You are on page 1of 10

The use of the exceptions provided for in the GATT Treaty of 1947, which were adopted

in their entirety into the GATT Treaty of 1994 have been the subject of a considerable
degee of controversy. The exceptions provide an exhaustive list of ten circumstances in
which a contracting party to the Treaty may deviate from the terms of the rest of the
Treaty. These ten circumstances are circumscribed by a description of their use in the
chapeau of the Article.

The purpose of this essay is to examine the extent to which Article XX is sufficient to
allow for the exercise of legitimate regulatory action on the part of a WTO member. To
do this, it will examine the various pillars on which legitimacy can be based, before then
looking at various cases, particular Shrimp Turtle and Cigarettes, in order to assess the
practical experience of the use of Article XX.

Article XX

It is clear that it would be impractical and unacceptable for sovereign states to place free
trade above all other policy concerns and to grant the WTO dispute resolution system
the absolute power in domestic policy-making. The purpose of Article XX is therefore a
sort of negotiated reservation taken by all parties to the Treaty, in order to protect their
sovereign rights in an exhaustive list of ten policy areas.

The text of Article 20 appears to offer significant room for manoeuvre for members,
cognisant of the fact that an exception that was too lenient would both undermine the
value of the WTO for:

a. the member itself (by increasing the possibility of sectoral interests being able to
influence it’s decision making through pressure to avail of Article XX for purposes
of protectionism rather than legitimate policy goals) and
b. all other Members, whose negotiated rights in their dealings with the member in
question would be undermined.

Ratification and respect of the GATT Treaty can be seen as a regulatory action taken by
its signatories and, consequently, overly broad exceptions would limit the exercise of
legitimate regulatory action of Members, just as overly narrow exceptions would.

There are three sets of limitations on the exceptions. Firstly, there is the inherent limit
set by having an exhaustive list of types of exception. Secondly, there are the restrictions
contained in the lettered paragraphs themselves (the measures have to be “necessary”
in a, b and d, for example). Thirdly, the chapeau explains that the measures have to be
neither “arbitrary” nor “unjustifiable”, nor a “disguised restriction on international trade”.

Bearing in mind the purpose of the Treaty is to facilitate trade, all of these restrictions are
not alone reasonable, but essential, and therefore there appears to be little doubt, purely
textually speaking, that there is nothing in Article XX which would, following “the ordinary
meaning”1 of Article 20 would prevent the exercise of legitimate regulatory action on the
1
Article 31.1 of the Vienna Convention on Treaties
part of a WTO member, at least insofar as the ten items in the lettered paragraphs are
concerned. Indeed, an Article XX which permitted any of the types of measures
forbidden in the chapeau, would undermine the legitimate action of signing the
Agreement in the first instance. This is why, looking at the text of the Treaty, that
although it is possibly incorrect to assert (see two examples below) that “the WTO gives
great latitude to members to restrict trade to protect the environment”2, it is certainly true
that the GATT gives the WTO the possibility of giving adequate latitude.

From a perspective of democratic legitimacy, the WTO and its dispute resolution system
moves power to a level that is visibly further away from citizens, meaning that particular
effort and sensitivity in interpreting Article XX is necessary maintain a reasonable degree
of popular legitimacy.

Generally, to assess the room for “legitimate” action, we need to understand this as
legitimacy based either on democratic control, effective action or expertise.

Inherent problems

The first and most obvious problem with Article XX is that its list of exceptions is
exhaustive and was created over half a century ago. Some priorities, such as
environmental and consumer protection, that have grown in importance since the list
was drawn up are not as prominent as they probably would be if the list were drawn up
today. The result is that the dispute resolution panels and appellate body (AB) can either
restrict possibly legitimate actions of governments (as in the Hormone Beef case) or
indulge in judicial activism, by interpreting the text in ways which were not foreseen by
the drafters (as in Shrimp/Turtle where sea turtles were considered as an “exhaustible
national resource” in order to fit with the list of exceptions). The former option
undermines the legitimate decision-making of national governments, while the latter
undermines the legitimacy of the dispute resolution process, as it makes it more political
but not more accountable. The criticism that “to find evidence of extratextual agreement,
the Appellate Body has used an ad hoc array of interpretive tools that lead to
unpredictable results”3, is a serious one and strikes at the core of the democratic
legitimacy not just of Article XX but the entire WTO system. After all, it is difficult to find a
basis for legitimacy for the signing of a treaty where produces unpredictable results.

A second inherent problem is that the core activity of the WTO is to promote international
trade, with decisions being taken by the Panels and the AB, which are composed of
trade experts whose priority, understandably, is supporting international trade. This,
however, can lead to a very strict reading of the provisions of the Treaty generally. For
example, the Panel in EC-Asbestos4, considered non-asbestos products as “like
products” to asbestos and that the and EU ban on import of asbestos was therefore
contrary to Article III of the Treaty, leaving it to Article XX to “rescue” the regulatory
2
Oxley, A, and Osborne, K, “A Study of the Trade and Environment Issue”, The Australian APEC Study
Centre, June 2002, P. 35
3
Knox, J.H, “The Judicial Resolution of Conflicts between Trade and the Environment”, Harvard
Environmental Law Review, Volume 28, No. 1, 2004. P. 4
4
measure in question. The panel went so far as to explicitly explain that “the risk of a
product for human or animal health has never been used as a factor of comparison by
panels entrusted with applying the concept of "likeness" within the meaning of Article III”,
which, in turn, meant that, under Article III.4 of the Treaty, the ban was an unnecessary
barrier to trade. The ruling of the Panel was subsequently overturned by the AB. The
unashamed political activity (or “infectious warmongering”5 according to one critic) of the
WTO secretariat, for instance when it warned against the risks of “an eventual descent
into the chaotic trade conditions similar to those that plagued the 1930s”6 if contracting
parties were too much freedom on environmental protection certainly creates the
impression that there is a pro-trade bias when it comes to exceptions – a bias with little
either democratic or expertise-based legitimacy.

The interpretation of the “necessity” requirement in three lettered paragraphs of Article


XX raises a fundamental pro-trade bias which mitigates legitimate decision-making. Any
measure has to be – all other things being equal – the “least trade restrictive”. In other
words, if the policy in question is placed on a continuum from most to least trade
restrictive, the measures imposed by the dispute settlement bodies will be on the side
closer to “least trade restrictive”. By contrast, on a continuum from least to most
effective, the measures imposed will – assuming a legitimate decision on the part of the
defendant state, – be almost inevitably be on the side closer to “less effective”. Where
the DSU has imposed measures which could “reasonably” have been taken (as in
Thailand-Cigarettes below), there is no requirement that they be as effective, but simply
“reasonable” and less trade restrictive.

With regard to environmental problems, while it is true that “there should not be, nor
need be, any policy contradiction”7 between open, international trade on the one hand
and environmental protection (the subject of XX(b) and XX(g)) on the other,
implementation of Article XX risks creating a disparity regarding the ease of
implementation of both types of policy. Any legitimate balancing of these two priories
would normally be done through either national policies or international agreement.
From its creation in 1995 until 2001, no significant decision8 was made by the Committee
on Trade and Environment (CTE) (and little progress on the Trade and Environment
Work Programme which was adopted by the WTO in 2001). In the absence of an
agreed approach to environmental policy in the WTO, it is left to the AB to either adapt to
new environmental concerns on an ad hoc basis (without legitimacy based on either
democratic input or expertise) or stick rigidly to the 60-year-old text of Article XX, a
choice which could hardly be accepted as more legitimate. The former approach
subjects legitimate decision making by national governments to the whim of the dispute
resolution system, the latter restricts legitimate policy choices even more.

A final problem is that the dispute resolution bodies have to base their decisions on the
Treaty, limiting the range of issues which can be taken into account and thereby the
expertise that can be used. Even when, as in the Thailand-Cigarettes case (below),
5
Gaines, S, “The WTO’s Reading of the GATT Article XX Chapeau: A Disguised Restriction on Trade”,
University of Pennsylvania Journal of International Economic Law, Vol. 22, No. 4, Winter 2001, P. 752
6
Ibid, quoting GATT Secretariat, International Trade 90-91, Volume I (Part III), 1992
7
Decision on Trade and Environment – Adopted by Ministers at the meeting of the Uruguay Round Trade
Negotiations Committee, 14 April 1994
8
Matsushita, M, Schoenbaum, T and Mavroidis, P, “The World Trade Organisation. Law, Practice, and
Policy”, Oxford University Press, New York, 2002, P. 441. The Group on Environmental Measures which
preceded it was also ineffectual p having not met for over 20 years, Ibid P.448
expertise is sought from specialist bodies such as the WHO, there appears to be
institutional reticent to move away from the primordial goal of support for international
trade. So, even though the range of issues and priorities being balanced by the national
government is greater than the narrow task of interpreting the text of the GATT, little
“margin of appreciation” is given to the national government.

Thailand-Cigarettes

Thailand prohibited the import of tobacco and tobacco products through a 1966 law,
except where licences were granted. The Thai tobacco monopoly, at the time of the
Panel in 1990, had only three times imported tobacco under the act. In addition, there
were internal excise taxes, with different levels of tax for imported and domestic tobacco,
although this had been harmonised by the time of the panel. In addition, imported
tobacco was treated differently from domestic tobacco under the business and municipal
taxes regime in Thailand although this, too, had been rectified by the time of the Panel
decision. The United States brought a complaint under the WTO dispute resolution
mechanism arguing that these measures breached Article IX.1 of the Treaty. Thailand
defended itself on the basis of Article IX.2 and Article XX.b. For the purposes of this
paper, only the latter defence is relevant.

Arbitrary

In its submission to the Panel, Thailand explained9 that it had resisted bilateral pressures
under the US Trade Act and had stood firm, despite the threat that retaliatory action
posted to its $166 million market in exports to the United States. Thailand also stated 10
that its Finance Ministry had calculated that opening its market to foreign tobacco would
yield approximately $30 million in extra revenue. However, the Thai government felt that
“smoking lowered the standard of living, increased sickness” and reduced real income
and prevented an efficient use of resources, human and natural”.11

Furthermore, Thailand explained foreign tobacco manufacturers had advertised locally


despite the fact that none of their products were legally being marketed there, supporting
the notion that the tobacco industry was facilitating, at least passively, international,
organised crime. When one considers – as the Panel and AB could not – the vigour with
which the United States has fought against organised crime in the field of intellectual
property and its consistent unwillingness to impose measures on the tobacco industry to
minimise smuggling12, the complainant’s actions appear more arbitrary than the
defendant’s.

Thailand also raised concerns regarding the range of additives in American cigarettes
that either did not exist at all in Thai products or in lesser quantities. Bearing in mind
that, according to the WHO, “serious concerns about the presence in cigarettes of
9
Paragraph 35
10
11
Paragraph 21
12
A proposal (HR 1337) to impose tracking measures on the US tobacco industry has still not been
implemented – the most recent effort has been waiting for over one year
certain additives had been raised by American Health Foundation which acted as a
consultant to the Department of Health and Human Services on this issue”, a
precautionary approach on the part of the Thai authorities does not appear arbitrary.

Unjustifiable

The World Health Organisation (WHO), at Thailand’s request, made a submission on the
case. It explained that opening the market risked creating new markets, such as among
women and adolescents13. It raised particular concerns regarding marketing of tobacco
to women and that the opening of previously closed markets in Latin America and Asia
showed that the “opening of closed cigarette markets dominated by a state tobacco
monopoly resulted in an increase in smoking”. The WHO also pointed out that there
were significant differences between domestically produced cigarettes and imported
ones, which lead to more people starting to smoke.

Crucially, the WHO argued that tobacco control measures had lead to a reduction in the
male smoking rate and in the per capita consumption rate, but that “if the multinational
tobacco companies entered into the market, the poorly financed public health
programmes would be unable to compete with the marketing budgets of these
companies.[…] As a result, cigarette consumption and, in turn, death and disease
attributable to smoking will increase”.14 With a World Bank publication in 2000 pointing
out that “there are also many economic consequences of smoking on the poor, such as
reduced production and earnings, and effects on investment and consumption,
insurance, and labour”15, strict measures to combat tobacco are very much justifiable in
the context of the Preamble to GATT 1994, which recognizes that “relations in the field
of trade and economic endeavour should be conducted with a view to raising standards
of living”.

Disguised Barrier to Trade

Bearing in mind that measures were being taken by the Thai government to reduce the
amount of tobacco being both produced and consumed in Thailand, the potential for any
measures against foreign tobacco being a disguised barrier to trade appears to have
been slight. Indeed, as there was an import ban in place, all of the measures being
taken by Thailand, with the exception of the import ban, if successful, would have had
the impact of reducing demand for domestic products.

Necessary

13
The UN Convention on the Rights of the Child (ratified by Thailand in 1992) requires states parties to
have the best interests of the child as the “primary consideration” in all actions concerning children (article
3). The Panel’s judgement in this case involves UN body, expert in the subject, giving evidence that a
particular measure is in the best interests of children, with the on-UN body, non-expert on the subject then
rejecting this evidence and effectively requiring a state to contravene the UN Convention in question.
14
Paragraph 52
15
Jha, P and Chaloupka, F, “Tobacco Control in Developing Countries”, Oxford University Press, Oxford,
2000, P. 42.
Clearly, based on the three chapeau criteria, Thailand believed its action to be
“necessary”, in line with the wording of XX(b). However, the Panel decided to refer to
United States – Section 33 of the Tariff Act of 1930 (L/6439) where the Panel had said
that a measure (under XX(d) in that case)is not “necessary” “if an alternative measure
which it could reasonably be expected to employ and which is not inconsistent with other
GATT provisions is available to it”. The Panel decided that, because other measures –
such as a “complete ban on unhealthy substances”16 (sic), a ban on advertising (which
the WTO had already explained was difficult to enforce) could have been taken with
similar goals. Without any evidence that the measures that it was suggesting would
have been as effective as those proposed by the Thai government and with expert
evidence from the WHO that the measures were necessary, the Panel imposed its views
on the Thai authorities. In sum, while the Panel had the opportunity under Article XX(b)
to allow the Thai authorities a margin of appreciation to take the measures that it saw as
necessary, it did not take that opportunity.

Proof that the original meaning of the words in Article XX has not changed is provided by
the Ministerial Declaration of November 2001, where the wording of Article XX was
reaffirmed – namely that “no country should be prevented from taking measures “for the
protection of human, animal or plant life or health, or of the environment at the levels it
considers appropriate as they are not arbitrary or unjustifiable nor a disguised
restriction on trade.” 17 Therefore, insofar as the “least trade-restrictive” doctrine can be
said to be valid at all, it would only be appropriate where complete equivalence of effect
can be taken as certain.

Shrimp-Turtle

Shrimp-Turtle allows us to see the Article XX issue from another angle, as here the
defendant state imposed exactly the same measure on other countries as it had already
imposed on itself.

Faced with a decline in sea turtles, resulting in all species being classed as
“endangered”18, and with research that indicated that a significant cause of turtle deaths
was shrimp trawling, the US introduced a first voluntary and then, in 1987 compulsory
requirement for shrimp trawlers to use “turtle excluder devices” (TEDS), the most
effective method available of protecting turtles. Due to the migratory nature of the
turtles, it became necessary to take transnational action in order to protect US stocks,
resulting in “Section 609 of Public Law” being introduced. This covered a variety of
Caribbean and western Atlantic countries – giving them three years to bring their turtle
protection measures up to the US standard, with failure to do so being punishable by an
import ban, with deadlines of 1993 and 1994 depending on the type of vessel. The US
supported local efforts to bring shrimp trawling into line in the relevant countries. The
legislation was gradually adapted to make it more proportionate – for example by

16
Paragraph 77
17
Doha WTO Ministerial 2001, Ministerial Declaration adopted on 21 November 2001, WTO Document
WT/MIN(01)/DEC/1, paragraph 6
18
Under the Endangered Species Act of 1973
permitting any means which were of the same level of effectiveness and excluding
shrimp collected in a way which was not relevant to the policy goal in question.

Subsequently, in December 1995, the US Court of International Trade ruled that the
geographic restriction of Section 609 was illegal and should cover all countries. The law
was changed with immediate effect (despite an appeal from the relevant US authorities
for a transition period) in May 1996. India, Pakistan, Malaysia and Thailand brought
complaint before the WTO alleging a breach of Articles III and IX of the Treaty.

Interestingly, the parties in the case appeared to be in agreement about the need for
protection measures. India stated that “all measures that prevent sea turtles from being
killed are important”19, while Malaysia, with reference to Leatherback Turtles stated that it
would “welcome international effort to bring about a recovery of the decimated
population”.

In sum, the case was taken by the four countries although:

1. It was accepted that human activity was a primary cause in the decline in sea
turtle numbers
2. The countries bringing the case recognised the need to protect the endangered
sea turtles.
3. The TED technology was the most effective way of achieving this.
4. Over three years had passed, since the USA and the countries of the Caribbean
and western Atlantic had taken action, meaning that – had they been so minded
– the complaining countries had more time than the others to impose appropriate
measures.
5. Thailand, while disagreeing with the US regarding the cost of implementing
TEDs, had already implemented a TED programme by the time of the Panel
hearing.20

One has to wonder the extent to which, in these circumstances, the inaction of the
complainant countries was “unjustifiable” or “arbitrary” and, indeed, creating a distortion
of international trade through not applying norms which were widely implemented.
However, generally speaking, such factors are outside the narrow scope of factors that
the dispute resolution body can take into account. The complaining countries had taken
legitimate action of their own to deal with a recognised problem, but could nonetheless
subject the US to “locating and marking out a line of equilibrium between the right of a
Member to invoke an exception under Article XX and the rights of the other Members”.21
The imbalance between the comparative “safety” in the WTO of illegitimate (based on
the complaining countries own assessment of the need for measures to protect turtles)
inaction, compared with the problems which the US brought upon itself when taking
legitimate (or at least justifiable) action indicates the need for the DSB to apply Article XX
in a liberal way, in order to redress the balance. Failure to do this will result both in

19
Paragraph 5.301 of the panel report
20
Gaines, S, Op cit, P 761
21
Gaines, S, Op cit, P 775
active restrictions, by the DSB, of legitimate policy action and passive restrictions, where
WTO signatories will restrict their legitimate policy choices to avoid WTO disputes. The
outcome of this case creates the fear that both of these restrictions are indeed created
by cases such as this one.

Arbitrary

Insofar as the complaining countries had, from one point of view,22 a shorter transition
period than the countries originally covered by Section 609, and had received support
from the US, there were grounds for holding that the measure what arbitrary and
discriminatory. However, this factor was not key in either the complaint nor the
subsequent Panel and AB rulings.

Unjustifiable

The fact that the chapeau specifically prohibits unjustifiable discrimination, “implicitly
allows discrimination in the application of a measure if there are circumstances or
factors that provide some regular and predictable (i.e. non arbitrary) basis for its
discriminatory effect or support a plausible explanation for the discrimination).” Bearing
in mind the unwillingness of the countries involved to take the most effective measure
available to them (TEDs), despite their acknowledgement of the problem and the need to
address it, the action taken by the US appears eminently justifiable. This justifiability is
strengthened further by the fact that the measure was not “a simple, blanket prohibition
[…] imposed without regard to the consequences (or lack thereof) of the mode of
harvesting”.23

However, the AB was not convinced that the policy goal and the justifiability of the
measure are necessarily linked, stating that “[t]he policy goal of a measure at issue
cannot provide its rationale or justification under the standards of the chapeau of Article
XX”24 As Gaines points out, “if the policy goal of the measure cannot be the reference
point for justifiability of discrimination, what can be?”.25 This reasoning becomes even
more difficult to understand when we see that the AB complained that “discrimination
occurs […] when the application of the measure does not allow for any inquiry into the
appropriateness of the regulatory program for the conditions prevalent in those exporting
countries”26. This point deserves to be stressed - the AB considered that the US
measures did not allow for any enquiry in to appropriateness even though the required
simply a broadly equivalent level of protection as that in the US (although it only
considered TEDs capable of achieving this, a contention that was not opposed), did not
cover areas where turtles were absent, did not cover farmed shrimp and was
successfully implemented in a wide range of countries from Mexico to Brazil to the
Caribbean.

22
There is a reasonable counter-argument that they had a longer implementation period overall.
23
AB Report Paragraph 109
24
Paragraph 149 of the AB Judgment
25
Gaines, Op cit, P. 777
26
AB Report, Paragraph 165
Some form of difference in conditions between the US and the complaining nations
would have been necessary for a coherent judgment that the US actions were
discriminatory, and not such difference was described in the Panel or AB reports. At the
very least, some form of bad faith on the part of the US would have been necessary.

Decision

Assessing the US defence under Article XX(g), the Panel and AB “generously” decided
that turtles were an exhaustible natural resource and that the measures were related to
their conservation. However, as mentioned earlier, it is unlikely that such an
interpretation was envisaged by the signatories of the GATT. As there was no doubt that
the measures were “related to” conservation measures and these measures were taken
in conjunction with domestic measures, the rest of XX(g) did not pose a problem for the
US defence.

As mentioned above, the AB and Panels objected to the fact that the measure in
question did not take into account local conditions (whatever these may have been) that
prevailed locally – with the AB going so far as to say that a “measure should be
designed with sufficient flexibility to take into account the specific conditions prevailing in
any exporting member”. The AB was most damning of the “coercive effect” that the
measure was intended to have as well as the fact that the United States had not initiated
negotiations with the complaining countries – safe in their inaction, the complaining
countries were not at risk of being subjected to the same criticism..

However, “[t]he Appellate Body, and the GATT before it, have raised the coercive effect
objection to virtually every environmental measure that came before it”27 The Panel and
AB objections to the “coercive” approach and the alleged lack of flexibility of the US raise
a number of major barriers to legitimate decision making by GATT signatories.
Specifically:

1. The WTO is not equipped to decide what coercion (even if we accept that this is
what the US action was) is acceptable, bearing in mind that coercion is not
prohibited by the WTO treaties.
2. The degree of consultation demanded by the AB is entirely vague and unrelated
to anything that one can imagine the drafters of the GATT having in mind. In
addition, does not even require successful negotiations. Absurdly, a measure
can, therefore, go from being discriminatory to non-discriminatory without being
altered in any way at all.
3. When the Panels and AB are able to set arbitrary barriers (such as ill-defined
attempts at negotiation) which are unjustifiable in relation to the object and
purpose of Article XX, signatories that proactively try to take positive action on
environmental or public health issues must do so knowing that any case brought
against them could use such precedents to arbitrarily discriminate in favour of
trade and against their public policy goals. As the complainants showed in this
27
Gaines, S, Op cit, P 795
case, inaction (and the ensuing positive distortion of trade over countries that
have acted), is a safer and more profitable option.

In short, while failing to identify significant discrimination, the AB nonetheless managed


to find “unjustifiable discrimination”. If Article XX permits discrimination subject to various
restrictions and none of these restrictions are breached, a reasonable reading of Article
XX means that discrimination should be permitted. This latitude is the object and
purpose of the Article.

Conclusion

As stated at the outset, apart from the outdated nature of some of the lettered
paragraphs of Article XX and the absence of some more modern priorities, Article XX is
limits the rights of signatories as much as is reasonable to assure the object and
purpose of the Treaty as a whole.

Problems with Article XX are based heavily on the way in which it has been interpreted.
Bearing in mind the nature of the WTO as a trade body and Article XX as an exception, it
is imperative for this exception to be interpreted liberally in order to ensure that it
achieves its purpose. Where the DSU insists of substituting its views for the views of
national governments or distorting national latitude by insisting on a less trade restrictive
– but probably less effective measure (as in Thailand-cigarettes), legitimate action on
behalf of national governments is undoubtedly diminished. Similarly, the institutional
inability of the DSU to take account of the moral duties of complaining countries rather
than just their rights (as in US-shrimp) also risks having a chilling effect on positive and
legitimate action by WTO members.

One has to wonder how it is possible to move from a political intent to allow each
signatory to protect “the environment at the levels it considers appropriate”, seeking
“the optimal use of the world’s resources”28 to a situation where countries are forced to
become

A further key problem with Article XX is neatly summed up by a comment made by the
AB in the US-Reformulated Gasoline case, namely that measures taken under that
Article “must be applied, with due regard both to the legal duties of the party claiming the
exception and the legal rights of the other parties concerned”.29 In other words, faced
with an environmental, public health, moral or other imperative, the legitimate decision-
making of the party invoking Article XX is restricted by WTO obligations but also the
rights (but not the moral, legal or other obligations) of the other parties concerned.

Does Article XX… no. Does it, yes it does.

28
Preamble to the Marrakesh Agreement Establishing the World Trade Organisation”,
29
Paragraph 151