the fulfilment of the legitimate objectives pursued

Pursues the goal of harmonisation, as found in the SPS Agreement EC-Sardines states that a Member must follow international standards unless that Member has a

valid justification for not doing so In EC-Sardines, the justification was rejected because the international standard would have

achieved similar results in terms of consumer protectiono Article 2.5: Whenever a technical regulation is prepared, adopted or applied for one of the legitimate

objectives explicitly mentioned in paragraph 2, and is in accordance with relevant international standards, it shall be rebuttably presumed not to create an unnecessary obstacle to international trade

o Article 2.6: With a view to harmonizing technical regulations on as wide a basis as possible, Members shall play a full part, within the limits of their resources, in the preparation by appropriate international standardizing bodies of international standards for products for which they either have adopted, or expect to adopt, technical regulations.

o Article 2.7: Members shall give positive consideration to accepting as equivalent technical regulations of other Members, even if these regulations differ from their own, provided they are satisfied that these regulations adequately fulfil the objectives of their own regulations

Same integration principle as found in the SPS

Articles 5 to 9 provide similar rules for conformity assessment procedures, which are used to determine that relevant requirements in technical regulations or standards are fulfilled

Article 10 requires Members to provide information to the WTO about their Technical Regulations to promote transparency

US-Clove Cigarettes Indonesia challenged a U.S. measure that prohibits cigarettes and component parts containing a flavor, herb

or spice that gives a characterizing flavor to the product, except for menthol and tobacco.o While menthol and “regular” cigarettes are thus exempt from the ban, clove cigarettes are banned

Non-Discrimination Under Article 2.1 of the TBT Agreemento Can rely on reasoning and jurisprudence from Art III:4 of the GATT

“the balance that the preamble of the TBT Agreement strikes between the pursuit of trade liberalization and Members’ right to regulate, is not different from the balance that exists between the national treatment obligation of Article III and the Art XX general exceptions

o Are the two types of cigarettes like?

the health risks associated with a given product are relevant in determining whether products are “like” only to the extent that these concerns affect the traditional criteria such as “physical characteristics” or “consumer preferences” or otherwise “have an impact on the competitive relationship between the products

AB heavily emphasised common end-uses and consumer preferences to find that the two cigarette products are like

Irrelevant that a particular use might represent the principal or most common end-useo What matters are the end-uses that a product is capable of performing

For consumer preferences, “the mere fact that clove cigarettes are smoked disproportionately by youth, while menthol cigarettes are smoked more evenly by young and adult smokers does not necessarily affect the degree of substitutability

“From the perspective of young and potential young smokers, clove cigarettes and menthol cigarettes are similar for purposes of starting to smoke.”

o Treatment no less favorable? Article 2.1 prohibits “both de jure and de facto discrimination against imported products,

permitting detrimental impact on competitiveness for imports that stems exclusively from legitimate regulatory distinctions

a disparate impact on imports is a necessary but not sufficient element of a Art 2.1 violation Analyse the design, architecture, revealing structure, operation, and application of the

challenged measure In the case at hand, the detrimental impact on competitive opportunities for clove

cigarettes reflects discrimination against the group of like products imported from Indonesia

o the products that are prohibited consist primarily of clove cigarettes imported from Indonesia, while the like products that are actually permitted under this measure consist primarily of domestically produced menthol cigarettes

o Legitimate regulatory distinctions? US maintained that the menthol exemption aimed at minimizing:

(i) the burden on the U.S. health care system in caring for millions of addicted menthol cigarette smokers with withdrawal symptoms

(ii) the risk of a black market in menthol cigarettes developing. AB claims that it is not clear that the risks will materialize

speculating that, if menthol cigarettes were banned, menthol cigarette smokers might turn to regular cigarettes

AB made this ruling with no factual basis on the record Article 2:2 – Not more trade restrictive than necessary?

o AB granted wide deference and stated that the US satisfied Article 2.2 of the TBT Interpretive value of WTO Ministerial Decisions?

o paragraph 5.2 of the Doha Ministerial Decision amounts to a “subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions” within the meaning of Article 31(3)(a) of the Vienna Convention

therefore it is “an interpretative clarification to be taken into account” in interpreting TBT Article 2.12.

o although multilateral interpretations pursuant to Article IX:2 of the Marrakesh Agreement are “most akin to” such “subsequent agreements,” decisions other than those adopted under Article IX:2 may also constitute “subsequent agreements

U.S. Country of Origin Labeling (COOL) Canada challenged the legality of various US laws (COOL measures) that require muscle cut meat from

imported and domestic livestock to be sold at retail with one of the four labels TBT Article 2.1

GATT Article III.4 jurisprudence provides “relevant guidance” for interpreting the national treatment commitment in TBT Article 2.1

COOL measure modifies the conditions of competition in the market to the detriment of livestock imported from Canada

the least expensive way of complying with the COOL measure is to avoid segregation by relying exclusively on U.S. livestock

o while the COOL measure does not require segregation by the meat producers, it creates “incentives for private actors systematically to make choices in ways that benefit domestic products to the detriment of like imported products”

This constitutes less favorable treatment in breach of TBT Article 2.1 Next step is determining whether the detrimental impact stems exclusively from a legitimate regulatory

distinction, or whether the COOL measure lacks even-handedness An absence of even-handedness arises when the measure is designed or applied in a manner that

constitutes a means of arbitrary or unjustifiable discrimination.o Sounds like a Art XX Chapeau analysis

A Panel must identify the relevant regulatory distinctions drawn by the measureo In the case at hand, the distinction created by the different labeling do not provide

consumers with information as to the origin of the livestock that is “commensurate” with the type of origin information upstream producers are required to gather

Therefore, no “rational basis” exists for the large amount of information that upstream producers are required to collect in contrast to the small amount of information conveyed to consumers via the labels

The regulatory distinction cannot be explained by the need to provide information to consumers.

o the detrimental impact of the COOL measure on Canadian imports does not arise from legitimate regulatory distinctions

TBT Article 2.2 To establish whether a measure is more trade-restrictive than necessary, a Panel must assess:

1) the degree of contribution of the measure to the legitimate objective; 2) the trade restrictiveness of the measure; 3) the nature of the risks and gravity of the consequences arising from non-fulfillment of the

measure’s objectives. a measure’s objective should instead be determined by considering its “design, architecture, structure,

legislative history, and evidence relating to its operation The list of legitimate objectives of TBT Article 2.2 is not closed

an objective “linked or related to” a legitimate objective listed in TBT Article 2.2 is more likely to be legitimate.

The preamble to the TBT Agreement and to other WTO Agreements may also inform whether an objective is legitimate.

o In the case at hand, providing consumers with information about origin could help prevent deceptive practices— an objective reflected in TBT Article 2.2 and GATT Article XX(d).

Did the COOL measure fulfills the legitimate objective of the US this question relates to the degree the measure contributes to realizing the legitimate objective,

o a measure need not reach any minimum threshold in order to fulfill a legitimate objective determination based on the design, structure, operation, and application of the measure In the case at hand, even labels B and C—the most confusing of the labels—provide some

information as to origin and information in addition to that previously available. o Therefore, the COOL measure does fulfill the legitimate objective

This seems to be a rather low bar; just provide a bit more than what he had before implementing the measure

US-Tuna II Mexico challenged the US’ labeling scheme and associated regulations and rulings Scheme designed to protect dolphins and to provide information to consumers about how tuna was caught “Dolphin-safe” label under this scheme can be applied to tuna only if it is caught using particular methods Is the U.S. Scheme a Technical Regulation? – TBT Annex 1.1

The U.S. measure is mandatory and therefore a “technical regulation” because it forms part of U.S. law and regulations and imposes legally enforceable conditions that must be met to have access to the “dolphin-safe” label.[9]

This blurs the distinction between a voluntary “standard” and a mandatory “technical regulation” o Suggests that any legislative or regulatory act that affects market access and contains

legally mandated and enforceable conditions may constitute a technical regulation Treatment No Less Favorable – TBT Article 2.1

A determination of less favorable treatment focuses on government action 1) Did the measure modifies the competitive conditions in the U.S. market to the detriment of

Mexican tuna products as compared to U.S. or other members’ tuna products 2) the detrimental impact ”reflects discrimination against the Mexican tuna products

Incorrect to assume that regulatory distinctions based on fishing methods rather than national origin are consistent with Article 2.1

In the case at hand, the US had not demonstrated that the measure is “even-handed” and that “the detrimental impact stems exclusively from a legitimate regulatory distinction

Therefore, the labeling scheme provides less favorable treatment to Mexican tuna products contrary to Article 2.1.

o AB essentially concluded that a measured based on non-product-related PPMs as a discriminatory technical regulation

More Trade Restrictive than Necessary? – TBT Article 2.2 weighing and balancing analysis to assess the necessity of the measure.

A Panel must balance factors including: o the trade-restrictiveness of the measure; o its contribution to a legitimate objective; o the risks of not fulfilling that objective

The burden is on the complainant to show that a regulation creates an unnecessary obstacle to trade. The respondent must rebut the complainant’s prima facie case with evidence to the contrary Show that the alternative proposed is not reasonably available, not less trade restrictive, or does

not make an equivalent contribution to the legitimate objective. Relevant International Standard - TBT Article 2.4

TBT Annex 1 states that a standard is approved by a “body” rather than an “organization,” the legal question under the TBT Agreement is whether the proposed alternative scheme is

adopted by an international standardizing body.o such a body must be recognized with respect to its activities in standardization, and its

membership must be “open to the relevant bodies of at least all Members.”

GATS-Trades in Service GATS: General Agreement on Trade in Services Service: Things purchased by consumers that do not have physical characteristics

o “everything you cannot drop on your foot” UN CPC (Central Product Classification): categorises services in specific groups and sub-groups

o The CPC is exhaustive and mutually exclusive

Scope of the GATS

What Services are Covered? Article 1 states that GATS applies to measures affecting trade services

o Affecting has a broad scope of application Virtually all goods have a service component All goods require distribution services

Do all measures affecting the sale of goods, such as tariffs, affect the distribution of those goods, thereby affecting distribution services?

o We probably need a more direct connection Article I:3 states that “services” include any service in any sector except services supplied in the exercise

of governmental authorityo “Supplied in the exercise of governmental authority” means “any service which is supplied neither

on a commercial basis nor in competition with or more service suppliers’

How are Services Traded? GATS Article I:2 sets out four modes of supply

o From the territory of one Member into the territory of any other Member Cross-border supply Situation where the service crosses the border, but neither the consumer nor the suppler does Ex: a lawyer doing cross-border work over the phone

o In the territory of one Member to the service consumer of any other Member’s Consumption abroad Movement of consumers to the territory of the supplier Ex: repair of a ship in a foreign port

o By a service supplier of one Member, through commercial presence in the territory of any other Member

Foreign investment Ex: foreign bank establishes a branch in the territory of another country

o By a service supplier of one Member, through presence of natural persons of a Member in the territory of another Member

Services provided through the movement of citizens of one country to another country Ex: US model walks a runway in Italy

The nationality of the supplier and consumer is of great importance in these analyses Canada-Autos

o Chrysler Canada is a service supplier of the US within the meaning of the GATS because it is controlled by Chrysler Corp, a juridical person of the US

o The fact that, in turn, Chrysler Corp may be controlled by a juridical person of another Member is not relevant under GATS

o In order to define a juridical person, GATS does not require the identification of the ultimate controlling juridical or natural person

Relationship between GATT and GATS EC-Bananas III states that measures could be exclusively in the domain of GATT or GATS, OR the

measure could overlap and fall within the scope of both GATT and GATS

General Obligations and Disciplines

Most Favoured Nation Treatment Article II:1

o “…each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country.”

Article II:2 allows for certain exemptions to existo Ex: US exempts Canadian small businesses, businesses from developing countries

Transparency Article III states that “Each Member shall publish promptly and, except in emergency situations, at the

latest by the time of their entry into force, all relevant measures of general application”o Transparency is particularly important for services due to the extensive regulation in this area

Domestic Regulation: Article VI Article VI:1 – “In sectors where specific commitments are undertaken, each Member shall ensure that all

measures of general application affecting trade in services are administered in a reasonable, objective and impartial manner.”

o Similar to Article X:3(a) of the GATT Article VI:4 has even broader implications!

o “With a view to ensuring that measures relating to qualification requirements and procedures, technical standards and licensing requirements do not constitute unnecessary barriers to trade in services, the Council for Trade in Services shall, through appropriate bodies it may establish, develop any necessary disciplines. Such disciplines shall aim to ensure that such requirements are, inter alia:

(a) based on objective and transparent criteria, such as competence and the ability to supply the service;

(b) not more burdensome than necessary to ensure the quality of the service; (c) in the case of licensing procedures, not in themselves a restriction on the supply of the

serviceo To date, the only services sector where disciplines have been developed by the CTS is accountancy

The standard developed by the CTS does not exist as a general obligations, but only applies where Members have scheduled specific commitments

Article VI:5 deals with services sectors where disciplines have not been developedo (a) “In sectors in which a Member has undertaken specific commitments, pending the entry into

force of disciplines developed in these sectors pursuant to paragraph 4, the Member shall not apply licensing and qualification requirements and technical standards that nullify or impair such specific commitments in a manner which:

(i) does not comply with the criteria outlined in subparagraphs 4(a), (b) or (c); and (ii) could not reasonably have been expected of that Member at the time the specific

commitments in those sectors were made.o (b)In determining whether a Member is in conformity with the obligation under paragraph 5(a),

account shall be taken of international standards of relevant international organizations applied by that Member.

Exceptions Article V (Economic Integration); counterpart to GATT Article XXIV exception for PTAs Article XII (Restriction to Safeguard the Balance of Payments) Article XIV (General Exceptions) Article XIVbis (Security Exceptions)

Article XIV: Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures:

o (a) necessary to protect public morals or to maintain public order; o (b) necessary to protect human, animal or plant life or health;o (c) necessary to secure compliance with laws or regulations which are not inconsistent with the

provisions of this Agreement including those relating to: (i) the prevention of deceptive and fraudulent practices or to deal with the effects of a default

on services contracts; (ii) the protection of the privacy of individuals in relation to the processing and dissemination

of personal data and the protection of confidentiality of individual records and accounts; (iii) safety

This sounds almost exactly like GATT Article XX, chapeau and all US – Gambling Services

o US laws regulating internet gambling were alleged to violate several GATS provisiono US invoked Art XIV (a) & (c), arguing that restrictions on remote gambling were justified as

necessary to protect public morals, maintain public order, and also to secure compliance with other WTO-consistent laws

o AB begins by stating that Art XIV analysis follows the same two-tier analysis of GATT Art XXo Does it fall into the category?

Is it designed to protect the interests in the category? Is it necessary?

o Part 1 complete! Begin the chapeau analysis!o Tthe term 'public morals' denotes standards of right and wrong conduct maintained by or on behalf

of a community or nation.o 'Public order' refers to the preservation of the fundamental interests of a society, as reflected in

public policy and law o The Congressional reports and testimony established that the US government considers that the

measures in question were adopted to address concerns such as those pertaining to money laundering, organized crime, fraud, underage gambling and pathological gambling.

The three federal statutes are measures that are designed to 'protect public morals' and/or 'to maintain public order' within the meaning of Article XIV(a)

o Are the measures necessary? whether a measure is "necessary" should be determined through a process of weighing

and balancing a series of factors Begin by assessing the ‘relative importance’ of the interests or values furthered by

the challenged measures Then turn to the other factors that are to be "weighed and balanced".

o Two relevant but not necessarily exhaustive factors to be considered the contribution of the measure to the realization of the ends pursued

by it the restrictive impact of the measure on international commerce

A comparison between the challenged measure and possible alternatives should then be undertaken, and the results of such comparison should be considered in the light of the importance of the interests at issue

An alternative measure is not reasonably available if it is merely theoretical in nature, Where the responding Member is not capable of taking it Where the measure imposes an undue burden on such as prohibitive costs or

substantial technical difficulties.

A reasonably available alternative measure must achieve the Member’s desired level of protection with respect to the objective pursued Article XIV

The responding party must make a prima facie case that its measure is "necessary" by putting forward evidence and arguments

The responding party may point out why alternative measures would not achieve the same objectives as the challenged measure,

o If, however, the complaining party raises a WTO-consistent alternative measure, the responding party must demonstrate why its challenged measure nevertheless remains "necessary" in the light of that alternative

When a country is determining which measure to use, there is NO obligation to negotiate or consult with a Member whose interests are at stake

o The AB finds that the measures were necessary! the three federal statutes protect "very important societal interests

strict controls are needed to protect [such] interests the three federal statutes contribute to the realization of the ends that they pursue.

Although the statutes have a significant restrictive trade impact, this concern is tempered by the characteristics/concerns of internet gambling and betting services, which include:

(i) the volume, speed and international reach of remote gambling transactions (ii) the virtual anonymity of such transactions (iii) low barriers to entry in the context of the remote supply of gambling and betting

services (iv) isolated and anonymous environment in which such gambling takes place

No other alternative was raised by the Complainant!

TRIMS: Trade-Related Investment Measures Ground-breaking case that paved the way for TRIMS was Canada-FIRA

o “US complaint regarding certain types of undertakings which were required from foreign investors by the Canadian authorities as conditions for the approval of investment projects.

local content requirements & export performance requirementso The Panel concluded that the local content requirements were inconsistent with the national

treatment obligation of GATT Article III:4 o The export performance requirements were not inconsistent with GATT obligations. o GATT obligations were applicable to performance requirements imposed by governments in an

investment context in so far as such requirements involve trade-distorting measures

TRIMS Agreement Agreement merely interprets and clarifies GATT provisions on national treatment for imported goods

(Article III) and on quantitative restrictions on imports/exports (Article XI) as they relate to investment measures

Objective of the Agreement is the “expansion and progressive liberalisation of world trade and to facilitate investment across international frontiers so as to increase the economic growth of all trading partners, particularly developing country Members, while ensuring free competition.”

Principles of National Treatment, prohibition on quantitative restrictions, and transparency found in TRIMS Article 2:1 prohibits Members from applying any TRMS inconsistently with Articles III and XI of the

GATT, and an Illustrative List provides examples of inconsistent investment measures:o 1: TRIMs that are inconsistent with [Article III:4] include those which are mandatory or

enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which require:

(a) the purchase or use by an enterprise of products of domestic origin or from any domestic source…

(b) that an enterprise's purchases or use of imported products be limited to an amount related to the volume or value of local products that it exports.

o 2. TRIMs that are inconsistent with [Article XI:1 (quantitative restrictions)] include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which restrict:

(a) the importation by an enterprise of products used in or related to its local production, generally or to an amount related to the volume or value of local production that it exports;

(b) the importation by an enterprise of products used in or related to its local production by restricting its access to foreign exchange to an amount related to the foreign exchange inflows attributable to the enterprise; or

(c) the exportation or sale for export by an enterprise of products, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production.

Paragraph 1 of the Illustrative List deals with the purchase or use of products by an enterpriseo 1(a) covers local content TRIMSo 1(b) covers trade-balancing TRIMSo These are inconsistent with the GATT because the measure subjects the purchase or use by an

enterprise of imported products to less favourable conditions than the purchase or use of domestic products

Paragraph 2 deals with the importation or exportation of products by an enterpriseo 2(a) covers measures which limit the importation by an enterprise of products used in its local

production 1(b) and 2(a) both cover trade-balancing measures 1(b) deals with internal measures, while 2(a) deals with border measures

o 2(b) covers restrictions of imports in the form of a foreign exchange balancing requiremento 2(c) covers measures involving restrictions on the exportation of or sale for export by an enterpriseo Since Paragraph 2 applies Article XI:1 of the GATT, it deals only with measures that restrict exports

Other measures relating to exports, such as export incentives and export performance requirements, are not covered by TRIMS

Article 3 provides that all exceptions under GATT apply Article 4 provides for special and differential treatment to developing countries which allows them to

deviate temporarily from TRIM obligations, as provided for in Art XVIII GATT and related safeguard provisions

Article 5 and 7 outlines the transparency obligations¸ whereas Article 8 creates the TRIMS Committee

Dispute Settlement Indonesia- Autos [638]

o US claims that the 1993 car programme, by providing for local content requirements linked to tax benefits for finished cars incorporating a certain percentage value of domestic products, and to customs duty benefits for imported parts and components used in cars incorporating a certain percentage value of domestic products, violates the provisions of Article 2 of the TRIMs Agreement, and Article III:4 of the GATT

o First examine the claims under TRIMs since it is more specific than Article III:4 o Article 2.1 requires two elements to be shown to establish a violation

1) Existence of a TRIM; 2) That TRIM is inconsistent with Article III or Article XI of GATT (does it satisfy Art 2:1

and the Illustrative List)o Are the Indonesian measures “investment measures?

“the use of the broad term "investment measures" indicates that the TRIMs Agreement is not limited to measures taken specifically in regard to foreign investment.

Nothing in the TRIMs Agreement suggests that the nationality of the ownership of enterprises subject to a particular measure is an element in deciding whether that measure is covered by the Agreement.

o Local content requirements will have a trade-distorting impact regardless of whether they are imposed on foreign or domestic investors

The TRIMs Agreement is not concerned with subsidies and internal taxes as such but rather with local content requirements, compliance with which may be encouraged through providing any type of advantage

Factual analysis provided from page 640-642 Panel finds that “these measures…have investment objectives and investment features … are

aimed at encouraging the development of a local manufacturing capability for finished motor vehicles and parts and components in Indonesia

These measures necessarily have a significant impact on investment in these sectors. o For this reason, these measures fall within any reasonable interpretation of the

term “investment measures”. Nothing in TRIMS to suggest that a measure is not an investment measure simply on the

grounds that a Member does not characterize the measure as sucho Are the measures trade-related?

“if these measures are local content requirements, they would necessarily be “trade-related” because such requirements, by definition, always favour the use of domestic products over imported products, and therefore affect trade”

o Are the measures found in the Illustrative list of the TRIMS? 1(a): TRIMs that are inconsistent with [Article III:4] include those which compliance with

which is necessary to obtain an advantage, and which require: (a) the purchase or use by an enterprise of products of domestic origin or from any domestic source…

All the various regulations implementing the Indonesian car programmes provide for tax advantages on finished motor vehicles and customs duty advantages on imports of parts and components to be used in finished motor vehicles using a certain percentage value of local content

o Are the tax and custom duties ‘advantages’ in the meaning of the Paragraph 1? Tax benefits are obviously an advantage! More $$$

o The wording of the Illustrative List makes it clear that a simple advantage conditional on the use of domestic goods is considered to be a violation of Article 2 of the TRIMs Agreement even if the local content requirement is not binding

International Investment Regulation outside the WTO Context

Bilateral Investment Treaties (BITs) and Investment Provisions of Free Trade Agreements BITs are agreements between two countries for the reciprocal encouragement, promotion and protection of

investments in each other’s territories by companies based in either country Treaties typically cover the following areas: scope and definition of investment, admission and

establishment, national treatment, MFN treatment, fair and equitable treatment, compensation in the event of expropriation or damage to the investment, guarantees of free transfer of funds, and dispute settlement mechanisms, both state-state and investor-state

By 2003, 2265 BITs involving 176 nations had been concluded Page 646 gives a historical recount of BTI evolution BTIs are called FIPAs (Foreign Investment Protection and Promotion Agreements) in Canada NAFTA was the first regional treaty that contained far-reaching investment provisions, including an

investor-state dispute settlement procedure The Energy Charter is a prime example of inter-regional integration

o It sets out investment protection and liberalization requirements to be implemented by countries of different geographic regions from the OECD

Canada-Chile Agreemento Requires that expropriation be for a public purpose and non-discriminatory, in accordance with due

process of law and international law, and contingent on compensation equivalent to the fair market value of the expropriated investment immediately before the expropriation took place payable without delay and fully realizable

o In light of the numerous NAFTA investor-state disputes against Canada, which allege that governmental environment measures have resulted in something tantamount to expropriation, the agreement clarifies that nothing in the agreement is to prevent a party from adopting measures it considers appropriate to ensure that investment activity is undertaken in a manner sensitive to environmental concerns

Metalclad Corporation v Mexico [651] Metalclad purchased a Mexican company in order to build and operate a hazardous-waste transfer station

and landfill Although the fed and state government granted a permit, the municipal government denied a municipal

construction permit and the state governor subsequently declared an area encompassing the landfill to be an ecological reserve

A NAFTA tribunal found that the lack of transparency in Mexico’s regulatory requirements constituted a denial of fair and equitable treatment in violation of NAFTA

o Transparency obligation: all relevant legal requirement for the purposed of investments should be capable of being readily known to all affected investors

Absence of a clear rule as to the requirement or not of a municipal construction permit, as well as the absence of any established practice violated the transparency requirement

Mexico’s action to prevent Metalclad from operating the landfill constituted an expropriationo Expropriation under NAFTA includes not only open, deliberate and acknowledged taking of

property, such as outright seizure or formal or obligatory transfer of title, also covert or incidental interference with the use of property which as the effect of depriving

the owner, in whole or in significant part, of the use or reasonably-to-be expected economic benefit of property even if not necessarily to the obvious benefit of the host state

By permitting the municipality’s unfair and inequitable treatment, Mexico had taken a measure tantamount to expropriation

The representations of the fed and state government, which Metalclad relied on, and the absence of a timely, orderly, or substantive basis for the municipality to deny the construct permit also was indirect expropriation

o Metalclad had completely lost its investment On Mexico's application to set aside the award, the BCSC held that the Tribunal’s findings concerning fair

and equitable treatment and also concerning expropriation based on Mexico’s conduct prior to the creation of the ecological reserve were beyond the scope of the arbitration

o Found that there was no transparency obligation NAFTA only prohibits unfair or inequitable treatment which violates international law

This finding is very controversial as many arbitrators have based international responsibility on a lack of transparency…these decisions were simply not cited in the arbitrator’s final decision

However, the award could be sustained on the ground that the ecological decree itself was an expropriationo The decree had the effect of barring forever the operation of Metalclad’s landfill

This case highlights the difficulty of NAFTA-BTI disputeso There is no appellate body

Judicial review from NAFTA cannot correct errors of law made by tribunals

Multiateral Agreement on Investment With the increase in the number of BITs, there are many different levels of protection, standards, and

enforcement optionso Creates a level of uncertainty and confusion among investors as well as governmentso This is why we need a Multilateral Agreement on Investment (MAI)

After the failure to achieve investment liberalization in the WTO, the OECD Members attempted to negotiate a MAI. The objectives of MAI were to:

o To create a strong and comprehensive multilateral legal framework for foreign direct investment (FDI) among participating countries

o To reduce barriers to FDI and increase legal security for international investorso To level the playing field by providing for national treatmento To provide effective dispute settlemento T create a free-standing treaty open to all OECD countries and the E

Surprisingly, the attempt was unsuccessful and even similar wealthy countries could not come to an agreement because the states could not agree as to:

o The scope of the treaty: whether to give a broad definition of investments to include every kind of asset including real estate, intellectual property, portfolio investments, etc. Moreover, they could not agree whether to include present and future investments.

o Investment protection: these included fair and equitable treatment, protection and security and rules against expropriation. There was debate over the domestic environmental regulation.

o Performance requirements and investment incentives: some wanted the requirements to push forward regional, social, environmental, and developmental goals

o Exceptions and reservations: Canada for instance wanted the cultural exceptions and every country had something like this

o Dispute settlemento Sub-national authorities: Canada argued that they could not implement this without provincial

consent and there were also problems with who would be responsible for breacheso Regional Economic Integration Organizations: The EU still wanted to give better privileges to its

memberso Labour and Environmental Issues

Altogether the MAI failure illustrates that even the OECD countries are still more comfortable with regional and bilateral agreements and less comfortable with a large multilateral set of commitments. This might be because there are so many BITs the economic benefits are marginal and the political cost is high. Moreover the WTO might be more conducive to such an agreement. It also shows that something like a MAI will take a lot of time and careful negotiation

Investment was considered for at the Doha Round but was eventually dropped

De Gossis Reading General description of most prominent features in Argentinean BITs

Investor Nationality Qualification as a foreign investor for physical person occur where the individual claiming foreign investor

status is a national of the relevant counterparty to the BIT invoked and is not the same time a nation or resident of the host state

No analogous provisions dealing with Argentine investors residing in the territory of the other contracting state

Legal entities qualify for foreign investor status if they are created and/or domiciled in the territory of the relevant counterparty to the BIT

o Some BITs, where an entity created and domiciled in the host state is controlled by a qualifying foreign investor

Issue of control over an entityo Require that there be actually, effective or plausible control over it

Fact that an otherwise qualifying foreign investor is ultimately owned or controlled by a national of any state other than BIT counterparty would arguably prevent the controlled entitled from acquiring treaty protection

Definition of Investment Definition usually requires that the investment is made by a protected investor and that it be made in

accordance with the laws of the host state Certain conditions to be met by certain types of assets in order to be an investment for BIT purposes

o Property or security rights over movable or immoveable assetso Equity rights in legal entitieso Credit rightso IP rightso Licenses, permits, and other concession-related rights

MFN and National Treatment Obligation on the host state to provide treatment not less favorable than that granted to either nationals of

third sates, or nationals of the host state itself Protection granted to investments, investors Level of extended protection sometime provide a specific standard

o Fair and equitable treatmento Extent of compensation for expropriation or losses due to acts of riot

MFN shall not apply to privileges granted under FTA related to taxation, etc

Fair and Equitable Treatment and Full Protection and Security All BITs contain a provision regarding fair and equitable treatment standard

o Protection awarded under this standard is sometimes tied to requirement of host state to provide legal or full protection and security

To abstain from taking discriminatory or arbitrary measures with respect to protected investment

Specific examples of description given

Free Transfer of Capital Host state shall permit free transfers with respect to the investments made by qualifying investors from the

other contracting Stateo Scope extended to nationals of a contracting state who have not invested in the other contracting

state but who have received authorization to do so Some BITs explain the calculation of the exchange rate Transfers should be permitted to be consummated within a reasonable period or without undue delays Some of these obligations are tempered by measures required to safeguard the balance of payment, or from

the requirements related to the protection of the rights of creditors

Expropriation Regulate the procedures applicable for the situation, which in the context of international investment law,

receives the denomination of direct expropriationo Willful taking of property by the state

Direct expropriation requires a legal decision to do, and the payment of appropriate compensation

This is rare now

Indirect expropriationo Adoption of measures which bear an effect equivalent or similar to that of an expropriation

Breach of protection is not per se the existence of expropriation, but rather the occurrence of expropriation which is not adopted in the public interest, discriminatory, or which does not entail the payment of appropriate compensation

Some BITs require that expropriation decisions be subject to judicial review Compensation usually the equivalent to fair market value of the investment

o Others provide that it must be equal to real value

Performance Requirements BIT with US include an obligation by the host State not impose performance requirements on investors from

the other contracting State as a condition to the establishment, expansion or continued operation of their investments

Contracts and Obligations Observance BITs can contain references to contractual obligations or commitments by the host state vis à vis the

investor as a proxy to determine the standard of protection due to the investoro Such contractual arrangements shall prevail over the level of protection afforded under the treaty if it

is higher, i.e. provides MFN protection

Dispute Resolution Dispute settlement provisions provide for a tiered process which starts with a period of consultations and

negotiationso .If the dispute is not resolved, the investor may bring an action in the judicial courts of the host state

or in arbitration (UNCITRAL or ICSID rules) Some BITs provide a default set of rules or an exclusive set of rules

Foreign Investment Review in Canada- Slides Investment Canada Act

o Acquisition of control of a Canadian business by a non-Canadiano Pre-closing approval required from Industry Minister where book value assets > $330 Million

Test for approval = Net benefit to Canada Net Benefit Factors

o Economic considerations Impact on employment Capital expenditures, R&D, production Head office location Participation of Canadians in senior management Canadian exports, productivity, innovation, efficiency, technological developments Compatibility of the investment with national industrial, economic and cultural polices

BIG BLACK BOXo Net benefit test is broad and vague; Industry Minister has broad discretion

Review process is 45 days, extendable to 75 days National Security review

o Introduced in 2009o Review of investments that may be injurious to Canada’s national securityo All investments reviewable by the Federal Cabinet

SOE Guidelineso Introduced in 2007o Only apply to transactions that meet the thresholdo Two new criteria for net benefit

Commercial Orientation

SOE’s plans for Canadian target Where to export Where to process? Value-added in Canada? Participation of Canadians in senior management Innovation/ R&D Capital Expenditures

Corporate Governance Does SOE adhere to Canadian standards of corporate governance? Is SOE listed on a stock exchange Extent to state control

o Possible undertakings by SOE for approval Commitments to appoint Canadians as independent directors Employment of Canadians in senior management incorporation of the target business in Canada Listing of shares of the acquiring company or the target Canadian business on a Canadian

stock exchange Chinese SOE Investments in Canada

o There have been many acquisitions and majority investments by China in Canadian businesseso No formal prohibitions of Chinese or other SOE acquisitions up to 2011o National Security has not been invoked for SOEs

3 rejections under Investment Canada Acto Acquisition of Canadarmo Acquisition of Saskatchewan Potash

Several factors converged here Minority federal government facing election Hostile transaction SK Premier spearheaded grassroots movement to protest potential loss of provincial

revenue and control over strategic resource Distrust of foreign investors not complying with commitments (NAFTA fears)

ICA process became a hell of a lot more political CNOOC/Nexen

o $15 Billion transactiono Proactive government and public relations strategyo CNOOC willing to establish head office in Calgary

Retain Nexen’s current management team Enhance capital expenditures List CNOOC on the TSX Enhance community and social commitments

o Concerns regarding reciprocity? If we let China invest in Canada, will China let Canada invest there?