Class 7 Exceptions: The Environment Reading: pp. 489 510, GATT Art. XX DSU 21.

1.6 Trade agreements and their exceptions: GATT: Art. XX GATS: Art. XIV TRIPS: Art. 27(allow member to exclude inventions from patentability where it is necessary to protect ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment; Art. 13: copyrights; Art. 17: trademarks; Art. 30: patents

General exceptions Art. XX Reasons: acknowledge there may be higher values in policy objectives other than benefits of free trade Workers rights: theory of competitive advantage which aims at efficiency may undermine workers rights e.g. workers may move to other countries in need of cheap labor National securities Public health: setting standard of public health, access to medicine dealt with in TRIPs Environmental problem: climate change. Being able to get a comparative advantage at the expense of the environment. Examples include import restrictions based on production methods which leave a carbon footprint Human rights: prison labor, products made by trafficked labor Whether WTO has a social obligation? Sovereignty equality? Or should go for multilateral agreement instead of global governance? WTO can increase its legitimacy with its social obligation? Most important is (b) and (g) which are fair-game provisions

History Tuna/dolphin I & II Both cases were not adopted so they have no effect, but they were widely reported and provide an important background to Shrimp/turtle case. In Tuna I, US unilaterally imposed an import ban on tuna that were caught in a way that harmed the dolphin. Mexico challenged the import ban as violating Art. XI. The Panel rejected the argument by US that its measure is permitted under Art. III: 1 and 4 as the ban was non-discriminatory that its local industry was subject to the same ban. The Panel held that Art. III only permits non-discriminatory regulation of like products while the US regulations concerned the preparation methods which could not possibly affect tuna as a product. The holding was confirmed by Tuna II.

Both Art. XX (b) and (g) could not justify the import ban. Held that: (1) Necessary in Art. XX (b) requires that there must be no reasonable alternatives and that a contracting party could only use the means that is least consistent with GATT. (2) Art. XX(g) was inapplicable as relating to and in conjunction with meant primarily aimed at and a unilateral measure that forces other countries to change their conservation policies cannot satisfy primarily aimed at. (3) There is a territorial limit for the application of the exceptions in Art. XX. Although Tuna II modified the strict approach in Tuna I and allowed a country to enforce the exceptions extraterritorially; this could only be done against their own citizens or vessels abroad. The combined effect of Tuna I and II was that there could not be any kind of import ban based on process and production methods (PPMs) which could potentially harm other plants, animals, and the environment. Trade specialists have different views towards the decisions. Those against the regulation of PPMs argued that by allowing another country to have lax standard, fair competition is impeded. While those who support the regulation argued that regulation of PPMs would serve as an incentive for countries to sign on GATT. US Shrimp Turtle Case I & II The two cases considered the application of Art. XX (g). In Shrimp Turtle I, a US legislation and its guidelines unilaterally banned imports of shrimps harvested in ways that harm the sea turtles was challenged as violating Art. XI. (Note: may also be challenged as a violation of Art. III for discrimination.) It was held that the US measure could not be justified under the exception in Art. XX (g) as it constituted arbitrary and unjustifiable discrimination in the chapeau clause. In Shrimp Turtle II, Malaysia failed to challenge the amended measure based on Art. 21.5 of the DSU agreement as they were not unjustifiable nor arbitrary discrimination. Art. XX (g) 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: (g)relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption;

US Shrimp I Exhaustible natural resources is not limited to non-living natural resources but covers living things that can reproduce. Here, turtles are exhaustible because they are

internationally recognized as threatened with extinction, but this may not apply to all animals. o Note: XX: b imposes a higher standard i.e. necessary in relation to protection of animals and is not invoked. Relating to conservation of - relationship between measure at stake and the legitimate policy of conserving exhaustible natural resources by looking at the general structure and design of the measure. o Here the legitimate policy is protection of sea turtles, and there are two narrow exemptions in the regulatory guidelines: shrimps are excluded from the import ban if (1) they are caught under conditions that do not harm the turtles e.g. from farm; or (2) they are caught in countries certified by US i.e. there is no risk or very little risk of incidentally catching sea turtles in commercial trawling, or the country adopt a regulatory program comparable to that of US. The latter requirement is directly related to the policy as commercial trawling is recognized by experts as a significant cause of mortality of sea turtles. o And therefore in its general design and structure, the US measure is not a blanket measure imposed without regard to the consequences of the mode of harvesting upon the incidental capture of sea turtle. The measure is not disproportionately wide to achieve its policy of protecting the turtles, and is reasonably related to the ends. If such measures are made effective in conjunction with restrictions on domestic production or consumption even-handedness. Here the local shrimp harvesting industry may be subject to civil and criminal liability if they do not use the specific mode of harvesting under regulations that have been enforced. Chapeau Unjustifiable discrimination is a substantive test while arbitrary is a procedural requirement. Note: disguised restriction on trade was not considered in both cases, a system similar to that in the Korea Beef case will probably satisfy this requirement but presumably the requirements are the same

unjustifiable discrimination: o Shrimp I: Intended and actual effect was to coerce the others to adopt essentially the same measure without consideration of individual circumstances of the countries; o Shrimp I: Failed to negotiate with other countries for agreement in protecting sea turtles while the species is highly migratory and international cooperation is required for preservation;

o Concluded agreement with some countries but not the others indicates feasibility of a less drastic method than import ban; o Imposed a more onerous burden on some countries by mandating a shorter phase-in period for complying with the US measure; o Differential levels of effort in transferring the technology required for certification Arbitrary discrimination (para. 177, p.501) o inflexible and rigid requirement without consideration of individual conditions, both in the measure itself and in decision-making process of officials o Lack of transparency and procedural fairness (i.e. no formal notice for denial of certification, nor a review procedure) as required by Art. X: 3 GATT US Shrimp II Unjustifiable or arbitrary discrimination o Unilateral conditions upon market access is justifiable if there was serious good faith efforts in making comparable negotiations with the exporting countries, and the conditions allow sufficient flexibility for individual conditions in any member to be taken into account, specific consideration for every member is not required o Nor is conclusion of legally binding agreement required. Serious good faith efforts in making comparable negotiations suffice and is to be assessed by comparing efforts made in negotiation e.g. active participation, amount of financial resources US Gasoline Facts. USs guideline concerning refineries to comply with certain gas composition requirements discriminated against foreign refineries and was challenged under Art. III for violating the National Treatment Principle. Art. XX (g) was satisfied but the measure did not pass the chapeau requirements. Ways to justify restrictions on PPMs (1) GATT Art. III: that the restrictions were applied even-handedly to local industry and were not imposed to afford domestic protection, but rejected in Tuna I and II as Art. III concerns restrictions on products but not PPMs; (2) GATT Art. XX exception as in US Shrimp/turtle: satisfy elements of individual provisions + chapeau i.e. not unjustifiable nor arbitrary discrimination. Note: US Shrimp may still be subject to territorial limit in Tuna I & II i.e. can impose policy extraterritorially through an import measure of a product even if the policy is not specifically related to that product; but cannot impose policy extraterritorially as it would be unjustifiable or arbitrary to coerce other

countries to adopt essentially the same measure without considerations of their own circumstances; (3) The Agreement on Technical Barriers to Trade (TBT), dealing with health and safety standards, and the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS), dealing with food safety, permitted countries to ban import based on PPMs which directly relates to the characteristics of the product itself, e.g. use of growth hormones leaving residues in beef is prohibited, but PPMs such as those in the Tuna cases are not covered as the PPM harmed dolphins which does not affect the characteristics of tuna. These PPMs are subject to US Shrimp/Turtle ruling. Problem 9 -1 Tuna is an exhaustible resource Related to conservation Total ban: get pass specific provision? Unjustifiable or arbitrary/disguised restriction? Easier to get pass the chapeau Identical measure?

Problem 9-2 Ban violates Art. XI Cannot sell meats unless killed in certain wayPPM measure violates Art. III National Treatment, though it is applied to domestic industry too Exceptions: o Art. XX (g): Animal =/= exhaustible, stronger argument if internationally recognized as threatened with extinction: US Shrimp I o Art. XX (b): not applicable as it is not protecting them, just specify o Art. XX (a): most likely related to public moral issue o Problem under chapeau : unjustifiable and arbitrary as it intended to coerce other countries to adopt its own policy without consideration of their individual circumstances, and it was a unilateral measure without negotiation. That agreement is only concluded with some countries is also considered in but does not necessarily lead to a finding of discrimination provided that there has been serious good faith efforts made in negotiations. Multilateral agreement is favored by WTO panels but is not necessary. o Public moral is probably a subjective standard (as is national security), so deference is given to a particular country. However, countries still need to use reasonable effort to negotiate. o A mandatory labeling scheme is likely to be a government measure. But whether a voluntary labeling scheme permitted by the government is a government measure is debatable. C.f. Japanese Film case