RELEVANCE OF APPELLATE BODYS INTERPRETATION OF ARTICLE XX OF GATT IN LIGHT OF PROTECTIONIST

APPROACH FOR NON-TRADE CONCERNS BY DEVELOPING COUNTRIES

WORLD TRADE LAW PROJECT

Submitted by: NIVEDITA SEN ID 208028 4th Year, 8th Semester W. B. National University of Juridical Sciences, Kolkata

Index

Introduction The term developing country has not been defined under the World Trade Organization (WTO) Agreement, however there exists a World Bank classification system, which is loosely imported by the WTO to understand the concept of developing countries.1 Developing countries played a very limited role in the foundational stages of General Agreement on Tariffs and Trade (GATT). However, their role under the aegis of the WTO, which was established in 1994, has increased manifold. Majority of the WTO countries today are developing countries. Often the WTO becomes a political battleground of developing and developed countries where each side pushes for policies that will further their national interests. Article XX of GATT is the provision encompassing general exception that permits Member States to deviate from the obligations provided. It encompasses both trade and non-trade provisions. Non-trade provisions are conditions that help States to promote or protect important non-trade societal values even though they are inconsistent with GATT.2 Such values include public health, consumer safety, environment, national security, labour and economic development. Since different nations have different standards of compliance with respect to these values, often countries conflict over this provision. Therefore, the WTO Panel and Appellate Body had to interpret these provisions in light of conflicting interests of States. Protectionist Approach for Non-Trade Concerns by Developing Countries In general, developed countries have placed greater political priority on environmental, labour and sustainable development concerns in trade negotiations as compared to developing countries.3 Developing countries strategies have generally been defensive in this regard. They attempt to resist changes in trade measures to conform to these

MITSUO MATSUSHITA, THOMAS J. SCHOENBAUM & PETER C. MAVROIDIS, THE WORLD TRADE ORGANIZATION: LAW, PRACTICE AND POLICY 763(London, 2nd Ed., 2006). 2 PETER VAN DEN BOSSCHE, THE LAW AND POLICY OF WORLD TRADE ORGANIZATION- TEXT, CASES AND MATERIALS, 616 (New York, Cambridge University Press, 2nd Ed., 2008). 3 For a detailed analysis on this, see BERNARD HOEKMAN, AADTIYA MATTOO & PHILIP ENGLISH, DEVELOPMENT, TRADE AND THE WTO- A HANDBOOK 475 (New Delhi, Atlantic Publishers for the World Bank, Indian Ed., 2005).

concerns.4 The reasoning is that developed countries have higher environmental and labour standards that cannot be enforced in developing nations. Therefore, it is perceived that developed countries may use this as a disguised form of protectionism to unilaterally withdraw from trade obligations.5 Such protectionism, however, is difficult to infer since it pertains to non-trade concerns. It occurs if a State on the outset is attempting to balance the playing field by enforcing similar regulatory and legislative requirement to all suppliers of a particular product. However, the reality is that the sanctioning State (generally the developed State) is, in effect, depriving the target State (generally the developing State), of a regulatory comparative advantage.6 Therefore, the normal cost of production in the developing State, over and above the cost of labour, material and so on, also includes the cost of complying with the applicable regulation.7 This cost will not have to be borne by the sanctioning State due to inherently favourable conditions prevailing in that State. Therefore, if a sanctioning State is rigid in its approach while enforcing the regulatory scheme on its non-domestic trading partners, especially if the State fails to take into consideration specific conditions that prevail in the exporting countries, a presumption of protectionism may automatically arise. Appellate Body Interpretation of Article XX Article XX (b) of GATT,8 was interpreted by the Appellate Body in the EC-Asbestos case.9 Although, this case did not have any developing country as a party, its
4 5

Id. See Alan O. Sykes, Regulatory Protectionism and the Law of International Trade, 66 University of Chicago Law Review 1 (1999); Mansoor Farkhanda Zia, Trade versus Peace: A Contextual Analysis of Core Labour Standards in the Global Trading Community, 5 Asper Review of International Business & Trade Law, 133 (2005), pg 139.
6

Ari Afilalo & Shiela Foster, The World Trade Organization's Anti-Discrimination Jurisprudence: Free Trade, National Sovereignty, and Environmental Health in the Balance, 15 Georgia International Environment Law Review 633 (2002-2003). 7 Id. 8 GATT, Art .XX 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, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures.. (b) necessary to protect human, animal or plant life or health. 9 Appellate Body Report, European Community- Measures Affecting asbestos and asbestos Containing Products, WT/DS135/AB/R (Apr. 5, 2001).

interpretation is of interest to them. It states that to prove that a measure is enacted to protect health and environment, it must be necessary. However, necessary must be interpreted in a flexible and not restrictive manner, as a measure that is reasonably available.10 The Appellate Body of the WTO has extensively interpreted Article XX (g) relating to exhaustible natural resources.11 The term natural resources has been interpreted to include rare or endangered resources like gasoline and sea turtles. Although the term relating to in this provision does not have similar implication as necessary in Article XX (b), but previous Panel decision had interpreted it as primarily aimed at conservation.12 However, in the case of US- Reformulated Gasoline,13 the Appellate Body stated that such interpretation was an unwarranted amendment of Article XX. 14 The term in conjunction with in this provision was also interpreted in this case as together with or jointly with.15 This requires an even-handedness approach, however, not identical treatment as long as restrictions on either domestic production or consumption is available.16 The US-Shrimp Turtle case,17 is the most significant Appellate Body decision on this provision with respect to protectionist measures taken by developed nations. This case involved a trade ban by US on imported shrimps from countries that did not necessity their fishermen to harvest shrimps using methods that were not dangerous for endangered sea turtles. The Appellate Body stated that the measure was reasonably related to the end purpose of protecting sea turtles. This decision also gave extraterritorial scope to this provision by applying to domestic resources as well as
10

Id 172. The Appellate Body had developed the flexible test for necessity in the case of Appellate Body Report, Korea- Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, (Jan. 10, 2001). 11 GATT Art. XX (g): Relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption. 12 Panel Report, Canada- Measures Affecting Unprocessed Herring and Salmon, L/6268 - 35S/98,

Mar. 22, 1988.

13

Appellate Body Report, United States- Standard for Reformulated and Conventional Gasoline, WT/DS2/AB/R (May 20-1996). 14 Id, 19. 15 Id, 20. 16 Id, 21. 17 Appellate Body Report, United States- Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R (Nov. 6, 1998).

resources outside national jurisdiction.18 The existence of lesser trade restrictive measures must be considered while determining whether an exception may apply or not. In Brazil-Retreaded Tyres case the Appellate Body has confirmed that an alternative measure cannot reasonably be expected to be taken by a State if that measure does not allow it to take the desired level of protection with respect to the policy object pursued. Therefore, it must be analyzed if the lesser trade restrictive measure will achieve the objective.19 Preventing Protectionism The chapeau of Article XX functions as a sieve that prevents the passing of disguised restrictions to international trade20 The Appellate Body, in the US-Shrimp Turtle case, held that while the ban was legitimate, US had applied the measure arbitrarily and unjustifiably, since it was imposed on countries like India, Thailand and Pakistan but, it was not imposed on other importing countries where US provided technical assistance to comply with the measure. Thereby de-novo the facts of the case were applied to make a finding on a legal issue that was not addressed by the Panel and the antidiscrimination jurisprudence was evolved.21 protectionist measures of developed countries. The purpose of the chapeau is to prevent abuse of the exceptions, and the Appellate body has interpreted the substantive provisions in light of this, so as to prevent non18

Therefore, the Appellate Body has

resorted to judicial activism to protect developing countries from arbitrary non-trade

Id, para 132-133. For examples of the effect of such a scope, see Robert Howse, Back to Court After Shrimp/Turtle? Almost but Not Quite Yet: Indias Short Lived Challenge To Labour and Environmental Exceptions in the European Unions Generalized System of Preferences, 18 A. University International Law Review 1333 (2002-2003). 19 See Sebastien Thomas, Trade and environment under WTO rules after the Appellate Body Report in Brazil-Retreated Tyres, Journal of International Commercial Law and Technology, Vol.4 Issue 1 (2009). 20 Jonathan Skinner, A Green Road to Development: Environmental Regulations and Developing Countries in the WTO, 20 Duke Environmental Law Policy Review 245 (2010), pg 255. 21 Veena Jha, Judicial Activism and the Shrimp-Turtle Case, STRENGTHENING RESEARCH AND POLICY-MAKING CAPACITY ON TRADE AND ENVIRONMENT IN DEVELOPING COUNTRIES- Draft Discussion Paper (Philippines, 2nd Workshop, Nov. 11-13, 1999), pg 4; Ari Afilalo & Shiela Foster, supra note 6; For an opinion that criticizes the decision see Robert Howse, The Appellate Body Rulings in the Shrimp Turtle Case: A New Legal Baseline for the Trade and Environment Debate, 27 Columbia Journal of Environmental Law 491 (2002).

trade protectionist measures to be cloaked under the general exception clause.22 Therefore, there exist checks to control sweeping measures designed to protect nontrade values that violate GATT obligations.23 Conclusion Under the WTO mechanism, environmental, health, labour, public morals conflicts are caused because of developing countries protests against trade restrictive conditions imposed by developed countries. It often becomes a disguised form of protectionism by the developed nations, and therefore their trade weapon. While sometimes such protectionist measures are permissible under Article XX of GATT, the abuse of power has concerned the WTO Appellate Body. It has tried to achieve a balance of interest between genuine non-trade concerns and unilateral protectionism. In good faith, a State must negotiate multilateral solutions to ensure that a measure does not become arbitrary, unreasonable and unjustifiable barrier to international trade. Sovereignty no longer remains an impenetrable wall and the decisions of the dispute settlement bodies reflect that an arbitrary, discriminatory and trade restrictive measure will be struck down.

22 23

For detailed analysis, see Jonathan Skinner, supra note 20. Id., pg 256.

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